UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission File Number 001-15181

Fairchild Semiconductor International, Inc.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code:

(207) 775-8100

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $.01 per share

(Title of each class)

New York Stock Exchange

(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

None

      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 þ     No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

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

      The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 27, 2004 was $1,894,670,044.

      The number of shares outstanding of the Registrant’s Common Stock as of March 10, 2005 was 119,703,504.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 4, 2005 are incorporated by reference into Part III.

TABLE OF CONTENTS

PART I

      Except as otherwise indicated in this Annual Report on Form 10-K, the terms “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.

      The company’s fiscal year ends on the last Sunday in December. The company’s results for the years ended December 26, 2004, December 28, 2003 and December 29, 2002 each consist of 52 weeks.

General

      We are focused on developing, manufacturing and selling power analog and discrete as well as certain non-power semiconductor solutions to a wide range of end market customers. Nearly 73% of our sales in 2004 were from discrete and analog power semiconductor products used directly in applications such as power conversion, regulation, distribution and management. We believe that we are the world’s leading supplier of combined power analog and power discrete products. Our products are used in a wide variety of electronic applications, including sophisticated computers and internet hardware; communications; networking and storage equipment; industrial power supply and instrumentation equipment; consumer electronics such as digital cameras, displays, audio/video devices and household appliances; and automotive applications. We believe that our focus on the fast-growing power market, our diverse end market exposure, and our strong penetration into the rapidly growing Asian region provide us with excellent opportunities to expand our business.

      With a history dating back more than 40 years, the original Fairchild was one of the founders of the semiconductor industry. Established in 1959 as a provider of memory and logic semiconductors, the Fairchild Semiconductor business was acquired by Schlumberger Limited in 1979 and by National Semiconductor Corporation in 1987. In March 1997, as part of its recapitalization, much of the Fairchild Semiconductor business was sold to a new, independent company — Fairchild Semiconductor Corporation.

Products and Technology

      Our products are used in consumer, communications, computer, industrial and automotive applications. Our products are organized into the following three principal product groups that are reportable segments: (1) Analog and Mixed Signal Products (which we sometimes refer to as “Analog”), (2) Discrete Products (which we sometimes refer to as “Discrete”) and (3) Logic and Memory Products (which we sometimes refer to as “Logic and Memory”). Our Optoelectronics business does not meet the requirements of a reportable segment under Statement of Financial Accounting Standards (“SFAS”) 131 and is included in the “other” products category.

      In 2004, we continued our focused investment of research and development and capital in support of our power products, while emphasizing our outsourced manufacturing philosophy (which we refer to as asset-light) for non-power products. We increased our power product sales 24% while non-power sales decreased by 6% in 2004 compared to 2003. The growth in our power sales was led by key, fast-growing product lines including our Fairchild Power Switches (FPS^tm), which grew 39%, our analog switches and video filters that grew over 25%, and Smart Power Modules (SPM^tm) that more than tripled in sales year over year in 2004. We believe this rate of growth in our core power product markets reflect steady market share gains throughout 2004.

      We continued to invest in the latest wafer fabrication power semiconductor technology and successfully qualified a number of new processes including PowerTrench® IV, advanced insulated gate bipolar transistor (IGBT), as well as advanced high power MOSFET fabrication technologies. We increased production at our newest assembly and test site in Suzhou, China during 2004, which significantly increased capacity for our newest power products, especially for our SPM products.

      We design, manufacture and market high-performance analog and mixed signal integrated circuits for computing, consumer, communications, industrial and automotive applications. These products are manufactured using leading-edge bipolar, CMOS, BiCMOS and BCDMOS technologies. Analog and mixed signal products represent a significant long-term growth area of the semiconductor industry.

      We offer analog and mixed signal device products in a fast growing number of proprietary part types. The development of proprietary parts is largely driven by evolving end-system requirements and needs for higher integration, which in turn are driven by trends toward smaller components having higher performance levels. Major competitors include Analog Devices, Linear Technology, Maxim, Intersil Corporation, National Semiconductor, ST Microelectronics, ON Semiconductor and Texas Instruments.

      Analog products monitor, interpret and control continuously variable functions such as light, color, sound and energy. Frequently, they form the interface with the digital world. We provide a wide range of analog products that perform such tasks as power conversion, interface, temperature sensing, system management, battery charging and motor control. Our FPS^tm power switch products, including Green FPS, are a series of proprietary, multi-chip or monolithic devices with integrated MOSFETs (metal oxide semiconductor field effect transistors), which provide complete off-line (AC-DC) power converter designs for use in power supplies and battery chargers. The Green FPS^tm products are referred to as “green” because of their low power consumption, which is environmentally friendly. Analog voltage regulator circuits are used to provide constant voltages as well as to step up or step down voltage levels on a circuit board. These products are used in a variety of computing, communications, industrial and consumer applications.

      Interface products generally connect signals from one part of a system to another part of a system. Typical interface applications include backplane driving, bus driving, clock driving and “box-to-box’ or system-to-system interconnects. These applications all require high speed, high current drive and low noise attributes. These types of products are mixed signal in nature and require a high level of analog wave shaping techniques on the output structures. We believe we have developed some unique competencies and patented circuit techniques along with a broad range of process technologies, which we expect to facilitate our expansion in the interface market.

      In addition to power analog and interface circuits, we offer signal path products such as analog switches, operational amplifiers and comparators, data conversion products, video encoders and decoders, video filters and micro-controller based system management integrated circuits.

      We believe our analog and mixed signal product portfolio is further enhanced by a broad offering of packaging solutions that we have developed. These solutions include surface mount, tiny packages and leadless carriers.

      We design, manufacture and market power and small signal discrete semiconductors for computing, communications, industrial and automotive applications. Discrete devices are individual diodes or transistors that perform power switching, power conditioning and signal amplification functions in electronic circuits. More than 85% of Fairchild’s discrete products are power discretes, which handle greater than one watt of power and are used extensively in power applications. Driving the long-term growth of discretes is the increasing need to power the latest electronic equipment as well as needs to conserve energy. One of our new product initiatives in 2004 was Smart Power Modules. This key new product is a multi-chip module containing up to 23 die on a single device, including diodes, power MOSFETs, and power controllers used in high power, high voltage consumer white goods and industrial applications. We manufacture discrete products using DMOS and Bipolar technologies. Major competitors include International Rectifier, Philips, Infineon, ON Semiconductor and Siliconix/ Vishay.

      Power MOSFETs. Power MOSFETs are used in applications to switch, shape or transfer electricity under varying power requirements. We are the world’s No. 1 supplier of discrete power transistors, according to the Gartner Group. These products are used in a variety of high-growth applications including computers,

communications, automotive and industrial supplies, across the voltage spectrum. We produce advanced low power MOSFETs under our PowerTrench®, UltraFET® and QFET^tm brands. MOSFETs enable computers, automobiles, handsets, power supplies and other products to operate under harsh conditions while providing efficient operation. We are particularly strong in low voltage power MOSFETs.

      Isolated-Gate Bipolar Transistors. IGBTs are high-voltage power discrete devices. They are used in switching applications for motor control, power supplies and automotive ignition systems, which require higher voltages than a power MOSFET can provide. We are a leading supplier of IGBTs. We feature the SMPS IGBT for power supplies, offering fast, cost-effective operation. We also manufacture modules for home appliances such as air conditioners and refrigerators — applications that are growing with the worldwide need to conserve energy.

      Rectifiers. Rectifier products work with IGBTs and MOSFETs in many applications to provide signal conditioning. Our premier product is the Stealth^tm rectifier, providing industry leading performance and efficiencies in power supply and motor applications.

      Radio Frequency Products. We acquired certain assets of the Radio Frequency (“RF”) Components Division of the Raytheon Company in the fourth quarter of 2003. Our new RF product line consists of advanced RF amplifiers for use in wireless LAN, handset and related RF applications. The products are manufactured using a gallium arsenide fab process and are assembled in a variety of packages. Major competitors include Skyworks, Anadigics and Microsemi.

      We design, develop, manufacture and market high-performance standard logic devices utilizing three wafer fabrication processes: CMOS, BiCMOS and Bipolar. Within each of these production processes, we manufacture products that possess advanced performance characteristics, as well as mature products that provide high performance at low cost to customers. Logic products perform a variety of functions in a system, mostly in the interface between larger application-specific integrated circuits, microprocessors, memory components or connectors. Products are typically categorized into mature segments and advanced logic segments. Mature products are generally more than five years old, while advanced products tend to be newer. Since market adoption rates of new standard logic families have historically spanned several years, we continue to generate significant revenues from our mature products. Customers are typically slow to move from an older product to a newer one. Further, for any given product, standard logic customers use several different generations of logic products in their designs. As a result, typical life cycles for logic families are often between 20 and 25 years. Major competitors include Texas Instruments, Toshiba and Philips.

      We previously designed, manufactured and marketed non-volatile memory integrated circuits, which are storage devices that retain data after power to the device has been shut off. During 2003 we announced our intention to exit the non-volatile memory business, and completed this process during 2004.

      Optoelectronics covers a wide range of semiconductor devices that emit, sense and display both visible and infrared light. Of the six segments of the optoelectronics market, we participate in four: optocouplers, infrared devices, light-emitting diode (LED) lamps and displays. Our focus in optoelectronics is aligned with our analog business. We address the same applications and can combine functions in an optimal way to provide real system solutions.

      Optocouplers. Optocouplers incorporate infrared emitter and detector combinations in a single package. These products are used to transmit signals between two electronic circuits while maintaining electrical isolation between them. Major applications for these devices include power supplies, modems, motor controls and power modules.

      Infrared Products. These devices emit and detect infrared energy instead of visible energy. This product line offers a wide variety of products including plastic emitters and detectors, metal can emitters and detectors, slotted switches and reflective switches. In addition, custom products address specific types of customer applications. Typical applications for infrared products include object detection (for example, paper sensing in printers and copiers and garage door safety sensors), data transmission (for example, remote controls in televisions, stereos, VCRs and wireless data links between computers and other electronic devices) and motor control.

      LED Lamps and Displays. These devices are replacing general illumination applications currently served by incandescent and fluorescent lighting products. The main advantages are power savings and longer life. This product line includes stick and frame displays, which are used in a broad range of consumer electronics products as well as T-1 and T-1³/4 lamps that are used in consumer applications and in the industrial, instrument and signage industries.

