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 MARCH 30, 2003
[ ] 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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The number of shares outstanding of the issuer's classes of common stock as
of the close of business on March 30, 2003:

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)

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 29, 2002. 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 financial statements should be read in
conjunction with the financial statements in the company's Annual Report on Form
10-K for the year ended December 29, 2002. 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 loss reported for the three months ended March 30,
2003, approximately 0.9 million common equivalent shares 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 was not included in the
computation of net loss for the three months ended March 30, 2003 and March 31,
2002, and 6.7 million potential common shares were not included in the
computation of diluted earnings per share as of March 30, 2003 and March 31,
2002 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 -- STOCK BASED COMPENSATION

The Company has certain stock option plans. The Company accounts for those
plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. The following table illustrates the effect on net
income and net income per common share as if the company applied the fair value
based method of SFAS No. 123, Accounting for Stock-Based Compensation, to record
expense for stock option compensation.

The following table illustrates the effect on net income and earnings per
share as if the fair value based method had been applied to all outstanding and
unvested awards in each period.

The weighted average fair value of options granted was $11.47 in the first
quarter of 2003, and $23.36 in the first quarter of 2002. The fair value of each
option grant for the Company's plans is estimated on the date of the grant using
the Black-Scholes option pricing model, with the following weighted average
assumptions.

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
performs an annual test during the fourth quarter for impairment of these
assets.

7

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of acquired intangible assets as of March 30, 2003 is as follows:

The carrying amount of goodwill by reporting unit for the quarter ended
March 30, 2003 is as follows:

During the quarter, there were no changes to the carrying amount of
goodwill due to acquisitions. The annual test for impairment of goodwill as
required by SFAS No. 142 was completed during the fourth quarter of 2002. 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.

The estimated amortization expense for the remainder of Fiscal 2003 and for
each of the five succeeding fiscal years is as follows:

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 Logic and Memory Products Group ("Logic and Memory").

The Company has determined that its Optoelectronics Group does not meet the
threshold for a separate reportable segment under SFAS No. 131, and accordingly
this segment's results are included as part of the

8

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"Other" category for all periods presented. Similarly, the Company's contract
manufacturing business is not a separate reportable segment and its results are
also recorded in the "Other" category.

Selected operating segment financial information for the three months ended
March 30, 2003 and March 31, 2002 is as follows:

NOTE 8 -- RESTRUCTURING AND IMPAIRMENTS

During the three months ended March 30, 2003, the Company recorded a
pre-tax restructuring charge of $10.4 million. The restructuring charge
consisted of $5.7 million of employee separation costs relating to severance and
other costs associated with approximately 190 salaried and hourly employees
severed in the United States primarily as part of the 6" fab closure in
Mountaintop, Pennsylvania as well as other workforce reductions. The remaining
$4.7 million of restructuring charges relate to asset write-offs, environmental
costs, and other charges associated with the 6" fab closure in Mountaintop,
Pennsylvania as well as asset write-offs primarily associated with the closure
of our Carlsbad, California office. In addition, the Company recorded a pre-tax
charge of $2.2 million of additional distributor reserves in connection with the
6" fab closure.

During the three months ended March 31, 2002, the Company recorded a
pre-tax restructuring charge of $3.6 million. 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.

9

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the activity in the Company's accrual for
restructuring and impairment costs for the three months ended March 30, 2003 (in
millions):

Accrual balance as of December 29, 2002..................... $ 4.1
Accrual................................................... 10.4
Cash payments............................................. (3.7)
Non-cash items............................................ (2.7)
-----
Accrual balance as of March 30, 2003........................ $ 8.1
=====

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

NOTE 9 -- 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 three months ended March 30, 2003. No cash flow hedges were
derecognized or discontinued for the three months ended March 30, 2003.

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 $0.5 million of net unrealized
derivative loss included in OCI will be reclassified into earnings within the
next twelve months.

NOTE 10 -- 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.

