Fairchild SemiConductor International 10-Q

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

The number of shares outstanding of the issuer’s classes of common stock as of the close of business on March 28, 2004:

The accompanying interim consolidated financial statements of Fairchild Semiconductor International, Inc. (the “company”) have been prepared in conformity with accounting principles generally accepted in the United States of America, consistent in all material respects with those applied in the company’s Annual Report on Form 10-K for the year ended December 28, 2003. The interim financial information is unaudited, but reflects all normal adjustments, which are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented. The financial statements should be read in conjunction with the financial statements in the company’s Annual Report on Form 10-K for the year ended December 28, 2003. Certain amounts for prior periods have been reclassified to conform to the current presentation.

We calculate earnings per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share. Basic net earnings per share is computed using the weighted average number of common shares outstanding during the period. The dilutive effect of the common stock equivalents is included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Potentially dilutive common equivalent shares consist of stock options, deferred stock units (DSU’s) and shares obtainable upon the conversion of the convertible senior subordinated notes.

As a result of the net loss reported for the three months ended March 30, 2003, approximately 0.9 million common equivalent shares have been excluded from the calculation of diluted net loss per common share because their effect would have been anti-dilutive. In addition, $1.7 million was not included in the computation of net income (loss) for the three months ended March 28, 2004 and March 30, 2003, and 6.7 million potential common shares were not included in the computation of diluted earnings per share as a result of the assumed conversion of the convertible senior subordinated notes because the effect would have been anti-dilutive.

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

The weighted average fair value of options granted was $26.16 for the first quarter of 2004, and $11.47 in the first quarter of 2003. The fair value of each option grant for the company’s plans is estimated on the date of the grant using the Black-Scholes option pricing model, with the following weighted average assumptions.

During the three months ended March 28, 2004, there were no changes to the carrying amount of goodwill due to acquisitions or divestitures. Identified reporting units which carry goodwill include domestic analog and domestic discrete, which are included in the Analog and Discrete segments, respectively, and Optoelectronics, which does not meet the requirements of a reportable segment as defined in SFAS No. 131.

The estimated amortization expense for the remainder of Fiscal 2004 and for each of the five succeeding fiscal years is as follows:

The company is currently organized into three reportable segments: Analog and Mixed Signal Products Group, Discrete Products Group and Logic and Memory Products Group.

The company has determined that its Optoelectronics Group does not meet the threshold for a separate reportable segment under SFAS No. 131, and accordingly this segment’s results are included as part of the “Other” category for all periods presented. Also included in “Other” is the contract manufacturing business.

Management evaluates the contract manufacturing business differently than its other operating segments due in large part to the fact that it is predominantly driven by contractual agreements for limited time periods entered into with National Semiconductor and Samsung Electronics.

Selected operating segment financial information for the three months ended March 28, 2004 and March 30, 2003 is as follows:


(1)	Other includes $3.8 million of restructuring in the first quarter of 2004, and $10.4 million of restructuring in the first quarter of 2003.

During the three months ended March 28, 2004, the company recorded a restructuring charge of $3.8 million. The restructuring charge included $2.5 million relating to our 6” Mountaintop, PA closure, primarily associated with the decommissioning of certain assets, $0.2 million of asset impairment charges relating to the discontinuation of our Memory product line, $0.9 million reversal of employee separation costs related to fewer than anticipated headcount reduction actions related to the 4” closure in South Portland, ME, an additional $0.9 million primarily relating to decommissioning of certain assets relating to the closure of our 4” South Portland, ME closure, $0.2 million of additional charges relating to the closure of our Kuala Lumpur, Malaysia plant and $0.9 million of employee separation costs relating to the severance for approximately 15 employees in the United States associated with on-going infrastructure alignment projects.

In addition, the company recorded charges of $(1.9) million and $0.9 million of distributor and inventory reserves, recorded in revenues and cost of sales, respectively, associated with our 2003 restructuring actions.

$1.5 million for exit costs associated with the decommissioning of certain assets and $0.5 million in expected lease termination and other exit costs.

In addition, we recorded $1.0 million for first quarter employee separation costs associated with the termination of approximately 20 employees and $0.5 million of asset impairments associated with our analog restructuring actions. The headcount actions relating to the first quarter 2003 actions were completed by the end of the third quarter 2003 and impacted manufacturing and non-manufacturing personnel, primarily in the United States.

In addition, the company recorded a charge of $2.2 million of additional distributor reserves as a reduction of revenues as a result of the discontinuation of certain products in connection with the 6” fab closure.

The following table summarizes the activity in the company’s accrual for restructuring and impairment costs for the three months ended March 28, 2004 (in millions):

The company expects that all amounts, other than charges related to the first quarter of 2004 restructuring program, will be paid by the end of 2004. The company expects that amounts for the first quarter 2004 restructuring program will be paid by the end of 2005.

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

Changes in the fair value of derivative instruments related to time value are included in the assessment of hedge effectiveness. Hedge ineffectiveness, determined in accordance with SFAS No. 133 and SFAS No. 138, had no impact on earnings for the three months ended March 28, 2004. No cash flow hedges were derecognized or discontinued for the three months ended March 28, 2004.

Derivative gains and losses included in other comprehensive income (OCI) are reclassified into earnings at the time the forecasted transaction revenue is recognized. The company estimates that the entire $(0.4) million of net unrealized derivative loss included in OCI will be reclassified into earnings within the next twelve months.

From time to time since late 2001, the company has 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. In August 2002 the company filed a lawsuit against the mold compound supplier, Sumitomo Bakelite Singapore Pte. Ltd. and other related parties, seeking unspecified damages, including damages caused to our customers. Other manufactures have also filed lawsuits against the supplier in connection with the mold compound issue. The company’s lawsuit is pending in California Superior Court for Santa Clara County. The company is unable to predict or determine the outcome of this litigation, and there can be no assurances that the company will prevail, nor can the company predict the amount of damages the company may recover if the company does prevail. Although the company has not been sued by any of our customers as a result of this matter, several of our customers have threatened to begin litigation if their claims are not resolved according to their demands, and the company may face lawsuits as a result. The company has limited insurance coverage for such customer claims. Based on the company’s assessment of the claims to date, taking into account factors the company believes are relevant, the company believes it to be reasonably possible that current claims may be in excess of the company’s insurance limits. At this time the company is unable to reasonably estimate any range of possible loss which may be incurred as a result of any customer claims or payments the company may make in excess of insurance coverage, and accordingly the company has made no provisions for such claims in our consolidated statement of operations. If the company continues to receive additional claims for damages from customers beyond the period of time normally observed for such claims, or if these claims proceed to litigation, or if the company chooses to settle claims in settlement of or to avoid litigation, then the amount necessary to resolve such claims may adversely affect the company’s financial results or financial position.

The company operates through its wholly owned subsidiary Fairchild Semiconductor Corporation and other indirect wholly owned subsidiaries. Fairchild Semiconductor International, Inc. and certain of Fairchild Semiconductor Corporation’s subsidiaries are guarantors under the 5% Convertible Senior Subordinated Notes and the Senior Subordinated Notes. These guarantees are joint and several. Accordingly, presented below are condensed consolidating balance sheets of Fairchild International as of March 28, 2004 and December 28, 2003 and related condensed consolidating statements of operations and cash flows for the three months ended March 28, 2004, and March 30, 2003.

Except as otherwise indicated in this Quarterly Report on Form 10-Q, 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.

From our beginning as an independent semiconductor company in 1997, we have grown both organically and through acquisitions, to become one of the top suppliers of power semiconductors in the world. Over these past seven years, we have focused on developing semiconductors 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 Korea and Asia regional markets, where we see the highest growth potential over the next several years. The combined effect of our organic and acquisition-driven growth, our ability to service multiple end markets, and our focus on growing in Asia have all contributed to us increasing our percent of revenue from power products from just 9% of total sales in 1997 to 74% of total sales in the first quarter of 2004. We have a wide portfolio of new products that leverage expertise in both analog and discrete power technologies. Some of our newest products combine both of these technologies and provide a total power management solution to our customers.

We believe gross margins and operating margins are key indices that reflect our progress in developing the right new products, as well as our ability to manufacture at low cost levels. Other key indices used by the company include factors such as days sales outstanding (DSO’s) and inventory turn ratios, which have improved slightly in the first quarter of 2004 in comparison to the first quarter of 2003. In addition, the company tracks factory utilization, which began to steadily increase during 2003 and in 2004, and continues to climb, causing average lead times to increase to 14 to 15 weeks in Q1 of 2004. As a result, we are accelerating capital expenditures into the first half of 2004 to support the higher demand. We also continue to focus on our cash and investment balances, and have reported 22 straight quarters of positive operating cash flow.

We believe the power semiconductor market will continue to grow as fast as or faster than the total semiconductor industry over the foreseeable future. Our strategy will be to continue to focus on developing new power process, packaging and circuit technology that will allow us to introduce power products that serve multiple end markets. We also plan to continue to invest 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.

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

Revenues. Revenues were $399.7 million in the first quarter of 2004, compared to $351.1 million in the comparable period of 2003. This 14% increase in revenues in the first quarter of 2004 compared to the first quarter of 2003 was driven primarily by continued growth in the power management market, including strong sales in our Asia region. Market conditions have also improved dramatically from the first quarter of 2003. Unit shipments and average selling prices were higher, helping to drive revenues higher in 2004.

As a percentage of sales, geographic sales for the United States, Other North America, Europe, Asia/ Pacific (which for our geographic reporting purposes excludes Korea) and Korea were as follows for the three months ended March 28, 2004 and March 30, 2003:

Gross Profit. Gross profit was $105.3 million, or 26.3% of sales for the three months ended March 28, 2004, compared to $77.5 million or 22.1% of sales in the comparable period of 2003. The increase in gross profit for the first quarter of 2004 compared to the same period of 2003 was a result of increased unit volumes, and improving average selling prices, due primarily from better product mix. For the first quarter of 2004, gross profit also included a $1.9 million net reversal of sales reserves and a $0.9 million inventory charge associated with the discontinuation of certain products in connection with our 2003 restructuring actions. For the first quarter of 2003, gross profit includes $2.2 million of sales reserves in connection with the discontinuation of certain products in connection with our 2003 restructuring actions.