Sales, Marketing and Distribution

      For the year ended December 26, 2004, we derived approximately 65%, 30% and 5% of our net sales from distributors, original equipment manufacturers, and electronic design and manufacturing services customers, respectively, through our regional sales organizations. We operate regional sales organizations in Europe, with offices in Wootton-Bassett, England; the Americas, with offices in South Portland, Maine; the Asia/Pacific region (which for these purposes excludes Japan and Korea), with offices in Hong Kong; Japan, with offices in Tokyo; and Korea, with offices in Bucheon, South Korea. A discussion of revenue by geographic region for each of the last three years can be found in Item 8, Note 16 of this report. Each of the regional sales organizations is supported by logistics organizations, which manage independently operated warehouses. Product orders flow to our manufacturing facilities, where products are made. Products are then shipped either directly to customers or indirectly to customers through independently operated warehouses in Hong Kong, the United States and the United Kingdom.

      We have dedicated direct sales organizations operating in Europe, the Americas, the Asia/Pacific region, Japan and Korea that serve our major original equipment manufacturer and electronic design and manufacturing services customers. We also have a large network of distributors and independent manufacturer’s representatives to distribute and sell our products around the world. We believe that maintaining a small, highly focused, direct sales force selling products for each of our businesses, combined with an extensive network of distributors and manufacturer’s representatives, is the most efficient way to serve our multi-market customer base. Fairchild also maintains a dedicated marketing organization, which consists of marketing organizations in each product group, including tactical and strategic marketing and applications, as well as marketing personnel located in each of the sales regions.

      Typically, distributors handle a wide variety of products, including products that compete with our products, and fill orders for many customers. Some of our sales to distributors are made under agreements allowing for market price fluctuations and the right of return on unsold merchandise, subject to time and volume limitations. The majority of these distribution agreements contain a standard stock rotation provision allowing for minimum levels of inventory returns. In our experience, these inventory returns can usually be resold, although often at a discount. Manufacturer’s representatives generally do not offer products that compete directly with our products, but may carry complementary items manufactured by others. Manufacturer’s representatives, who are compensated on a commission basis, do not maintain a product inventory; instead, their customers place large quantity orders directly with us and are referred to distributors for smaller orders.

Research and Development

      Our expenditures for research and development (“R&D”) for 2004, 2003 and 2002 were $82.0 million, $74.8 million and $82.2 million, respectively. These expenditures represented 5.1%, 5.4%, and 5.8% of sales for 2004, 2003 and 2002, respectively. Manufacturing technology is a key determinant in the improvement of semiconductor products. Each new generation of process technology has resulted in products with higher

speed and greater performance, produced at lower cost. We expect infrastructure investments made in recent years to enable us to continue to achieve high volume, high reliability and low-cost production using leading edge process technology. Our R&D efforts continue to be focused in part on new and innovative packaging solutions that make use of new assembly methods and new high performance packaging materials, as well as in exclusive and patent protected transistor structure development. We are also using our R&D resources to characterize and apply new materials in both our packaging and semiconductor device processing efforts.

      Each of our product groups maintains independent product research and development organizations, which work closely with our corporate-level process, package and modeling simulation development groups. These groups are located throughout the world in our factories and research centers. We work closely with our major customers in many research and development situations in order to increase the likelihood that our products will be designed directly into customers’ products and achieve rapid and lasting market acceptance.

Manufacturing

      We operate nine manufacturing facilities, five of which are “front-end” wafer fabrication plants in the United States, South Korea and Singapore, and four of which are “back-end” assembly and test facilities in the United States and Asia. A discussion of property, plant and equipment by geographic region for each of the last three years can be found in Item 8, Note 16 of this report. All facility closures previously announced in 2003 were substantially completed during 2004.

      Our products are manufactured and designed using a broad range of manufacturing processes and certain proprietary design methods. We use all of the prevalent function-oriented process technologies for wafer fabrication, including CMOS, Bipolar, BiCMOS, DMOS and RF. We use primarily through-hole and mature and advanced surface mount technologies in our assembly and test operations. During 2003, we announced our lead-free packaging initiative. This process replaces lead with tin and is considered to be environmentally friendly.

      The table below provides information about our manufacturing facilities, products and technologies.

Manufacturing Facilities

      We subcontract a minority of our wafer fabrication needs, primarily to Advanced Semiconductor Manufacturing Corporation, Chartered Semiconductor, Torex Semiconductor, Taiwan Semiconductor Manufacturing Company, Central Semiconductor Manufacturing Corporation, UMC, WIN Semiconductor and New Japan Radio Corporation. In order to maximize our production capacity, some of our back-end assembly and testing operations are also subcontracted. Primary back-end subcontractors include Amkor, AUK, Enoch, Wooseok, SP Semiconductor, NS Electronics (Bangkok) Ltd., Liteon, GEM Services, and STATS ChipPAC.

      Our manufacturing processes use many raw materials, including silicon wafers, copper lead frames, mold compound, ceramic packages and various chemicals and gases. We obtain our raw materials and supplies from a large number of sources on a just-in-time basis. Although supplies for the raw materials used by us are currently adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry.

Backlog

      Backlog at December 26, 2004 was approximately $421 million, down from approximately $534 million at December 28, 2003. We define backlog as firm orders or customer-provided forecasts with a customer requested delivery date within 26 weeks. In periods of depressed demand, customers tend to rely on shorter lead times available from suppliers, including us. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog and, in some instances, we may not have manufacturing capacity sufficient to fulfill all orders. As is customary in the semiconductor industry, we allow orders to be canceled or deliveries delayed by customers without penalty. Accordingly, our backlog at any time should not be used as an indication of future revenues.

Seasonality

      Generally, we are affected by the seasonal trends of the semiconductor and related electronics industries. Typically, our sales tend to follow a seasonal pattern which is affected by consumer and corporate purchasing patterns, and regional lifestyle issues such as vacation periods and holidays. Typically, our strongest shipping quarter is the fourth quarter, which is driven by sales into products that are purchased by consumers for the holiday season. First quarter sales are generally weaker than fourth quarter, as our production lines are constrained by the celebration of Lunar New Year holidays in Asia. Second quarter sales are generally stronger than first quarter, often driven by stronger corporate spending. Third quarter sales are generally weaker than second quarter as customer summer vacation schedules slow business activity. These are the general seasonal trends that we have observed over many years. Specific conditions in any given year, such as channel inventory builds or corrections, customer demand increases or decreases, new end market product cycles, or macroeconomic or political events, may override these cyclical patterns.

Competition

      Markets for our products are highly competitive. Although only a few companies compete with us in all of our product lines, we face significant competition within each of our product lines from major international

semiconductor companies. Some of our competitors may have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing and distribution of their products. Competitors include manufacturers of standard semiconductors, application-specific integrated circuits and fully customized integrated circuits.

      We compete in different product lines to various degrees on the basis of price, technical performance, product features, product system compatibility, customized design, availability, quality and sales and technical support. Our ability to compete successfully depends on elements both within and outside of our control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields and product availability, capacity availability, customer service, pricing, industry trends and general economic trends.

Trademarks and Patents

      As of December 26, 2004, we held 681 issued United States patents and 1,474 issued foreign patents with expiration dates ranging from 2005 through 2023. We also have trademarks that are used in the conduct of our business to distinguish genuine Fairchild products. We believe that while our patents may provide some advantage, our competitive position is largely determined by such factors as system and application knowledge, ability and experience of our personnel, the range and number of new products being developed by us, our market brand recognition, ongoing sales and marketing efforts, customer service, technical support and our manufacturing capabilities.

      It is generally our policy to seek patent protection for significant inventions that may be patented, though we may elect, in certain cases, not to seek patent protection even for significant inventions, if other protection, such as maintaining the invention as a trade secret, is considered more advantageous. Also, the laws of countries in which we design, manufacture and market our products may afford little or no effective protection of our proprietary technology.

Environmental Matters

      Our operations are subject to environmental laws and regulations in the countries in which we operate that regulate, among other things, air and water emissions and discharges at or from our manufacturing facilities; the generation, storage, treatment, transportation and disposal of hazardous materials by our company; the investigation and remediation of environmental contamination; and the release of hazardous materials into the environment at or from properties operated by our company and at other sites. As with other companies engaged in like businesses, the nature of our operations exposes our company to the risk of liabilities and claims, regardless of fault, with respect to such matters, including personal injury claims and civil and criminal fines.

      Our facilities in South Portland, Maine, and, to a lesser extent, West Jordan, Utah, have ongoing remediation projects to respond to releases of hazardous materials that occurred prior to our separation from National Semiconductor. National Semiconductor has agreed to indemnify Fairchild for the future costs of these projects. The terms of the indemnification are without time limit and without maximum amount. The costs incurred to respond to these conditions were not material to the consolidated financial statements for any period presented.

      Our facility in Mountaintop, Pennsylvania has an ongoing remediation project to respond to releases of hazardous materials that occurred prior to our acquisition of the discrete power products (“DPP”) business. Intersil Corporation has agreed to indemnify us for specific environmental issues. The terms of the indemnification are without time limit and without maximum amount.

      A property we previously owned in Mountain View, California is listed on the National Priorities List under the Comprehensive Environmental Response, Compensation, and Liability Act. We acquired that property as part of the acquisition of The Raytheon Company’s semiconductor business in 1997. Under the terms of the acquisition agreement with Raytheon, Raytheon retained responsibility for, and has agreed to indemnify us with respect to, remediation costs or other liabilities related to pre-acquisition contamination.

We sold the Mountain View property in 1999. The purchaser received an environmental indemnity from us similar in scope to the one we received from Raytheon. The purchaser and subsequent owners of the property can hold us liable under our indemnity for any claims, liabilities or damages it incurs as a result of the historical contamination, including any remediation costs or other liabilities. We are unable to estimate the potential amounts of future payments; however, we do not expect any future payments to have a material impact on our earnings or financial condition.

      Although we believe that the power device business has no significant environmental liabilities, Samsung Electronics agreed to indemnify Fairchild for remediation costs and other liabilities related to historical contamination, up to $150 million, arising out of the power device business, including the Bucheon, South Korean plant. We are unable to estimate the potential amounts of future payments, if any; however, we do not expect any future payments to have a material impact on our earnings or financial condition.

      We believe that our operations are in substantial compliance with applicable environmental laws and regulations. Our costs to comply with environmental regulations were immaterial for 2004, 2003 and 2002. Future laws or regulations and changes in existing environmental laws or regulations, however, may subject our operations to different, additional or more stringent standards. While historically the cost of compliance with environmental laws has not had a material adverse effect on our results of operations, business or financial condition, we cannot predict with certainty our future costs of compliance because of changing standards and requirements.

Employees

      Our worldwide workforce consisted of 9,024 full and part-time employees as of December 26, 2004. We believe that our relations with our employees are satisfactory.

      At December 26, 2004, 140 of our employees were covered by a collective bargaining agreement. These employees are members of the Communication Workers of America/International Union of Electronic, Electrical, Salaried Machine and Furniture Workers, AFL-CIO, Local 88177. The current agreement with the union ends June 1, 2007 and provides for guaranteed wage and benefit levels as well as employment security for union members. If a work stoppage were to occur, it could impact our ability to operate. Also, our profitability could be adversely affected if increased costs associated with any future contracts are not recoverable through productivity improvements or price increases. We believe that relations with our unionized employees are satisfactory.