10

CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)

11

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

12

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)

13

CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)

14

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)

15

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)

16

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

UNLESS OTHERWISE INDICATED, REFERENCES IN THIS DISCUSSION AND ANALYSIS TO "WE,"
"OUR," THE "COMPANY," "FAIRCHILD," AND "FAIRCHILD INTERNATIONAL' REFER TO
FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND ITS CONSOLIDATED SUBSIDIARIES,
INCLUDING FAIRCHILD SEMICONDUCTOR CORPORATION, OUR PRINCIPAL OPERATING
SUBSIDIARY. WE REFER TO INDIVIDUAL CORPORATIONS WHERE APPROPRIATE. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS IN THIS
REPORT. SEE "FORWARD-LOOKING STATEMENTS," "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 are a global company that designs, develops
and markets analog, interface, discrete, standard logic, non-volatile memory and
optoelectronic semiconductors. Within our broad product portfolio, we focus on
providing power discrete and analog products for power management applications
and interface products for system and circuit board interconnect applications.
Over two-thirds of our sales in the first three months of 2003 were from power
discrete and analog products used directly in power applications such as voltage
conversion, power regulation, power distribution and power and battery
management. We believe that we are 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 help to 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.

RESULTS OF OPERATIONS

On a segment basis, Analog had an operating loss of $0.2 million for the
first quarter of 2003, compared to operating income of $9.6 million in the
comparable period of 2002. The decrease in Analog's operating income was due to
a decrease in average selling prices on higher unit volumes offset by decreases
in selling, general and administrative expenses as a result of our workforce
reduction actions in this area. Discrete had operating income of $15.6 million
in the first quarter of 2003, compared to $13.1 million in the comparable period
of 2002. The increase in Discrete's operating income was primarily due to an
increase in gross margins due to higher unit volumes and improved factory
utilization. This increase was partially offset by $2.2 million in distributor
reserves associated with the 6" Mountaintop, Pennsylvania fab closure. Logic and
Memory's operating income was flat at $0.4 million for Q1 of 2003 and 2002,
respectively. Lower gross margins were offset by lower research and development
and selling, general and administrative expenses.

REVENUES

Revenues were $351.1 million in the first quarter of 2003, compared to
$336.9 million in the comparable period of 2002. The increase in revenues was
driven primarily by higher Discrete revenues and higher non-segment revenues
driven by increased sales of LED's in our Optoelectronics business. On a segment
basis, Analog revenues increased 1.3% to $84.2 million in the first quarter of
2003, from $83.1 million in the comparable period of 2002. During the quarter,
increased unit volumes were offset by lower average selling prices. Discrete
revenues increased 6.0% to $189.5 million in the first quarter of 2003, compared
to $178.8 million in the comparable period of 2002. The increase is the result
of the continued growth of power MOSFET's into virtually all end markets. These
increases were offset by $2.2 million of distributor reserves associated with
the 6" Mountaintop, Pennsylvania fab closure. Logic and Memory revenues
decreased by 8.9% to $46.0 million in the first quarter of 2003, from $50.5
million in the comparable period of 2002. The decreases were due to lower unit
volumes coupled with lower average selling prices, across all end markets.
17

As a percentage of sales, geographic sales for North America, Europe,
Asia/Pacific (which for our geographic reporting purposes excludes Korea) and
Korea were as follows for the three months ended March 30, 2003 and March 31,
2002:

GROSS PROFIT

Gross profit was $77.5 million, or 22.1% in the first quarter of 2003,
compared to $79.6 million, or 23.6% in the first quarter of 2002. Gross profit
includes the previously discussed distributor sales reserves in connection with
the 6" fab closure ($2.2 million), which contributed (0.5%) to gross profit. The
remaining decrease in gross profit for the first quarter of 2003 compared to the
first quarter of 2002 was a result of increased pricing pressures across all
product lines, offset by higher unit volumes.

RESEARCH AND DEVELOPMENT

R&D expenses were $19.1 million, or 5.4% of sales, in the first quarter of
2003, compared to $20.7 million, or 6.1% of sales, in the first quarter of 2002.
The decrease in the first quarter of 2003 was due to spending reductions in
response to softer market conditions.

SELLING, GENERAL AND ADMINISTRATIVE

SG&A was $39.2 million, or 11.2% of sales, in the first quarter of 2003,
compared to $34.5 million, or 10.2% of sales, in the first quarter of 2002. The
increase in the first quarter of 2003 is a result of higher selling expenses
driven by higher sales, and higher payroll related costs due to resumption of
certain benefits in 2003.

AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES

Amortization of acquisition-related intangibles was $9.5 million in the
first quarter of 2003, compared to $9.3 million in the first quarter of 2002.

PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT

Purchased in-process research and development was recorded in the first
quarter of 2002 in connection with our acquisitions of certain assets from
I-Cube, Inc. ($1.0 million) and Signal Processing Technologies, Inc. (SPT) ($0.7
million).

RESTRUCTURING AND IMPAIRMENTS

Restructuring and impairments in the first quarter of 2003 include $5.7
million of employee separation costs associated with the closure of the 6" fab
in Mountaintop, Pennsylvania and other workforce reduction actions and $4.7
million of charges relating to asset write-offs, environmental costs, and other
costs associated with the closure of the 6" fab in Mountaintop, Pennsylvania as
well as asset write-offs associated primarily with the closure of our Carlsbad,
California office. Restructuring and impairments in the first quarter of 2002
include $3.6 million associated with workforce reduction actions.

18

INTEREST EXPENSE

Interest expense was $20.9 million in the first quarter of 2003, compared
to $28.6 million in the comparable period of 2002. The decrease in interest
expense in the first quarter of 2003 was principally the result of the
redemption of $285.0 million of 10 1/8% senior subordinated notes on June 28,
2002.

INTEREST INCOME

Interest income was $2.5 million in the first quarter of 2003 and 2002,
respectively. Interest income was flat due to lower interest rates on higher
average cash balances.

OTHER INCOME

In the first quarter of 2002, we recorded a gain of $20.5 million related
to the sale of our military and space-related discrete power product line.

INCOME TAXES

Income tax provision (benefit) was $(1.5) for the first quarter of 2003,
compared to $1.5 million for the first quarter of 2002. The effective tax rate
for the first quarter of 2003 was 8%, compared to 36% for the first quarter of
2002. The decrease in the effective tax rate was due to the changes in the
magnitude and composition of taxable income by taxing jurisdiction composing
consolidated taxable income. The tax rate was calculated based upon actual tax
rates for the quarter rather than using a projected annual tax rate due to the
uncertainty of projecting annual taxable income by tax jurisdiction. Changes in
the location of taxable income (loss) could result in significant changes in the
effective tax rate.

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 March 30, 2003, adjusted for outstanding letters
of credit, we had up to $299.2 million available under this senior credit
facility. At March 30, 2003, 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 also include financial ratios such as a minimum interest coverage ratio
and a maximum senior leverage ratio. At March 30, 2003, the company was in
compliance with these covenants. 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 $140 to $150 million in 2003 on capital expenditures, including
the $28.8 million we have spent through March 30, 2003. 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 to
add capacity in our 8" Mountaintop,
19

Pennsylvania facility, to support cost reduction projects in our manufacturing
facilities and information technology infrastructure projects. 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.

As of March 30, 2003, our cash and cash equivalents were $599.9 million, a
decrease of $18.4 million from December 29, 2002.

During the first quarter of 2003, our operations provided $40.5 million in
cash compared to $1.0 million of cash in the first quarter of 2002. The increase
in cash provided by operating activities reflects an increase in the first
quarter of 2003 in net income (loss) adjusted for non-cash items of $3.6 million
and an increase in cash flows from changes in operating assets and liabilities
of $35.9 million as compared to the first quarter of 2002. Cash used in
investing activities during the first quarter of 2003 totaled $58.3 million,
compared to $2.3 million provided in the first quarter of 2002. The decrease
primarily results from a net cash outflow for purchases of long-term marketable
securities of $48.8 million in the first quarter of 2003, and net cash acquired
from acquisitions and divestitures of $24.6 million in the first quarter of
2002, for which there is no comparable amount in the first quarter of 2003. Cash
used in financing activities of $0.6 million for the first quarter of 2003 was
primarily the repayment of long-term debt and the purchase of treasury stock,
offset by the proceeds from the issuance of common stock and exercise of stock
options. Cash provided by financing activities of $5.1 million for the first
quarter of 2002 was primarily from proceeds from the issuance of common stock
upon the exercise of options.