Operating Expenses. In the first quarter of 2004, R&D expenses were 5.2% of sales compared to 5.4% of sales in the first quarter of 2003, which is roughly flat year over year. SG&A expenses were 10.4% of sales in the first quarter of 2004, compared to 11.2% of sales in the first quarter of 2003. The decrease in SG&A as a percentage of sales is due to roughly flat SG&A expenses on higher revenue.

Amortization of acquisition-related intangibles was $7.6 million in the first quarter of 2004, compared to $9.5 million in the first quarter of 2003. The decrease in amortization is due to certain intangibles becoming fully amortized during the fourth quarter of 2003.

The company recorded $3.8 million of restructuring and impairment charges in the first quarter of 2004. The restructuring charge included $2.5 million relating to our 6” Mountaintop, PA closure, primarily related to exit costs associated with the decommissioning of certain assets, $0.2 million of asset impairment charges relating to the discontinuation of our Memory product line, $0.9 million reversal of employee separation costs related to fewer than anticipated headcount reduction actions related to the 4” closure in South Portland, ME, an additional $0.9 million primarily relating to decommissioning of certain assets relating to the closure of our 4” South Portland, ME closure, $0.2 million of additional charges relating to the closure of our Kuala Lumpur, Malaysia plant and $0.9 million of employee separation costs relating to the severance for approximately 15 employees associated with on-going infrastructure alignment projects. The infrastructure alignment headcount actions are expected to begin in the first quarter of 2005, will impact 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 $0.9 million of severance related charges announced, the company anticipates cost savings of approximately $0.8 million on an annualized basis beginning in 2006.

During the first quarter of 2003, the company recorded a charge of $10.4 million. Related to our action to close the 6” Mountaintop, PA wafer fab, we recorded charges of $4.7 million to cover employee separation costs relating to the termination of approximately 170 employees, $2.2 million of asset impairments, $1.5 million for exit costs associated with the decommissioning of certain assets and $0.5 million in expected lease termination and other exit costs.

The asset impairments, decommissioning costs, lease termination costs and other exit costs relate primarily to the closure of the 6” wafer fab in Mountaintop, PA. Asset impairment charges were based upon available market quotations for similar equipment. As part of the decision to close the 6” wafer fab in Mountaintop, PA, the company intends to discontinue manufacturing certain products and transfer the remaining products to either the 8” wafer fab line in Mountaintop, PA, to Bucheon, South Korea or to third-party subcontractors. It is anticipated that the total cost of closing the 6” wafer fab in Mountaintop, PA will cost approximately $5 million for severance and $16 million for all other related costs and impairments. This closure is expected to be completed some time during the first half of 2004 and is expected to save the company approximately $10 million annually in manufacturing costs, including salary and benefits associated with the approximately 170 employees terminated. The estimated savings are based on comparisons to fourth quarter 2003 spending levels.

Interest Expense. Interest expense was $15.8 million in the first quarter of 2004, compared to $20.9 million in the comparable period of 2003. The decrease was principally the result of the redemption of $300 million of the 10 3/8% Senior Subordinated notes on June 19, 2003. This redemption is partially offset by interest on our new $300 million term loan.

Interest Income. Interest income was $2.6 million in the first quarter of 2004, compared to $2.5 million in the comparable period of 2003, which is roughly flat.

Income Taxes. Income tax provision (benefit) was $5.3 million for the first quarter of 2004, compared to $(1.5) million for the first quarter of 2003. The effective tax rate for the first quarter of 2004 was 29%,

compared to 8% for the first quarter of 2003. The change in the effective tax rate in 2004 as compared to 2003 was due to the changes in the magnitude and location of taxable income among taxing jurisdictions. The tax rate was calculated based upon actual tax rates for the quarter rather than using a projected annual tax rate due to the uncertainty of projecting annual taxable income by tax jurisdiction. Changes in the location of taxable income (loss) could result in significant changes in the effective tax rate.

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 increased demand and unit shipments for virtually all Analog products. The improvement was due primarily to a market recovery in the Asian markets and increases in new product sales in our Analog Switch and Power switch products. Unit volume increases (4%) offset a decline in average selling prices, which are a lingering effect of the 2003 market downturn. Despite pricing pressures, gross profits improved significantly. This improved gross profit was driven by a better product mix, higher factory utilization and increased manufacturing in-sourcing. Customer demand began increasing late in the third quarter of 2003 and is expected to continue. In the first quarter of 2004, gross profit includes $(0.2) million of sales reserve release 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 had operating income (loss) of $6.5 million for the first quarter of 2004, compared to $(3.9) million for the first quarter of 2003. The increase in operating income improved commensurate with the gross profit improvements. R&D expenses were slightly lower due to an improved and more focused R&D strategy. SG&A expenses decreased due primarily to a decrease in acquisition amortization. Excluding the decrease in acquisition amortization, SG&A expenses were roughly flat.

Discrete Products Group. Discrete revenue grew 24% in the first quarter of 2004 compared to the first quarter of 2003. Revenue growth came across all products, with particular growth in High Power and Low Power. High Power products had significant growth across all segments in the Asian markets, while Low Power products were particularly strong in the computing segment driven by notebooks, hard disk drives, ultraportables and DC/ DC power supplies. Average selling prices for power discrete products were roughly flat compared to the first quarter of 2003, while units grew nearly 30%. Average selling prices for small signal products increased 8% while units shipped dropped 14%. Overall, the gross profit and revenue improved as the product mix shifted toward power discrete products. Gross profit increased to 25.6% in the first quarter of 2004 from 21.7% in the same period of 2003. The increase is due to better product mix and increased capacity utilization at our factories. Gross profit includes a $(0.2) million sales reserve release and $2.2 million of sales reserves in the first quarter of 2004 and 2003, respectively, recorded in revenue and associated with the 6” Mountaintop, Pennsylvania fab closure.

Discrete had operating income of $23.1 million for the first quarter of 2004, compared to $10.2 million for the first quarter of 2003. The increase in operating income was a result of the growth in our gross profit as discussed above. R&D expenses increased in the first quarter of 2004 due to a focus on new technologies, including our Power Trench technology. SG&A expenses as a percentage of sales were roughly flat year over year.

Logic and Memory Products Group. The increase in Logic and Memory revenue was driven primarily by an increase in unit volumes and an increase in average selling prices, in sharp contrast to 2003 levels as customer demand has improved. Gross profit improved in the first quarter of 2004 due to an improved product mix and increased demand. In the first quarter of 2004, gross profit includes $(1.5) million of sales reserve release and $0.5 million of additional 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.

Logic and Memory had operating income of $3.8 million for the first quarter of 2004, compared to $0.4 million for the first quarter of 2003. The increase in operating income was a result of the previously discussed gross profit improvement. R&D expenses decreased due to an improved and more focused R&D strategy. SG&A expenses decreased as a result of the discontinuation of the Memory product line, and the discontinuation of allocated expenses to the Memory product line.

We have 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. At March 28, 2004, adjusted for outstanding letters of credit, we had up to $179.3 million available under this senior credit facility. At March 28, 2004, we had additional outstanding letters of credit of $0.7 million and guarantees totaling $4.9 million that were issued on behalf of unaffiliated companies with which we currently have a strategic investment or relationship. At March 28, 2004, we also had $12.9 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 includes the $300 million term loan and the $180 million revolving line of credit, the indentures governing our 10 1/2% Senior Subordinated Notes, 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 less capital expenditures measure. At March 28, 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. We believe that funds generated from operations, together with existing cash, will be sufficient to meet our debt obligations over the next twelve months. We expect that existing cash and available funds from our senior credit facility and funds generated from operations will be sufficient to meet our anticipated operating requirements and to fund our research and development and planned capital expenditures for the remainder of the year and for the next twelve months. We intend to invest approximately 10 to 11% of sales in 2004 on capital expenditures, including the $43.4 million we have spent through March 28, 2004. This capital primarily was spent to expand capacity in support of in-sourcing of assembly and test capacity, including investment of equipment at our new facility in Suzhou, China, to add capacity in our 8” Mountaintop, Pennsylvania facility, and to support cost reduction projects in our manufacturing facilities. We frequently evaluate opportunities to sell additional equity or debt securities, obtain credit facilities from lenders or restructure our long-term debt to further strengthen our financial position. The sale of additional equity or convertible securities could result in additional dilution to our stockholders. Additional borrowing or equity investment may be required to fund future acquisitions.

As of March 28, 2004, our cash and cash equivalents were $525.9 million, a decrease of $5.2 million from December 28, 2003. Our short term and long term marketable securities totaled $100.2 million, an increase of

During the first quarter of 2004, our operations provided $30.7 million in cash compared to $40.5 million of cash in the first quarter of 2003. The decrease in cash provided by operating activities reflects an increase in net income, change in the deferred income taxes, an increase in our accounts receivable balance due to improved business conditions and higher revenues, and a decrease in current liabilities due to payments made on operating accruals, severance-related accruals, and payments made relating to foreign tax accruals.

Cash used in investing activities during the first quarter of 2004 totaled $48.0 million, compared to $58.3 million used in the first quarter of 2003. The decrease primarily results from a net decrease in purchases of marketable securities and an increase, offset by an increase in capital expenditures.

Cash provided by financing activities of $12.1 million for the first quarter of 2004 was primarily from proceeds from the exercise of stock options. Cash used in financing activities of $0.6 million for the first quarter of 2003 was primarily the repayment of long-term debt and the purchase of treasury stock, offset by the proceeds from the issuance of common stock and exercise of stock options.

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.

This quarterly report includes “forward-looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “we believe,” “we expect,” “we intend,” “may,” “will,” “should,” “seeks,” “approximately,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negative of those terms or other comparable terms, or by discussions of our strategy, plans or future performance. For example, the Outlook section below contains numerous forward-looking statements. All forward-looking statements in this 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.

It is our current policy to update our business outlook at least twice each quarter. The first update is near the beginning of each quarter, within the press release that announces the previous quarter’s results. The business outlook below is consistent with the outlook included in our April 15, 2004 press release announcing first quarter results. The second update is within a press release issued approximately two months into each quarter. The current business outlook is accessible at the Investor Relations section of our website at 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 second quarter of 2004 will be from June 12, 2004 to July 15, 2004, when we plan to release our second quarter 2004 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 filings 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.