      Our wholly owned Korean subsidiary, which we refer to as Fairchild Korea, sponsors a Power Device Business Labor Council consisting of seven representatives from the non-management workforce and ten members of the management workforce. The Labor Council, under Korean law, is recognized as a representative of the workforce for the purposes of consultation and cooperation. The Labor Council has no right to take a work action or to strike and is not party to any labor or collective bargaining agreements with Fairchild Korea. We believe that relations with Fairchild Korea employees and the Labor Council are satisfactory.

Executive Officers

      The following table provides information about the executive officers of our company.

      Kirk P. Pond, Chairman of the Board of Directors, President and Chief Executive Officer. Mr. Pond became a director in March 1997 and has been the President of Fairchild Semiconductor since June 1996. He has over 35 years of experience in the semiconductor industry. Prior to the company’s separation from National Semiconductor, Mr. Pond had held several executive positions with National Semiconductor, most recently Executive Vice President and Chief Operating Officer. Prior executive management positions were with Fairchild Semiconductor Corporation, Texas Instruments and Timex Corporation. Mr. Pond is a director of the Federal Reserve Bank of Boston, where he also serves on the audit committee. He is also a director of Wright Express Corporation, where he also serves as chairman of the compensation committee.

      Joseph R. Martin, Vice Chairman of the Board of Directors, Senior Executive Vice President. Mr. Martin became Senior Executive Vice President and Vice Chairman of the Board of Directors in April 2003. Prior to his current position of Senior Executive Vice President, he was Executive Vice President and Chief Financial Officer since June 1996. He has over 25 years of experience in the semiconductor industry. Mr. Martin has been a director since March 1997. Prior to Fairchild Semiconductor’s separation from National Semiconductor, Mr. Martin had held several executive positions with National Semiconductor since 1989, most recently as Vice President of Finance, Worldwide Operations. Prior to joining National Semiconductor, Mr. Martin was Senior Vice President and Chief Financial Officer of VTC Incorporated. Mr. Martin is a director of Brooks Automation, Inc., SynQor, Inc. and Soitec SA, and was previously a director of ChipPAC, Inc.

      Daniel E. Boxer, Senior Executive Vice President and Corporate Secretary. Mr. Boxer joined the company in March 1997. Prior to his current position, Mr. Boxer was Executive Vice President, Chief

Administrative Officer, General Counsel and Corporate Secretary of Fairchild Semiconductor. He has practiced law for 35 years and since 1975 had been a partner at the law firm of Pierce Atwood, Portland, Maine. His practice at Pierce Atwood included advising many large manufacturing companies, including our company, on business, governmental, legal compliance and environmental issues. He was most recently a senior partner and Chairman of the firm’s Management Committee.

      Mark S. Thompson, Executive Vice President, Manufacturing and Technology Group. Dr. Thompson joined Fairchild Semiconductor in November 2004. He has more than 20 years of high technology experience. Prior to joining the company, Dr. Thompson had been Chief Executive Officer of Big Bear Networks since August 2001. He was previously Vice President and General Manager of Tyco Electronics, Power Components Division and, prior to its acquisition by Tyco, was Vice President of Raychem Electronics OEM Group. Dr. Thompson serves on the Board of Directors of Big Bear Networks.

      Thomas A. Beaver, Executive Vice President, Worldwide Sales and Marketing. Mr. Beaver joined Fairchild Semiconductor in March 2004. He has over 35 years of experience in the semiconductor industry. Prior to joining the company, Mr. Beaver was General Manager of Xiran, a Division of SimpleTech, Inc. He was previously President and CEO of Wyle Electronics, and prior to that spent 30 years at Motorola Corp., most recently as Corporate Vice President and Director of Marketing and Sales of the Networking and Computing Systems Group.

      Izak Bencuya, Executive Vice President and General Manager, Discrete Products Group, Chief Strategy Officer. Dr. Bencuya has worked in the semiconductor and electronics field for 29 years. Prior to his current position as Chief Strategy Officer, Executive Vice President and General Manager, Discrete Products Group, Dr. Bencuya was Senior Vice President and General Manager, Discrete Products Group since February 2000. Before that, he spent six years as Director of Power MOSFET Products. Dr. Bencuya also worked at GTE Laboratories and Siliconix in various research and management roles.

      Laurenz Schmidt, Executive Vice President, Global Operations. Mr. Schmidt served as Senior Vice President, Global Operations since October 2001 and was promoted to Executive Vice President in February, 2004. He has over 27 years of experience in the semiconductor industry. Prior to assuming his current role, he held various management positions over the preceding eight years, including Vice President of Wafer Fabrication Manufacturing, Vice President of Operations for Discrete Products Group and Managing Director of the South Portland, Maine wafer fabrication facility. Prior to joining Fairchild in 1983, he spent six years with Texas Instruments.

      Robert J. Conrad, Senior Vice President and General Manager, Integrated Circuits Group. Mr. Conrad joined Fairchild Semiconductor in September 2003. Mr. Conrad has over 21 years of semiconductor industry experience. His experience prior to joining Fairchild includes twelve years at Texas Instruments in a variety of engineering and business management roles, six years at Analog Devices where he was Vice President and General Manager of the DSP Division, and most recently as CEO and President of Trebia Networks, a private fabless semiconductor company.

      Hubertus R. Engelbrechten, Senior Vice President and General Manager, Integrated Circuits Group. Mr. Engelbrechten has been Senior Vice President, Integrated Circuits Group since November 2002. He has over 25 years of experience in the semiconductor industry. Mr. Engelbrechten joined Fairchild from Raytheon Semiconductor in 1998 as Director of Marketing, Analog Mixed Signal Group. Prior to assuming his current role, he also held positions as Vice President of Marketing, Analog Mixed Signal Group and Vice President of Marketing, Integrated Circuits Group. Mr. Engelbrechten has held various management positions at National Semiconductor, Degussa AG and Siemens AG.

      Deok J. Kim, Senior Vice President and General Manager, Power Device Business, President, Fairchild Korea Semiconductor Ltd. Dr. Kim became Senior Vice President and President of Fairchild Korea Semiconductor Ltd. when we acquired the power device business from Samsung Electronics in April 1999. He has over 29 years of experience in the semiconductor industry. Dr. Kim joined Samsung Electronics’ power device business in 1990 as director of power product development and later became managing director and vice president and general manager of the power device business prior to its acquisition by Fairchild

International. Before joining Samsung Electronics, Dr. Kim held engineering and development positions with Goldstar Semiconductor, AMI and General Electric.

      Matthew W. Towse, Senior Vice President, Chief Financial Officer. Prior to his appointment as Senior Vice President and Chief Financial Officer in April 2003, Mr. Towse served as our company’s Vice President and Treasurer since March 1997. He had been with National Semiconductor for six years and held various financial management positions, most recently as Controller for the Fairchild Semiconductor plant in South Portland, Maine. Mr. Towse previously worked for Ernst & Young and is a Certified Public Accountant.

      John M. Watkins, Jr., Executive Vice President, Worldwide Information Systems, Chief Information Officer. Mr. Watkins joined our company in March 2000. He previously spent five years as Chief Information Officer of Pratt and Whitney. In 1995, Mr. Watkins retired as a General after twenty-eight years in the United States Army. His most recent assignment was as Director of the Defense Information Systems Agency in Washington, D.C.

      Paul D. Delva, Vice President, General Counsel. Mr. Delva joined Fairchild Semiconductor in 1999. Before becoming Vice President and General Counsel in April 2003, Mr. Delva served as our company’s assistant general counsel following the company’s initial public offering in 1999. He has advised Fairchild on all its acquisitions and securities offerings, as well as on general corporate matters since the company’s founding in 1997. Prior to joining Fairchild, he was an associate at Dechert, Price & Rhoads (now Dechert LLP) in Philadelphia, Pennsylvania, where he specialized in mergers and acquisitions, corporate and securities law.

      Peter B. Groth, Vice President and Treasurer. Mr. Groth became Vice President and Treasurer in April 2003. Mr. Groth previously held the position of Senior Director, Investor Relations, from July 1999. Prior to his position in investor relations, Mr. Groth held various marketing management positions for Fairchild Semiconductor and National Semiconductor from 1986 to 1999, with responsibilities for tactical, product and strategic marketing, strategic planning, and market analysis. Prior to joining Fairchild in 1986, he held various engineering design and management positions at Texas Instruments.

      Kevin B. London, Vice President, Human Resources. Mr. London became Vice President of Human Resources in July 2002. He has over 21 years experience in the semiconductor industry. Prior to assuming his current role, he held various Human Resource management positions at the company’s South Portland site during the previous sixteen years. Prior to that, Mr. London held a variety of management positions within Operations.

      Robin A. Sawyer, Vice President, Corporate Controller. Ms. Sawyer became Corporate Controller in November 2002. She joined our company in 2000 as Manager of Financial Planning and Analysis. Prior to joining our company, Ms. Sawyer was employed by Cornerstone Brands, Inc. from 1998 to 2000 as Director of Financial Planning and Reporting. Prior to that Ms. Sawyer was employed by Baker, Newman and Noyes, LLC and its predecessor firm, Ernst & Young, and is a Certified Public Accountant. Ms. Sawyer is a director of Camden National Corporation.

Available Information

      We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements and other information we file at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call (800) SEC-0330 for further information on the Public Reference Room. The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings are also available to the public at the web site maintained by the SEC, http://www.sec.gov.

      We make available, free of charge, through our investor relations web site, our reports on Forms 10-K, 10-Q and 8-K, amendments to those reports, and other SEC filings, as soon as reasonably practicable after they are filed with the SEC. The address for our investor relations web site is http://investor.fairchildsemi.com (click on “SEC filings”).

      We also make available, free of charge, through our corporate governance website, our corporate charter bylaws, Corporate Governance Guidelines, charters of the committees of our board of directors, code of ethics and other information and materials, including information about how to contact our board of directors, its committees and their members. To find this information and materials, visit our corporate governance website at http://governance.fairchildsemi.com.

Business Risks

      Our business is subject to a number of risks and uncertainties. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business operations and financial condition.

      The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.

      Our common stock, which is traded on The New York Stock Exchange, has experienced and may continue to experience significant price and volume fluctuations that could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in financial results, earnings below analysts’ estimates and financial performance and other activities of other publicly traded companies in the semiconductor industry could cause the price of our common stock to fluctuate substantially. In addition, in recent periods, our common stock, the stock market in general and the market for shares of semiconductor industry-related stocks in particular have experienced extreme price fluctuations which have often been unrelated to the operating performance of the affected companies. Any similar fluctuations in the future could adversely affect the market price of our common stock.