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 March 30, 2003, obligations under these
arrangements were not material to our consolidated financial statements. The
table

20

below summarizes aggregate maturities of long-term debt, future minimum lease
payments under noncancelable operating leases, and guarantee commitments as of
March 30, 2003.

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 sole subsidiary, Fairchild
Semiconductor Corporation. Fairchild Semiconductor International on a
stand-alone basis had no cash flow from operations in the first three months of
2003, nor in the first three months of 2002. 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, sales reserves, inventory valuation, the impairment of long-lived
assets and income taxes. 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 revenue recognition,
sales reserves, inventory valuation, impairment of long-lived assets and income
taxes. 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 judgments or utilized
different estimates.

Revenue Recognition. 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. 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

21

call for reimbursement of product scrapped or reimbursement of price changes
that affect the distributor's inventory carrying value. Historically, we have
not experienced material differences between our estimated sales reserves and
actual results.

Inventory Valuation. 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. Once established, write-downs of inventory are considered
permanent adjustments to the cost basis of inventory.

Impairment of Long-Lived Assets. We assess the impairment of long-lived
assets, including goodwill, on an ongoing basis and whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.

In conjunction with the implementation of the new accounting rules for
goodwill as of the beginning of 2002, we completed a goodwill impairment review
for the reporting units that have goodwill associated with them. We also
performed an annually required review during the fourth quarter of 2002, and in
both reviews we found no impairment.

We will perform a similar review annually, or more frequently, if
indicators of potential impairment arise. Our impairment review process is based
upon a discounted cash flow analysis, which uses our estimates of revenues,
driven by market growth rates and estimated costs, as well as utilizing a
discount rate determined by our management to be commensurate with our cost of
capital and the risk inherent in our current business model.

For all other long-lived assets, our impairment review process is 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 and

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

Recoverability of assets that will continue to be used in our operations is
measured by comparing the carrying value to the future undiscounted cash flows.
Future undiscounted cash flows include estimates of future revenues, driven by
market growth rates, and estimated future costs.

Income Taxes. We estimate our income tax provision in each of the
jurisdictions in which we operate, including estimating exposures related to
examinations by taxing authorities. We must also make judgments regarding the
realizability of deferred tax assets. The carrying value of our net deferred tax
asset is based on our belief that it is more likely than not that we will
generate sufficient future taxable income in certain jurisdictions to realize
these deferred tax assets. A valuation allowance has been established for
deferred tax assets which we do not believe meet the more likely than not
criteria established by SFAS No. 109, "Accounting for Income Taxes." Our
judgments regarding future taxable income may change due to changes in market
conditions, changes in tax laws, or other factors. If our assumptions and
consequently our estimates, change in the future, the valuation allowances we
have established may be increased, resulting in increased income tax expense.
Conversely, if we are ultimately able to utilize all or a portion of the
deferred tax assets for which a valuation allowance has been provided, the
related portion of the valuation allowance will be released to income as a
credit to income tax expense.

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,"
"approxi-
22

mately," "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 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.

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 April 17, 2003
press release announcing first 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 second quarter of 2003 will be from June 14, 2003 to July
17, 2003, when we plan to release our second quarter 2003 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 second quarter of 2003 to be roughly flat
sequentially. We entered the quarter with about 70% of our guided revenue
already on backlog. We anticipate continued pricing pressures, and expect to
offset them by additional planned manufacturing and operating spending cuts.

We expect interest expense, net, to be flat from the first quarter of 2003.
We expect that depreciation and amortization will increase $1 to $2 million and
amortization of acquisition-related intangibles to decrease to approximately
$7.9 million for the second quarter of 2003. Finally, we expect an outstanding
diluted share count of approximately 119 million shares for the second quarter
of 2003.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In December 2002, Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of SFAS No. 123 ("SFAS No. 148"), was issued. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of SFAS 123 to require prominent disclosures
in not only annual, but also interim financial statements about the effect the
fair value method would have had on reported results. The transition and annual
disclosure

23

requirements of SFAS No. 148 are effective for fiscal years ending after
December 15, 2002. The interim disclosure requirements are effective for interim
periods beginning after December 15, 2002. The company intends to continue to
account for options under ABP Opinion No. 25.