For the second quarter of 2004, we expect an increase in revenues of approximately 5% over the first quarter. We also expect gross profits to increase 200 basis points due to better product mix, lower costs, and an improving pricing environment. We intend to spend between 10 to 11% of sales on capital expenditures during 2004. Our focus is on accelerating capacity additions to drive higher sales and to support our customers’ growing demand.

We expect interest expense to be approximately $14 million in the second quarter and amortization of acquisition-related intangibles to decrease to approximately $6.1 million per quarter for the remainder of 2004.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. Interpretation No. 46 clarifies Accounting Research Bulletin No. 51, Consolidated Financial Statements related to whether companies should consolidate certain entities, called variable interest entities, for which there is no controlling financial interest but have characteristics of a controlling interest in place, called a variable interest. Interpretation No. 46 is effective immediately for variable interest entities created after January 31, 2003. The provisions, as amended, are effective for the first interim or annual period ending after December 15, 2003 for those variable interests held prior to February 1, 2003. FIN No. 46 currently has not had an impact on our results of operations or financial position.

Our business is subject to a number of risks and uncertainties. Among other things, these risks could cause actual results to differ materially from those expressed in forward-looking statements. 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 last year 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.

Downturns in the highly cyclical semiconductor industry or changes in end user market demands could reduce the value of our business.

The semiconductor industry is highly cyclical, and the value of our business may decline during the “down” portion of these cycles. Beginning in the fourth quarter of 2000 and continuing 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 has only recently experienced a recovery in orders. 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, and in 2003 we sold approximately the same numbers of units, 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 personal computers, cellular telephones and consumer electronics and automotive and industrial goods, and these end user markets may experience changes in demand that will adversely affect our prospects.

We may not be able to develop new products to satisfy changes in consumer demands.

Our failure to develop new technologies, or react to changes in existing technologies, could materially delay development of new products, which could result in decreased revenues and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. We may not successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Many of our competitors are larger, older and well established international companies with greater engineering and research and development resources than us. A fundamental shift in technologies in our product markets that we fail to identify or capitalize on relative to our competitors could have a material adverse effect on our competitive position within our industry.

Our failure to protect our intellectual property rights could adversely affect our future performance and growth.

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


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

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

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

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

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 involved in lawsuits, and could become subject to other lawsuits, in which it is alleged that we have infringed upon the patent or other intellectual property rights of other companies. Our involvement in existing and future intellectual property litigation, or the costs of avoiding litigation by purchasing licenses rights or by other means, could result in significant expense to our company, adversely affecting sales of the challenged product or technologies and diverting the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. In the event of an adverse outcome as a defendant in any such litigation, we may be required to:


	•	pay substantial damages;

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

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

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

	•	discontinue manufacturing processes; or

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

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

We may not be able to consummate future acquisitions or successfully integrate acquisitions into our business.

We have made 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 constantly 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


	•	unexpected losses of key employees, customers or suppliers of the acquired company;

	•	conforming the acquired company’s standards, processes, procedures and controls with our operations;

	•	coordinating new product and process development;

	•	hiring additional management and other critical personnel;

	•	negotiating with labor unions; and

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

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

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

We depend on suppliers for timely deliveries of raw materials of acceptable quality. Production time and product costs could increase if we were to lose a primary supplier or if a primary supplier increased the prices of raw materials. Product performance could be affected and quality issues could develop as a result of a significant degradation in the quality of raw materials we use in our products.

Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a timely basis. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly. Results could also be adversely affected if there is a significant degradation in the quality of raw materials used in our products, or if the raw materials give rise to compatibility or performance issues in our products, any of which could lead to an increase in customer returns or product warranty claims. Although we maintain rigorous quality control systems, errors or defects may arise from a supplied raw material and be beyond our detection or control. 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. In addition, we subcontract a portion of our wafer fabrication and assembly and test operations to other manufacturers, including Amkor, AUK, Enoch, Wooseok, SPS, NS Electronics (Bangkok) Ltd., Samsung Electronics, and ChipPAC. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.

Delays in beginning production at new facilities, expanding capacity at existing facilities, implementing new production techniques, or 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. We have begun 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 64% of our net sales for the three months ended March 28, 2004. Our top five distributors worldwide accounted for 17% of our net sales for the three months ended March 28, 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 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 would be sold for several dollars, whereas the personal computer would be sold by the computer maker for several hundred dollars. Although we maintain rigorous quality control systems, we manufacture and sell approximately 16 billion individual semiconductor devices per year to customers around the world, and in the ordinary course of our business we receive warranty claims for some of these products that are

defective or that do not perform to published specifications. Since a defect or failure in our product could give rise to failures in the goods that incorporate them (and consequential claims for damages against our 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. 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. In August 2002 we filed a lawsuit against the mold compound supplier, Sumitomo Bakelite Singapore Pte. Ltd. and other related parties, seeking unspecified damages, including damages caused to our customers. Other manufacturers have also filed lawsuits against the supplier in connection with the mold compound issue. Our lawsuit is pending in California Superior Court for Santa Clara County. We are unable to predict or determine the outcome of this litigation, and there can be no assurance that we will prevail, nor can we predict the amount of damages we may recover if we do prevail. Although we have not been sued by any of our customers as a result of this matter, several of our customers have threatened to begin litigation if their claims are not resolved according to their demands, and we may face lawsuits as a result. We have limited insurance coverage for such customer claims. Based on our assessments of the claims to date, taking into account factors which we believe are relevant, we believe it to be reasonably possible that current claims may be in excess of the company’s insurance limits. At this time we are unable to reasonably estimate any range of possible loss which may be incurred as a result of any customer claims or payments we may make in excess of insurance coverage and, accordingly we have made no provision for such claims in our consolidated statements of operations. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, or if these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then the amount necessary to resolve such claims may adversely affect our financial results.

Our international operations subject our company to risks not faced by domestic competitors.

Through our subsidiaries we maintain significant operations in the Philippines, Malaysia and South Korea and also operate facilities in China and Singapore. We are constructing another facility in China. We have sales offices and customers around the world. Almost three-quarters of our revenues in the first quarter of 2004 were from Asia. The following are some of the risks inherent in doing business on an international level:


	•	economic and political instability;

	•	foreign currency fluctuations;

	•	transportation delays;

	•	trade restrictions;

	•	work stoppages; and

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

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 17% of our revenue for the first quarter of 2004.

Relations between South Korea and North Korea have been tense over most of South Korea’s history, and recent concerns over North Korea’s nuclear capability, 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 denominated primarily in U.S. dollars while a significant portion of its costs of goods sold and its operating expenses are denominated in South Korean won. Although we have taken steps to fix the costs subject to currency fluctuations and to balance won revenues and won costs, a significant change in this balance, coupled with a significant change in the value of the won relative to the dollar, could have a material adverse effect on our financial performance and results of operations.

Samsung Electronics is our largest customer. Any significant decrease in purchases by Samsung Electronics could substantially reduce our financial performance.

Samsung Electronics is a significant customer, due in part to the historical relationship between the business we acquired and its former parents and affiliates. There can be no assurances that these relationships will continue at historical levels. Samsung Electronics (together with its affiliates) is our largest customer, accounting for 7.1% of total sales during the first three months of 2004. Any material reduction in the purchases by Samsung Electronics could have a material adverse effect on our results of operations.

A change in foreign tax laws or a difference in the construction of current foreign tax laws by relevant foreign authorities could result in us not recognizing the benefits we anticipated in connection with the transaction structure used to consummate the acquisition of the power device business.

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

We plan to significantly expand our manufacturing operations in China and, as a result, will be increasingly subject to risks inherent in doing business in China, which may adversely affect our financial performance.

We have completed the first phase of an 800,000 square foot assembly and test facility in Suzhou, China, and began production there in July 2003. Although we expect a significant portion of our production from this new facility will be exported out of China, especially initially, we are hopeful that a significant portion of our future revenue will result from the Chinese markets in which our products are sold, and from demand in China for goods that include our products. Our ability to operate in China may be adversely affected by changes in that country’s laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters. In addition, our results of operations in China are subject to the economic and political situation there. We believe that our operations in China are in

compliance with all applicable legal and regulatory requirements. However, there can be no assurance that China’s central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures. Changes in the political environment or government policies could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or currency revaluations. In addition, a significant destabilization of relations between China and the United States could result in restrictions or prohibitions on our operations or the sale of our products in China. The legal system of China relating to foreign trade is relatively new and continues to evolve. There can be no certainty as to the application of its laws and regulations in particular instances. Enforcement of existing laws or agreements may be sporadic and implementation and interpretation of laws inconsistent. Moreover, there is a high degree of fragmentation among regulatory authorities resulting in uncertainties as to which authorities have jurisdiction over particular parties or transactions.

We are subject to many environmental laws and regulations that could affect our operations or result in significant expenses.

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


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

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

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

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

We are a leveraged company with a debt-to-equity ratio at March 28, 2004 of approximately 0.7 to 1, which could adversely affect our financial health and limit our ability to grow and compete.

At March 28, 2004, we had total debt of $851.0 million and a ratio of debt to equity of approximately 0.7 to 1. On June 19, 2003, we entered into a new credit facility that included a $300 million term loan, the proceeds of which have been used to redeem our 10 3/8% Senior Subordinated Notes due 2007, as well as a $180 million revolving line of credit. Our substantial indebtedness could have important consequences. For example, it could


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

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

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


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

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

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

	•	place us at a competitive disadvantage compared to our competitors that have less indebtedness; or

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

Despite current indebtedness levels, we may still be able to incur substantially more indebtedness. Incurring more indebtedness could exacerbate the risks described above.

We may be able to incur substantial additional indebtedness in the future. The indenture governing Fairchild Semiconductor Corporation’s outstanding 5% Convertible Senior Subordinated Notes Due 2008 does not limit the amount of additional debt that we may incur. Although the terms of the indenture governing Fairchild Semiconductor Corporation’s outstanding 10 1/2% Senior Subordinated Notes, and the credit agreement relating to the senior credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in compliance with these restrictions could be substantial. The senior credit facility permits borrowings of up to $180.0 million in revolving loans, in addition to the outstanding $300.0 million term loan that is currently outstanding under that facility. As of March 28, 2004, adjusted for outstanding letters of credit, we had up to $179.3 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 and the indenture governing Fairchild Semiconductor Corporation’s 10 1/2% Senior Subordinated Notes restrict or prohibit our ability to engage in or enter into some business operating and financing arrangements, which could adversely affect our ability to take advantage of potentially profitable business opportunities.