      We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected revenues.

      We manufacture products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end market demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the production of products without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory and revenues.

      Downturns in the highly cyclical semiconductor industry or changes in end user market demands could reduce the profitability and overall value of our business, which could cause the trading price of our stock to decline or have other adverse effects on our financial position.

      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 into 2003, 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 low point of this most recent cycle occurred in the third quarter of 2001, the semiconductor industry did not experience a recovery in orders until 2003. 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 2003 we sold approximately the same numbers of units as in 2002, while at the same time experiencing revenue declines due to price decreases. 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 consumer electronics such as personal computers, cellular

telephones, handsets and digital cameras, and automotive, household and industrial goods. These end user markets may experience changes in demand that could adversely affect our prospects.

      In addition, when we assess the ability to realize the full value of certain company assets, such as deferred tax assets, we consider, among other things, factors such as forecasted earnings. Due to the cyclical nature of our industry, judgments regarding future taxable income, for example, may be revised due to possibly more severe or prolonged downturns in future market conditions. In such a circumstance, we may need to create reserves against the value of deferred tax assets resulting in increased income tax expense for the periods in which such reserves are recorded.

      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. The semiconductor industry is characterized by rapidly changing technologies and industry standards, together with frequent new product introductions. 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. New products often command higher prices and, as a result, higher profit margins. We may not successfully identify new product opportunities and develop and bring new products to market or succeed in selling them into new customer applications 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. Our failure to identify or capitalize on any fundamental shifts in technologies in our product markets 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. 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:

      In addition, effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for in some 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 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. From time to time, we may be notified of claims (often implicit in offers to sell us a license to another company’s patents) that we may be infringing patents issued to other companies, and we may subsequently engage in license negotiations regarding these claims. Such 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, it is impossible to be aware of every possible patent which our products may infringe, and we cannot assure you that we will be successful. Furthermore, even if we conclude our products do not infringe another’s patents, others may not agree. We have been and are 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. For example, on October 20, 2004, Power Integrations, Inc. sued us in the United States District Court for the District of Delaware, alleging that some of our Pulse-Width Modulator (PWM) integrated circuit products infringe four of its U.S. patents. We do not believe our products violate Power Integrations’ patents and plan to vigorously contest the lawsuit. Our involvement in this lawsuit and future intellectual property litigation, or the costs of avoiding or settling 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. We may decide to settle patent infringement claims or litigation by purchasing license rights from the claimant, even if we believe we are not infringing, in order to reduce the expense of continuing the dispute or because we are not sufficiently confident that we would eventually prevail. In the event of an adverse outcome as a defendant in any such litigation, we may be required to:

      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 eleven 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 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 frequently conducting due diligence or holding preliminary discussions with respect to possible acquisition transactions,

some of which could 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:

      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 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. For example, some phosphorus-containing mold compound received from one supplier and incorporated into our products has resulted in a number of claims for damages from customers. 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. We subcontract a minority of our wafer fabrication needs, primarily to Advanced Semiconductor Manufacturing Corporation, Chartered Semiconductor, Torex Semiconductor, Taiwan Semiconductor Manufacturing Company, Central Semiconductor Manufacturing Corporation, UMC, WIN Semiconductor and New Japan Radio Corporation. In order to maximize our production capacity, some of our back-end assembly and testing operations are also subcontracted. Primary back-end subcontractors include Amkor, AUK, Enoch, Wooseok, SP Semiconductor, NS Electronics (Bangkok) Ltd., Liteon, GEM Services, and STATS 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 incurring 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 2003, we began initial production at a new assembly and test facility in Suzhou, China. We are transferring some production from subcontractors to this new facility. Delays or technical problems in completing these transfers could lead to order cancellations and lost revenue. 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 our new factory in Suzhou, China 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 65% of our net sales for the year ended December 26, 2004. Our top five distributors worldwide accounted for 16% of our net sales for the year ended December 26, 2004. 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 standard component or “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 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.

      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 may be sold for several dollars, whereas the personal computer might 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 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 have received 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 or to settle claims to avoid protracted litigation. 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.

      For example, from time to time since late 2001, we have received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. We have been named in two lawsuits relating to these mold compound claims. In May 2004 we were named, along with three product distribution companies, as a defendant in a lawsuit filed by Alcatel Canada Inc. in the Ontario Superior Court of Justice. The lawsuit alleges breach of contract, negligence and other claims and seeks C$200,000,000 (Canadian dollars) in damages allegedly caused by our products containing the mold compound. In January 2005 we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. We believe we have strong defenses against all these claims and intend to vigorously defend both lawsuits. Both of these lawsuits are in their early stages.

      In a related action, we filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Singapore Pte. Ltd., and other related parties, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to our customers as a result of mold compound supplied by Sumitomo. Other manufacturers have also filed lawsuits against Sumitomo relating to the same mold compound issue. Our lawsuit against Sumitomo is pending in California Superior Court for Santa Clara County and we expect the case to go to trial in 2005. We are unable to predict or determine the outcome of the litigation with Sumitomo Bakelite Singapore Pte. Ltd., and there can be no assurance that we will prevail, nor can we predict the amount of damages that may be recovered if we do prevail.

      Although we have not been sued by any other customer as a result of the Sumitomo mold compound issue, several other customers have made claims for damages or threatened to begin litigation if their claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have also resolved similar claims with several of our leading customers. We have limited insurance coverage for such customer claims. While the exact amount of these losses is not known, we have recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations for the year ended December 26, 2004. This estimate was based upon an assessment of the potential liability using an

analysis of the claims and historical experience. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve.

      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 have sales offices and customers around the world. Almost three-quarters of our revenues in 2004 were from Asia. The following are some of the risks inherent in doing business on an international level:

      Our 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 from Samsung Electronics in 1999, we have significant operations and sales in South Korea and are subject to risks associated with doing business there. Korea accounted for 18% of our revenue for the year ended December 26, 2004.

      Relations between South Korea and North Korea have been tense over most of South Korea’s history, and more recent concerns over North Korea’s nuclear capability, and relations between the United States and North Korea, 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. In addition to other risks disclosed relating to international operations, some businesses in South Korea are subject to labor unrest.

      Our Korean power device business’ sales are increasingly 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 as much as possible, 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 (see Item 7A).

      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.

      In July 2003, we began production on an 800,000 square foot assembly and test facility in Suzhou, China. We have completed the first phase of the project and in 2004 began implementing the second phase. The factory began production in 2003 and is steadily increasing its output. 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. 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:

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

      We are a leveraged company with a ratio of debt-to-equity at December 26, 2004 of approximately 0.7 to 1, which could adversely affect our financial health and limit our ability to grow and compete.

      At December 26, 2004, we had total debt of $848.5 million, and the ratio of this debt to equity was approximately 0.7 to 1. In June 2003 we entered into a new senior credit facility that included a $300 million term loan, the proceeds of which were used to redeem our 10³/8% Senior Subordinated Notes due 2007, and a $180 million revolving line of credit. In January 2005 we increased the senior credit facility to $630 million, consisting of a term loan of $450 million replacing the previous $300 million term loan, and a $180 million revolving line of credit, which remains undrawn. The proceeds from the increased senior credit facility were used, together with approximately $216 million in cash, to redeem all our outstanding 10¹/2% Senior Subordinated Notes due 2009. Despite reducing some of our long term debt we continue to carry substantial indebtedness which could have important consequences. For example, it could

      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 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 or upon further amendment of the credit facility could be substantial. The senior credit facility, as amended in January 2005, permits borrowings of up to $180.0 million in revolving loans under the line of credit, in addition to the outstanding $450 million term loan that is currently outstanding under that facility. As of December 26, 2004, adjusted for outstanding letters of credit, we had up to $179.6 million available under the revolving loan portion of the senior 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. Restrictions imposed by the credit agreement relating to our senior credit facility 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 the credit agreement relating to our senior credit facility may limit our ability to finance our future operations or capital needs or engage in other business activities that may be in our interests. The credit agreement imposes significant operating and financial restrictions 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 senior credit facility also requires us to maintain specified financial ratios. 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 December 26, 2004, we were in compliance with these ratios. 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 our assets, including any 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.

      We maintain manufacturing and office facilities around the world including the United States, Asia and Europe. The following table provides information about these facilities at December 26, 2004:

      Leases affecting the Penang and Cebu facilities are generally in the form of long-term ground leases, while we own improvements on the land. In some cases we have the option to renew the lease term, while in others we have the option to purchase the leased premises. During 2004, we ceased operations at our Kuala Lumpur and Wuxi facilities.

      In addition to the facilities listed above we maintain smaller sales offices in leased space around the world. In January 2004, we sublet our Loveland, Colorado facility.

      We believe that our facilities around the world, whether owned or leased, are well maintained. Our manufacturing facilities contain sufficient productive capacity to meet our needs for the foreseeable future.

      From time to time since late 2001, we have received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. We have been named in two lawsuits relating to these mold compound claims. On May 14, 2004 we were named, along with three product distribution companies, as a defendant in a lawsuit filed by Alcatel Canada Inc. in the Ontario Superior Court of Justice in Toronto. The other named defendants are Arrow Electronics Canada Ltd., Avnet International (Canada) Ltd. and Future Electronics Inc. The lawsuit alleges breach of contract, negligence and other claims and seeks C$200,000,000 (Canadian dollars) in damages allegedly caused by some of our products manufactured with the phosphorous-containing mold compound. In January 2005 we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. We believe we have strong defenses against all these claims and intend to vigorously defend both lawsuits. Both of these lawsuits are in their early stages.

      In a related action, we filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Singapore Pte. Ltd., and other related parties, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to our customers as a result of mold compound supplied by Sumitomo. Other manufacturers have also filed lawsuits against Sumitomo relating to the same mold compound issue. Our lawsuit against Sumitomo is pending in California Superior Court for Santa Clara County and we expect the case to go to trial in 2005. We are unable to predict or determine the outcome of the litigation with Sumitomo Bakelite Singapore Pte. Ltd., and there can be no assurance that we will prevail, nor can we predict the amount of damages that may be recovered if we do prevail.

      Although we have not been sued by any other customer as a result of the Sumitomo mold compound issue, several other customers have made claims for damages or threatened to begin litigation if their claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have also resolved similar claims with several of our leading customers. We have limited insurance coverage for such customer claims. While the exact amount of these losses is not known, we have recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations for 2004. This estimate was based upon an assessment of the potential liability using an analysis of all the claims and historical experience. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve.