In November 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an
Interpretation of FASB No. 5, 57, and 107 and Rescission of FASB Interpretation
No. 34, ("FIN No. 45") was issued. FIN No. 45 clarifies requirements relating to
the guarantor's accounting for, and disclosure of, the issuance of certain types
of guarantees. FIN No. 45 requires that upon issuance of a guarantee, companies
recognize a liability for the fair value of the obligation it assumes under that
guarantee. The company has adopted the annual disclosure provisions of FIN No.
45 in the year ended December 29, 2002 consolidated financial statements. The
company adopted the provisions for initial recognition and measurement and
interim disclosures during the first quarter of 2003. The adoption of FIN No. 45
did not have a material effect on the consolidated financial statements.

In November 2002, the Task Force reached a consensus on EITF Issue No.
00-21, Revenue Arrangements with Multiple Deliverables ("Issue No. 00-21").
Issue 00-21 addresses when an arrangement with multiple deliverables should be
divided into separate units of accounting. This consensus is effective for
fiscal years beginning after June 15, 2003. We do not believe the impact of
adopting EITF Issue No 00-21 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"). 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 adopted SFAS No. 146 during the first quarter of 2003. The
implementation of SFAS No. 146 did not have a material impact on our financial
condition or results of operations; however, it will impact the timing of
recognition of activity costs.

In April 2002 the FASB issued SFAS No. 145, Rescission of FASB Statement
No's. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections ("SFAS No. 145"), 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. The impact of adopting SFAS No. 145 did not have a
material impact on our financial statements.

In August of 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143"), which addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and for the associated retirement costs. SFAS No. 143, which
applies to all entities that have a legal obligation associated with the
retirement of a tangible long-lived asset, is effective for fiscal years
beginning after June 15, 2002. The implementation of SFAS No. 143 did not have a
material impact on our financial condition or results of operations.

24

BUSINESS RISKS

Our business is subject to a number of risks and uncertainties. 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. Beginning in the
fourth quarter of 2000 and continuing through most of 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. Although we
believe the trough of this most recent cycle occurred in the third quarter of
2001, the semiconductor industry has yet to begin a significant recovery. 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. For example, in 2002, we sold
approximately 7% more units than in 2001, yet our revenues were essentially
unchanged. 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 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. Many of our competitors are
larger, older and well established international companies with greater
engineering and research and development resources than us. A fundamental shift
in technologies in our product markets that we fail to identify or capitalize on
relative to our competitors 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 or using 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 you 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 countries.

25

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 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 SOME 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 intellectual property infringement and litigation regarding patent
and other intellectual property rights. These claims relate both to products and
manufacturing processes. Even though we maintain procedures to avoid infringing
others' rights as part of our product and process development efforts, we cannot
assure you that we will be successful, or that others will agree that our
products are non-infringing. We receive direct and indirect claims of
intellectual property infringement (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 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 manufacturing 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 of various sizes 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
costs of acquiring and integrating related businesses, or our failure to
integrate them successfully into our existing businesses, could

26

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.

If we 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, customers or suppliers 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 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 rigorous quality 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, AUK, Enoch, Wooseok, SPS, NS
Electronics (Bangkok) Ltd., Samsung Electronics, and ChipPAC. 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 the second quarter of 2003, we expect
to

27

begin production at a new assembly and test facility in Suzhou, China. We will
be transferring production from subcontractors to this new facility. 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 completing transitions to new manufacturing processes at
existing facilities. As a consequence, we have suffered delays in product
deliveries or reduced yields.

We may experience delays or problems in bringing the new Suzhou factory or
other new manufacturing capacity to full production. Such delays, as well as
possible problems in achieving acceptable yields, or product delivery delays
relating to existing or planned new capacity could result from, 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 sales for the three months ended
March 30, 2003. Our top five distributors worldwide accounted for 16% of our net
sales for the three months ended March 30, 2003. 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.

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
switching 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 approximately 16 billion
individual semiconductor devices 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

28

customers from their customers), we may face claims for damages that are
disproportionate to the revenues and profits we receive from the products
involved. 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.
Nevertheless, we 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 are constructing another facility in China. We have sales offices
and customers around the world. Almost three-quarters of our revenues in 2002
were from Asia. 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.