The operating and financial restrictions and covenants in most of our debt instruments, such as the credit agreement relating to our senior credit facility and the indenture governing Fairchild Semiconductor Corporation’s 10 1/2% Senior Subordinated Notes may limit our ability to finance our future operations or capital needs or engage in other business activities that may be in our interests. These debt instruments impose significant operating and financial restrictions on us that affect our ability to incur additional indebtedness or create liens on our assets, pay dividends, sell assets, engage in mergers or acquisitions, make investments or

In addition, the credit agreement governing our senior credit facility contains other and more restrictive covenants and limits us from prepaying all of our other indebtedness. 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 March 28, 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 the collateral granted to them to secure the indebtedness. If the lenders under the senior credit facility accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.

Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, in Fairchild Semiconductor International’s annual report on Form 10-K for the year ended December 28, 2003 and under the subheading “Quantitative and Qualitative Disclosures about Market Risk” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 39 of the Form 10-K. There were no material changes in the information we provided in our Form 10-K during the period covered by this Quarterly Report.

We maintain disclosure controls and procedures designed to assure, as much as is reasonably possible, that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is communicated to management and recorded, processed, summarized and disclosed within the specified time periods. Any control system, however, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the system’s objectives will be met. As of the end of the period covered by this report, our CEO and CFO have evaluated, with the participation of our management, the effectiveness of our disclosure controls and procedures. Based on the evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective.

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.


Item 2.	*Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities*

The following table provides information with respect to purchases made by the company of its own common stock.


(1)	All of these shares were purchased by the company in open-market transactions to satisfy its obligations to deliver shares under the Company’s employee stock purchase plan and stock option plan. The purchase of these shares satisfied the conditions of the safe harbor provided by the Securities Exchange Act of 1934.


	On January 15, 2004, we filed a current report on Form 8-K relating to financial information for the three and twelve months ended December 28, 2003 and forward-looking statements relating to the first quarter of 2004 as announced in a press release issued January 15, 2004. The press release is incorporated in, and filed as an exhibit to, the current report.

	On March 2, 2004, we filed a current report on Form 8-K relating to the update of our forward-looking guidance for the first quarter of 2004, as announced in a press release dated March 2, 2004. The press release is incorporated in, and filed as an exhibit to, the current report.

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


	Fairchild Semiconductor International, Inc.

	By: /s/ROBIN A. SAWYER

	Robin A. Sawyer
	Vice President, Corporate Controller
	(Principal Accounting Officer)