      On October 20, 2004, we and our wholly owned subsidiary, Fairchild Semiconductor Corporation, were sued by Power Integrations, Inc. in the United States District Court for the District of Delaware. The complaint filed by Power Integrations alleges that certain of our PWM integrated circuit products infringe four Power Integrations’ U.S. patents, and seeks a permanent injunction preventing us from manufacturing, selling, offering for sale or importing the allegedly infringing products as well as money damages for the alleged past infringement. We have analyzed the Power Integrations patents in light of our products and, based on that analysis, we do not believe our products violate Power Integrations’ patents and, accordingly, plan to vigorously contest this lawsuit.

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

      There were no matters submitted to a vote of security holders during the period beginning September 27, 2004 and ending on December 26, 2004.

PART II

      Our common stock trades on the New York Stock Exchange under the trading symbol “FCS”. The following table sets forth, for the periods indicated, the high and low intraday sales prices per share of Fairchild Semiconductor International, Inc. Common Stock, as quoted on the NYSE.

      As of March 10, 2005 there were approximately 226 holders of record of our Common Stock. We have not paid dividends on our common stock in any of the years presented above and have no present intention of doing so. Certain agreements, pursuant to which we have borrowed funds, contain provisions that limit the amount of dividends and stock repurchases that we may make.

Securities Authorized for Issuance Under Equity Compensation Programs

      The following table provides information about the number of stock options and deferred stock units (DSUs) outstanding and authorized for issuance under all equity compensation plans of the company on December 26, 2004. The notes under the table provide important additional information.

      The material terms of the 2000 Executive Plan and the Stock Plan are described in Note 8 to the company’s consolidated financial statements included in this annual report, and both of the plans are included as exhibits to this annual report.

Unregistered Sales of Equity Securities and Use of Proceeds

      There were no sales of unregistered equity securities in the fourth quarter of 2004. The following table provides information with respect to purchases made by the company of its own common stock during the fourth quarter of 2004.

      The following table sets forth our selected historical consolidated financial data. The historical consolidated financial data as of December 26, 2004 and December 28, 2003 and for the years ended December 26, 2004, December 28, 2003, and December 29, 2002 are derived from our audited consolidated financial statements, which are included in Item 8 of this Annual Report on Form 10-K. The historical consolidated financial data as of December 30, 2001 and December 31, 2000 and for the years ended December 30, 2001 and December 31, 2000 are derived from our audited consolidated financial statements, which are not included in this Annual Report on Form 10-K. This information should be read in conjunction with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

      We did not pay cash dividends on our common stock in any of the years presented above.

Introduction

      This discussion and analysis of financial condition and results of operations is intended to provide investors with an understanding of the company’s past performance, its financial condition and its prospects. We will discuss and provide our analysis of the following:

Overview

      From our beginning as an independent semiconductor company in 1997, we have grown both organically and through acquisitions to become the top supplier of power semiconductors in the world. We have focused on developing semiconductor products that provide solutions for power management, which we refer to as power products, that serve fast growing consumer, computing, automotive, industrial and communications markets. We have also rapidly expanded our presence in the Asian regional markets, specifically Korea, and in China, where we see the highest growth potential over the next several years. Our organic and acquisition-driven growth, our ability to service multiple end markets, and our focus on growing in Asia, have all contributed to an increase in revenue from power products from just 9% of total sales in fiscal year 1997 to 73% of total sales in 2004. In 2004 alone, we grew power revenue by 24%. We have a wide portfolio of new products that leverage expertise in both analog and discrete power technologies, including some of our newest products that provide our customers with an integrated total power management solution in a single, multi-chip module package.

      We believe gross margins and operating margins are key indices that reflect our progress in developing higher value, new products, as well as our ability to manufacture at low cost levels. Both senior management and our investors utilize these indices to measure the financial performance of the company. During 2004, we improved our gross margins due to improved product mix and lower costs. Other key indices we use include factors such as days sales outstanding (DSO) and inventory turn ratios. DSO decreased to 36.9 in 2004 compared to 37.6 in 2003. Inventory turns decreased slightly to 4.9 in 2004 compared to 5.1 in 2003. In addition, the company tracks blended factory utilization, which was approximately 90% in 2004. Distributor inventory was approximately 15 weeks at the end of 2004, which is above our target of 13 weeks of supply on hand. We also continue to focus on our cash and investment balances, and have reported 25 straight quarters of positive operating cash flow.

      We continue to follow our asset-light investment strategy for our non-power products, which typically have lower gross margins and lower or negative long-term sales growth potential. Through this strategy we are gradually transferring the manufacturing for these mature products to third party subcontractors, allowing our own manufacturing facilities to focus on building higher growth, higher margin and more strategic products. We believe that by following this long term asset-light approach for mature products we will improve our

return on invested capital and lessen our exposure to falling prices on commodity products during industry downturns.

      We believe the power semiconductor market will grow at the same or better rate than the total semiconductor market over the foreseeable future. Our strategy will be to design and build higher value power products that leverage our strength in power wafer processes, packaging technology and applications knowledge to drive higher and more stable margins and earnings through all phases of the business cycle. We also plan to continue investing in our more modern fabrication facilities and in our new Suzhou, China assembly and test plant as we believe these are the significant factors that will help us to continue to improve gross and operating margins. Overall, our focus will remain on growing profitable market share in our power markets.

Results of Operations

      The following table summarizes certain information relating to our operating results as derived from our audited consolidated financial statements.

Year Ended December 26, 2004 Compared to Year Ended December 28, 2003

      Total Revenues. Total revenues increased $207.3 million in 2004 compared to 2003. This increase was driven primarily by continued growth in the power management market, new product introductions, and overall improved industry and economic conditions compared to 2003, particularly in the first half of 2004.

      As a percentage of sales, geographic sales for the United States, Other Americas, Europe, China, Taiwan, Other Asia/ Pacific (which for these geographic reporting purposes includes Japan and Singapore and excludes Korea) and Korea were as follows for 2004 and 2003:

      The increase in our China percentage of sales is due to our growing customer base, as well as our commitment to investing our resources in this growing region. Korean revenues as a percentage of total revenues declined due to our efforts to enrich our product mix and focus on selling products with higher margins.

      Gross Profit. The increase in gross profit for 2004 compared to 2003 was due to increased revenues, improved product mix and higher factory utilization. Approximately 33% of the gross profit increase was due to increased revenues, with the remaining increase due to the improved product mix and factory utilization. For 2004, gross profit includes a net sales reserve release of $(2.1) million and a net inventory charge of $0.3 million recorded in revenue and cost of sales, respectively, in connection with our 2003 restructuring actions. For 2003, gross profit includes sales reserves of $5.5 million and inventory reserves of $4.0 million in connection with product discontinuations as a result of our various restructuring actions.

      Operating Expenses. Research and development (R&D) and selling, general and administrative (SG&A) expenses were both flat as a percentage of sales for 2004 as compared to 2003.

      The decrease in amortization of acquisition-related intangibles is due to certain intangibles becoming fully amortized during the fourth quarter of 2003 and the first quarter of 2004.

      In order to better align our cost structure with our revenues, we continually consider the rationalization of both our manufacturing operations and our workforce levels. As a result, we recorded restructuring and impairment charges of $18.6 million in 2004. These charges include $7.4 million of costs associated with the closure of our six-inch fab in Mountaintop, Pennsylvania, $5.8 million of net costs associated with the closure of our four-inch South Portland, Maine wafer fab, $4.9 million in employee separation costs relating to our 2004 Infrastructure Realignment Program, $0.9 million of costs associated with the closure of our Kuala Lumpur, Malaysia plant, and $0.2 million of asset impairment charges related to the discontinuation of our memory product line. In addition, we released $0.6 million in reserves primarily associated with the 2003 restructuring program. The charges associated with the Mountaintop and South Portland fabs, and the Kuala Lumpur plant were the remaining charges from our restructuring plan announced in July 2003.

      The company recorded restructuring and impairment charges of $66.6 million in 2003. These charges included $29.5 million of employee separation costs for severance and other costs associated with workforce reduction actions undertaken during the year, including the closure of our six-inch fab in Mountaintop, the closure of the four-inch fab in South Portland, plant closures in Wuxi, China and Kuala Lumpur and $37.1 million of impairment, decommissioning and other exit costs relating to the closure of our above referenced fab and plant closures, as well as asset impairment charges in Bucheon, South Korea.

      Total net costs for the closure of the six-inch wafer fab in Mountaintop were approximately $5.0 million for severance and $14.4 million for all other related costs and impairments. This closure is considered

substantially complete as of December 26, 2004. Based on comparisons to our fourth quarter 2003 spending levels, the closure of the Mountaintop six-inch fab is expected to save us approximately $8.0 million annually in manufacturing costs, including salary and benefits associated with the termination of approximately 160 employees.

      Total net costs for the South Portland closure were approximately $2.1 million in severance and $10.3 million in asset impairments and other exit costs including decommissioning and technology transfer costs. This closure is considered substantially complete as of December 26, 2004. The South Portland four-inch fab closure is expected to save us approximately $10.0 million annually in manufacturing costs, including salary and benefits associated with the termination of approximately 90 employees.

      Total net costs for the Wuxi and Kuala Lumpur closures are approximately $5.4 million in severance and $5.6 million in asset impairments and other exit costs including decommissioning and technology transfer costs. Both of these closures are considered substantially complete as of December 26, 2004. These closures are expected to save us approximately $3.0 million annually in manufacturing costs beginning in 2005, including salary and benefits associated with the termination of approximately 1,060 employees.

      We determined in 2003 that there were certain wafer fabrication assets located in Bucheon for which the carrying amount exceeded the expected undiscounted cash flow from their use. Accordingly, a charge of $21.4 million was recorded to reflect these long-lived assets at their fair value, based on a discounted cash flow analysis. These asset impairments reduced depreciation costs by approximately $4.4 million annually.

      Total charges for ongoing infrastructure realignment in 2003 were $15.9 million, which allowed us to achieve approximately $14.0 million in savings on an annualized basis.

      The 2004 Infrastructure Realignment Program actions announced in 2004 will impact both manufacturing and non-manufacturing personnel, primarily in the United States, and are expected to be completed in the fourth quarter of 2005. As a result of the $4.9 million charged, including salary and benefits associated with the termination of approximately 80 employees, we anticipate cost savings of approximately $7.2 million in manufacturing and non-manufacturing costs on an annualized basis beginning in 2006.

      In the second quarter of 2004, we recorded $11.0 million as a reserve for potential settlement losses. See Item 8, Note 14 of this report for further information.

      Purchased in-process research and development was $2.1 million for 2003. In 2003, IPR&D resulted from the purchase of Raytheon’s non-military RF components business completed in the fourth quarter of 2003.

      Interest Expense. Interest expense decreased in 2004 due to the redemption of $300 million of the 10³/8% Senior Subordinated notes on June 19, 2003. This redemption was partially offset by interest on our $300 million term loan.