THE POWER DEVICE BUSINESS SUBJECTS OUR COMPANY TO RISKS INHERENT IN DOING
BUSINESS IN KOREA, INCLUDING POLITICAL RISK, LABOR 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 there. Korea accounted for 22% of our revenue for the first
quarter of 2003.

Relations between South Korea and North Korea have been tense over most of
South Korea's history, and recent concerns over North Korea's nuclear capability
have created a global security issue that may adversely affect Korean business
and economic conditions. 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. And, in addition to other risks disclosed
relating to international operations, some businesses in South Korea are subject
to labor unrest.

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
preferred vendor to affiliated Samsung companies and other services. Although
most of these
29

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 approximately 11%
of total sales during the first three months of 2003. Any material reduction in
the purchases of Samsung Electronics could have a material adverse effect on our
results of operations.

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 the second
quarter of 2003. Although we expect a significant portion of our production from
this new facility will be exported out of China, especially initially, 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.

OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH SEVERE ACQUIRED
RESPIRATORY SYNDROME (SARS), INCLUDING THE RISKS OF REDUCED DEMAND FOR OUR
PRODUCTS AND THE RISK OF REDUCED PRODUCTION CAPACITY.

As described above, we operate a facility in Wuxi, China and are in the
process of constructing a new assembly and test facility in Suzhou, China, near
Shanghai. Our sales headquarters for the Asia Pacific region is located in Hong
Kong and we also have significant facilities in Malaysia, the Philippines and
South Korea and sales and administrative offices in Beijing, Shanghai, and
Shenzhen, China as well as in Tokyo, Singapore and Taiwan. We are continuing to
monitor the risks we face as a result of Severe Acquired Respiratory Syndrome
(SARS). Although to date we have not observed a material impact on our bookings
or results of
30

operations, we have restricted employee travel as a result of SARS, resulting in
reduced direct contacts with customers. SARS, its actual and perceived effects,
and the general economic and other disruptions caused by SARS may lead to
reduced demand for our products in China and the rest of Asia. In the first
quarter of 2003 the Asian region, including Korea, accounted for 74% of our
revenue. In addition, a SARS outbreak in one of our manufacturing facilities or
the facility of a supplier could have an adverse effect on our operations if we
did not address the lost production capacity that would result.

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, particularly in the "up" portions of our business cycle, when
competitors may try to recruit our most valuable technical employees. There can
be no assurance that we will be able to retain our current personnel or recruit
the key personnel we require.

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 March 30, 2003, affiliates of Citigroup Inc., and our directors and
executive officers together owned approximately 15% of the outstanding shares of
our Class A Common Stock (not including shares underlying options held by our
directors and executive officers). By virtue of such stock ownership, these
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 detrimental 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 March 30, 2003, we had total long-term debt of $852.8 million and a
ratio of debt to equity of approximately 0.7 to 1.

31

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 and amounts are drawn against the senior credit facility,
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 March 30, 2003, adjusted for outstanding letters of credit, we
had up to $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.

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.

32

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. As of March 30, 2003, we were in compliance with
these ratios. 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 29, 2002 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 37 of the 10-K.

ITEM 4. CONTROLS AND PROCEDURES

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

33

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 January 21, 2003, we filed a current report on Form 8-K relating to
financial information for the three and twelve months ended December 29, 2002
and forward-looking statements relating to the first quarter of 2003 as
announced in a press release issued January 16, 2003. The press release is
incorporated in, and filed as an exhibit to, the current report.

On March 4, 2003, we filed a current report on Form 8-K relating to the
update of our forward-looking guidance for the first quarter of 2003, as
announced in a press release dated March 3, 2003. 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.

34

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/ ROBIN A. SAWYER
------------------------------------
Robin A. Sawyer
Vice President, Corporate Controller
(Principal Accounting Officer)

Date: May 14, 2003

35

CERTIFICATIONS

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: May 14, 2003

36

CERTIFICATIONS

I, Matthew W. Towse, 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/ MATTHEW W. TOWSE
------------------------------------
Matthew W. Towse
Senior Vice President and Chief
Financial Officer

Date: May 14, 2003

37