35 EX-3.1 2 b50332fsexv3w1.txt EX-3.1 2ND CERTIFICATE OF INCORPORATION Exhibit 3.1 SECOND RESTATED CERTIFICATE OF INCORPORATION OF FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. Fairchild Semiconductor International, Inc., a corporation existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify that: FIRST: The original name of the Corporation is FSC Semiconductor Corporation and the date of filing the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was March 10, 1997. A Certificate of Amendment of Certificate of Incorporation, changing the name of the Corporation to Fairchild Semiconductor International, Inc., was filed with the Secretary of State of the State of Delaware on June 28, 1999. SECOND: At a meeting of the board of directors of the Corporation duly held on February 3, 2004, a resolution was duly adopted approving a proposed restated certificate of incorporation of the Corporation (the "Second Restated Certificate of Incorporation"). The resolution setting forth the Second Restated Certificate of Incorporation is as follows: RESOLVED, that the Certificate of Incorporation of the Corporation, as heretofore amended be, and it is hereby, restated and integrated to read as set forth on Exhibit A attached hereto. THIRD: This Second Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware by the Board of Directors of the Corporation. This Second Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation, as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Second Restated Certificate of Incorporation. IN WITNESS WHEREOF, the Corporation has caused this Second Restated Certificate of Incorporation to be executed by Daniel E. Boxer, its Senior Executive Vice President and Secretary, this 8th day of March, 2004. FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. By: /s/ Daniel E. Boxer ---------------------------------------- Daniel E. Boxer Senior Executive Vice President and Secretary EXHIBIT A --------- SECOND RESTATED CERTIFICATE OF INCORPORATION OF FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. 1. Name. The name of the Corporation is Fairchild Semiconductor International, Inc. 2. Registered Office and Agent. The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is Corporation Service Company. 3. Purpose. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware ("DGCL") and to possess and exercise all of the powers and privileges granted by such law and any other law of Delaware. 4. [Reserved.] 5. Authorized Capital. The aggregate number of shares of stock which the Corporation shall have authority to issue is 340,100,000 shares, divided into two classes consisting of 100,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"); and 340,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"). Shares of stock of the Corporation designated as "Class A Common Stock, par value $.01 per share" and outstanding before the time of effectiveness of this paragraph shall be deemed shares of "Common Stock" as of and following such time for all purposes, and holders thereof shall be entitled to all of the rights and privileges to which holders of Common Stock are entitled. Any security of the Corporation that was outstanding before the time of effectiveness of this paragraph and that was convertible into or exercisable for shares designated as "Class A Common Stock" shall be convertible or exercisable for shares of Common Stock to the same extent as it was exercisable or convertible for shares of such Class A Common Stock. The following is a statement of the designations, preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon the shares of each such class. A. PREFERRED STOCK. (a) Subject to Section 9 below, the board of directors is authorized to provide for the issuance of shares of Preferred Stock in one or more series with such designations, preferences and relative, -2- participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the board of directors (as such resolutions may be amended by a resolution or resolutions subsequently adopted by the board of directors), and as are not stated and expressed in this Second Restated Certificate of Incorporation including, but not limited to, determination of any of the following: i. The distinctive designation of the series and the number of shares which will constitute the series, which number may be increased or decreased (but not below the number of shares then outstanding) from time to time by action of the board of directors; ii. The dividend rate and the times of payment of dividends on the shares of the series, whether dividends will be cumulative, and if so, from what date or dates; iii. The price or prices at which, and the terms and conditions on which, the shares of the series may be redeemed at the option of the Corporation; iv. Whether or not the shares of the series will be entitled to the benefit of a retirement or sinking fund to be applied to the purchase or redemption of such shares and, if so entitled, the amount of such fund and the terms and provisions relative to the operation thereof; v. Whether or not the shares of the series will be convertible into, or exchangeable for, any other shares of stock of the Corporation or other securities, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and any adjustments thereof, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; vi. The rights of the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; vii. Whether or not the shares of the series will have priority over or be on a parity with or be junior to the shares of any other series or class in any respect or will be entitled to the benefit of limitations restricting the issuance of shares of any other series or class having priority over or being on a parity with the shares of such series in any -3- respect, or restricting the payment of dividends on or the making of other distributions in respect of shares of any other series or class ranking junior to the shares of the series as to dividends or assets, or restricting the purchase or redemption of the shares of any such junior series or class, and the terms of any such restriction; viii. Whether the series will have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights; and ix. Any other preferences, qualifications, privileges, options and other relative or special rights and limitations of that series. (b) Dividends. Holders of Preferred Stock shall be entitled to receive, when and as declared by the board of directors, out of funds legally available for the payment thereof, dividends at the rates fixed by the board of directors for the respective series, and no more, before any dividends shall be declared and paid, or set apart for payment, on Common Stock with respect to the same dividend period. (c) Preference on Liquidation. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of each series of Preferred Stock will be entitled to receive the amount fixed for such series plus, in the case of any series on which dividends will have been determined by the board of directors to be cumulative, an amount equal to all dividends accumulated and unpaid thereon to the date of final distribution whether or not earned or declared before any distribution shall be paid, or set aside for payment, to holders of Common Stock. If the assets of the Corporation are not sufficient to pay such amounts in full, holders of all shares of Preferred Stock will participate in the distribution of assets ratably in proportion to the full amounts to which they are entitled or in such order or priority, if any, as will have been fixed in the resolution or resolutions providing for the issue of the series of Preferred Stock. Neither the merger nor consolidation of the Corporation into or with any other corporation, nor a sale, transfer or lease of all or part of its assets, will be deemed a liquidation, dissolution or winding up of the Corporation within the meaning of this paragraph except to the extent specifically provided for herein. (d) Redemption. The Corporation, at the option of the board of directors, may redeem all or part of the shares of any series of Preferred Stock on the terms and conditions fixed for such series. -4- (e) Voting Rights. Except as otherwise required by law, as otherwise provided herein or as otherwise determined by the board of directors as to the shares of any series of Preferred Stock prior to the issuance of any such shares, the holders of Preferred Stock shall have no voting rights and shall not be entitled to any notice of meeting of stockholders. B. COMMON STOCK All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges. (a) Dividends. Holders of Common Stock shall be entitled to receive ratably on a per share basis such dividends as may be declared by the board of directors. (b) Distribution of Assets. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, holders of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders. (c) Voting Rights. The holders of Common Stock shall have the general right to vote for all purposes as provided by law. Each holder of Common Stock shall be entitled (i) at all elections of directors, to as many votes as shall equal the number of shares of Common Stock held by such holder multiplied by the number of directors to be elected, and such holder may cast all of such votes for a single director or may distribute them among the number to be voted for, or for any two or more of them as such holder may see fit, and (ii) to one vote for each share upon all other matters. 6. Section 203 Not Applicable. The Corporation shall not be governed by the provisions of Section 203 of the DGCL. 7. Board of Directors. The board of directors of the Corporation shall be comprised of not fewer than seven and not more than thirteen members, provided that if the death, incapacity or resignation of a director results in the board of directors being comprised of fewer than seven members, actions of the board of directors which are otherwise valid and taken between the time of such death, incapacity or resignation and the next meeting of stockholders at which a director is elected to fill such vacancy shall nevertheless be valid. Directors of the Corporation shall not be divided into classes. The term of each director shall expire at each annual meeting of stockholders. Elections of directors need not be by written ballot unless and except to the extent the bylaws of the Corporation shall so provide. 8. Action By Stockholders In Lieu of a Meeting. Any action required by the DGCL to be taken at any annual or special meeting of the stockholders of the Corporation, or any -5- action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting and shall be delivered to the Corporation by delivery to its registered office in Delaware, the Corporation's principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand, certified or registered mail, return receipt requested or facsimile transmission. 9. Classes of Stock; Series of Preferred Stock. The board of directors shall not have the authority to establish classes of capital stock of the Corporation. The board of directors shall have the authority to fix by resolution or resolutions any of the designations, powers, preferences, rights, qualifications, limitations, and restrictions of any series of Preferred Stock, provided, that such authority may be exercised only in connection with the approval or adoption of a Rights Plan (as defined in Section 10) in accordance with Section 10. 10. Rights Plans. Without (i) the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock or (ii) (A) if Sterling Holding Company, LLC ("Sterling"), Citicorp Venture Capital Ltd. ("CVC") and their Affiliates (as defined in Section 13) Beneficially Own (as defined in Section 13) in the aggregate 15% or more of the outstanding Common Stock, the unanimous consent of the board of directors or (B) if Sterling, CVC and their Affiliates Beneficially Own in the aggregate less than 15% of the outstanding Common Stock, the consent of a majority of the board of directors, the Corporation shall not authorize or establish any Rights Plan. For purposes of this Second Restated Certificate of Incorporation, a "Rights Plan" shall mean any plan or arrangement of the sort commonly referred to as a "stockholder rights plan" or "shareholder rights plan" including, without limitation, any issuance of securities or other distribution to stockholders of the Corporation, whether or not pursuant to any plan, that includes conversion rights, exchange rights, warrants, options or any other rights of any kind, any of which would entitle the holders thereof to acquire, or provides for the holders thereof to receive, any securities of the Corporation either (i) at an exercise, option, conversion or exchange price that is less than the Fair Market Value (as defined below) of the underlying securities on the date of grant or (ii) at an exercise, option, conversion or exchange price that is determined by reference to the Fair Market Value of the underlying securities at the time of exercise and which either explicitly or implicitly by its terms would entitle the holders thereof to acquire, or provide for the holder thereof to receive, the underlying securities at a price other than the Fair Market Value of such securities on the date of grant. For purposes of this paragraph, "Fair Market Value" means (i) as to any class of securities traded on a national securities exchange or quoted on the recognized over-the-counter market, or any class of securities convertible by its terms into such securities, the last closing price on such exchange or last sale price so reported, in each case as to such traded or reported class of securities on the date nearest preceding the date of determination of the Fair Market Value and (ii) as to all other securities, the fair market value determined by the board of directors of the Corporation in the exercise of its good-faith and reasonable best judgment. -6- 11. Bylaws. In furtherance and not in limitation of the powers conferred by law, the board of directors of the Corporation is authorized to adopt, amend or repeal the bylaws of the Corporation, except as otherwise specifically provided therein, subject to the powers of the stockholders of the Corporation to amend or repeal any bylaws adopted by the board of directors. 12. Limitation on Liability. The directors of the Corporation shall be entitled to the benefits of all limitations on the liability of directors generally that are now or hereafter become available under the DGCL. Without limiting the generality of the foregoing, to the fullest extent permitted by the DGCL, as it exists on the date hereof or as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Section 12 or any adoption of any provision of this Certificate of Incorporation inconsistent with this Section 12 shall be prospective only, and shall not affect, to the detriment of any director, any limitation on the personal liability of a director of the Corporation existing at the time of such repeal, modification or adoption. 13. Amendment. Sections 6, 7, 8, 9, 10 and 13 of this Second Restated Certificate of Incorporation shall not be amended or repealed without the affirmative vote of the holders of at least 75% of the outstanding shares of Common Stock, except that (i) after the occurrence of a Change of Control (as defined below), the affirmative vote of the holders of at least a majority of the shares of outstanding Common Stock shall be required to amend or repeal such sections and (ii) after any transfer by Sterling, CVC or their respective Affiliates resulting in Sterling, CVC and their Affiliates being collectively the Beneficial Owner of less than 15% of the outstanding shares of Common Stock, then the affirmative vote of the holders of a majority of the shares of outstanding Common Stock shall be required to amend or repeal such sections. As used herein, the following terms shall have the following meanings: "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 under the Exchange Act. "Beneficial Owner" and "Beneficially Own" when used with respect to any securities shall mean a Person that, individually or with or through any of its Affiliates, A. is the beneficial owner of such securities, within the meanings ascribed to the term beneficial owner in Rule 13d-3 and Rule 13d-5 under the Exchange Act; B. has (1) the right to acquire such securities (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, -7- or otherwise, provided, however, that a Person shall not be deemed the Beneficial Owner of securities tendered pursuant to a tender or exchange offer made by such Person or any of such Person's Affiliates until such tendered securities are accepted for purchase or exchange; or (2) the right to vote such securities pursuant to any agreement, arrangement or understanding, provided, however, that a Person shall not be deemed the Beneficial Owner of any securities because of such Person's right to vote such securities if the agreement, arrangement or understanding to vote such securities arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more Persons; or C. has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in item (2) of clause (B) of this definition), or disposing of such securities with any other Person that Beneficially Owns, or whose Affiliates Beneficially Own, directly or indirectly, such securities. Securities that are "Beneficially Owned" by any Person shall mean all such securities of which such Person is the Beneficial Owner. The Corporation shall be permitted to conclusively rely upon its stock transfer ledger, public filings with regulatory agencies, such as Schedules 13D, or certificates of its stockholders in determining the Beneficial Ownership of any Person and its Affiliates. "Change in Control" shall mean the acquisition by any Person and the Affiliates of such Person, other than Sterling, CVC or the executive officers of the Corporation and their Affiliates, of more than 40% of the shares of Common Stock. "Exchange Act" means the Securities Exchange Act of 1934, as in effect on the date that this Second Restated Certificate of Incorporation becomes effective. "Person" means any individual, corporation, partnership, limited liability company, joint venture, estate, trust, association, organization or other entity. * * * -8- EX-10.1 3 b50332fsexv10w1.txt EX-10.1 AMENDMENT TO MARTIN EMPLOYMENT AGREEMENT EXHIBIT 10.1 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of March 9, 2004, amends the Employment Agreement, entered into as of March 11, 2000 and amended as of November 20, 2002 (as so amended, the "Agreement"), by and between Joseph R. Martin (the "Executive") and Fairchild Semiconductor Corporation, a Delaware corporation (the "Corporation"). R E C I T A L S --------------- A. The Executive and the Corporation have entered into the Agreement. B. The Executive and the Corporation desire to further amend the Agreement as set forth herein to attempt to ensure the Executive's continued employment with the Corporation. C. Terms not otherwise defined herein have the meanings set forth in the Agreement. Terms defined in the Agreement and in this Amendment shall have the meanings given in this Amendment. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree to amend the Agreement by adding the following sections. SECTION 26. EXTENSION FOLLOWING MARCH 11, 2004. (a) Extension of Renewal Term. Notwithstanding anything to the contrary in Section 1(a) of this Agreement or in any previous amendment to this Agreement, the current Renewal Term (ending March 11, 2004) is hereby extended for an additional one-year period to end on March 11, 2005 (the remainder of the current term and such extension together are referred to as the "Renewal Term"). (b) Duties During Renewal Term. During the Renewal Term, the Executive shall continue to be employed by the Corporation as Senior Executive Vice President responsible for finance and information technology, reporting to the current Chief Executive Officer until such time as a successor CEO is appointed. Upon the appointment of a successor CEO, for the remainder of the Renewal Term, and following a transitional period of a duration and form determined by the Corporation with the consent of the Executive (not to be unreasonably withheld), the Executive will report to the Chairman of the Board as a member of the Office of the Chairman, and will no longer be responsible for or have any authority over the above-referenced functions. The provisions of Section 2(b) of this Agreement shall continue to remain in full force and effect during the Renewal Term, except as modified by this paragraph. For the avoidance of doubt, the Executive and the Corporation agree that the appointment of a successor to the current Chief Executive Officer during the Renewal Term shall not be treated as Good Reason under this Agreement, provided the Corporation complies with terms of this paragraph. The Executive shall continue to serve as Vice Chairman of the Board during the Renewal Term. (c) Application of Agreement During Renewal Term. Section 24 of the Agreement is hereby deleted and that section number hereby reserved. During the Renewal Term the provisions of this Agreement will remain in full force and effect except as otherwise provided in Sections 26 and 27 hereof. Notwithstanding any provision of this Agreement to the contrary, if during the Renewal Term the Executive's employment is terminated for any reason, then the Executive shall receive the rights and benefits related to health care and life insurance described in Section 8, and stock options granted to the Executive under the company's stock option plans prior to the date hereof shall fully vest and the Executive shall have the full option term to exercise such options. (d) Base and Incentive Compensation During Renewal Term. During the Renewal Term, the Corporation shall pay the Executive base compensation and establish incentive plan target levels that are competitive with similarly situated high-technology companies, provided that neither will be lower than any previously paid or established under this Agreement. For purposes of Section 11 of this Agreement, the provisions of this Section 26(d) shall be treated as terms of Sections 3 and 4 of this Agreement. (e) Resignation Before End of Renewal Term. The Executive may voluntarily resign and terminate his employment before the end of the Renewal Term for any reason or no reason pursuant to Section 1(b) upon 30 days prior written notice to the Corporation (it being understood that if the Executive terminates his employment for Good Reason, this paragraph shall not apply and Section 10 shall apply), and in such event (i) the Executive shall be deemed to have retired for all purposes of this Agreement and Company benefit plans and (ii) the Executive will receive the benefits described in Section 26(c) as well as the payment of his base salary up to the effective date of such termination. In case of such a resignation, the Executive will be entitled to receive a pro rata share of any EFIP bonus the Company actually pays for the 2004 measurement period, based on the portion of the year served by the Executive as an employee, whether before or during the Renewal Term. (f) Consulting Period. Commencing at the end of the Renewal Term, the Executive will become a nonemployee consultant and will provide consulting services to the Corporation on a non-exclusive basis as reasonably requested by the Corporation for a one-year consulting period (the "Consulting Period") ending on March 11, 2006. During the Consulting Period, the Executive will continue to serve as Vice Chairman of the Board of the Corporation, and will be available, at the election of the Corporation, to provide consulting services commensurate with his position, for approximately 20 hours per week, to accomplish, under the direction of the Chairman of the Board of Directors, a work plan developed by the Chairman of the Board and the Executive and approved by the Board of Directors. During the Consulting Period, the Corporation agrees to pay the Executive base compensation of $400,000 per year, payable in accordance with the standard payroll procedures of the Corporation. In addition, during the Consulting Period, the Executive will be eligible for an annual bonus at a target of 50% of his target annual bonus applicable during the Renewal Term (the "Consulting Bonus"). If the Corporation terminates the Executive's consultancy without Cause or due to the Executive's Disability or in the event of the Executive's death during the Consulting Period, the Corporation will pay the Executive the base compensation for the balance for the Consulting Period and the Consulting Bonus at the times such payments would have otherwise been made. The Executive may terminate his consultancy for any reason or no reason effective upon 30 days -2- written notice at any time before or during the Consulting Period, in which case the Executive shall receive a pro rata portion of his base consulting compensation and the Consulting Bonus, each reflecting the portion of the Consulting Period served. During the Consulting Period, the Corporation shall provide the Executive with an on-site office and secretarial support, and while the Executive is performing a consulting assignment for the Corporation, the Corporation shall continue to provide the Executive with travel-related fringe benefits commensurate with those received by the Executive during the Renewal Period while performing similar assignments as a full-time employee (i.e., reimbursement of business expenses and provision of transportation and travel accommodations). The obligation of the Corporation to provide the benefits under Section 8 of this Agreement shall not be affected by the Executive's performance of services for the Corporation during the Consulting Period, and thus, by way of example and not limitation, the Executive shall be entitled to all of such benefits at the end of the Renewal Term or earlier if the Executive terminates his employment for any reason after the date hereof. Except as set forth herein, the Executive should not be entitled to any additional compensation or benefits during the Consulting Period. During the Consulting Period, the provisions of Sections 14 through 22 and this paragraph (f) of this Section 26 will continue to apply to the Corporation and the Executive and, except as otherwise provided herein, no other provisions of this Agreement will continue to be applicable. For purposes of Section 18(b)(3), the date of "termination of employment" shall mean the date on which the Executive ceases to perform consulting services for the Corporation during or upon the end of the Consulting Period. Notwithstanding anything to the contrary herein, this paragraph (f) will be void and of no effect if the Executive's employment is terminated for any reason before the end of the Renewal Period. SECTION 27. EQUITY AWARDS (a) Grants. Subject to the terms and conditions of this Agreement and receipt of stockholder approval of proposed amendments to the Corporation's stock plan, the Corporation will include, as part of its annual grant to eligible employees of the Corporation in 2004, grants to the Executive of deferred stock units ("DSUs") and options ("Options") to purchase Common Stock, under and subject to the Corporation's Stock Plan. The foregoing grants will be evidenced by customary agreements under such plan, dated the date of such grant and not inconsistent with the terms hereof. (b) Vesting. The Options and DSUs, if granted, will vest in full (i) on the last day of the Renewal Term if the Executive remains employed up to and including that date or (ii) on the date of the Executive's Qualifying Termination if such a termination occurs before the end of the Renewal Term. If the Executive terminates his employment before the end of the Renewal Term under Section 26(e), then the Options and DSUs will vest pro rata to reflect the portion of the Renewal Term (based on the number of days served) that the Executive was employed before the effective date of such termination. In any case the Executive shall have the remainder of the Option term to exercise any such vested options following termination. For the avoidance of doubt, the Consulting Period shall not be considered a term of employment for purposes of this paragraph. -3- IN WITNESS WHEREOF, the parties have executed this Amendment to be effective as of date first set forth above. FAIRCHILD SEMICONDUCTOR CORPORATION By /s/ Kirk P. Pond -------------------------------------------------- Its President and Chief Executive Officer EXECUTIVE /s/ Joseph R. Martin ---------------------------------------------------- Joseph R. Martin -4- EX-10.2 4 b50332fsexv10w2.txt EX-10.2 AMENDMENT TO BOXER EMPLOYMENT AGREEMENT Exhibit 10.2 AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment, dated as of March 9, 2004, amends the Employment Agreement, entered into as of March 11, 2000 and amended as of November 20, 2002 (as so amended, the "Agreement"), by and between Daniel E. Boxer (the "Executive") and Fairchild Semiconductor Corporation, a Delaware corporation (the "Corporation"). R E C I T A L S --------------- A. The Executive and the Corporation have entered into the Agreement. B. The Executive and the Corporation desire to further amend the Agreement as set forth herein to attempt to ensure the Executive's continued employment with the Corporation. C. Terms not otherwise defined herein have the meanings set forth in the Agreement. Terms defined in the Agreement and in this Amendment shall have the meanings given in this Amendment. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree to amend the Agreement by adding the following sections. SECTION 26. EXTENSION FOLLOWING MARCH 11, 2004. (a) Extension of Renewal Term. Notwithstanding anything to the contrary in Section 1(a) of this Agreement or in any previous amendment to this Agreement, the current Renewal Term (ending March 11, 2004) is hereby extended for an additional one-year period to end on March 11, 2005 (the remainder of the current term and such extension together are referred to as the "Renewal Term"). (b) Duties During Renewal Term. During the Renewal Term, the Executive shall continue to be employed by the Corporation as Senior Executive Vice President responsible for legal affairs, human resources, communications and administration, reporting to the current Chief Executive Officer until such time as a successor CEO is appointed. Upon the appointment of a successor CEO, for the remainder of the Renewal Term, and following a transitional period of a duration and form determined by the Corporation with the consent of the Executive (not to be unreasonably withheld), the Executive will report to the Chairman of the Board as a member of the Office of the Chairman, and will no longer be responsible for or have any authority over the above-referenced functions. The provisions of Section 2(b) of this Agreement shall continue to remain in full force and effect during the Renewal Term, except as modified by this paragraph. For the avoidance of doubt, the Executive and the Corporation agree that the appointment of a successor to the current Chief Executive Officer during the Renewal Term shall not be treated as Good Reason under this Agreement, provided the Corporation complies with terms of this paragraph. The Executive shall continue to serve as Corporate Secretary during the Renewal Term. (c) Application of Agreement During Renewal Term. Section 24 of the Agreement is hereby deleted and that section number hereby reserved. During the Renewal Term the provisions of this Agreement will remain in full force and effect except as otherwise provided in Sections 26 and 27 hereof. Notwithstanding any provision of this Agreement to the contrary, if during the Renewal Term the Executive's employment is terminated for any reason, then the Executive shall receive the rights and benefits related to health care and life insurance described in Section 8, and stock options granted to the Executive under the company's stock option plans prior to the date hereof shall fully vest and the Executive shall have the full option term to exercise such options. (d) Base and Incentive Compensation During Renewal Term. During the Renewal Term, the Corporation shall pay the Executive base compensation and establish incentive plan target levels that are competitive with similarly situated high-technology companies, provided that neither will be lower than any previously paid or established under this Agreement. For purposes of Section 11 of this Agreement, the provisions of this Section 26(d) shall be treated as terms of Sections 3 and 4 of this Agreement. (e) Resignation Before End of Renewal Term. The Executive may voluntarily resign and terminate his employment before the end of the Renewal Term for any reason or no reason pursuant to Section 1(b) upon 30 days prior written notice to the Corporation (it being understood that if the Executive terminates his employment for Good Reason, this paragraph shall not apply and Section 10 shall apply), and in such event (i) the Executive shall be deemed to have retired for all purposes of this Agreement and Company benefit plans and (ii) the Executive will receive the benefits described in Section 26(c) as well as the payment of his base salary up to the effective date of such termination. In case of such a resignation, the Executive will be entitled to receive a pro rata share of any EFIP bonus the Company actually pays for the 2004 measurement period, based on the portion of the year served by the Executive as an employee, whether before or during the Renewal Period. (f) Consulting Period. Commencing at the end of the Renewal Term, the Executive will become a nonemployee consultant and will provide consulting services to the Corporation on a non-exclusive basis as reasonably requested by the Corporation for a one-year consulting period (the "Consulting Period") ending on March 11, 2006. During the Consulting Period, the Executive will be available, at the election of the Corporation, to provide consulting services commensurate with his position, for approximately 20 hours per week, to accomplish, under the direction of the Chairman of the Board of Directors, a work plan developed by the Chairman of the Board and the Executive and approved by the Board of Directors. During the Consulting Period, the Corporation agrees to pay the Executive base compensation of $370,000 per year, payable in accordance with the standard payroll procedures of the Corporation. In addition, during the Consulting Period, the Executive will be eligible for an annual bonus at a target of 50% of his target annual bonus applicable during the Renewal Term (the "Consulting Bonus"). If the Corporation terminates the Executive's consultancy without Cause or due to the Executive's Disability or in the event of the Executive's death during the Consulting Period, the Corporation will pay the Executive the base compensation for the balance for the Consulting Period and the Consulting Bonus at the times such payments would have otherwise been made. The Executive may terminate his consultancy for any reason or no reason effective upon 30 days written notice at any time before or during the Consulting Period, in which case the Executive -2- shall receive a pro rata portion of his base consulting compensation and the Consulting Bonus, each reflecting the portion of the Consulting Period served. During the Consulting Period, the Corporation shall provide the Executive with an on-site office and secretarial support, and while the Executive is performing a consulting assignment for the Corporation, the Corporation shall continue to provide the Executive with travel-related fringe benefits commensurate with those received by the Executive during the Renewal Period while performing similar assignments as a full-time employee (i.e., reimbursement of business expenses and provision of transportation and travel accommodations). The obligation of the Corporation to provide the benefits under Section 8 of this Agreement shall not be affected by the Executive's performance of services for the Corporation during the Consulting Period, and thus, by way of example and not limitation, the Executive shall be entitled to all of such benefits at the end of the Renewal Term or earlier if the Executive terminates his employment for any reason after the date hereof. Except as set forth herein, the Executive should not be entitled to any additional compensation or benefits during the Consulting Period. During the Consulting Period, the provisions of Sections 14 through 22 and this paragraph (f) of this Section 26 will continue to apply to the Corporation and the Executive and, except as otherwise provided herein, no other provisions of this Agreement will continue to be applicable. For purposes of Section 18(b)(3), the date of "termination of employment" shall mean the date on which the Executive ceases to perform consulting services for the Corporation during or upon the end of the Consulting Period. Notwithstanding anything to the contrary herein, this paragraph (f) will be void and of no effect if the Executive's employment is terminated for any reason before the end of the Renewal Period. SECTION 27. EQUITY AWARDS (a) Grants. Subject to the terms and conditions of this Agreement and receipt of stockholder approval of proposed amendments to the Corporation's stock plan, the Corporation will include, as part of its annual grant to eligible employees of the Corporation in 2004, grants to the Executive of deferred stock units ("DSUs") and options ("Options") to purchase Common Stock, under and subject to the Corporation's Stock Plan. The foregoing grants will be evidenced by customary agreements under such plan, dated the date of such grant and not inconsistent with the terms hereof. (b) Vesting. The Options and DSUs, if granted, will vest in full (i) on the last day of the Renewal Term if the Executive remains employed up to and including that date or (ii) on the date of the Executive's Qualifying Termination if such a termination occurs before the end of the Renewal Term. If the Executive terminates his employment before the end of the Renewal Term under Section 26(e), then the Options and DSUs will vest pro rata to reflect the portion of the Renewal Term (based on the number of days served) that the Executive was employed before the effective date of such termination. In any case the Executive shall have the remainder of the Option term to exercise any such vested options following termination. For the avoidance of doubt, the Consulting Period shall not be considered a term of employment for purposes of this paragraph. -3- IN WITNESS WHEREOF, the parties have executed this Amendment to be effective as of date first set forth above. FAIRCHILD SEMICONDUCTOR CORPORATION By /s/ Kirk P. Pond --------------------------------------------------- Its President and Chief Executive Officer EXECUTIVE /s/ Daniel E. Boxer ----------------------------------------------------- Daniel E. Boxer -4- EX-31.1 5 b50332fsexv31w1.txt EX-31.1 SECTION 302 CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, Kirk P. Pond, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 7, 2004 By: /s/ Kirk P. Pond ----------------------- Kirk P. Pond Chairman, President and Chief Executive Officer EX-31.2 6 b50332fsexv31w2.txt EX-31.2 SECTION 302 CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, Matthew W. Towse, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Fairchild Semiconductor International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: May 7, 2004 By: /s/ Matthew W. Towse ---------------------------- Matthew W. Towse Senior Vice President and Chief Financial Officer EX-32.1 7 b50332fsexv32w1.txt EX-32.1 SECTION 906 CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Fairchild Semiconductor International, Inc. (the "company") on Form 10-Q for the period ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kirk P. Pond, Chief Executive Officer of the company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the company. /s/ Kirk P. Pond - ---------------- Kirk P. Pond Chief Executive Officer May 7, 2004 EX-32.2 8 b50332fsexv32w2.txt EX-32.2 SECTION 906 CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Fairchild Semiconductor International, Inc. (the "company") on Form 10-Q for the period ended March 28, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Matthew W. Towse, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the company. /s/ Matthew W. Towse - -------------------- Matthew W. Towse Chief Financial Officer May 7, 2004 -----END PRIVACY-ENHANCED MESSAGE-----