      Interest Income. The increase in interest income in 2004 is due to the increase in average cash, short-term and long-term marketable securities balances and improved rates of return earned on those balances as compared to 2003.

      Other Expense. In 2004, we recorded a charge of $8.4 million related to losses associated with strategic investments. During 2003, we recorded other expense of $23.4 million associated with the redemption of our 10³/8% senior subordinated notes and the refinancing of our revolving line of credit. These costs included $17.4 million for the call premium on the 10³/8% senior subordinated notes and other transaction fees and a $6.0 million non-cash write-off of deferred financing fees associated with the original bond offering and revolving line of credit.

      Income Taxes. The effective tax rate was 18.6% on income before taxes of $72.8 million and 24.9% on loss before taxes of $108.5 million for 2004 and 2003, respectively. The change in the effective tax rate in 2004 as compared to 2003 is primarily due to changes in the magnitude and location of taxable income among taxing jurisdictions. Changes in the location of taxable income (loss) can result in significant changes in the

effective tax rate. An additional valuation allowance against deferred taxes in the amount of $6.1 million was also recorded in 2004.

      Comparative disclosures of revenue and gross profit of our reportable segments are as follows:

      Analog and Mixed Signal Products Group. The increase in Analog revenue was driven primarily by strong backlog and unit shipments, accounting for approximately 97% of the increase, across all Analog products, particularly in our power products. While demand increased, average selling prices remained roughly flat to 2003 levels, contributing 3% of the revenue increase. Gross profits also improved significantly over 2003, primarily due to higher revenue, but also an improved product mix and higher factory utilization. During 2004, we made significant improvements to our product mix between newer products with generally higher selling prices and gross margins, and our older, less differentiated standard products. We also increased our market share during 2004 in the overall Analog market. Customer demand that began increasing late in the third quarter of 2003 continued through the second quarter of 2004, but slowed during the second half of 2004, as the supply chain had been replenished with adequate inventory. For our older, standard linear products, revenues and margins declined approximately 32%, due to lower demand on these already low-margin products. As capacity tightened, these products were diminished in our product mix. Throughout this time, we continued our emphasis on new products that support lower power consumption and smaller dimensions, including our Green FPS^tm power switches, which grew significantly during 2004. In 2004, gross profit includes $(0.2) million of sales reserve releases and $0.1 million of inventory reserves, recorded in revenue and cost of sales, respectively, both associated with the discontinuation of certain products in connection with our 2003 restructuring actions. Analog gross profit in 2003 includes $0.2 million of sales reserves recorded in revenue and $0.5 million of inventory charges recorded in cost of sales, both associated with our 2003 restructuring actions.

      Analog had operating income (loss) of $19.6 million in 2004 compared to $(4.4) million in 2003. The increase in operating income improved commensurate with the gross profit improvements. R&D was roughly flat. SG&A expenses increased proportionately with the increase in revenues, and included incremental technical sales support of our new products in the United States and China. Amortization of acquisition-related intangibles decreased as certain intangibles became fully amortized.

      Discrete Products Group. Discrete revenue increased nearly 25% in 2004 compared to 2003. Revenue growth came across all products, particularly in high-power and low-power products. Increases in average selling prices accounted for approximately 39% of the revenue increase, while unit volumes accounted for approximately 61% of the revenue increase. This was driven by the transition from limited demand in 2003 to a limited supply in 2004, enabling greater pricing leverage and product mix. We experienced particular growth in our newer products, including MOSFETs, using our PowerTrench® III and PowerTrench® IV processes, and our SPM^tm, which both contributed to the increase. Revenue growth was strongest in China and Taiwan, which together accounted for approximately half of Discrete revenues. In the second half of 2004, demand slowed, particularly in the low-power products, as computing and cell phone demand slowed and the supply chain had been replenished with adequate inventory. Gross profits increased due to an improved product mix of higher margin and new technology products, favorable market conditions, and conversion to our newer PowerTrench® technologies, which have significantly lower die costs. Gross profit in 2004 includes a

$(0.2) million sales reserve release recorded in revenue and a $(0.4) million inventory reserve release recorded in cost of sales. Discrete gross profit in 2003 includes $2.2 million of sales reserves and $1.3 million of inventory reserves, recorded in revenue and cost of sales, respectively. The 2004 and 2003 charges are both associated with our 2003 restructuring actions.

      Discrete had operating income of $125.5 million in 2004 compared to $46.9 million in 2003. The increase in operating income was a result of the improved gross profits discussed above. R&D expenses, as well as SG&A expenses, were roughly flat. Amortization of acquisition-related intangibles decreased due to certain intangibles becoming fully amortized.

      Logic and Memory Products Group. Logic and Memory revenue declined in 2004 due to the phase out of our Memory product line, which was completed at the end of the second quarter of 2004. Excluding Memory (which was $5.6 million and $17.2 million in 2004 and 2003, respectively), revenues increased 8% due to a 14% improvement in average selling prices resulting from a richer product mix and pricing improvements, particularly in mature logic and low voltage products, in the first half of 2004. During the second half, prices began to soften. Unit volumes decreased approximately 6% from 2003 levels, across virtually all products due to constrained wafer supplies during the first half which resulted from the company’s asset-light strategy for these products. Gross profits improved year over year due to the improved pricing and product mix as well as increased factory utilization. Gross profit includes $(1.7) million sales reserve releases, recorded in revenue in 2004 due to a change in distributor reserve estimates. An inventory reserves release of $0.3 million recorded in cost of sales in 2004. Gross profit in 2003 includes $3.1 million of sales reserves and $2.2 million of inventory charges, both associated with our 2003 restructuring actions. Both were associated with the discontinuation of certain products in connection with our 2003 restructuring actions.

      Logic and Memory had operating income (loss) of $14.1 million in 2004 compared to $(5.9) million in 2003. The increase in operating income was a result of the gross profit improvements as well as decreases in SG&A and R&D expenses. SG&A expenses decreased due to the consolidation of selling functions and the discontinuation of allocated expenses to the memory product line. R&D expenses decreased due to the elimination of spending on Memory-related products as well as a refocus of resources to our strategic power related development.

Year Ended December 29, 2003 Compared to Year Ended December 30, 2002

      Total Revenues. Total revenues were down 1.1% to $1,395.8 million in 2003 compared to $1,411.9 million in 2002. Revenues were impacted in 2003 by the continued semiconductor industry recession, as well as the effect of severe acute respiratory syndrome (SARS), particularly in the middle part of 2003. The units shipped were nearly flat year over year, but pricing pressures, particularly in our Analog and Logic and Memory product lines, drove revenues lower.

      As a percentage of sales, geographic sales for the United States, Other Americas, Europe, China, Taiwan, Other Asia/ Pacific (which for our geographic reporting purposes includes Japan and Singapore and excludes Korea) and Korea were as follows for 2003 and 2002:

      Gross Profit. For 2003, gross profit includes sales reserves of $5.5 million and inventory reserves of $4.0 million in connection with product discontinuations as a result of our various restructuring actions. For 2002, gross profit includes inventory reserves of $1.6 million in connection with the Analog restructuring action. The remaining decrease in gross profit was a result of continued pricing pressures across most product lines, partially offset by on-going manufacturing cost reductions (see separate product line discussions below).

      Operating Expenses. During 2003, in our continued response to the semiconductor industry downturn, we implemented many cost reduction efforts to reduce our operating expenses. We reprioritized R&D activities on products and technologies in support of power semiconductors and cut costs in R&D for other non-focus areas. The increases in SG&A were the result of the resumption of certain employee-related benefits in 2003. These spending increases were partially offset by further cuts in discretionary spending as well as workforce reductions.

      The decrease in amortization of acquisition-related intangibles is due to certain intangibles becoming fully amortized during the first quarter of 2003.

      Due to the downturn in the semiconductor industry and in order to align our cost structure with our revenues, during 2003 we continued to look at the rationalization of both our manufacturing operations and our workforce levels. As a result, the company recorded restructuring and impairment charges of $66.6 million in 2003. These charges included $29.5 million of employee separation costs for severance and other costs associated with workforce reduction actions undertaken during the year, including the closure of our six-inch fab in Mountaintop, PA, the closure of the four-inch fab in South Portland, ME, the plant closures in Wuxi, China and Kuala Lumpur, Malaysia, and $36.5 million of impairment, decommissioning and other exit costs relating to the closure of our above referenced fab and plant closures, as well as asset impairment charges in Bucheon, South Korea. As a result of the restructuring plans commenced during 2003, we completed actions expected to result in cost savings of approximately $14.0 million on an annualized basis when compared to our cost structure during the fourth quarter of 2003. For actions initiated during 2003 and finalized in 2004, original estimates were to achieve $17.0 to $23.0 million of additional annualized cost savings. Restructuring and impairments of $12.2 million were recorded in 2002. These charges included $10.6 million of employee separation costs for severance and other costs associated with workforce reduction actions undertaken during the year, $1.0 million for contract termination costs and $0.6 million of impairment charges related to the closure of our Carlsbad, California facility. As a result of the restructuring plans completed during 2002, we achieved approximately $18.0 million in annualized cost savings when compared to our cost structure at the beginning of 2002. For further detailed disclosure relating to our restructuring and impairment charges during 2002 and 2003, please see Item 8, Note 12 of this report.

      In 2003, IPR&D resulted from the purchase of Raytheon’s non-military RF components business completed in the fourth quarter of 2003. In 2002, IPR&D resulted from our acquisitions of I-Cube and Signal Processing Technologies, Inc. (“SPT”). These charges were considered immaterial for 2003 and 2002.

      A gain on the sale of our space and defense product line was recorded in 2002 that did not reoccur in 2003. As a result of the sale of our space and defense product line for $29.6 million, a pre-tax gain on sale of $21.1 million was recorded. The net carrying value of the assets sold consisted primarily of inventory ($2.6 million), developed technology ($5.2 million), and customer contracts, net of certain liabilities ($0.7 million) not assumed by the buyer.

      Interest Expense. The decrease in interest expense was principally the result of the redemption of $285.0 million of 10¹/8% senior subordinated notes on June 28, 2002 as well as the redemption of $300 million of 10³/8% senior subordinated notes on June 19, 2003. Reduced interest from these redemptions is partially offset by interest on our $300 million term loan which carried an interest rate of approximately 3.6875% at December 28, 2003.

      Interest Income. The decrease in interest income was due to a lower interest rate environment in 2003.

      Other Expense. During 2003, we recorded other expense of $23.4 million associated with the redemption of our 10³/8% senior subordinated notes and the refinancing of our revolving line of credit. These costs included $17.4 million for the call premium on the 10³/8% senior subordinated notes and other transaction fees

and a $6.0 million non-cash write-off of deferred financing fees associated with the original bond offering and revolving line of credit. During 2002, we recorded other expense of $22.1 million associated with the redemption of our 10¹/8% senior subordinated notes. These costs included $14.5 million for the call premium on the 10¹/8% senior subordinated notes and other transaction fees and a $7.6 million non-cash write-off of deferred financing fees associated with the original bond offering.

      Income Taxes. The effective tax rate was 24.9% on loss before taxes of $108.5 million and 84.7% on loss before taxes of $16.4 million for 2003 and 2002, respectively. The change in the effective tax rate in 2003 as compared to 2002 was due to changes in the magnitude and location of taxable income (loss) among taxing jurisdictions. Changes in the location of taxable income (loss) could result in significant changes in the effective tax rate.

      Comparative disclosures of revenue and gross profit of our reportable segments are as follows:

      Analog and Mixed Signal Products Group. The decrease in Analog revenue was driven primarily by declining average selling prices on slightly higher unit volumes (4%), across virtually all products. Consistent with the overall Analog market, these pricing pressures continued throughout 2003 due to factory utilization at historically low levels. Markets in all regions were soft, particularly in Asia where the SARS epidemic drove significant demand and pricing weakness during the second and third quarters of 2003. Gross profits declined year over year due to the previously discussed pricing pressures and weak economic climate. The decreases during 2003 also include $0.2 million of sales reserves included in revenue, and $0.5 million of inventory charges included in cost of sales, both associated with the discontinuation of certain products in connection with our restructuring actions, offset by a $1.6 million inventory charge included in cost of sales in 2002, associated with the Analog restructuring action. Starting in late 2003, demand, unit shipments and gross profits for analog products improved, primarily due to a recovery in Asia and new product success in analog switches.

      Analog had operating income (loss) of $(4.4) million in 2003 compared to $27.8 million in 2002. The decrease in Analog’s operating income was consistent with declines in gross profits due to the previously discussed severe pricing pressure and lower factory utilization throughout most of 2003. R&D and SG&A expenses were roughly flat year over year. Strategic R&D spending was maintained despite tough economic conditions, which proved vital to improved market share in 2004.

      Discrete Products Group. The increase in Discrete revenues was due to increased average selling prices somewhat offset by lower unit volumes (3%). The increase in prices and decrease in unit volumes was somewhat offset by the Small Signal business, which is categorized by low average selling prices and high unit volumes. The increases in average selling prices were also partially offset by the divestiture of the space and defense product line, which was characterized by high margins and high average selling prices. Excluding $6.6 million of revenues in 2002 related to the space and defense product line, which we divested, Discrete revenues increased approximately 7% over 2002, primarily from our power Discrete products. These products showed strength in computing and communications segment, particularly in the second half of 2003 as the industry rebounded from the SARS epidemic in Asia. While revenues increased, gross profits were roughly flat primarily due to the divestiture of the space and defense product line, which as discussed, historically was characterized with higher margins. Gross profits in 2003 also include $2.2 million of sales reserves and

$1.3 million of inventory, both associated with the discontinuation of certain products in connection with our restructuring actions.

      Discrete had operating income of $46.9 million in 2003 as compared to $45.4 million in 2002. The increase in operating income was due primarily to certain intangible assets becoming fully amortized at the end of 2002. R&D expenses increased slightly due to the RF acquisition in the fourth quarter of 2003. SG&A expenses were flat as a percentage of sales.

      Logic and Memory Products Group. The decrease in Logic and Memory revenues was driven primarily by a sharp decline in average selling prices on roughly flat unit volumes, particularly in our mature Logic products. Advanced Logic and Tiny Logic® products also experienced significant pricing pressures; however unit volume improvement nearly offset the declines in selling prices. Gross profits also declined year over year due to the previously discussed pricing pressures, particularly in Korea and Asia, and lower factory utilization due to a change in product mix. The decreases during 2003 also include $3.1 million of sales reserves and $2.2 million of inventory charges, both associated with the discontinuation of certain products in connection with our restructuring actions. During 2003, we also announced the exit from our Memory business, which contributed to already existing revenue declines. The revenues for Memory declined 23% from 2002.

      Logic and Memory had operating income (loss) of $(5.9) million in 2003, compared to $0.9 million in 2002. The decrease in Logic and Memory’s operating income was a result of gross profit declines due to the pricing pressures and industry conditions discussed above. These declines were offset slightly by lower R&D spending in our mature product lines as well as lower SG&A expenses. The reduction in spending was due to cost cutting in response to declining market conditions.

In-Process Research and Development

      The company incurred charges for in-process research and development (IPR&D) of $2.1 million and $1.7 million in 2003 and 2002, respectively. These charges were considered immaterial for 2003 and 2002.

Off-Balance Sheet Arrangements

      The company has an off-balance sheet loan guarantee, totaling $2.9 million. For further information, please see Note 14 of Item 8, Consolidated Financial Statements and Supplementary Data.

Liquidity and Capital Resources

      At December 26, 2004 we had a borrowing capacity of $180.0 million on a revolving basis for working capital and general corporate purposes, including acquisitions, under our senior credit facility. Adjusted for outstanding letters of credit, we had up to $179.6 million available under this senior credit facility. We had additional outstanding letters of credit of $0.9 million and guarantees totaling $2.9 million that were issued on behalf of unaffiliated companies with which we currently have a strategic investment or relationship. At December 26, 2004, we also had $14.9 million of undrawn credit facilities at certain of our foreign subsidiaries. These amounts outstanding do not impact available borrowings under the senior credit facility.

      Our senior credit facility, which at December 26, 2004 included the $300 million term loan (since increased to $450 million in connection with the debt restructuring discussed below) and a $180 million revolving line of credit, the indentures governing our 5% 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 measures such as a minimum interest coverage ratio, a maximum senior leverage ratio and a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) less capital expenditures

measure. At December 26, 2004, the company was in compliance with these covenants, and our retained earnings were free from any of the restrictions listed above. 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. In January 2005 we amended our senior credit facility, replacing our $300 million term loan with a $450 million term loan, using the proceeds plus approximately $216 million of existing cash to redeem our 10¹/2% Senior Subordinated Notes due 2009. The covenants on the amended facility, while slightly more favorable to the company, include substantially similar restrictions as noted above.

      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 had capital expenditures of $190.3 million in 2004. This capital primarily was spent to expand capacity in support of in-sourcing of assembly and test capacity, including construction of our new facility in Suzhou, China, to add capacity in our eight-inch Mountaintop, Pennsylvania facility, to support cost reduction projects in our manufacturing facilities and to fund 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 December 26, 2004, our cash and cash equivalents were $146.3 million, a decrease of $23.2 million from December 28, 2003. As of December 26, 2004, our short-term marketable securities and long-term marketable securities were $422.1 million and $124.0 million, respectively, an increase of $44.7 million and $43.6 million, respectively, as compared to December 28, 2003. Included in the short-term marketable securities are auction rate securities in which the company invests to help maintain liquidity. These securities have long-term underlying maturities, but are sold in a market which is highly liquid with interest rates reset every 7, 28, or 35 days. The company’s practice is to not hold these underlying securities to maturity but to take advantage of this interest rate reset feature to provide short-term liquidity for the company at advantageous yields when compared to cash equivalents. As of December 26, 2004, the company held $411.8 million of auction rate securities, an increase of $50.2 million from December 28, 2003.

      During 2004, our operations provided $244.7 million in cash compared to $126.3 million of cash in 2003. The increase in cash provided by operating activities is primarily due to an increase in net income of $140.7 million. Changes in non-cash items are primarily due to a decrease in non-cash restructuring and impairment expenses, and a change in deferred income taxes. Changes in operating assets and liabilities reflect an increase in both accounts receivable and inventory, which is attributable to an increase in revenue. While accounts receivable and inventory have increased, our DSO have improved compared to prior year. Inventory turns decreased slightly from 5.1 in 2003 to 4.9 in 2004. The increase in current liabilities is due to an increase in payroll related accruals, as well as an $11.0 million reserve for estimated potential settlement losses, for which there is no comparable amount in 2003.

      Cash used in investing activities during 2004 totaled $279.6 million compared to $291.8 million in 2003. The change resulted primarily from a net decrease of purchases of marketable securities offset by increased capital spending.

      Cash provided by (used in) financing activities was $11.7 million in 2004 compared to $(0.7) million in 2003. The increase in cash provided by financing activities is primarily due from proceeds from the issuance of common stock and exercise of stock options, net and lower debt issuance costs as compared to 2003.

      The following table below summarizes our significant contractual obligations as of December 26, 2004, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

      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. Obligations under these arrangements are included in (5) above.

      We also enter into contracts for outsourced services; however, the obligations under these contracts were not significant at December 26, 2004 and the contracts generally contain clauses allowing for cancellation without significant penalty.

      The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

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 and 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, income taxes and reserves for potential settlement losses. 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 and Sales Reserves. No revenue is recognized unless there is persuasive evidence of an arrangement, the price to the buyer is fixed or determinable, delivery has occurred and collectibility of the sales price is reasonably assured. Revenue from the sale of semiconductor products is recognized when title and risk of loss transfers to the customer, which is generally when the product is shipped to the customer from our facility. We also receive revenues from manufacturing wafers under contracts with other semiconductor suppliers, such as National Semiconductor and Samsung Electronics, who have sold us their wafer manufacturing facilities and require a continued source of wafer supply after the sales. Contract manufacturing revenue is recorded at the time title to the wafer and risk of loss passes to the customer, assuming all other revenue recognition criteria have been satisfied. Shipping costs billed to our customers are included within revenue. Associated costs are classified in cost of goods sold.

      Approximately 65% of the company’s revenues are sold through distributors. Distributor payments are not contingent upon resale or any other matter other than the passage of time. The company has agreements with some distributors and customers for various programs, including prompt payment discounts, pricing protection, scrap allowances and stock rotation. In general, credits allowed under these programs are capped based upon individual distributor agreements. The company records charges associated with these programs as a reduction of revenue based upon historical activity. The company’s policy is to use a three to six month rolling historical experience rate in order to estimate the necessary allowance to be recorded. In addition, the products sold by the company are subject to a limited product quality warranty. The company accrues for estimated incurred but unidentified quality issues based upon historical activity and known quality issues if a loss is probable and can be reasonably estimated. The standard limited warranty period is one year. Quality returns are accounted for as a reduction of revenue. Historically, we have not experienced material differences between our estimated sales reserves and actual results.

      In some cases, title and risk of loss do not pass to the customer when the product is shipped from our facility. In these cases, the company recognizes revenue at the time when title and risk of loss is transferred, assuming all other revenue recognition criteria have been satisfied. These cases include several inventory locations where we manage the inventory for our customers, some of which are at customer facilities. In such cases, revenue is not recognized when products are shipped to these locations; rather, revenue is recognized when customers take the inventory from the location for their use.