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 28, 2004
		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to .


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


Title of Each Class	Number of Shares

Common Stock		119,211,798


		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 28, 2004 and December 28, 2003		2
	Consolidated Statements of Operations for the Three Months Ended March 28, 2004 and March 30, 2003		3
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 28, 2004 and March 30, 2003		4
	Consolidated Statements of Cash Flows for the Three Months Ended March 28, 2004 and March 30, 2003		5
	Notes to Consolidated Financial Statements (Unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		33
Item 4.	Disclosure Controls and Procedures		33

Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings		34
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		34
Item 6.	Exhibits and Reports on Form 8-K		34
Signature			35
Ex-3.1 2nd Certificate of Incorporation
Ex-10.1 Amendment to Martin Employment Agreement
Ex-10.2 Amendment to Boxer Employment Agreement
Ex-31.1 Section 302 CEO Certification
Ex-31.2 Section 302 CFO Certification
Ex-32.1 Section 906 CEO Certification
Ex-32.2 Section 906 CFO Certification


			March 28,			December 28,
			2004			2003

			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	525.9		$	531.1
	Short-term marketable securities			18.6			15.8
	Accounts receivable, net			170.3			153.4
	Inventories			223.2			221.5
	Deferred income taxes			40.0			40.8
	Other current assets			21.7			21.4

		Total current assets		999.7			984.0
Property, plant and equipment, net				629.1			622.7
Deferred income taxes				114.3			114.1
Intangible assets, net				169.9			177.6
Goodwill				229.9			229.9
Long-term marketable securities				81.6			80.4
Other assets				55.1			49.8

		Total assets	$	2,279.6		$	2,258.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	3.3		$	3.3
	Accounts payable			114.4			109.6
	Accrued expenses and other current liabilities			120.5			134.8

		Total current liabilities		238.2			247.7
Long-term debt, less current portion				847.7			848.6
Other liabilities				14.5			14.5

		Total liabilities		1,100.4			1,110.8
Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			1.2
	Additional paid-in capital			1,253.5			1,236.2
	Accumulated deficit			(70.9	)		(83.9	)
	Accumulated other comprehensive loss			(0.4	)		(1.8	)
	Less treasury stock (at cost)			(4.2	)		(4.0	)

		Total stockholders’ equity		1,179.2			1,147.7

		Total liabilities and stockholders’ equity	$	2,279.6		$	2,258.5

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		Three Months Ended

		March 28,			March 30,
		2004			2003

Total revenue		$	399.7		$	351.1
Cost of sales			294.4			273.6

	Gross profit		105.3			77.5

Operating expenses:
Research and development			20.7			19.1
Selling, general and administrative			41.7			39.2
Amortization of acquisition-related intangibles			7.6			9.5
Restructuring and impairments			3.8			10.4

	Total operating expenses		73.8			78.2

Operating income (loss)			31.5			(0.7	)
Interest expense			15.8			20.9
Interest income			(2.6	)		(2.5	)

Income (loss) before income taxes			18.3			(19.1	)
Provision (benefit) for income taxes			5.3			(1.5	)

Net income (loss)		$	13.0		$	(17.6	)

Net income (loss) per common share:
	Basic	$	0.11		$	(0.15	)

	Diluted	$	0.10		$	(0.15	)

Weighted average common shares:
	Basic		119.0			117.2

	Diluted		125.5			117.2



					As of March 28, 2004					As of December 28, 2003

			Period of		Gross Carrying		Accumulated			Gross Carrying		Accumulated
			Amortization		Amount		Amortization			Amount		Amortization


					(In millions)
Identifiable intangible assets:
	Developed technology			5 - 15 years	$	225.6	$	(76.6	)	$	225.6	$	(72.0	)
	Customer base			8 years		55.8		(35.3	)		55.8		(33.5	)
	Covenant not to compete			5 years		30.4		(30.4	)		30.4		(29.1	)
	Trademarks and tradenames			4 years		24.9		(24.9	)		24.9		(24.9	)
	Patents			4 years		5.3		(4.9	)		5.4		(5.0	)

		Subtotal				342.0		(172.1	)		342.1		(164.5	)
	Goodwill			—		229.9		—			229.9		—

		Total			$	571.9	$	(172.1	)	$	572.0	$	(164.5	)


	Domestic		Domestic		Opto-
	Analog		Discrete		electronics		Total


	(in millions)
Balance as of December 28, 2003	$	15.5	$	159.9	$	54.5	$	229.9
Balance as of March 28, 2004	$	15.5	$	159.9	$	54.5	$	229.9


Estimated Amortization Expense:	In millions

Remainder of Fiscal 2004	$	18.3
Fiscal 2005		24.0
Fiscal 2006		23.7
Fiscal 2007		18.5
Fiscal 2008		16.8
Fiscal 2009		16.8


		Accrual											Accrual
		Balance at		New			Cash			Non-Cash			Balance at
		12/28/2003		Charges			Paid			Items			3/28/2004

Fourth Quarter 2001 Restructuring Program:
	Employee Separation Costs	$	0.1	$	—		$	—		$	—		$	0.1
First Quarter 2003 Restructuring Program:
	Mountaintop, PA 6” Closure Employee Separation Costs		4.2		—			(3.1	)		—			1.1
	Mountaintop, PA 6” Closure Asset Write-Offs, Environmental, Other		2.2		2.5			(2.3	)		—			2.4
Second Quarter 2003 Restructuring Program:
	Employee Separation Costs		1.7		—			(0.8	)		—			0.9
	Memory asset write-offs		—		0.2			—			(0.2	)		—
	South Portland, ME 4” Closure Employee Separation Costs		3.2		(0.9	)		(0.7	)		—			1.6
	South Portland, ME 4” Closure Asset Write- Offs, Other		0.9		0.9			(0.9	)		—			0.9
	Kuala Lumpur, Malaysia Plant Closure Employee Separation Costs		4.6		—			—			—			4.6
	Kuala Lumpur, Malaysia Plant Closure Asset Impairment, Other		—		0.2			(0.2	)		—			—
	Wuxi, China Plant Closure Employee Separation Costs		0.7		—			—			—			0.7
Fourth Quarter 2003 Restructuring Program:
	Employee Separation Costs		0.3		—			(0.1	)		—			0.2
First Quarter 2004 Restructuring Program:
	Employee Separation Costs		—		0.9			—			—			0.9

		$	17.9	$	3.8		$	(8.1	)	$	(0.2	)	$	13.4



			March 28, 2004

			Unconsolidated			Unconsolidated												Consolidated
			Fairchild			Fairchild						Non-						Fairchild
			Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
			International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.


			(In millions)
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	496.2		$	—		$	29.7		$	—		$	525.9
	Short-term marketable securities			—			18.6			—			—			—			18.6
	Accounts receivable, net			—			28.6			—			141.7			—			170.3
	Inventories			—			109.6			17.4			96.2			—			223.2
	Deferred income taxes			—			38.8			0.7			0.5			—			40.0
	Other current assets			—			14.4			0.3			7.0			—			21.7

		Total current assets		—			706.2			18.4			275.1			—			999.7
Property, plant and equipment, net				—			232.7			85.2			311.2			—			629.1
Deferred income taxes				5.9			102.3			12.9			(6.8	)		—			114.3
Intangible assets, net				—			6.6			54.6			108.7			—			169.9
Goodwill				—			8.0			221.5			0.4			—			229.9
Long-term marketable securities				—			81.6			—			—			—			81.6
Investment in subsidiary				1,173.7			1,086.3			263.1			71.1			(2,594.2	)		—
Other assets				—			38.2			1.8			15.1			—			55.1

		Total assets	$	1,179.6		$	2,261.9		$	657.5		$	774.8		$	(2,594.2	)	$	2,279.6

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	—		$	3.3		$	—		$	—		$	—		$	3.3
	Accounts payable			—			61.5			8.5			44.4			—			114.4
	Accrued expenses and other current liabilities			—			63.7			7.3			49.5			—			120.5

		Total current liabilities		—			128.5			15.8			93.9			—			238.2
Long-term debt, less current portion				—			847.7			—			—			—			847.7
Net intercompany (receivable) payable				—			111.9			(21.1	)		(90.8	)		—			—
Other liabilities				—			0.5			0.5			13.5			—			14.5

		Total liabilities		—			1,088.6			(4.8	)		16.6			—			1,100.4

Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			—			—			—			—			1.2
	Additional paid-in capital			1,253.5			—			—			—			—			1,253.5
	Retained earnings (deficit)			(70.9	)		1,173.7			662.3			758.2			(2,594.2	)		(70.9	)
	Accumulated other comprehensive loss			—			(0.4	)		—			—			—			(0.4	)
	Less treasury stock (at cost)			(4.2	)		—			—			—			—			(4.2	)

		Total stockholders’ equity		1,179.6			1,173.3			662.3			758.2			(2,594.2	)		1,179.2

		Total liabilities and stockholders’ equity	$	1,179.6		$	2,261.9		$	657.5		$	774.8		$	(2,594.2	)	$	2,279.6



		Three Months Ended March 28, 2004

		Unconsolidated			Unconsolidated												Consolidated
		Fairchild			Fairchild						Non-						Fairchild
		Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
		International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.


		(In millions)
Total revenue		$	—		$	319.4		$	37.2		$	450.5		$	(407.4	)	$	399.7
Cost of sales			—			281.8			35.4			384.6			(407.4	)		294.4

	Gross profit		—			37.6			1.8			65.9			—			105.3

Operating expenses:
Research and development			—			7.4			6.9			6.4			—			20.7
Selling, general and administrative			—			27.6			2.0			12.1			—			41.7
Amortization of acquisition- related intangibles			—			0.1			2.0			5.5			—			7.6
Restructuring and impairments			—			1.4			2.2			0.2			—			3.8

	Total operating expenses		—			36.5			13.1			24.2			—			73.8

Operating income (loss)			—			1.1			(11.3	)		41.7			—			31.5
Interest expense			—			15.8			—			—			—			15.8
Interest income			—			(2.5	)		—			(0.1	)		—			(2.6	)
Equity in subsidiary loss			(13.0	)		(25.6	)		(11.7	)		—			50.3			—

Income before income taxes			13.0			13.4			0.4			41.8			(50.3	)		18.3
Provision for income taxes			—			0.4			—			4.9			—			5.3

Net income		$	13.0		$	13.0		$	0.4		$	36.9		$	(50.3	)	$	13.0



			December 28, 2003

			Unconsolidated			Unconsolidated												Consolidated
			Fairchild			Fairchild						Non-						Fairchild
			Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
			International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.


			(In millions)
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	503.3		$	—		$	27.8		$	—		$	531.1
	Short term marketable investments			—			15.8			—			—			—			15.8
	Accounts receivable, net			—			18.3			1.2			133.9			—			153.4
	Inventories			—			102.9			16.9			101.7			—			221.5
	Deferred income taxes			—			39.6			0.8			0.4			—			40.8
	Other current assets			—			11.1			0.1			10.2			—			21.4

		Total current assets		—			691.0			19.0			274.0			—			984.0
Property, plant and equipment, net				—			235.5			77.5			309.7			—			622.7
Deferred income taxes				5.9			102.4			12.9			(7.1	)		—			114.1
Intangible assets, net				—			7.0			56.6			114.0			—			177.6
Goodwill				—			8.0			221.5			0.4			—			229.9
Long-term marketable investments				—			80.4			—			—			—			80.4
Investment in subsidiary				1,143.6			1,018.6			263.0			64.9			(2,490.1	)		—
Other assets				—			34.7			1.6			13.5			—			49.8

		Total assets	$	1,149.5		$	2,177.6		$	652.1		$	769.4		$	(2,490.1	)	$	2,258.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Current portion of long-term debt		$	—		$	3.3		$	—		$	—		$	—		$	3.3
	Accounts payable			—			56.4			9.4			43.8			—			109.6
	Accrued expenses and other current liabilities			—			75.9			10.5			48.4			—			134.8

		Total current liabilities		—			135.6			19.9			92.2			—			247.7
Long-term debt, less current portion				—			848.6			—			—			—			848.6
Net intercompany (receivable) payable				—			50.5			(15.0	)		(35.5	)		—			—
Other liabilities				—			1.1			0.5			12.9			—			14.5

		Total liabilities		—			1,035.8			5.4			69.6			—			1,110.8

Commitments and contingencies
Stockholders’ equity:
	Common stock			1.2			—			—			—			—			1.2
	Additional paid-in capital			1,236.2			—			—			—			—			1,236.2
	Retained earnings (deficit)			(83.9	)		1,143.6			646.7			699.8			(2,490.1	)		(83.9	)
	Accumulated other comprehensive income			—			(1.8	)		—			—			—			(1.8	)
	Less treasury stock (at cost)			(4.0	)		—			—			—			—			(4.0	)

		Total stockholders’ equity		1,149.5			1,141.8			646.7			699.8			(2,490.1	)		1,147.7

		Total liabilities and stockholders’ equity	$	1,149.5		$	2,177.6		$	652.1		$	769.4		$	(2,490.1	)	$	2,258.5



				Three Months Ended March 30, 2003

				Unconsolidated			Unconsolidated												Consolidated
				Fairchild			Fairchild						Non-						Fairchild
				Semiconductor			Semiconductor			Guarantor			Guarantor						Semiconductor
				International, Inc.			Corporation			Subsidiaries			Subsidiaries			Eliminations			International, Inc.


				(In millions)
Total revenue				$	—		$	304.9		$	36.5		$	398.8		$	(389.1	)	$	351.1
Cost of sales					—			270.3			35.5			356.9			(389.1	)		273.6

		Gross profit			—			34.6			1.0			41.9			—			77.5

Operating expenses:
		Research and development			—			7.3			5.5			6.3			—			19.1
		Selling, general and administrative			—			26.1			1.4			11.7			—			39.2
		Amortization of acquisition-related intangibles			—			—			2.3			7.2			—			9.5
		Restructuring and impairments			—			1.3			9.2			(0.1	)		—			10.4

			Total operating expenses		—			34.7			18.4			25.1			—			78.2

Operating income (loss)					—			(0.1	)		(17.4	)		16.8			—			(0.7	)
Interest expense					—			20.9			—			—			—			20.9
Interest income					—			(2.3	)		—			(0.2	)		—			(2.5	)
Equity in subsidiary (income) loss					17.6			2.4			(14.3	)		—			(5.7	)		—

Income (loss) before income taxes					(17.6	)		(21.1	)		(3.1	)		17.0			5.7			(19.1	)
Provision (benefit) for income taxes					—			(3.5	)		(0.1	)		2.1			—			(1.5	)

	Net income (loss)			$	(17.6	)	$	(17.6	)	$	(3.0	)	$	14.9		$	5.7		$	(17.6	)


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations.*



	Three Months Ended


	March 28, 2004								March 30, 2003

						Gross								Gross
	Revenue		% of total			Profit %			Revenue		% of total			Profit %


	(Dollars in millions)
Analog and Mixed Signal	$	86.9		21.7	%		34.9	%	$	85.9		24.5	%		25.7	%
Discrete		234.9		58.8	%		25.6	%		189.5		54.0	%		21.7	%
Logic and Memory		46.4		11.6	%		19.0	%		44.3		12.6	%		16.3	%
Other		31.5		7.9	%		19.4	%		31.4		8.9	%		22.3	%

Total	$	399.7		100.0	%		26.3	%	$	351.1		100.0	%		22.1	%


Item 4.	*Disclosure Controls and Procedures*


Item 1.	*Legal Proceedings*


	Total Number				Total Number of		Maximum Number (or
	of Shares		Average Price		Shares Purchased as		Approximate Dollar
	(or Units)		Paid per		Part of Publicly		Value) of Shares that
	Purchased		Share		Announced Plans		May Yet Be Purchased
Period	(1)		($)		or Programs		Under the Plans or Programs

December 29, 2003 — January 25, 2004		—		—		—		—
January 26, 2004 — February 22, 2004		85,000		24.48		—		—
February 23, 2004 — March 28, 2004		—		—		—		—
Total		85,000		24.48		—		—


Item 3.	*Quantitative and Qualitative Disclosures about Market Risk*


Exhibit
No.			Description

	3	.1	Second Restated Certificate of Incorporation of Fairchild Semiconductor International, Inc., as filed with the Secretary of State of the State of Delaware on March 12, 2004. This Second Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of our Certificate of Incorporation, as heretofore amended or supplemented.
	10	.1	Amendment to Employment Agreement, dated as of March 9, 2004, between Fairchild Semiconductor Corporation and Joseph R. Martin.
	10	.2	Amendment to Employment Agreement, dated as of March 9, 2004, between Fairchild Semiconductor Corporation and Daniel E. Boxer.
	31	.1	Section 302 Certification of the Chief Executive Officer.
	31	.2	Section 302 Certification of the Chief Financial Officer.
	32	.1	Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Kirk P. Pond.
	32	.2	Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Matthew W. Towse.