      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 each subsequent year, and in these 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:

      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. Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred taxes are not provided for the undistributed earnings of the company’s foreign subsidiaries that are considered to be indefinitely reinvested outside of the U.S. in accordance with Accounting Principles Board (APB) opinion No. 23, Accounting for Income Taxes — Special Areas.

      The company makes judgments regarding the realizability of its deferred tax assets. In accordance with SFAS No. 109, Accounting for Income Taxes, the carrying value of the net deferred tax assets is based on the belief that it is more likely than not that the company will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets after consideration of all available positive and negative evidence. Future realization of the tax benefit of existing deductible temporary differences or carryforwards ultimately depends on the existence of sufficient taxable income of the appropriate character within the carryback and carryforward period available under the tax law. Future reversals of existing taxable temporary differences, projections of future taxable income excluding reversing temporary differences and carryforwards, taxable income in prior carryback years, and prudent and feasible tax planning strategies that would, if necessary, be implemented to preserve the deferred tax asset may be considered to identify possible sources of taxable income.

      In assessing the realizability of U.S. deferred tax assets (primarily net operating losses), the company considers its levels of historical, current, and estimated future taxable earnings and the expected timing of the reversal of taxable temporary differences. Due to the cyclical nature of the semiconductor industry and the

resulting difficulty that cyclicality drives in the company’s forecasting, part of the analysis used in projecting future taxable income utilizes historical data from the company’s inception as a baseline. The nearly 8 years the company has been in existence is representative of the swings in the industry and using the cumulative history of the company (Fiscal years 1997 to 2004) is considered the best approach to establishing a baseline model for how our business performs through an industry cycle. The company considers both positive and negative evidence when estimating future taxable earnings required to realize deferred tax assets. While a history of cumulative recent U.S. taxable losses provides negative evidence, it is offset by positive evidence of long loss carryforward periods and significantly lower interest expense resulting from recent and expected future debt refinancing and paydown, as well as higher future projected U.S. cashflows which should increase U.S. interest income. Net operating losses do not begin to expire until 2018. In recent restructurings, sub-performing assets have been disposed allowing the company to focus on increasing its leading position in the power semiconductor market.

      Valuation allowances have been established for deferred tax assets which the company believes do not meet the “more likely than not” criteria established by SFAS No. 109. Judgments regarding future taxable income may be revised due to changes in market conditions, tax laws, or other factors. If the company’s assumptions and estimates change in the future, then the valuation allowances established may be increased, resulting in increased income tax expense. Conversely, if the company is ultimately able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then the related portion of the valuation allowance will be released to income as a credit to income tax expense.

      The calculation of the company’s tax liabilities includes addressing uncertainties in the application of complex tax regulations in a multitude of jurisdictions. The company recognizes liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on the company’s estimate of whether, and the extent to which, additional taxes would be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period in which it is determined the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate assessment, a further charge to expense would result. Uncertainties are recorded in accordance with Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies.

      Loss Contingencies. The outcomes of legal proceedings and claims brought against us are subject to significant uncertainty. SFAS No. 5, Accounting for Contingencies, requires that an estimated loss from a loss contingency such as a legal proceeding or claim should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. In determining whether a loss should be accrued we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. We regularly evaluate current information available to us to determine whether such accruals should be adjusted. Changes in our evaluation could materially impact our financial position or our results of operations.

Forward Looking Statements

      This annual 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 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 second update is within a press release issued approximately two months into each quarter. The business outlook below is consistent with the outlook included in our January 25, 2005 press release announcing fourth quarter and full year 2004 results, as updated in our press release dated March 2, 2005. The current business outlook is accessible at the Investor Relations section of our website at http://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 first quarter of 2005 will be from March 14, 2005 to April 14, 2005, when we plan to release our first quarter 2005 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

      For first quarter of 2005, we expect our revenues to be down 2 to 6% sequentially and gross margins to be about 200 basis points lower sequentially, due mainly to seasonally lower demand, pricing pressure, and lower utilization rates due to our plans to reduce inventory in the distribution channel. At the end of 2004, inventories at our distributors were approximately 15 weeks, which is above our targeted level of 13 weeks. We expect lower interest expenses from the calling of our 10¹/2% senior subordinated notes and lower interest rates on our newly amended term loan to help offset the impact of lower margins on our earnings. We expect net interest expense to be approximately $10 million in the first quarter and $6.0 — $6.2 million in the second quarter and beyond, based on current LIBOR rates. We will incur a one-time charge of approximately $24.0 million in the first quarter for the call premium and for the write-off of deferred financing fees associated with our redeemed 10¹/2% notes.

      For the first quarter of 2005, we expect R&D and SG&A to be roughly flat in dollars to the prior quarter. We anticipate capital expenditures for 2005 to be in the range of 8 — 10% of sales. We forecast the 2005 tax rate to be 25%.

      After the call of our senior subordinated notes was completed in February, our balance sheet is significantly stronger. As of March 11, 2005, we now have $450 million in senior bank debt which matures in 2010, $200 million in senior subordinated convertible bonds which mature in 2008, approximately $470 million in cash and marketable investments and a $180 million revolving line of credit which we expect to remain undrawn. Our debt to equity ratio will improve to approximately 0.5 to 1.

Recently Issued Financial Accounting Standards

      In March 2004, the Financial Accounting Standards Board (FASB) approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. The Issue’s objective is to provide guidance for identifying other-than-temporarily impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF 03-1-1 that delays the effective date of the measurement and recognition guidance in

EITF 03-1 until further notice. The disclosure requirements of EITF 03-1 are effective with this annual report for fiscal 2004. Once the FASB reaches a final decision on the measurement and recognition provisions, the company will evaluate the impact of the adoption of the accounting provisions of EITF 03-1.

      In December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004. The American Jobs Creation Act of 2004 (AJCA) introduces a special 9% tax deduction on qualified production activities. FSP 109-1 clarifies that this tax deduction should be accounted for as a special tax deduction in accordance with SFAS No. 109. We do not expect the adoption of theses new tax provisions to have a material impact on our consolidated financial position, results of operations or cash flows.

      In December 2004, the FASB issued FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. The AJCA introduces a limited time 85% dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer (repatriation provision), provided certain criteria are met. FSP 109-2 provides accounting and disclosure guidance for the repatriation provision. The company is in the process of winding down operations in its Kuala Lumpur facility. As such, it is anticipated that a dividend distribution will be made in fiscal year 2005. The estimated amount of the dividend is $3.6 million. Taxes of $0.2 million were accrued at the end of fiscal year 2004 utilizing the special one time 85% dividend received deduction. The company has not yet completed its evaluation of the repatriation provisions as it is awaiting for additional clarifying language on key elements of the repatriation provision to be issued by the U.S. Treasury Department. The company expects to complete its final evaluation in FY05 within a reasonable period of time after such clarification is issued. Until such time, the company will make no change to its current intention to indefinitely reinvest the undistributed earnings of those foreign subsidiaries. The maximum amount of undistributed earnings that the company can repatriate, as limited under the AJCA, is up to $500 million. The range of possible amounts qualifying as dividends of foreign earnings is between zero and approximately $400 million. The range of income tax effects of such repatriation is between zero and approximately $33 million.

      In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share Based Payment. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement is effective for fiscal periods beginning after June  15, 2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition. We are currently evaluating these transition methods. The adoption of SFAS 123R is expected to have a material impact to our results of operations. See Note 2 of Item 8, Consolidated Financial Statements and Supplementary Data.

      In December 2004, the FASB issued SFAS No. 153, Exchanges for Nonmonetary Assets. This statement amends APB Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. This statement is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material affect on our results of operations or financial position.

      In November 2004, the FASB issued SFAS No. 151, Inventory Costs. This statement amends the guidance in Accounting Research Bulletin (ARB) No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement is effective for fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 151 is not expected to have a material affect on our results of operations or financial position.

      We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes. All of the potential changes noted below are based on

sensitivity analyses performed on our financial position at December 26, 2004. Actual results may differ materially.

      We use currency forward and combination option contracts to hedge firm commitments and currency option contracts to hedge anticipated transactions. Beginning in 2001, similar instruments were also used to hedge a portion of our forecasted foreign exchange denominated revenues. Gains and losses on these foreign currency exposures would generally be offset by corresponding losses and gains on the related hedging instruments, resulting in negligible net exposure to us. A majority of our revenue, expense and capital purchasing activities are transacted in U.S. dollars. However, we do conduct these activities by way of transactions denominated in other currencies, primarily the Korean won, Malaysian ringgit, Philippine peso, Chinese yuan, Japanese yen, British pound, and the Euro. Unfavorable exposures to a strengthening Korean won have begun to increase due to a shift in our Korean customer base shipping more products for sale or final manufacturing to outside of Korea. As these customers prefer to fix prices or make payments in US dollars, our won-denominated revenue decrease limits our ability for a natural hedge against our won-denominated manufacturing costs. To protect against reductions in value and the volatility of future cash flows caused by changes in other foreign exchange rates, we have established hedging programs. We utilize currency option contracts in these hedging programs. Our hedging programs reduce, but do not always entirely eliminate, the short-term impact of foreign currency exchange rate movements. For example, during the twelve months ended December 26, 2004, an adverse change (defined as a 15% unfavorable move in every currency where the company has exposure) in the exchange rates of all currencies over the course of the year would have resulted in an adverse impact on income before taxes of approximately $8.5 million.

      We have no interest rate exposure due to rate changes for the 5% Convertible Senior Subordinated Notes. However, we do have interest rate exposure with respect to the senior credit facility due to the variable LIBOR pricing for both the term loan and the revolving credit facility. For example, a 50 basis point increase in interest rates would result in increased annual interest expense of $0.9 million for the revolving credit facility, assuming all borrowing capability was utilized. A 50 basis point increase in interest rates would result in increased annual interest expense of $1.5 million for the $300 million term loan. The increased annual interest expense due to a 50 basis point increase in LIBOR rates would be offset by an increase in interest income of $2.7 million on the average invested cash and investment balances during 2004. There was no outstanding balance on the revolving credit facility at December 26, 2004 or at any point during 2004. From time to time, we may enter into interest rate swaps or interest rate caps, primarily to reduce interest rate exposure. As of December 26, 2004, we had no such instruments in place.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Fairchild Semiconductor International, Inc.:

      We have audited the accompanying consolidated balance sheets of Fairchild Semiconductor International, Inc. and subsidiaries as of December 26, 2004 and December 28, 2003, and the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for each of the years in the three-year period ended December 26, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fairchild Semiconductor International, Inc. and subsidiaries as of December 26, 2004 and December 28, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 26, 2004, in conformity with U.S. generally accepted accounting principles.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Fairchild Semiconductor International, Inc.’s internal control over financial reporting as of December 26, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Boston, Massachusetts

March 10, 2005

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See accompanying notes to consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements.

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY