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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended October 1, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to
.

Commission
File Number: 001-15181

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



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

82 Running Hill Road

South Portland, Maine 04106

(Address of principal executive offices,
including zip code)

Registrants telephone number, including area code: (207) 775-8100

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large Accelerated filer  x                Accelerated filer ̈Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ̈No  x

The number of shares outstanding of each of the issuers classes of common stock as of the close of business on October 1, 2006:



|                    |  |                 
|------------------- |  | ----------------
|Title of Each Class |  | Number of Shares
|Common Stock        |  | 122,602,423     



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

INDEX



|                              |  |                                                                                                                                   |  |     
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                              |  |                                                                                                                                   |  | Page
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                  
|                              |  |                                                                                                                                  
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                  |  |     
|                              |  |                                                                                                                                  
|                              |  | Consolidated Balance Sheets as of October 1, 2006 and December 25, 2005                                                           |  | 3   
|                              |  |                                                                                                                                  
|                              |  | Consolidated Statements of Operations for the Three and Nine Months Ended October 1, 2006 and September 25, 2005                  |  | 4   
|                              |  |                                                                                                                                  
|                              |  | Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 1, 2006 and September 25, 2005 |  | 5   
|                              |  |                                                                                                                                  
|                              |  | Consolidated Statements of Cash Flows for the Nine Months Ended October 1, 2006 and September 25, 2005                            |  | 6   
|                              |  |                                                                                                                                  
|                              |  | Notes to Consolidated Financial Statements (Unaudited)                                                                            |  | 7   
|                              |  |                                                                                                                                  
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                             |  | 29  
|                              |  |                                                                                                                                  
|Item 3.                       |  | Quantitative and Qualitative Disclosures about Market Risk                                                                        |  | 39  
|                              |  |                                                                                                                                  
|Item 4.                       |  | Controls and Procedures                                                                                                           |  | 39  
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                  
|                              |  |                                                                                                                                  
|Item 1.                       |  | Legal Proceedings                                                                                                                 |  | 40  
|                              |  |                                                                                                                                  
|Item 1A.                      |  | Risk Factors                                                                                                                      |  | 41  
|                              |  |                                                                                                                                  
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                       |  | 51  
|                              |  |                                                                                                                                  
|Item 6.                       |  | Exhibits                                                                                                                          |  | 51  
|                              | 
|Signature                     |  | 52                                                                                                                               



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)



|                                                                                                                     |  |                |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                     |  | October 1,2006 |         |   | December 25,2005 |  
|ASSETS                                                                                                               |  |                |         |   |                  |   |         |  
|Current assets:                                                                                                      |  |                |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                            |  | $              | 519.5   |   |                  | $ | 330.7   |  
|Short-term marketable securities                                                                                     |  |                | 34.5    |   |                  |   | 182.5   |  
|Accounts receivable, net of allowances of $35.7 and $37.8 at October 1, 2006 and December 25, 2005, respectively     |  |                | 160.9   |   |                  |   | 128.6   |  
|Inventories                                                                                                          |  |                | 242.7   |   |                  |   | 200.5   |  
|Deferred income taxes, net of allowances of $37.4 and $35.8 at October 1, 2006 and December 25, 2005, respectively   |  |                | 6.8     |   |                  |   | 3.3     |  
|Other current assets                                                                                                 |  |                | 34.4    |   |                  |   | 28.9    |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total current assets                                                                                                 |  |                | 998.8   |   |                  |   | 874.5   |  
|Property, plant and equipment, net                                                                                   |  |                | 646.5   |   |                  |   | 635.0   |  
|Deferred income taxes, net of allowances of $160.8 and $178.3 at October 1, 2006 and December 25, 2005, respectively |  |                | 1.4     |   |                  |   |        |  
|Intangible assets, net                                                                                               |  |                | 109.5   |   |                  |   | 126.1   |  
|Goodwill                                                                                                             |  |                | 229.9   |   |                  |   | 229.9   |  
|Long-term marketable securities                                                                                      |  |                | 2.0     |   |                  |   | 32.7    |  
|Other assets                                                                                                         |  |                | 30.6    |   |                  |   | 30.1    |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total assets                                                                                                         |  | $              | 2,018.7 |   |                  | $ | 1,928.3 |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITY                                                               |  |                |         |   |                  |   |         |  
|Current liabilities:                                                                                                 |  |                |         |   |                  |   |         |  
|Current portion of long-term debt                                                                                    |  | $              | 3.8     |   |                  | $ | 5.6     |  
|Accounts payable                                                                                                     |  |                | 101.8   |   |                  |   | 95.2    |  
|Accrued expenses and other current liabilities                                                                       |  |                | 154.6   |   |                  |   | 128.9   |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total current liabilities                                                                                            |  |                | 260.2   |   |                  |   | 229.7   |  
|Long-term debt, less current portion                                                                                 |  |                | 589.7   |   |                  |   | 641.0   |  
|Deferred income taxes                                                                                                |  |                | 32.8    |   |                  |   | 33.5    |  
|Other liabilities                                                                                                    |  |                | 19.0    |   |                  |   | 15.6    |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total liabilities                                                                                                    |  |                | 901.7   |   |                  |   | 919.8   |  
|Commitments and contingencies                                                                                        |  |                |         |   |                  |   |         |  
|Temporary equity - deferred stock units                                                                              |  |                | 1.9     |   |                  |   |        |  
|Stockholders equity:                                                                                                |  |                |         |   |                  |   |         |  
|Common stock                                                                                                         |  |                | 1.2     |   |                  |   | 1.2     |  
|Additional paid-in capital                                                                                           |  |                | 1,312.0 |   |                  |   | 1,274.1 |  
|Accumulated deficit                                                                                                  |  |                | (191.2  | ) |                  |   | (265.9  | )
|Accumulated other comprehensive income (loss)                                                                        |  |                | (0.4    | ) |                  |   | 3.9     |  
|Less treasury stock (at cost)                                                                                        |  |                | (6.5    | ) |                  |   | (4.8    | )
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total stockholders equity                                                                                           |  |                | 1,115.1 |   |                  |   | 1,008.5 |  
|                                                                                                                     |  |                |         |   |                  |   |         |  
|Total liabilities, temporary equity and stockholders equity                                                         |  | $              | 2,018.7 |   |                  | $ | 1,928.3 |  
|                                                                                                                     |  |                |         |   |                  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share data)

(Unaudited)



|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|----------------------------------------------- |  | ------------------ | ----- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ------- | -
|                                                |  | Three Months Ended |       |   | Nine Months Ended |  
|                                                |  | October 1,2006     |       |   | September 25,2005 |   |       | October 1,2006 |  |   | September 25,2005 |  
|Total revenue                                   |  | $                  | 417.0 |   |                   | $ | 345.5 |                |  | $ | 1,232.8           |   |  | $ | 1,054.3 |  
|Cost of sales                                   |  |                    | 289.1 |   |                   |   | 273.8 |                |  |   | 857.4             |   |  |   | 829.9   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Gross profit                                    |  |                    | 127.9 |   |                   |   | 71.7  |                |  |   | 375.4             |   |  |   | 224.4   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Gross profit %                                  |  |                    | 30.7  | % |                   |   | 20.8  | %              |  |   | 30.5              | % |  |   | 21.3    | %
|Operating expenses:                             |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Research and development                        |  |                    | 28.5  |   |                   |   | 19.7  |                |  |   | 81.0              |   |  |   | 58.2    |  
|Selling, general and administrative             |  |                    | 61.4  |   |                   |   | 51.8  |                |  |   | 181.7             |   |  |   | 146.7   |  
|Amortization of acquisition-related intangibles |  |                    | 5.9   |   |                   |   | 5.9   |                |  |   | 17.6              |   |  |   | 18.1    |  
|Restructuring and impairments                   |  |                    |      |   |                   |   | 4.2   |                |  |   |                  |   |  |   | 12.2    |  
|Gain on sale of product line, net               |  |                    | (1.1  | ) |                   |   |      |                |  |   | (6.0              | ) |  |   |        |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total operating expenses                        |  |                    | 94.7  |   |                   |   | 81.6  |                |  |   | 274.3             |   |  |   | 235.2   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Operating income (loss)                         |  |                    | 33.2  |   |                   |   | (9.9  | )              |  |   | 101.1             |   |  |   | (10.8   | )
|Interest expense                                |  |                    | 10.2  |   |                   |   | 9.5   |                |  |   | 32.6              |   |  |   | 31.5    |  
|Interest income                                 |  |                    | (4.8  | ) |                   |   | (3.4  | )              |  |   | (15.8             | ) |  |   | (9.4    | )
|Other expense (income)                          |  |                    | (0.5  | ) |                   |   | (3.4  | )              |  |   | (0.4              | ) |  |   | 20.5    |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Income (loss) before income taxes               |  |                    | 28.3  |   |                   |   | (12.6 | )              |  |   | 84.7              |   |  |   | (53.4   | )
|Provision for income taxes                      |  |                    | 3.2   |   |                   |   | 8.2   |                |  |   | 10.0              |   |  |   | 183.1   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Net income (loss)                               |  | $                  | 25.1  |   |                   | $ | (20.8 | )              |  | $ | 74.7              |   |  | $ | (236.5  | )
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Net income (loss) per common share:             |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Basic                                           |  | $                  | 0.20  |   |                   | $ | (0.17 | )              |  | $ | 0.61              |   |  | $ | (1.97   | )
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Diluted                                         |  | $                  | 0.20  |   |                   | $ | (0.17 | )              |  | $ | 0.60              |   |  | $ | (1.97   | )
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Weighted average common shares:                 |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Basic                                           |  |                    | 122.5 |   |                   |   | 120.0 |                |  |   | 121.8             |   |  |   | 119.9   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Diluted                                         |  |                    | 124.5 |   |                   |   | 120.0 |                |  |   | 124.0             |   |  |   | 119.9   |  
|                                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  

See accompanying notes to unaudited consolidated financial statements.



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)

(In millions)

(Unaudited)



|                                                                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ------ | -
|                                                                                                   |  | Three Months Ended |      |   | Nine Months Ended |  
|                                                                                                   |  | October 1,2006     |      |   | September 25,2005 |   |       | October 1,2006 |  |   | September 25,2005 |  
|Net income (loss)                                                                                  |  | $                  | 25.1 |   |                   | $ | (20.8 | )              |  | $ | 74.7              |   |  | $ | (236.5 | )
|Other comprehensive income (loss), net of tax:                                                     |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|Net change associated with hedging transactions                                                    |  |                    | 0.4  |   |                   |   |      |                |  |   | (0.5              | ) |  |   | 2.1    |  
|Net amount reclassified to earnings for hedging                                                    |  |                    | 0.1  |   |                   |   | (0.1  | )              |  |   | (0.6              | ) |  |   | 0.2    |  
|Net change associated with unrealized holding gain (loss) on marketable securities and investments |  |                    | (0.2 | ) |                   |   | 3.7   |                |  |   | (2.8              | ) |  |   | 3.4    |  
|Net amount reclassified to earnings for marketable securities                                      |  |                    | (0.4 | ) |                   |   |      |                |  |   | (0.4              | ) |  |   | 0.1    |  
|                                                                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  
|Comprehensive income (loss)                                                                        |  | $                  | 25.0 |   |                   | $ | (17.2 | )              |  | $ | 70.4              |   |  | $ | (230.7 | )
|                                                                                                   |  |                    |      |   |                   |   |       |                |  |   |                   |   |  |   |        |  

See accompanying notes to unaudited consolidated financial statements.



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



|                                                                                     |  |                   |        |   |                   |   |        |  
|------------------------------------------------------------------------------------ |  | ----------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                     |  | Nine Months Ended |       
|                                                                                     |  | October 1,2006    |        |   | September 25,2005 |  
|Cash flows from operating activities:                                                |  |                   |        |   |                   |   |        |  
|Net income (loss)                                                                    |  | $                 | 74.7   |   |                   | $ | (236.5 | )
|Adjustments to reconcile net income (loss) to cash provided by operating activities: |  |                   |        |   |                   |   |        |  
|Depreciation and amortization                                                        |  |                   | 86.4   |   |                   |   | 119.4  |  
|Amortization of deferred compensation                                                |  |                   |       |   |                   |   | 1.6    |  
|Non-cash stock-based compensation expense                                            |  |                   | 20.0   |   |                   |   |       |  
|Non-cash restructuring and impairment expense                                        |  |                   |       |   |                   |   | 4.2    |  
|Loss on disposal of property, plant, and equipment                                   |  |                   | 1.3    |   |                   |   | 0.3    |  
|Non-cash vesting of equity awards                                                    |  |                   |       |   |                   |   | 3.8    |  
|Non-cash financing expense                                                           |  |                   | 1.6    |   |                   |   | 1.9    |  
|Deferred income taxes, net                                                           |  |                   | (0.1   | ) |                   |   | 177.1  |  
|Non-cash write off of deferred financing fees                                        |  |                   |       |   |                   |   | 5.4    |  
|Gain on sale of product line                                                         |  |                   | (6.0   | ) |                   |   |       |  
|Gain on sale of strategic investment                                                 |  |                   | (0.6   | ) |                   |   |       |  
|Changes in operating assets and liabilities:                                         |  |                   |        |   |                   |   |        |  
|Accounts receivable, net                                                             |  |                   | (32.3  | ) |                   |   | 13.4   |  
|Inventories                                                                          |  |                   | (41.4  | ) |                   |   | 37.6   |  
|Other current assets                                                                 |  |                   | (9.9   | ) |                   |   | 11.0   |  
|Current liabilities                                                                  |  |                   | 31.3   |   |                   |   | (56.0  | )
|Other assets and liabilities, net                                                    |  |                   | 2.6    |   |                   |   | 1.9    |  
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash provided by operating activities                                                |  |                   | 127.6  |   |                   |   | 85.1   |  
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash flows from investing activities:                                                |  |                   |        |   |                   |   |        |  
|Purchase of marketable securities                                                    |  |                   | (117.1 | ) |                   |   | (472.1 | )
|Sale of marketable securities                                                        |  |                   | 245.9  |   |                   |   | 825.4  |  
|Maturity of marketable securities                                                    |  |                   | 50.1   |   |                   |   | 20.6   |  
|Capital expenditures                                                                 |  |                   | (85.6  | ) |                   |   | (71.9  | )
|Purchase of molds and tooling                                                        |  |                   | (1.4   | ) |                   |   | (1.8   | )
|Sale of strategic investment                                                         |  |                   | 1.1    |   |                   |   |       |  
|Acquisitions and divestitures, net of cash                                           |  |                   | 5.4    |   |                   |   |       |  
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash provided by investing activities                                                |  |                   | 98.4   |   |                   |   | 300.2  |  
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash flows from financing activities:                                                |  |                   |        |   |                   |   |        |  
|Repayment of long-term debt                                                          |  |                   | (53.1  | ) |                   |   | (355.3 | )
|Issuance of long-term debt                                                           |  |                   |       |   |                   |   | 154.5  |  
|Proceeds from issuance of common stock and from exercise of stock options, net       |  |                   | 24.5   |   |                   |   | 10.4   |  
|Purchase of treasury stock                                                           |  |                   | (7.2   | ) |                   |   | (6.0   | )
|Debt issuance costs                                                                  |  |                   | (1.4   | ) |                   |   | (1.0   | )
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash used in financing activities                                                    |  |                   | (37.2  | ) |                   |   | (197.4 | )
|                                                                                     |  |                   |        |   |                   |   |        |  
|Net change in cash and cash equivalents                                              |  |                   | 188.8  |   |                   |   | 187.9  |  
|Cash and cash equivalents at beginning of period                                     |  |                   | 330.7  |   |                   |   | 146.3  |  
|                                                                                     |  |                   |        |   |                   |   |        |  
|Cash and cash equivalents at end of period                                           |  | $                 | 519.5  |   |                   | $ | 334.2  |  
|                                                                                     |  |                   |        |   |                   |   |        |  

See accompanying notes to unaudited consolidated financial statements.



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of
Presentation

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 25, 2005. 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 25, 2005. Certain amounts for prior periods have been reclassified to conform to the current
presentation. The companys results for the nine months ended October 1, 2006 consists of 40 weeks, as compared to 39 weeks for the nine months ended September 25, 2005. The additional week was in the companys first quarter.

Note 2  Stock-based Compensation

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123(R) supersedes Accounting Principles Board
(APB) Opinion 25, Accounting for Stock Issued to Employees (APB 25), and amends SFAS 95, Statement of Cash Flows. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized
in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative.

Previously, the
company accounted for stock-based compensation awards using the intrinsic value method in accordance with APB 25. Under the intrinsic value method, no stock-based compensation expense was recognized when the exercise price of the companys
stock options equaled the fair market value of the underlying stock at the date of grant. Instead, the company disclosed in a footnote the effect on net income (loss) and net income (loss) per share as if the company had applied the fair value based
method of SFAS 123, Accounting for Stock-Based Compensation (SFAS 123), to record the expense. Under SFAS 123, this included expense for deferred stock units (DSUs), restricted stock units (RSUs) and performance units (PUs).

On December 26, 2005 (first day of fiscal 2006), the company adopted SFAS 123(R) using the modified prospective method. Under this transition
method, stock-based compensation cost recognized in the nine months ended October 1, 2006 include: (a) compensation cost for all share-based awards granted prior to but not yet vested as of December 25, 2005, based on the grant-date
fair value estimated in accordance with SFAS 123, and (b) compensation cost for all share-based awards granted subsequent to December 25, 2005, based on the grant-date fair value estimated in accordance with SFAS 123(R). In accordance with
the modified prospective method of adoption, the companys results of operations and financial position for prior periods have not been restated.

The company currently grants equity awards under two equity compensation plans  the Fairchild Semiconductor Stock Plan and the 2000 Executive Stock Option Plan. The company also maintains an employee stock
purchase plan. In addition, the company has occasionally granted equity awards outside its equity compensation plans when necessary.

Fairchild Semiconductor Stock Plan. Under this plan, executives, key employees, non-employee directors and certain consultants may be granted stock options, stock appreciation rights, restricted stock including RSUs, PUs, DSUs, and
other stock-based awards. The plan has been approved by stockholders. A total of 35,189,731 shares have been authorized for issuance under the plan. Of this number of shares, 3,500,000 may be granted in the form of full-value awards,
namely awards that are other than stock options and stock appreciation rights, such as restricted stock, DSUs, RSUs and PUs. The maximum life of any option is ten years from the date of grant for incentive stock options and non-qualified stock
options. Actual terms for outstanding non-qualified stock options generally range from eight years to ten years. Options granted under the plan are exercisable at the determination of the compensation committee, generally vesting ratably over four
years. PUs are contingently granted depending on the achievement of certain predetermined performance goals. DSUs, RSUs and PUs entitle executives to receive one share of common stock for each DSU, RSU or PU issued. For RSUs and PUs, the settlement
date is the vesting date. For DSUs, the settlement date is selected by the participant at the time of the grant. Grants of PUs generally vest under the plan over a period of three years, and DSUs and RSUs generally vest over a period of three or
four years.



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The 2000 Executive Stock Option Plan. The 2000 Executive Stock Option Plan authorizes up to
1,671,669 shares of common stock to be issued upon the exercise of options under the plan. The plan has been approved by stockholders. Individuals receiving options under the plan may not receive in any one year options to purchase more than
1,500,000 shares of common stock. Options generally vest over four years with a maximum term of ten years.

Employee Stock Purchase
Plan (ESPP). The company has maintained the Fairchild Semiconductor International, Inc. Employee Stock Purchase Plan since April 1, 2000. The ESPP has been approved by stockholders. The ESPP authorizes the issuance of up to
4,000,000 shares of common stock in quarterly offerings to eligible employees at a price that is equal to 85 percent of the lower of the common stocks market price at the beginning or the end of a quarterly calendar period. A
participating employee may withdraw from a quarterly offering anytime before the purchase date at the end of the quarter, and obtain a refund of the amounts withheld through the employees payroll deductions.

Equity Awards Made Outside Stockholder-Approved Plans.The company has granted equity awards representing a total of 820,000 shares outside its
equity compensation plans. As of October 1, 2006, 375,000 of equity awards remain outstanding, including 275,000 options, 37,500 DSUs, 20,000 RSUs and 40,000 PUs.

On February 18, 2005, the company announced the acceleration of certain unvested and out-of-the-money stock options previously awarded to employees and officers that had exercise prices per share of
$19.50 or higher. Options to purchase approximately 6 million shares of the companys common stock became exercisable as a result of the vesting acceleration. Based upon the companys closing stock price of $16.15 on February 18,
2005, none of these options had economic value on the date of acceleration. In connection with the modification of the terms of these options to accelerate their vesting, approximately $33.1 million, on a pre-tax basis, was included in the pro forma
net income (loss) table for 2005, representing the remaining unamortized value of the impacted, unvested options just prior to the acceleration. Because the exercise price of all the modified options was greater than the market price of the
companys underlying common stock on the date of their modification, no compensation expense was recorded in the statement of operations in accordance with APB 25. The primary purpose for modifying the terms of these options to accelerate their
vesting was to eliminate the need to recognize remaining unrecognized non-cash compensation expense as measured under SFAS 123(R) as the future expense associated with these options would have been disproportionately high compared to the economic
value of the options as of the date of modification. As a result of the acceleration, non-cash stock option expense in accordance with SFAS 123(R) was reduced by approximately $12 million in 2006, $4 million in 2007 and $1 million in 2008 on a
pre-tax basis.

The following table presents a summary of the companys stock options for the nine months ended October 1, 2006.



|                                   |  |                   |   |  |                              |       |                                         |     |                         |   |     
|---------------------------------- |  | ----------------- | - |  | ---------------------------- | ----- | --------------------------------------- | --- | ----------------------- | - | ----
|                                   |  | Nine Months Ended
|                                   |  | October 1, 2006  
|                                   |  | Shares            |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife |     | AggregateIntrinsicValue
|                                   |  | (000s)           |   |  |                              |       | (In years)                              |     | (In millions)          
|Outstanding at beginning of period |  | 24,014            |   |  | $                            | 19.29 |                                         |     |                         |   |     
|Granted                            |  | 1,916             |   |  |                              | 18.43 |                                         |     |                         |   |     
|Exercised                          |  | (1,622            | ) |  |                              | 12.13 |                                         |     |                         |   |     
|Forfeited                          |  | (335              | ) |  |                              | 14.78 |                                         |     |                         |   |     
|Expired                            |  | (703              | ) |  |                              | 25.11 |                                         |     |                         |   |     
|                                   |  |                   |   |  |                              |       |                                         |     |                         |   |     
|Outstanding at end of period       |  | 23,270            |   |  | $                            | 19.61 |                                         | 5.2 |                         | $ | 48.0
|                                   |  |                   |   |  |                              |       |                                         |     |                         |   |     
|Exercisable at end of period       |  | 18,691            |   |  | $                            | 20.42 |                                         | 4.8 |                         | $ | 36.7

The weighted average grant-date fair value for options granted during the nine months ended
October 1, 2006 and September 25, 2005 was $8.34 and $7.19, respectively.



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##### Table of Contents

The following table presents a summary of the companys DSUs for the nine months ended
October 1, 2006.



|                                 |  |                   |   |  |                                     |      
|-------------------------------- |  | ----------------- | - |  | ----------------------------------- | -----
|                                 |  | Nine Months Ended
|                                 |  | October 1, 2006  
|                                 |  | Shares            |   |  | WeightedAverageGrant-dateFair Value
|                                 |  | (000s)           |   |  |                                    
|Nonvested at beginning of period |  | 799               |   |  | $                                   | 14.24
|Granted                          |  | 77                |   |  |                                     | 20.81
|Vested                           |  | (521              | ) |  |                                     | 20.43
|Forfeited                        |  | (6                | ) |  |                                     | 17.09
|                                 |  |                   |   |  |                                     |      
|Nonvested at end of period       |  | 349               |   |  | $                                   | 17.56
|                                 |  |                   |   |  |                                     |      

The weighted average grant-date fair value for DSUs granted during the nine months ended
September 25, 2005 was $15.35. The total grant-date fair value for DSUs vested during the nine months ended October 1, 2006 and September 25, 2005 was $9.2 million and $1.5 million, respectively. The number, weighted-average exercise
price, aggregate intrinsic value and weighted average remaining contractual term for DSUs vested and outstanding is 46,963 units, zero (as these are zero strike price awards), $0.8 million and 1.7 years, respectively.

The companys plan documents governing DSUs contain contingent cash settlement provisions upon a change of control. Accordingly, in conjunction with
the adoption of SFAS 123(R) the company now presents previously recorded expense associated with unvested and unsettled DSUs under the balance sheet caption of Temporary equity-deferred stock units as required by Securities and Exchange
Commission (SEC) Accounting Series Release No. 268 and Emerging Issues Task Force (EITF) Topic D-98.

The following table presents a
summary of the companys RSUs for the nine months ended October 1, 2006.



|                                 |  |                   |   |  |                                     |      
|-------------------------------- |  | ----------------- | - |  | ----------------------------------- | -----
|                                 |  | Nine Months Ended
|                                 |  | October 1, 2006  
|                                 |  | Shares            |   |  | WeightedAverageGrant-dateFair Value
|                                 |  | (000s)           |   |  |                                    
|Nonvested at beginning of period |  | 35                |   |  | $                                   | 16.41
|Granted                          |  | 278               |   |  |                                     | 18.44
|Vested                           |  | (2                | ) |  |                                     | 17.22
|Forfeited                        |  | (11               | ) |  |                                     | 17.59
|                                 |  |                   |   |  |                                     |      
|Nonvested at end of period       |  | 300               |   |  | $                                   | 18.24
|                                 |  |                   |   |  |                                     |      

The weighted average grant-date fair value for RSUs granted during the nine months ended
September 25, 2005 was $16.79. The total grant-date fair value for RSUs vested during the nine months ended October 1, 2006 and September 25, 2005 was $0.03 million and zero, respectively.



9



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The following table presents a summary of the companys PUs for the nine months ended
October 1, 2006.



|                                            |  |                   |   |  |                                     |      
|------------------------------------------- |  | ----------------- | - |  | ----------------------------------- | -----
|                                            |  | Nine Months Ended
|                                            |  | October 1, 2006  
|                                            |  | Shares            |   |  | WeightedAverageGrant-dateFair Value
|                                            |  | (000s)           |   |  |                                    
|Nonvested at beginning of period            |  |                  |   |  | $                                   |     
|Granted (1)                                 |  | 860               |   |  |                                     | 18.47
|Increase (decrease) for performance factors |  |                  |   |  |                                     |     
|Vested                                      |  |                  |   |  |                                     |     
|Forfeited                                   |  | (22               | ) |  |                                     | 18.51
|                                            |  |                   |   |  |                                     |      
|Nonvested at end of period                  |  | 838               |   |  | $                                   | 18.47
|                                            |  |                   |   |  |                                     |      



|(1) | Represents the maximum potential award based on the 2006 fiscal year performance metric.
|--- | ----------------------------------------------------------------------------------------

The following table summarizes the total intrinsic value of awards exercised (i.e. the difference between the market price at exercise and the price paid by employees to exercise the award) for the nine months ended
October 1, 2006 and September 25, 2005, respectively.



|        |  |                                         |      |                                         |   |    
|------- |  | --------------------------------------- | ---- | --------------------------------------- | - | ---
|        |  | Nine Months Ended                      
|        |  | October 1, 2006                         |      | September 25,2005                      
|        |  | Total IntrinsicValue of AwardsExercised |      | Total IntrinsicValue of AwardsExercised
|        |  | (In millions)                          
|Options |  | $                                       | 12.2 |                                         | $ | 2.7
|DSUs    |  | $                                       | 9.1  |                                         | $ | 1.5
|RSUs    |  | $                                       |     |                                         | $ |   

The companys practice is to issue shares of common stock upon exercise or settlement of
options, DSUs, RSUs and PUs from previously unissued shares and to issue shares in connection with the stock purchase plan from treasury shares. The company expects to repurchase approximately 550,000 shares in 2006 to satisfy stock purchase plan
participation. For the three and nine months ended October 1, 2006, $2.0 million and $19.7 million of cash, respectively, was received from the exercises of stock-based awards.

Valuation and Expense Information under SFAS 123(R)

The following table summarizes
stock-based compensation expense under SFAS 123(R) by financial statement line, for the three and the nine months ended October 1, 2006.



|                                    |  |                    |     |                   |   |     
|----------------------------------- |  | ------------------ | --- | ----------------- | - | ----
|                                    |  | Three Months Ended |     | Nine Months Ended
|                                    |  | October 1, 2006    |     | October 1, 2006  
|                                    |  | (In millions)     
|Cost of Sales                       |  | $                  | 1.7 |                   | $ | 4.1 
|Research and Development            |  |                    | 1.1 |                   |   | 3.4 
|Selling, General and Administrative |  |                    | 4.3 |                   |   | 12.5
|                                    |  |                    |     |                   |   |     
|                                    |  | $                  | 7.1 |                   | $ | 20.0
|                                    |  |                    |     |                   |   |     

The company also capitalized a net $(0.1) million of stock-based compensation into inventory for
the third quarter of 2006 and $0.8 million for the nine months ended October 1, 2006. In addition, due to the valuation allowance for U.S. deferred income tax assets recorded by the company, no tax benefit on U.S. based stock compensation
expense was



10



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##### Table of Contents

recognized in the third quarter of 2006 or the nine months ended October 1, 2006. The income tax benefits from foreign tax jurisdictions was
approximately $0.1 million for the third quarter of 2006 and approximately $0.4 million for the nine months ended October 1, 2006.

Included in total stock-based compensation costs of $7.0 million and $20.8 million for the third quarter and nine months ended October 1, 2006, respectively, is $3.5 million and $8.8 million for the third quarter and nine months ended
October 1, 2006, respectively, of cost related to DSUs, RSUs and PUs that would have been included in expense under APB 25 even if the company had not adopted SFAS 123(R) in the first quarter of 2006.

Prior to SFAS 123(R), the company calculated stock-based compensation expense (primarily deferred stock units and restricted stock units) for retirement
eligible equity award recipients over the stated vesting period. Upon adoption of SFAS 123(R), the company changed its policy and now follows the requisite service period guidance for all new awards, which requires that compensation cost
attributable to equity awards be recognized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The impact of this change in policy was $0.2 million and
$0.5 million for the third quarter and nine months ended October 1, 2006, respectively.

The following table summarizes total
compensation cost related to nonvested awards not yet recognized and the weighted average period over which it is expected to be recognized at October 1, 2006.



|        |  |                                                |      |                                           |    
|------- |  | ---------------------------------------------- | ---- | ----------------------------------------- | ---
|        |  | October 1, 2006                               
|        |  | UnrecognizedCompensationCost forUnvestedAwards |      | WeightedAverageRemainingRecognitionPeriod
|        |  | (In millions)                                  |      | (In years)                               
|Options |  | $                                              | 19.3 |                                           | 1.6
|DSUs    |  | $                                              | 4.3  |                                           | 1.3
|RSUs    |  | $                                              | 4.7  |                                           | 1.9
|PUs     |  | $                                              | 9.4  |                                           | 2.2

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, utilizing the guidance provided in SFAS 123(R) as well as SEC Staff Accounting Bulletin (SAB) 107.



|                        |  |                  
|----------------------- |  | -----------------
|                        |  | Nine Months Ended
|                        |  | October 1, 2006  
|Expected volatility     |  | 53.0%            
|Dividend yield          |  |                 
|Risk-free interest rate |  | 4.5%             
|Expected life, in years |  | 3.9              
|Forfeiture rate         |  | 5.6%             

Expected volatility.The company estimates expected volatility using historical volatility.
Options in the companys stock are not actively traded. As a result, the company determined that utilizing an implied volatility factor would not be appropriate. The company is calculating historical volatility for the period that is
commensurate with the options expected life assumption.

Dividend yield.The company does not pay a dividend, therefore this
input is not applicable.

Risk-free interest rate.The company estimated the risk-free interest rate based on zero-coupon U.S.
Treasury securities for a period that is commensurate with the expected life assumption.



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##### Table of Contents

Expected life.The company has evaluated expected life based on history and exercise patterns
across its demographic population. The company believes that this historical data is the best estimate of the expected life of a new option, and that generally all groups of our employees exhibit similar exercise behavior.

Forfeiture rate.The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are
ultimately expected to vest as SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term forfeitures is
distinguished from cancellations or expirations and represents only the unvested portion of the surrendered option. The company has applied an annual forfeiture rate of 5.6% to all unvested options and 0.6%-0.75% to all
unvested DSUs, RSUs and PUs as of October 1, 2006. This analysis will be re-evaluated at least annually and the forfeiture rate will be adjusted as necessary.

Prior to the adoption of SFAS 123(R), the company used the expense recognition method in FASB Interpretation (FIN) 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans, to
recognize expense. The company switched to a straight-line attribution method on December 26, 2005 for all grants that include only a service condition. Due to the performance criteria, the companys performance units will be expensed over
the service period for each separately vesting tranche. The expense associated with the unvested portion of the pre-adoption grants will continue to be expensed over the service period for each separately vesting tranche.

As discussed above, previous to December 26, 2005, the company accounted for stock-based compensation under APB 25 and related Interpretations. The
following table illustrates the effect on net loss and net loss per common share for the three and nine months ended September 25, 2005, as if the company had applied the fair value based method of SFAS 123 to record stock-based compensation
expense.



|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ------------------ | - | ------ | -
|                                                                                                                            |  | Three Months Ended                   |       |   | Nine Months Ended  |  
|                                                                                                                            |  | September 25, 2005                   |       |   | September 25, 2005 |  
|                                                                                                                            |  | (In millions, except per share data) |      
|Net loss, as reported                                                                                                       |  | $                                    | (20.8 | ) |                    | $ | (236.5 | )
|Add: Stock compensation charge included in net loss determined under the intrinsic value method, net of tax                 |  |                                      | 0.4   |   |                    |   | 5.4    |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |  |                                      | (4.2  | ) |                    |   | (57.0  | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|Pro forma net loss                                                                                                          |  | $                                    | (24.6 | ) |                    | $ | (288.1 | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|Loss per share:                                                                                                             |  |                                      |       |   |                    |   |        |  
|Basic - as reported                                                                                                         |  | $                                    | (0.17 | ) |                    | $ | (1.97  | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|Basic - pro forma                                                                                                           |  | $                                    | (0.21 | ) |                    | $ | (2.40  | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|Diluted - as reported                                                                                                       |  | $                                    | (0.17 | ) |                    | $ | (1.97  | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  
|Diluted - pro forma                                                                                                         |  | $                                    | (0.21 | ) |                    | $ | (2.40  | )
|                                                                                                                            |  |                                      |       |   |                    |   |        |  



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The fair values of options granted during the three and nine months ended September 25, 2005 were
estimated on the date of grant using the Black-Scholes option pricing model, with the following weighted average assumptions.



|                        |  |                    |  |                   
|----------------------- |  | ------------------ |  | ------------------
|                        |  | Three Months Ended |  | Nine Months Ended 
|                        |  | September 25, 2005 |  | September 25, 2005
|Expected volatility     |  | 53.3%              |  | 53.7%             
|Dividend yield          |  |                   |  |                  
|Risk-free interest rate |  | 4.0%               |  | 4.0%              
|Expected life, in years |  | 3.9                |  | 4.0               

Note 3  Financial Statement Details



|                                               |  |                |         |                  |   |        
|---------------------------------------------- |  | -------------- | ------- | ---------------- | - | -------
|                                               |  | October 1,2006 |         | December 25,2005
|                                               |  | (In millions) 
|Inventories                                    |  |                |         |                  |   |        
|Raw materials                                  |  | $              | 29.5    |                  | $ | 25.3   
|Work in process                                |  |                | 137.9   |                  |   | 126.4  
|Finished goods                                 |  |                | 75.3    |                  |   | 48.8   
|                                               |  |                |         |                  |   |        
|                                               |  | $              | 242.7   |                  | $ | 200.5  
|                                               |  |                |         |                  |   |        
|Property, plant and equipment                  |  |                |         |                  |   |        
|Land and improvements                          |  | $              | 26.5    |                  | $ | 32.0   
|Buildings and improvements                     |  |                | 311.7   |                  |   | 307.2  
|Machinery and equipment                        |  |                | 1,373.8 |                  |   | 1,341.8
|Construction in progress                       |  |                | 62.4    |                  |   | 75.4   
|                                               |  |                |         |                  |   |        
|Total property, plant and equipment            |  |                | 1,774.4 |                  |   | 1,756.4
|Less accumulated depreciation                  |  |                | 1,127.9 |                  |   | 1,121.4
|                                               |  |                |         |                  |   |        
|                                               |  | $              | 646.5   |                  | $ | 635.0  
|                                               |  |                |         |                  |   |        
|Accrued expenses and other current liabilities |  |                |         |                  |   |        
|Payroll and employee related accruals          |  | $              | 83.3    |                  | $ | 42.9   
|Accrued interest                               |  |                | 9.2     |                  |   | 7.6    
|Income taxes payable                           |  |                | 21.4    |                  |   | 30.2   
|Restructuring                                  |  |                | 0.9     |                  |   | 4.9    
|Reserve for potential settlement losses        |  |                | 5.8     |                  |   | 17.2   
|Other                                          |  |                | 34.0    |                  |   | 26.1   
|                                               |  |                |         |                  |   |        
|                                               |  | $              | 154.6   |                  | $ | 128.9  
|                                               |  |                |         |                  |   |        

Note 4  Computation of Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss)
per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of potential future issuances of common stock relating to stock option programs and other potentially dilutive
securities. Potentially dilutive common equivalent shares consist of stock options, shares represented by outstanding and unvested PUs, DSUs and RSUs, and shares obtainable upon the conversion of the Convertible Senior Subordinated Notes, due
November 1, 2008. In calculating diluted earnings per share, the dilutive effect of stock options is computed using the average market price for the respective period. Potential shares related to certain of the companys outstanding stock
options were excluded because they were anti-dilutive, but could be dilutive in the future. The following table sets forth the computation of basic and diluted earnings per share.



13



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|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------ | ----- | ----------------- | ----------------- | ----- | -------------- |  | ----------------- | ----- |  | - | ------ | -
|                                                             |  | Three Months Ended                   |       |                   | Nine Months Ended |      
|                                                             |  | October 1,2006                       |       | September 25,2005 |                   |       | October 1,2006 |  | September 25,2005 |      
|                                                             |  | (In millions, except per share data) |      
|Basic:                                                       |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Net income (loss)                                            |  | $                                    | 25.1  |                   | $                 | (20.8 | )              |  | $                 | 74.7  |  | $ | (236.5 | )
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Weighted average shares outstanding                          |  |                                      | 122.5 |                   |                   | 120.0 |                |  |                   | 121.8 |  |   | 119.9  |  
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Net income (loss) per share                                  |  | $                                    | 0.20  |                   | $                 | (0.17 | )              |  | $                 | 0.61  |  | $ | (1.97  | )
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Diluted:                                                     |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Net income (loss)                                            |  | $                                    | 25.1  |                   | $                 | (20.8 | )              |  | $                 | 74.7  |  | $ | (236.5 | )
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Basic weighted average shares outstanding                    |  |                                      | 122.5 |                   |                   | 120.0 |                |  |                   | 121.8 |  |   | 119.9  |  
|Assumed exercise of common stock equivalents                 |  |                                      | 2.0   |                   |                   |      |                |  |                   | 2.2   |  |   |       |  
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Diluted weighted-average common and common equivalent shares |  |                                      | 124.5 |                   |                   | 120.0 |                |  |                   | 124.0 |  |   | 119.9  |  
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Net income (loss) per share                                  |  | $                                    | 0.20  |                   | $                 | (0.17 | )              |  | $                 | 0.60  |  | $ | (1.97  | )
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|Anti-dilutive common stock equivalents, non-vested stock,    |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  
|DSUs and RSUs                                                |  |                                      | 16.8  |                   |                   | 17.1  |                |  |                   | 16.7  |  |   | 17.0   |  
|                                                             |  |                                      |       |                   |                   |       |                |  |                   |       |  |   |        |  

In addition, the computation of diluted earnings per share did not include the assumed conversion
of the senior subordinated notes because the effect would have been anti-dilutive. As a result, $2.7 million and $8.3 million of interest expense was not added back to the numerator for the three and nine months ended October 1, 2006,
respectively, and potential common shares of 6.7 million were not included in the denominator for all periods presented.

Note 5 
Supplemental Cash Flow Information



|                    |  |                   |      |                   |   |     
|------------------- |  | ----------------- | ---- | ----------------- | - | ----
|                    |  | Nine Months Ended
|                    |  | October 1,2006    |      | September 25,2005
|                    |  | (In millions)    
|Cash paid, net for: |  |                   |      |                   |   |     
|Income taxes        |  | $                 | 18.9 |                   | $ | 6.6 
|                    |  |                   |      |                   |   |     
|Interest            |  | $                 | 28.4 |                   | $ | 38.0
|                    |  |                   |      |                   |   |     

Note 6  Marketable Securities

The company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes and bonds, U.S. Government securities,
and auction rate securities.

All of the companys marketable securities are classified as available-for-sale. In accordance with SFAS
115, Accounting for Certain Investments in Debt and Equity Securities, available-for-sale securities are carried at fair value with unrealized gains and losses included as a component of other comprehensive income within stockholders
equity, net of any related tax effect. Realized gains and losses and declines in value judged by management to be other than temporary on these investments are included in interest income and expense. For the purpose of computing realized gains and
losses, cost is identified on a specific identification basis.



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The following table presents the amortized cost and estimated fair value of available-for-sale securities
by contractual maturity at October 1, 2006.



|                                        |  |               |      |             |   |     
|--------------------------------------- |  | ------------- | ---- | ----------- | - | ----
|                                        |  | AmortizedCost |      | MarketValue
|                                        |  | (In millions)
|Due in one year or less                 |  | $             | 31.2 |             | $ | 31.1
|Due after one year through three years  |  |               | 0.3  |             |   | 0.3 
|Due after three years through ten years |  |               | 1.1  |             |   | 1.1 
|Due after ten years                     |  |               | 4.0  |             |   | 4.0 
|                                        |  |               |      |             |   |     
|                                        |  | $             | 36.6 |             | $ | 36.5
|                                        |  |               |      |             |   |     

Note 7  Goodwill and Intangible Assets

The following table presents a summary of acquired intangible assets.



|                                |  |                       |  |                       |       |                         |                         |        |                     |  |                         |       |  |   |        |  
|------------------------------- |  | --------------------- |  | --------------------- | ----- | ----------------------- | ----------------------- | ------ | ------------------- |  | ----------------------- | ----- |  | - | ------ | -
|                                |  |                       |  | As of October 1, 2006 |       |                         | As of December 25, 2005 |       
|                                |  | Period ofAmortization |  | GrossCarryingAmount   |       | AccumulatedAmortization |                         |        | GrossCarryingAmount |  | AccumulatedAmortization |      
|                                |  |                       |  | (In millions)         |      
|Identifiable intangible assets: |  |                       |  |                       |       |                         |                         |        |                     |  |                         |       |  |   |        |  
|Developed technology            |  | 5 - 15 years          |  | $                     | 225.6 |                         | $                       | (120.6 | )                   |  | $                       | 225.6 |  | $ | (108.1 | )
|Customer base                   |  | 8 years               |  |                       | 55.8  |                         |                         | (52.5  | )                   |  |                         | 55.8  |  |   | (47.5  | )
|Covenant not to compete         |  | 5 years               |  |                       | 30.4  |                         |                         | (30.4  | )                   |  |                         | 30.4  |  |   | (30.4  | )
|Assembled workforce             |  | 5 years               |  |                       | 1.0   |                         |                         | (0.1   | )                   |  |                         |      |  |   |       |  
|Trademarks and tradenames       |  | 4 years               |  |                       | 24.9  |                         |                         | (24.9  | )                   |  |                         | 24.9  |  |   | (24.9  | )
|Patents                         |  | 4 years               |  |                       | 5.4   |                         |                         | (5.1   | )                   |  |                         | 5.4   |  |   | (5.1   | )
|                                |  |                       |  |                       |       |                         |                         |        |                     |  |                         |       |  |   |        |  
|Subtotal                        |  |                       |  |                       | 343.1 |                         |                         | (233.6 | )                   |  |                         | 342.1 |  |   | (216.0 | )
|Goodwill                        |  |                       |  |                       | 229.9 |                         |                         |       |                     |  |                         | 229.9 |  |   |       |  
|                                |  |                       |  |                       |       |                         |                         |        |                     |  |                         |       |  |   |        |  
|Total                           |  |                       |  | $                     | 573.0 |                         | $                       | (233.6 | )                   |  | $                       | 572.0 |  | $ | (216.0 | )
|                                |  |                       |  |                       |       |                         |                         |        |                     |  |                         |       |  |   |        |  

During the second quarter of 2006, the company acquired $1.0 million of assembled workforce as
part of the companys acquisition of the design team and certain assets of Orion Design Technologies (Orion) (see Note 12 for further information).

The titles of the companys segments changed at the beginning of fiscal 2006. As a result, the companys newly-titled reporting units that carry goodwill include Functional Power, Analog Products and
Standard Products (see Note 8 for further information). No amounts were reclassified as a result of the change.The following table presents the carrying amount of goodwill by reporting unit.



|                                                    |  |                |      |                 |   |                  |  |       |      |  |   |      
|--------------------------------------------------- |  | -------------- | ---- | --------------- | - | ---------------- |  | ----- | ---- |  | - | -----
|                                                    |  | AnalogProducts |      | FunctionalPower |   | StandardProducts |  | Total
|                                                    |  | (In millions) 
|Balance as of October 1, 2006 and December 25, 2005 |  | $              | 15.5 |                 | $ | 159.9            |  | $     | 54.5 |  | $ | 229.9

During the nine months ended October 1, 2006, there were no changes to the carrying amount of
goodwill due to acquisitions or divestitures.



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The following table presents the estimated amortization expense for intangible assets for the remainder
of 2006 and for each of the five succeeding fiscal years.



|                                |  |               |     
|------------------------------- |  | ------------- | ----
|Estimated Amortization Expense: |  | (In millions)
|Remainder of 2006               |  | $             | 5.9 
|2007                            |  |               | 18.5
|2008                            |  |               | 16.7
|2009                            |  |               | 16.7
|2010                            |  |               | 16.6
|2011                            |  |               | 12.3

Note 8 - Segment Information

Effective December 26, 2005 (first day of fiscal year 2006), the company changed the titles of its operating segments to align the segment presentation with the way management runs the business. This change had
no material impact on the historical financial results of the segments presented in this report. The company is currently organized into three reportable segments: Functional Power, Analog Products, previously known as Power Discrete and Power
Analog, respectively, and Standard Products. Functional Power includes high voltage, low voltage, automotive and radio frequency products. Analog Products includes system power, power conversion, signal conditioning, switches and interface products.
Standard Products includes optoelectronics lighting, standard linear, logic, standard diode and transistors and foundry products.

The
following table presents selected operating segment financial information for the three and nine months ended October 1, 2006 and September 25, 2005.



|                                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|------------------------------------ |  | ------------------ | ----- | - | ----------------- | - | ----- | -------------- |  | - | ----------------- | - |  | - | ------- | -
|                                     |  | Three Months Ended |       |   | Nine Months Ended |  
|                                     |  | October 1,2006     |       |   | September 25,2005 |   |       | October 1,2006 |  |   | September 25,2005 |  
|                                     |  | (In millions)      |      
|Revenue and Operating Income (Loss): |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Functional Power                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total revenue                        |  | $                  | 242.8 |   |                   | $ | 195.0 |                |  | $ | 710.1             |   |  | $ | 592.7   |  
|Operating income                     |  |                    | 35.3  |   |                   |   | 6.1   |                |  |   | 91.3              |   |  |   | 27.1    |  
|                                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Analog Products                      |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total revenue                        |  |                    | 76.4  |   |                   |   | 61.5  |                |  |   | 238.3             |   |  |   | 197.6   |  
|Operating loss                       |  |                    | (10.2 | ) |                   |   | (15.0 | )              |  |   | (6.7              | ) |  |   | (31.0   | )
|                                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Standard Products                    |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total revenue                        |  |                    | 97.8  |   |                   |   | 89.0  |                |  |   | 284.4             |   |  |   | 264.0   |  
|Operating income                     |  |                    | 14.0  |   |                   |   | 3.2   |                |  |   | 30.8              |   |  |   | 5.3     |  
|                                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Other                                |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Operating loss (1)                   |  |                    | (5.9  | ) |                   |   | (4.2  | )              |  |   | (14.3             | ) |  |   | (12.2   | )
|                                     |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total Consolidated                   |  |                    |       |   |                   |   |       |                |  |   |                   |   |  |   |         |  
|Total revenue                        |  | $                  | 417.0 |   |                   | $ | 345.5 |                |  | $ | 1,232.8           |   |  | $ | 1,054.3 |  
|Operating income (loss)              |  | $                  | 33.2  |   |                   | $ | (9.9  | )              |  | $ | 101.1             |   |  | $ | (10.8   | )

---

|(1) | Includes $7.1 million and $20.0 million of stock-based compensation expense and a net gain of $1.1 million and $6.0 million on the sale of a product line in the three and nine
months ended October 1, 2006, respectively, and also includes $0.4 million of fees associated with the refinancing of the senior credit facility in the second quarter of 2006. Includes $4.2 million and $12.2 million of restructuring in the
three and nine months ended September 25, 2005, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 9 - Restructuring and Impairments

During the three and nine months ended October 1, 2006, the company recorded no restructuring and impairment charges.



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During the three and nine months ended September 25, 2005, the company recorded restructuring
charges of $4.2 million and $12.2 million, respectively. In the third quarter of 2005, these charges include $2.9 million in employee separation costs, $1.6 million in asset impairment charges, and a $0.3 million net reserve release due to a revised
estimate of employee separation medical costs. For the nine months ended September 25, 2005, these charges also include $5.7 million in employee separation costs, $0.5 million in office closure costs, $2.1 million in asset impairment charges,
$0.2 million of other transfer costs, a $0.3 million reserve release associated with the 2004 Infrastructure Realignment Program due to revised estimates, and a $0.2 million net reserve release due to revised estimates associated with first quarter
employee separation charges.

The following tables present a summary of the activity in the companys accrual for restructuring and
impairment costs for the three and nine months ended October 1, 2006 (in millions).



|                                         |  |                             |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|---------------------------------------- |  | --------------------------- | --- | ---------- | - | -------- |  | - | -------------- | - | ------------- | - | ------------------------- |  | - | - |  | - | ---
|                                         |  | AccrualBalance at12/25/2005 |     | NewCharges |   | CashPaid |  |   | ReserveRelease |   | Non-CashItems |   | AccrualBalance at4/2/2006
|2004 Infrastructure Realignment Program: |  |                             |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|Employee Separation Costs                |  | $                           | 0.8 |            | $ |         |  | $ | (0.2           | ) |               | $ |                          |  | $ |  |  | $ | 0.6
|2005 Infrastructure Realignment Program: |  |                             |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|Employee Separation Costs                |  |                             | 4.1 |            |   |         |  |   | (2.4           | ) |               |   |                          |  |   |  |  |   | 1.7
|                                         |  |                             |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|                                         |  | $                           | 4.9 |            | $ |         |  | $ | (2.6           | ) |               | $ |                          |  | $ |  |  | $ | 2.3
|                                         |  |                             |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    



|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|---------------------------------------- |  | ------------------------- | --- | ---------- | - | -------- |  | - | -------------- | - | ------------- | - | ------------------------- |  | - | - |  | - | ---
|                                         |  | AccrualBalance at4/2/2006 |     | NewCharges |   | CashPaid |  |   | ReserveRelease |   | Non-CashItems |   | AccrualBalance at7/2/2006
|2004 Infrastructure Realignment Program: |  |                           |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|Employee Separation Costs                |  | $                         | 0.6 |            | $ |         |  | $ | (0.4           | ) |               | $ |                          |  | $ |  |  | $ | 0.2
|2005 Infrastructure Realignment Program: |  |                           |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|Employee Separation Costs                |  |                           | 1.7 |            |   |         |  |   | (0.5           | ) |               |   |                          |  |   |  |  |   | 1.2
|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    
|                                         |  | $                         | 2.3 |            | $ |         |  | $ | (0.9           | ) |               | $ |                          |  | $ |  |  | $ | 1.4
|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                           |  |   |   |  |   |    



|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                            |  |   |   |  |   |    
|---------------------------------------- |  | ------------------------- | --- | ---------- | - | -------- |  | - | -------------- | - | ------------- | - | -------------------------- |  | - | - |  | - | ---
|                                         |  | AccrualBalance at7/2/2006 |     | NewCharges |   | CashPaid |  |   | ReserveRelease |   | Non-CashItems |   | AccrualBalance at10/1/2006
|2004 Infrastructure Realignment Program: |  |                           |     |            |   |          |  |   |                |   |               |   |                            |  |   |   |  |   |    
|Employee Separation Costs                |  | $                         | 0.2 |            | $ |         |  | $ | (0.2           | ) |               | $ |                           |  | $ |  |  | $ |   
|2005 Infrastructure Realignment Program: |  |                           |     |            |   |          |  |   |                |   |               |   |                            |  |   |   |  |   |    
|Employee Separation Costs                |  |                           | 1.2 |            |   |         |  |   | (0.3           | ) |               |   |                           |  |   |  |  |   | 0.9
|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                            |  |   |   |  |   |    
|                                         |  | $                         | 1.4 |            | $ |         |  | $ | (0.5           | ) |               | $ |                           |  | $ |  |  | $ | 0.9
|                                         |  |                           |     |            |   |          |  |   |                |   |               |   |                            |  |   |   |  |   |    

The company expects to complete payment of substantially all of the above restructuring accruals
by the first quarter of 2007.

Note 10  Derivatives

The company uses derivative instruments to manage exposures to foreign currencies. In accordance with SFAS 133, Accounting for Certain Derivative Instruments and Certain Hedging Activities, 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.
Currencies hedged include the euro, Japanese yen, Malaysian ringgit, Philippine peso, and Korean won. The companys



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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 133 and SFAS 138,Accounting for Certain Derivative Instruments and Certain Hedging Activities  an amendment of FASB Statement 133, did not have a material impact on earnings for the
nine months ended October 1, 2006. No cash flow hedges were discontinued for the nine months ended October 1, 2006. Three cash flow hedges were discontinued for the nine months ended September 25, 2005. The $0.1 million favorable
impact of terminating the hedges was recorded in earnings in accordance with SFAS 133.

Derivative gains and losses included in other
comprehensive income (OCI) are reclassified into earnings at the time the forecasted transaction revenue or expense is recognized. The company estimates that the entire $0.3 million of net unrealized derivative losses included in OCI will be
reclassified into earnings within the next twelve months.

Note 11  Contingencies

Phosphorus Mold Compound Litigation and Claims.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. The company has been named in lawsuits relating to these mold compound claims. In January 2005 the company was named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New
Jersey. The Lucent lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified damages allegedly caused by the companys products. Lucent amended the lawsuit in the second quarter of 2006 to include a fraud claim
against the company. The company believes it has strong defenses against Lucents claims and intends to vigorously defend the lawsuit.

Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their claims are not resolved according to their demands, and the company may face additional lawsuits as a
result. The company has resolved similar claims with several of its leading customers. The company has exhausted insurance coverage for such customer claims. While the exact amount of these losses is not known, the company recorded a reserve for
estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the second quarter of 2004 and an additional $6.9 million in the fourth quarter of 2005. These estimates were based upon assessments of the
potential liability using an analysis of the claims and historical experience. At October 1, 2006 and December 25, 2005, the reserve for estimated potential settlement losses was $5.8 million and $17.2 million, respectively. The decrease
in the reserve is due to settlement payments made during the first quarter of 2006. If the company continues to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims
proceed to litigation, or if the company chooses to settle claims in settlement of or to avoid litigation, then the company may incur a liability in excess of the current reserve.

Patent Litigation With Power Integrations, Inc.On October 20, 2004, the company and its wholly owned subsidiary, Fairchild Semiconductor
Corporation, were sued by Power Integrations, Inc. in the United States District Court for the District of Delaware. Power Integrations alleges that certain of the companys pulse width modulation (PWM) integrated circuit products infringe four
Power Integrations U.S. patents, and seeks a permanent injunction preventing the company from manufacturing, selling or offering the products for sale in the United States, or from importing the products into the United States, as well as money
damages for past infringement. The company has analyzed the Power Integrations patents in light of the companys products and, based on that analysis, does not believe the companys products violate Power Integrations patents.
Accordingly, the company is vigorously contesting this lawsuit. The trial in the case has been divided into three phases. The first phase, held October 2-10, 2006, was on infringement, the willfulness of any infringement, and damages. On
October 10, 2006, a jury returned a verdict finding that 33 of the companys PWM products infringe one or more of seven claims of the four patents being asserted. The jury also found that the companys infringement was willful, and
assessed damages against the company of approximately $34 million. That verdict remains subject to the companys appeal. The second phase of the trial, scheduled to begin December 4, 2006 before a different jury, will be on the validity of
the Power Integrations patents being asserted. The enforceability of the patents will be handled in a third phase before the judge who is overseeing the case. For Power Integrations to prevail in the case and receive a judgment and injunction
against the company, the patent claims found to have been infringed must also be found to be valid and enforceable in the remaining phases of the trial. The company believes it has identified inventions and publications, known as prior art, that
pre-date the Power Integrations patents which the company believes would invalidate the patents. The company is also claiming that Power Integrations officials engaged in inequitable conduct before the



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United States Patent and Trademark Office at the time when one or more of the patents was obtained, and the company believes that conduct should make the
patent claims unenforceable.

In the second phase of the trial scheduled to begin December 4, 2006, the Power Integrations patents
will be presumed to be valid and the company will have the burden of proving, by clear and convincing evidence, that the patents are invalid. To the extent the company is unable to do this, Power Integrations will be entitled to a judgment and
damages as further discussed below. Power Integrations may also seek an injunction to prevent the company from making, selling or offering to sell in the United States, or from importing into the United States, products that infringe patents that
are found valid and enforceable. Power Integrations has announced its intention to seek such an injunction in such event.

The jury in the
first phase of the trial assessed damages against the company of approximately $34 million. Because the jury also found that the companys infringement was willful, the judge in the case will have discretion to increase the damages award by up
to three times the amount of the final damages award. The final damages award would be determined after the next two phases of the trial. To the extent the company succeeds in proving the patent claims invalid, the damages amount may be reduced,
including to zero if the company proves all the claims invalid or unforceable. If the company is not successful, damages may also be increased by the judge to account for certain sales by the company after October 20, 2006 and as a result of
the willful infringement finding. It is also possible that the company could be required to pay Power Integrations attorneys fees and pre-judgment interest.

Although the company believes, based on the prior art the company has identified, that the company has invalidity and unenforceability defenses to Power Integrations patent claims, the results of litigation are
difficult to predict and no assurance can be given that the company will succeed in proving the patents invalid or unenforceable. As discussed above, the judge overseeing the case has discretion over the amount of damages awarded, and over the
granting and scope of any injunction against the company. Any damages award or injunction would be subject to appeal and the company would expect to carefully consider an appeal at the appropriate time. In such a case, if the company chooses to
appeal, the company would likely be required to post a bond or provide other security for some or the entire amount of the final damages award during the pendency of the appeal.

The company has analyzed the potential for a loss from this litigation in accordance with Statement of Financial Accounting Standards 5, Accounting
for Contingencies. Due to the companys beliefs about its position in the case, and because the company is unable to reasonably estimate the amount of loss the company would incur if the company does not prevail, the company has not
recorded a reserve for contingent loss. Should the company ultimately lose the lawsuit, such result could have an adverse impact on the companys ability to sell products found to be infringing, either directly or indirectly in the U.S.

In a separate action, the company filed a lawsuit on April 11, 2006, against Power Integrations in the United States District Court
for the Eastern District of Texas. The lawsuit asserts that Power Integrations PWM products infringe U.S. Patent No. 5,264,719. Intersil Americas owns U.S. Patent No. 5,264,719, for High Voltage Lateral Semiconductor Devices, and is
a co-plaintiff with the company in the lawsuit. The company has held license rights under the patent since acquiring Intersils power discrete business in 2001, and the company more recently secured exclusive rights to assert the patent against
Power Integrations. The company intends to take all possible steps to seek a court order to stop Power Integrations from making, using, selling, offering for sale or importing the infringing products into the U.S. and to obtain monetary damages for
Power Integrations infringing activities.

ZTE Corporation v. Fairchild Semiconductor Corporation.On December 30, 2004,
the companys wholly owned subsidiary, Fairchild Semiconductor Corporation, was sued by ZTE Corporation, a communications equipment manufacturer, in Guangdong Higher Peoples Court in Guangzhou, Peoples Republic of China. The
complaint filed by ZTE alleges that certain of the companys products were defective and caused personal injury and/or property loss to ZTE. ZTE claims 65,733,478 Chinese yuan as damages (equivalent to approximately $8.2 million U.S. dollars
based on exchange rates at October 1, 2006). The company contested the lawsuit in a trial held on October 20, 2005. The courts decision remains pending and the company is unable to predict when a decision will be reached. The company
continues to deny the allegations in the lawsuit.

From time to time the company is involved in legal proceedings in the ordinary course of
business. The company believes that there is no such ordinary-course litigation pending that could have, individually or in the aggregate, a material adverse effect on its business, financial condition, results of operations or cash flows.



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Note 12  Acquisitions and Divestitures

On May 1, 2006, the company completed its acquisition of the design team and certain assets of Orion Design Technologies, an analog design center
located in Lee, New Hampshire, for approximately $1.2 million in cash. The acquisition was made to augment the companys Analog Power design resources. The transaction was accounted for as an asset purchase without assumption of existing
liabilities. The purchase price was allocated to various tangible assets and assembled workforce, which will be amortized over the estimated useful life of 5 years.

On January 3, 2006, the company announced the sale of the light-emitting diode (LED) lamps and displays product line to Everlight International Corporation, a U.S. subsidiary of Everlight Electronics Company,
Ltd., of Taiwan. The company decided to sell the LED lamps and displays product line as it does not fit the strategic direction of the company. The company will retain the optocoupler and infrared product lines, as these products are closer to and
complement the companys core strategy. The company intends to grow these product lines through focused research and development.

As
part of the sale agreement, the company will assist Everlight with transitioning the product line by continuing to directly support the sale of LED lamps and displays products to its customers for an appropriate period of time. As a result of the
sale, the company recorded a net gain on the sale of $6.0 million in the first nine months of 2006, and net cash proceeds of $6.6 million. The divestiture is considered immaterial and therefore no pro forma results of operations have been presented.

Note 13  Refinancing of Senior Credit Facility

On June 22, 2006, the company used $50.0 million of cash to pay down the senior credit facility from $444.4 million to $394.4 million. Subsequently, on June 26, 2006, the company refinanced the senior credit
facility and replaced the $394.4 million remaining balance on the term loan with a $375.0 million term loan as well as replaced the $180.0 million revolving line of credit with a $100.0 million line of credit, of which $19.4 million was drawn on
June 26, 2006. In addition, the new senior credit facility includes a $200.0 million uncommitted incremental term loan feature. The refinancing reduced the variable interest rate on the term loan from Libor plus 1.75% to Libor plus 1.50% and
reduced the variable interest rate on the revolving line of credit from Libor plus 2.25% to Libor plus 1.50%. The company incurred cash charges of $1.9 million in the second quarter of 2006 related to the refinancing, of which $1.4 million were
deferred.

Note 14  Condensed Consolidating Financial Statements

The company operates through its wholly owned subsidiary Fairchild Semiconductor Corporation and other indirect wholly owned subsidiaries. Fairchild Semiconductor International, Inc. and certain of Fairchild
Semiconductor Corporations subsidiaries are guarantors under Fairchild Semiconductor Corporations 5% Convertible Senior Subordinated Notes. These guarantees are joint and several. Accordingly, presented below are condensed consolidating
balance sheets of Fairchild Semiconductor International, Inc. as of October 1, 2006 and December 25, 2005 and related condensed consolidating statements of operations for the three and nine months ended October 1, 2006 and
September 25, 2005 and condensed consolidating statements of cash flows for the nine months ended October 1, 2006 and September 25, 2005.



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##### Table of Contents

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)



|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------------------------- | ------- | - | ----------------------------------------------- | - | ------- | --------------------- |  | - | ------------------------- | - | ------------ | - | ----- | ----------------------------------------------------- | - | -------- | - |  | - | ------- | -
|                                                             |  | October 1, 2006                                         |        
|                                                             |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |         |   | UnconsolidatedFairchildSemiconductorCorporation |   |         | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   | Eliminations |   |       | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                                             |  | (In millions)                                           |        
|ASSETS                                                       |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Current assets:                                              |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Cash and cash equivalents                                    |  | $                                                       |        |   |                                                 | $ | 350.5   |                       |  | $ |                          |   |              | $ | 169.0 |                                                       | $ |         |   |  | $ | 519.5   |  
|Short-term marketable securities                             |  |                                                         |        |   |                                                 |   | 34.5    |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 34.5    |  
|Accounts receivable, net                                     |  |                                                         |        |   |                                                 |   | 19.2    |                       |  |   | (6.7                      | ) |              |   | 148.4 |                                                       |   |         |   |  |   | 160.9   |  
|Inventories                                                  |  |                                                         |        |   |                                                 |   | 134.1   |                       |  |   | 2.3                       |   |              |   | 106.3 |                                                       |   |         |   |  |   | 242.7   |  
|Deferred income taxes, net                                   |  |                                                         |        |   |                                                 |   |        |                       |  |   |                          |   |              |   | 6.8   |                                                       |   |         |   |  |   | 6.8     |  
|Other current assets                                         |  |                                                         |        |   |                                                 |   | 14.8    |                       |  |   | 6.3                       |   |              |   | 13.3  |                                                       |   |         |   |  |   | 34.4    |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total current assets                                         |  |                                                         |        |   |                                                 |   | 553.1   |                       |  |   | 1.9                       |   |              |   | 443.8 |                                                       |   |         |   |  |   | 998.8   |  
|Property, plant and equipment, net                           |  |                                                         |        |   |                                                 |   | 271.6   |                       |  |   | 1.6                       |   |              |   | 373.3 |                                                       |   |         |   |  |   | 646.5   |  
|Deferred income taxes                                        |  |                                                         |        |   |                                                 |   |        |                       |  |   |                          |   |              |   | 1.4   |                                                       |   |         |   |  |   | 1.4     |  
|Intangible assets, net                                       |  |                                                         |        |   |                                                 |   | 27.2    |                       |  |   | 12.1                      |   |              |   | 70.2  |                                                       |   |         |   |  |   | 109.5   |  
|Goodwill                                                     |  |                                                         |        |   |                                                 |   | 167.7   |                       |  |   | 61.8                      |   |              |   | 0.4   |                                                       |   |         |   |  |   | 229.9   |  
|Long-term marketable securities                              |  |                                                         |        |   |                                                 |   | 2.0     |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 2.0     |  
|Investment in subsidiary                                     |  |                                                         | 1,117.4 |   |                                                 |   | 926.4   |                       |  |   | 250.2                     |   |              |   | 92.5  |                                                       |   | (2,386.5 | ) |  |   |        |  
|Other assets                                                 |  |                                                         |        |   |                                                 |   | 13.8    |                       |  |   | 2.2                       |   |              |   | 14.6  |                                                       |   |         |   |  |   | 30.6    |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total assets                                                 |  | $                                                       | 1,117.4 |   |                                                 | $ | 1,961.8 |                       |  | $ | 329.8                     |   |              | $ | 996.2 |                                                       | $ | (2,386.5 | ) |  | $ | 2,018.7 |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITY       |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |  
|Current liabilities:                                         |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Current portion of long-term debt                            |  | $                                                       |        |   |                                                 | $ | 3.8     |                       |  | $ |                          |   |              | $ |      |                                                       | $ |         |   |  | $ | 3.8     |  
|Accounts payable                                             |  |                                                         |        |   |                                                 |   | 60.6    |                       |  |   | 1.1                       |   |              |   | 40.1  |                                                       |   |         |   |  |   | 101.8   |  
|Accrued expenses and other current liabilities               |  |                                                         |        |   |                                                 |   | 85.8    |                       |  |   | 3.5                       |   |              |   | 65.3  |                                                       |   |         |   |  |   | 154.6   |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total current liabilities                                    |  |                                                         |        |   |                                                 |   | 150.2   |                       |  |   | 4.6                       |   |              |   | 105.4 |                                                       |   |         |   |  |   | 260.2   |  
|Long-term debt, less current portion                         |  |                                                         |        |   |                                                 |   | 589.7   |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 589.7   |  
|Net intercompany (receivable) payable                        |  |                                                         |        |   |                                                 |   | 79.2    |                       |  |   | (251.1                    | ) |              |   | 171.9 |                                                       |   |         |   |  |   |        |  
|Deferred income taxes                                        |  |                                                         |        |   |                                                 |   | 25.2    |                       |  |   |                          |   |              |   | 7.6   |                                                       |   |         |   |  |   | 32.8    |  
|Other liabilities                                            |  |                                                         |        |   |                                                 |   | 0.5     |                       |  |   |                          |   |              |   | 18.5  |                                                       |   |         |   |  |   | 19.0    |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total liabilities                                            |  |                                                         |        |   |                                                 |   | 844.8   |                       |  |   | (246.5                    | ) |              |   | 303.4 |                                                       |   |         |   |  |   | 901.7   |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Commitments and contingencies                                |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Temporary equity - deferred stock units                      |  |                                                         | 1.9     |   |                                                 |   |        |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 1.9     |  
|Stockholders equity:                                        |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Common stock                                                 |  |                                                         | 1.2     |   |                                                 |   |        |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 1.2     |  
|Additional paid-in capital                                   |  |                                                         | 1,312.0 |   |                                                 |   |        |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 1,312.0 |  
|Retained earnings (accumulated deficit)                      |  |                                                         | (191.2  | ) |                                                 |   | 1,117.4 |                       |  |   | 576.3                     |   |              |   | 692.8 |                                                       |   | (2,386.5 | ) |  |   | (191.2  | )
|Accumulated other comprehensive loss                         |  |                                                         |        |   |                                                 |   | (0.4    | )                     |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | (0.4    | )
|Less treasury stock (at cost)                                |  |                                                         | (6.5    | ) |                                                 |   |        |                       |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | (6.5    | )
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total stockholders equity                                   |  |                                                         | 1,115.5 |   |                                                 |   | 1,117.0 |                       |  |   | 576.3                     |   |              |   | 692.8 |                                                       |   | (2,386.5 | ) |  |   | 1,115.1 |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total liabilities, temporary equity and stockholders equity |  | $                                                       | 1,117.4 |   |                                                 | $ | 1,961.8 |                       |  | $ | 329.8                     |   |              | $ | 996.2 |                                                       | $ | (2,386.5 | ) |  | $ | 2,018.7 |  
|                                                             |  |                                                         |         |   |                                                 |   |         |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|----------------------------------------------- |  | ------------------------------------------------------- | ----- | - | ----------------------------------------------- | - | ----- | --------------------- |  | - | ------------------------- | - |  | ------------ | ----- | - | ----------------------------------------------------- | - | ------ | - |  | - | ----- | -
|                                                |  | Three Months Ended October 1, 2006                      |      
|                                                |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |       |   | UnconsolidatedFairchildSemiconductorCorporation |   |       | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   |  | Eliminations |       |   | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                                |  | (In millions)                                           |      
|Total revenue                                   |  | $                                                       |      |   |                                                 | $ | 377.6 |                       |  | $ | 0.7                       |   |  | $            | 510.0 |   |                                                       | $ | (471.3 | ) |  | $ | 417.0 |  
|Cost of sales                                   |  |                                                         |      |   |                                                 |   | 337.7 |                       |  |   | 0.5                       |   |  |              | 422.2 |   |                                                       |   | (471.3 | ) |  |   | 289.1 |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Gross profit                                    |  |                                                         |      |   |                                                 |   | 39.9  |                       |  |   | 0.2                       |   |  |              | 87.8  |   |                                                       |   |       |   |  |   | 127.9 |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Operating Expenses:                             |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Research and development                        |  |                                                         |      |   |                                                 |   | 17.0  |                       |  |   | 3.8                       |   |  |              | 7.7   |   |                                                       |   |       |   |  |   | 28.5  |  
|Selling, general and administrative             |  |                                                         |      |   |                                                 |   | 39.2  |                       |  |   | 1.4                       |   |  |              | 20.8  |   |                                                       |   |       |   |  |   | 61.4  |  
|Amortization of acquisition-related intangibles |  |                                                         |      |   |                                                 |   | 1.4   |                       |  |   | 0.6                       |   |  |              | 3.9   |   |                                                       |   |       |   |  |   | 5.9   |  
|Gain on sale of product line, net               |  |                                                         |      |   |                                                 |   | 0.1   |                       |  |   | (1.2                      | ) |  |              |      |   |                                                       |   |       |   |  |   | (1.1  | )
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Total operating expenses                        |  |                                                         |      |   |                                                 |   | 57.7  |                       |  |   | 4.6                       |   |  |              | 32.4  |   |                                                       |   |       |   |  |   | 94.7  |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Operating income (loss)                         |  |                                                         |      |   |                                                 |   | (17.8 | )                     |  |   | (4.4                      | ) |  |              | 55.4  |   |                                                       |   |       |   |  |   | 33.2  |  
|Interest expense                                |  |                                                         |      |   |                                                 |   | 10.2  |                       |  |   |                          |   |  |              |      |   |                                                       |   |       |   |  |   | 10.2  |  
|Interest income                                 |  |                                                         |      |   |                                                 |   | (3.0  | )                     |  |   |                          |   |  |              | (1.8  | ) |                                                       |   |       |   |  |   | (4.8  | )
|Other expense (income)                          |  |                                                         |      |   |                                                 |   | (0.6  | )                     |  |   |                          |   |  |              | 0.1   |   |                                                       |   |       |   |  |   | (0.5  | )
|Equity in subsidiary income                     |  |                                                         | (25.1 | ) |                                                 |   | (50.7 | )                     |  |   | (8.6                      | ) |  |              |      |   |                                                       |   | 84.4   |   |  |   |      |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Income before income taxes                      |  |                                                         | 25.1  |   |                                                 |   | 26.3  |                       |  |   | 4.2                       |   |  |              | 57.1  |   |                                                       |   | (84.4  | ) |  |   | 28.3  |  
|Provision for income taxes                      |  |                                                         |      |   |                                                 |   | 1.2   |                       |  |   |                          |   |  |              | 2.0   |   |                                                       |   |       |   |  |   | 3.2   |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Net income                                      |  | $                                                       | 25.1  |   |                                                 | $ | 25.1  |                       |  | $ | 4.2                       |   |  | $            | 55.1  |   |                                                       | $ | (84.4  | ) |  | $ | 25.1  |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|----------------------------------------------- |  | ------------------------------------------------------- | ----- | - | ----------------------------------------------- | - | ------- | --------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - | ----------------------------------------------------- | - | -------- | - |  | - | ------- | -
|                                                |  | Nine Months Ended October 1, 2006                       |      
|                                                |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |       |   | UnconsolidatedFairchildSemiconductorCorporation |   |         | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   |  | Eliminations |         |   | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                                |  | (In millions)                                           |      
|Total revenue                                   |  | $                                                       |      |   |                                                 | $ | 1,134.7 |                       |  | $ | 2.6                       |   |  | $            | 1,507.0 |   |                                                       | $ | (1,411.5 | ) |  | $ | 1,232.8 |  
|Cost of sales                                   |  |                                                         |      |   |                                                 |   | 1,011.5 |                       |  |   | 4.2                       |   |  |              | 1,253.2 |   |                                                       |   | (1,411.5 | ) |  |   | 857.4   |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Gross profit (loss)                             |  |                                                         |      |   |                                                 |   | 123.2   |                       |  |   | (1.6                      | ) |  |              | 253.8   |   |                                                       |   |         |   |  |   | 375.4   |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Operating expenses:                             |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Research and development                        |  |                                                         |      |   |                                                 |   | 47.6    |                       |  |   | 11.1                      |   |  |              | 22.3    |   |                                                       |   |         |   |  |   | 81.0    |  
|Selling, general and administrative             |  |                                                         |      |   |                                                 |   | 115.9   |                       |  |   | 5.5                       |   |  |              | 60.3    |   |                                                       |   |         |   |  |   | 181.7   |  
|Amortization of acquisition-related intangibles |  |                                                         |      |   |                                                 |   | 4.1     |                       |  |   | 1.6                       |   |  |              | 11.9    |   |                                                       |   |         |   |  |   | 17.6    |  
|Gain on sale of product line, net               |  |                                                         |      |   |                                                 |   | 0.1     |                       |  |   | (5.7                      | ) |  |              | (0.4    | ) |                                                       |   |         |   |  |   | (6.0    | )
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Total operating expenses                        |  |                                                         |      |   |                                                 |   | 167.7   |                       |  |   | 12.5                      |   |  |              | 94.1    |   |                                                       |   |         |   |  |   | 274.3   |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Operating income (loss)                         |  |                                                         |      |   |                                                 |   | (44.5   | )                     |  |   | (14.1                     | ) |  |              | 159.7   |   |                                                       |   |         |   |  |   | 101.1   |  
|Interest expense                                |  |                                                         |      |   |                                                 |   | 32.6    |                       |  |   |                          |   |  |              |        |   |                                                       |   |         |   |  |   | 32.6    |  
|Interest income                                 |  |                                                         |      |   |                                                 |   | (9.8    | )                     |  |   | (0.2                      | ) |  |              | (5.8    | ) |                                                       |   |         |   |  |   | (15.8   | )
|Other expense (income)                          |  |                                                         |      |   |                                                 |   | (0.5    | )                     |  |   |                          |   |  |              | 0.1     |   |                                                       |   |         |   |  |   | (0.4    | )
|Equity in subsidiary income                     |  |                                                         | (74.7 | ) |                                                 |   | (142.6  | )                     |  |   | (18.8                     | ) |  |              |        |   |                                                       |   | 236.1    |   |  |   |        |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Income before income taxes                      |  |                                                         | 74.7  |   |                                                 |   | 75.8    |                       |  |   | 4.9                       |   |  |              | 165.4   |   |                                                       |   | (236.1   | ) |  |   | 84.7    |  
|Provision for income taxes                      |  |                                                         |      |   |                                                 |   | 1.1     |                       |  |   |                          |   |  |              | 8.9     |   |                                                       |   |         |   |  |   | 10.0    |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Net income                                      |  | $                                                       | 74.7  |   |                                                 | $ | 74.7    |                       |  | $ | 4.9                       |   |  | $            | 156.5   |   |                                                       | $ | (236.1   | ) |  | $ | 74.7    |  
|                                                |  |                                                         |       |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)



|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|------------------------------------------------------------------------------ |  | ------------------------------------------------------- | ----- | - | ----------------------------------------------- | - | ------ | --------------------- |  | - | ------------------------- | - |  | ----------------------------------------------------- | ----- | - |  | - | ------ | -
|                                                                               |  | Nine Months Ended October 1, 2006                       |      
|                                                                               |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |       |   | UnconsolidatedFairchildSemiconductorCorporation |   |        | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   |  | ConsolidatedFairchildSemiconductorInternational, Inc. |      
|                                                                               |  | (In millions)                                           |      
|Cash flows provided by operating activities:                                   |  | $                                                       |      |   |                                                 | $ | 42.5   |                       |  | $ | 0.4                       |   |  | $                                                     | 84.7  |   |  | $ | 127.6  |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Investing activities:                                                          |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Purchase of marketable securities                                              |  |                                                         |      |   |                                                 |   | (117.1 | )                     |  |   |                          |   |  |                                                       |      |   |  |   | (117.1 | )
|Sale of marketable securities                                                  |  |                                                         |      |   |                                                 |   | 245.9  |                       |  |   |                          |   |  |                                                       |      |   |  |   | 245.9  |  
|Maturity of marketable securities                                              |  |                                                         |      |   |                                                 |   | 50.1   |                       |  |   |                          |   |  |                                                       |      |   |  |   | 50.1   |  
|Capital expenditures                                                           |  |                                                         |      |   |                                                 |   | (21.1  | )                     |  |   | (0.4                      | ) |  |                                                       | (64.1 | ) |  |   | (85.6  | )
|Purchase of molds and tooling                                                  |  |                                                         |      |   |                                                 |   |       |                       |  |   |                          |   |  |                                                       | (1.4  | ) |  |   | (1.4   | )
|Sale of strategic investment                                                   |  |                                                         |      |   |                                                 |   | 1.1    |                       |  |   |                          |   |  |                                                       |      |   |  |   | 1.1    |  
|Acquisitions and divestitures, net of cash                                     |  |                                                         |      |   |                                                 |   | 5.4    |                       |  |   |                          |   |  |                                                       |      |   |  |   | 5.4    |  
|Investment (in) from affiliate                                                 |  |                                                         | (17.3 | ) |                                                 |   | 17.3   |                       |  |   |                          |   |  |                                                       |      |   |  |   |       |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Cash provided by (used in) investing activities                                |  |                                                         | (17.3 | ) |                                                 |   | 181.6  |                       |  |   | (0.4                      | ) |  |                                                       | (65.5 | ) |  |   | 98.4   |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Financing activities:                                                          |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Repayment of long-term debt                                                    |  |                                                         |      |   |                                                 |   | (53.1  | )                     |  |   |                          |   |  |                                                       |      |   |  |   | (53.1  | )
|Proceeds from issuance of common stock and from exercise of stock options, net |  |                                                         | 24.5  |   |                                                 |   |       |                       |  |   |                          |   |  |                                                       |      |   |  |   | 24.5   |  
|Purchase of treasury stock                                                     |  |                                                         | (7.2  | ) |                                                 |   |       |                       |  |   |                          |   |  |                                                       |      |   |  |   | (7.2   | )
|Debt Issuance costs                                                            |  |                                                         |      |   |                                                 |   | (1.4   | )                     |  |   |                          |   |  |                                                       |      |   |  |   | (1.4   | )
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Cash provided by (used in) financing activities                                |  |                                                         | 17.3  |   |                                                 |   | (54.5  | )                     |  |   |                          |   |  |                                                       |      |   |  |   | (37.2  | )
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Net change in cash and cash equivalents                                        |  |                                                         |      |   |                                                 |   | 169.6  |                       |  |   |                          |   |  |                                                       | 19.2  |   |  |   | 188.8  |  
|Cash and cash equivalents at beginning of period                               |  |                                                         |      |   |                                                 |   | 180.9  |                       |  |   |                          |   |  |                                                       | 149.8 |   |  |   | 330.7  |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Cash and cash equivalents at end of period                                     |  | $                                                       |      |   |                                                 | $ | 350.5  |                       |  | $ |                          |   |  | $                                                     | 169.0 |   |  | $ | 519.5  |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Supplemental Cash Flow Information:                                            |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Cash paid during the period for:                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Income taxes                                                                   |  | $                                                       |      |   |                                                 | $ | 12.4   |                       |  | $ |                          |   |  | $                                                     | 6.5   |   |  | $ | 18.9   |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  
|Interest                                                                       |  | $                                                       |      |   |                                                 | $ | 28.4   |                       |  | $ |                          |   |  | $                                                     |      |   |  | $ | 28.4   |  
|                                                                               |  |                                                         |       |   |                                                 |   |        |                       |  |   |                           |   |  |                                                       |       |   |  |   |        |  



24



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##### Table of Contents

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET (Unaudited)



|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|---------------------------------------------- |  | ------------------------------------------------------- | ------- | - | ----------------------------------------------- | - | --------------------- |  | - | ------------------------- | - | ------------ | - | ----- | ----------------------------------------------------- | - | -------- | - |  | - | ------- | -
|                                               |  | December 25, 2005                                       |        
|                                               |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |         |   | UnconsolidatedFairchildSemiconductorCorporation |   | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   | Eliminations |   |       | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                               |  | (In millions)                                           |        
|ASSETS                                         |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Current assets:                                |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Cash and cash equivalents                      |  | $                                                       |        |   |                                                 | $ | 180.9                 |  | $ |                          |   |              | $ | 149.8 |                                                       | $ |         |   |  | $ | 330.7   |  
|Short-term marketable securities               |  |                                                         |        |   |                                                 |   | 182.5                 |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 182.5   |  
|Accounts receivable, net                       |  |                                                         |        |   |                                                 |   | 16.5                  |  |   |                          |   |              |   | 112.1 |                                                       |   |         |   |  |   | 128.6   |  
|Inventories                                    |  |                                                         |        |   |                                                 |   | 101.9                 |  |   | 1.3                       |   |              |   | 97.3  |                                                       |   |         |   |  |   | 200.5   |  
|Deferred income taxes, net                     |  |                                                         |        |   |                                                 |   |                      |  |   |                          |   |              |   | 3.3   |                                                       |   |         |   |  |   | 3.3     |  
|Other current assets                           |  |                                                         |        |   |                                                 |   | 18.7                  |  |   |                          |   |              |   | 10.2  |                                                       |   |         |   |  |   | 28.9    |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total current assets                           |  |                                                         |        |   |                                                 |   | 500.5                 |  |   | 1.3                       |   |              |   | 372.7 |                                                       |   |         |   |  |   | 874.5   |  
|Property, plant and equipment, net             |  |                                                         |        |   |                                                 |   | 281.5                 |  |   | 1.4                       |   |              |   | 352.1 |                                                       |   |         |   |  |   | 635.0   |  
|Intangible assets, net                         |  |                                                         |        |   |                                                 |   | 30.6                  |  |   | 13.8                      |   |              |   | 81.7  |                                                       |   |         |   |  |   | 126.1   |  
|Goodwill                                       |  |                                                         |        |   |                                                 |   | 167.7                 |  |   | 61.8                      |   |              |   | 0.4   |                                                       |   |         |   |  |   | 229.9   |  
|Long-term marketable securities                |  |                                                         |        |   |                                                 |   | 32.7                  |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 32.7    |  
|Investment in subsidiary                       |  |                                                         | 1,004.6 |   |                                                 |   | 906.6                 |  |   | 263.2                     |   |              |   | 92.3  |                                                       |   | (2,266.7 | ) |  |   |        |  
|Other assets                                   |  |                                                         |        |   |                                                 |   | 14.1                  |  |   | 1.8                       |   |              |   | 14.2  |                                                       |   |         |   |  |   | 30.1    |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total assets                                   |  | $                                                       | 1,004.6 |   |                                                 | $ | 1,933.7               |  | $ | 343.3                     |   |              | $ | 913.4 |                                                       | $ | (2,266.7 | ) |  | $ | 1,928.3 |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY           |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |             
|Current liabilities:                           |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Current portion of long-term debt              |  | $                                                       |        |   |                                                 | $ | 5.6                   |  | $ |                          |   |              | $ |      |                                                       | $ |         |   |  | $ | 5.6     |  
|Accounts payable                               |  |                                                         |        |   |                                                 |   | 56.5                  |  |   | 0.5                       |   |              |   | 38.2  |                                                       |   |         |   |  |   | 95.2    |  
|Accrued expenses and other current liabilities |  |                                                         |        |   |                                                 |   | 87.3                  |  |   | 0.6                       |   |              |   | 41.0  |                                                       |   |         |   |  |   | 128.9   |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total current liabilities                      |  |                                                         |        |   |                                                 |   | 149.4                 |  |   | 1.1                       |   |              |   | 79.2  |                                                       |   |         |   |  |   | 229.7   |  
|Long-term debt, less current portion           |  |                                                         |        |   |                                                 |   | 641.0                 |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 641.0   |  
|Net intercompany (receivable) payable          |  |                                                         |        |   |                                                 |   | 112.0                 |  |   | (247.7                    | ) |              |   | 135.7 |                                                       |   |         |   |  |   |        |  
|Deferred income taxes                          |  |                                                         |        |   |                                                 |   | 22.3                  |  |   |                          |   |              |   | 11.2  |                                                       |   |         |   |  |   | 33.5    |  
|Other liabilities                              |  |                                                         |        |   |                                                 |   | 0.5                   |  |   |                          |   |              |   | 15.1  |                                                       |   |         |   |  |   | 15.6    |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total liabilities                              |  |                                                         |        |   |                                                 |   | 925.2                 |  |   | (246.6                    | ) |              |   | 241.2 |                                                       |   |         |   |  |   | 919.8   |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Commitments and contingencies                  |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Stockholders equity:                          |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Common stock                                   |  |                                                         | 1.2     |   |                                                 |   |                      |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 1.2     |  
|Additional paid-in capital                     |  |                                                         | 1,274.1 |   |                                                 |   |                      |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 1,274.1 |  
|Retained earnings (accumulated deficit)        |  |                                                         | (265.9  | ) |                                                 |   | 1,004.6               |  |   | 589.9                     |   |              |   | 672.2 |                                                       |   | (2,266.7 | ) |  |   | (265.9  | )
|Accumulated other comprehensive income         |  |                                                         |        |   |                                                 |   | 3.9                   |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | 3.9     |  
|Less treasury stock (at cost)                  |  |                                                         | (4.8    | ) |                                                 |   |                      |  |   |                          |   |              |   |      |                                                       |   |         |   |  |   | (4.8    | )
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total stockholders equity                     |  |                                                         | 1,004.6 |   |                                                 |   | 1,008.5               |  |   | 589.9                     |   |              |   | 672.2 |                                                       |   | (2,266.7 | ) |  |   | 1,008.5 |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  
|Total liabilities and stockholders equity     |  | $                                                       | 1,004.6 |   |                                                 | $ | 1,933.7               |  | $ | 343.3                     |   |              | $ | 913.4 |                                                       | $ | (2,266.7 | ) |  | $ | 1,928.3 |  
|                                               |  |                                                         |         |   |                                                 |   |                       |  |   |                           |   |              |   |       |                                                       |   |          |   |  |   |         |  



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##### Table of Contents

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|----------------------------------------------- |  | ------------------------------------------------------- | ----- | - | ----------------------------------------------- | - | ----- | --------------------- |  | - | ------------------------- | - |  | ------------ | ----- | - | ----------------------------------------------------- | - | ------ | - |  | - | ----- | -
|                                                |  | Three Months Ended September 25, 2005                   |      
|                                                |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |       |   | UnconsolidatedFairchildSemiconductorCorporation |   |       | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   |  | Eliminations |       |   | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                                |  | (In millions)                                           |      
|Total revenue                                   |  | $                                                       |      |   |                                                 | $ | 324.2 |                       |  | $ | 1.1                       |   |  | $            | 429.0 |   |                                                       | $ | (408.8 | ) |  | $ | 345.5 |  
|Cost of sales                                   |  |                                                         |      |   |                                                 |   | 298.9 |                       |  |   | 3.3                       |   |  |              | 380.4 |   |                                                       |   | (408.8 | ) |  |   | 273.8 |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Gross profit (loss)                             |  |                                                         |      |   |                                                 |   | 25.3  |                       |  |   | (2.2                      | ) |  |              | 48.6  |   |                                                       |   |       |   |  |   | 71.7  |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Operating Expenses:                             |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Research and development                        |  |                                                         |      |   |                                                 |   | 11.5  |                       |  |   | 2.6                       |   |  |              | 5.6   |   |                                                       |   |       |   |  |   | 19.7  |  
|Selling, general and administrative             |  |                                                         |      |   |                                                 |   | 35.5  |                       |  |   | 1.1                       |   |  |              | 15.2  |   |                                                       |   |       |   |  |   | 51.8  |  
|Amortization of acquisition-related intangibles |  |                                                         |      |   |                                                 |   | 1.4   |                       |  |   | 0.5                       |   |  |              | 4.0   |   |                                                       |   |       |   |  |   | 5.9   |  
|Restructuring and impairments                   |  |                                                         |      |   |                                                 |   | 3.9   |                       |  |   | 0.1                       |   |  |              | 0.2   |   |                                                       |   |       |   |  |   | 4.2   |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Total operating expenses                        |  |                                                         |      |   |                                                 |   | 52.3  |                       |  |   | 4.3                       |   |  |              | 25.0  |   |                                                       |   |       |   |  |   | 81.6  |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Operating income (loss)                         |  |                                                         |      |   |                                                 |   | (27.0 | )                     |  |   | (6.5                      | ) |  |              | 23.6  |   |                                                       |   |       |   |  |   | (9.9  | )
|Interest expense                                |  |                                                         |      |   |                                                 |   | 9.5   |                       |  |   |                          |   |  |              |      |   |                                                       |   |       |   |  |   | 9.5   |  
|Interest income                                 |  |                                                         |      |   |                                                 |   | (2.9  | )                     |  |   | (0.1                      | ) |  |              | (0.4  | ) |                                                       |   |       |   |  |   | (3.4  | )
|Other income, net                               |  |                                                         |      |   |                                                 |   | (3.4  | )                     |  |   |                          |   |  |              |      |   |                                                       |   |       |   |  |   | (3.4  | )
|Equity in subsidiary (income) loss              |  |                                                         | 20.8  |   |                                                 |   | (12.8 | )                     |  |   | 7.1                       |   |  |              |      |   |                                                       |   | (15.1  | ) |  |   |      |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Income (loss) before income taxes               |  |                                                         | (20.8 | ) |                                                 |   | (17.4 | )                     |  |   | (13.5                     | ) |  |              | 24.0  |   |                                                       |   | 15.1   |   |  |   | (12.6 | )
|Provision for income taxes                      |  |                                                         |      |   |                                                 |   | 3.4   |                       |  |   | 0.1                       |   |  |              | 4.7   |   |                                                       |   |       |   |  |   | 8.2   |  
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  
|Net income (loss)                               |  | $                                                       | (20.8 | ) |                                                 | $ | (20.8 | )                     |  | $ | (13.6                     | ) |  | $            | 19.3  |   |                                                       | $ | 15.1   |   |  | $ | (20.8 | )
|                                                |  |                                                         |       |   |                                                 |   |       |                       |  |   |                           |   |  |              |       |   |                                                       |   |        |   |  |   |       |  



26



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##### Table of Contents

FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)



|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|----------------------------------------------- |  | ------------------------------------------------------- | ------ | - | ----------------------------------------------- | - | ------- | --------------------- |  | - | ------------------------- | - |  | ------------ | ------- | - | ----------------------------------------------------- | - | -------- | - |  | - | ------- | -
|                                                |  | Nine Months Ended September 25, 2005                    |       
|                                                |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |        |   | UnconsolidatedFairchildSemiconductorCorporation |   |         | GuarantorSubsidiaries |  |   | Non-GuarantorSubsidiaries |   |  | Eliminations |         |   | ConsolidatedFairchildSemiconductorInternational, Inc. |  
|                                                |  | (In millions)                                           |       
|Total revenue                                   |  | $                                                       |       |   |                                                 | $ | 1,007.6 |                       |  | $ | 3.7                       |   |  | $            | 1,312.0 |   |                                                       | $ | (1,269.0 | ) |  | $ | 1,054.3 |  
|Cost of sales                                   |  |                                                         |       |   |                                                 |   | 929.6   |                       |  |   | 8.1                       |   |  |              | 1,161.2 |   |                                                       |   | (1,269.0 | ) |  |   | 829.9   |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Gross profit (loss)                             |  |                                                         |       |   |                                                 |   | 78.0    |                       |  |   | (4.4                      | ) |  |              | 150.8   |   |                                                       |   |         |   |  |   | 224.4   |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Operating expenses:                             |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Research and development                        |  |                                                         |       |   |                                                 |   | 32.7    |                       |  |   | 8.0                       |   |  |              | 17.5    |   |                                                       |   |         |   |  |   | 58.2    |  
|Selling, general and administrative             |  |                                                         |       |   |                                                 |   | 99.1    |                       |  |   | 3.1                       |   |  |              | 44.5    |   |                                                       |   |         |   |  |   | 146.7   |  
|Amortization of acquisition-related intangibles |  |                                                         |       |   |                                                 |   | 4.3     |                       |  |   | 1.8                       |   |  |              | 12.0    |   |                                                       |   |         |   |  |   | 18.1    |  
|Restructuring and impairments                   |  |                                                         |       |   |                                                 |   | 10.8    |                       |  |   | 0.1                       |   |  |              | 1.3     |   |                                                       |   |         |   |  |   | 12.2    |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Total operating expenses                        |  |                                                         |       |   |                                                 |   | 146.9   |                       |  |   | 13.0                      |   |  |              | 75.3    |   |                                                       |   |         |   |  |   | 235.2   |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Operating income (loss)                         |  |                                                         |       |   |                                                 |   | (68.9   | )                     |  |   | (17.4                     | ) |  |              | 75.5    |   |                                                       |   |         |   |  |   | (10.8   | )
|Interest expense                                |  |                                                         |       |   |                                                 |   | 31.5    |                       |  |   |                          |   |  |              |        |   |                                                       |   |         |   |  |   | 31.5    |  
|Interest income                                 |  |                                                         |       |   |                                                 |   | (8.6    | )                     |  |   | (0.1                      | ) |  |              | (0.7    | ) |                                                       |   |         |   |  |   | (9.4    | )
|Other expense, net                              |  |                                                         |       |   |                                                 |   | 20.5    |                       |  |   |                          |   |  |              |        |   |                                                       |   |         |   |  |   | 20.5    |  
|Equity in subsidiary (income) loss              |  |                                                         | 230.6  |   |                                                 |   | (38.9   | )                     |  |   | (3.4                      | ) |  |              |        |   |                                                       |   | (188.3   | ) |  |   |        |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Income (loss) before income taxes               |  |                                                         | (230.6 | ) |                                                 |   | (73.4   | )                     |  |   | (13.9                     | ) |  |              | 76.2    |   |                                                       |   | 188.3    |   |  |   | (53.4   | )
|Provision for income taxes                      |  |                                                         | 5.9    |   |                                                 |   | 157.2   |                       |  |   | 12.5                      |   |  |              | 7.5     |   |                                                       |   |         |   |  |   | 183.1   |  
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  
|Net income (loss)                               |  | $                                                       | (236.5 | ) |                                                 | $ | (230.6  | )                     |  | $ | (26.4                     | ) |  | $            | 68.7    |   |                                                       | $ | 188.3    |   |  | $ | (236.5  | )
|                                                |  |                                                         |        |   |                                                 |   |         |                       |  |   |                           |   |  |              |         |   |                                                       |   |          |   |  |   |         |  



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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)



|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|------------------------------------------------------------------------------ |  | ------------------------------------------------------- | ---- | - | ----------------------------------------------- | - | ------ | --------------------- |  | ------------------------- | - |  | ----------------------------------------------------- | ----- | - |  | - | ------ | -
|                                                                               |  | Nine Months Ended September 25, 2005                    |     
|                                                                               |  | UnconsolidatedFairchildSemiconductorInternational, Inc. |      |   | UnconsolidatedFairchildSemiconductorCorporation |   |        | GuarantorSubsidiaries |  | Non-GuarantorSubsidiaries |   |  | ConsolidatedFairchildSemiconductorInternational, Inc. |      
|                                                                               |  | (In millions)                                           |     
|Cash flows provided by (used in) operating activities:                         |  | $                                                       |     |   |                                                 | $ | (161.7 | )                     |  | $                         |  |  | $                                                     | 246.8 |   |  | $ | 85.1   |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Investing activities:                                                          |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Purchase of marketable securities                                              |  |                                                         |     |   |                                                 |   | (472.1 | )                     |  |                           |  |  |                                                       |      |   |  |   | (472.1 | )
|Sale of marketable securities                                                  |  |                                                         |     |   |                                                 |   | 825.4  |                       |  |                           |  |  |                                                       |      |   |  |   | 825.4  |  
|Maturity of marketable securities                                              |  |                                                         |     |   |                                                 |   | 20.6   |                       |  |                           |  |  |                                                       |      |   |  |   | 20.6   |  
|Capital expenditures                                                           |  |                                                         |     |   |                                                 |   | (26.4  | )                     |  |                           |  |  |                                                       | (45.5 | ) |  |   | (71.9  | )
|Purchase of molds and tooling                                                  |  |                                                         |     |   |                                                 |   |       |                       |  |                           |  |  |                                                       | (1.8  | ) |  |   | (1.8   | )
|Investment (in) from affiliate                                                 |  |                                                         | (4.4 | ) |                                                 |   | 4.4    |                       |  |                           |  |  |                                                       |      |   |  |   |       |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Cash provided by (used in) investing activities                                |  |                                                         | (4.4 | ) |                                                 |   | 351.9  |                       |  |                           |  |  |                                                       | (47.3 | ) |  |   | 300.2  |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Financing activities:                                                          |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Repayment of long-term debt                                                    |  |                                                         |     |   |                                                 |   | (355.3 | )                     |  |                           |  |  |                                                       |      |   |  |   | (355.3 | )
|Issuance of long-term debt                                                     |  |                                                         |     |   |                                                 |   | 154.5  |                       |  |                           |  |  |                                                       |      |   |  |   | 154.5  |  
|Proceeds from issuance of common stock and from exercise of stock options, net |  |                                                         | 10.4 |   |                                                 |   |       |                       |  |                           |  |  |                                                       |      |   |  |   | 10.4   |  
|Purchase of treasury stock                                                     |  |                                                         | (6.0 | ) |                                                 |   |       |                       |  |                           |  |  |                                                       |      |   |  |   | (6.0   | )
|Other                                                                          |  |                                                         |     |   |                                                 |   | (1.0   | )                     |  |                           |  |  |                                                       |      |   |  |   | (1.0   | )
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Cash provided by (used in) financing activities                                |  |                                                         | 4.4  |   |                                                 |   | (201.8 | )                     |  |                           |  |  |                                                       |      |   |  |   | (197.4 | )
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Net change in cash and cash equivalents                                        |  |                                                         |     |   |                                                 |   | (11.6  | )                     |  |                           |  |  |                                                       | 199.5 |   |  |   | 187.9  |  
|Cash and cash equivalents at beginning of period                               |  |                                                         |     |   |                                                 |   | 96.6   |                       |  |                           |  |  |                                                       | 49.7  |   |  |   | 146.3  |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Cash and cash equivalents at end of period                                     |  | $                                                       |     |   |                                                 | $ | 85.0   |                       |  | $                         |  |  | $                                                     | 249.2 |   |  | $ | 334.2  |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Supplemental Cash Flow Information:                                            |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Cash paid during the period for:                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Income taxes                                                                   |  | $                                                       |     |   |                                                 | $ |       |                       |  | $                         |  |  | $                                                     | 6.6   |   |  | $ | 6.6    |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  
|Interest                                                                       |  | $                                                       |     |   |                                                 | $ | 38.0   |                       |  | $                         |  |  | $                                                     |      |   |  | $ | 38.0   |  
|                                                                               |  |                                                         |      |   |                                                 |   |        |                       |  |                           |   |  |                                                       |       |   |  |   |        |  



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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.

Overview

During 2006, we continue to focus on power products. Our power product revenue has grown from just 15% of total sales in fiscal year 1997 to 77% of total sales in the first nine months of fiscal year 2006, making us
the top supplier of power semiconductors in the world. We have a wide portfolio of products that leverage expertise in both analog and discrete power technologies, as well as products that provide our customers with an integrated total power
management solution in a single or multi-chip module package.

At the beginning of 2006, we changed the titles of our operating segments to
align them with the way management runs the company. The new segment titles are Functional Power and Analog Products, which management previously referred to as Power Discrete and Power Analog, respectively, and Standard Products, which did not
change. These title changes had no impact on our segment reporting.

Our primary business goal for 2006 is to improve the value of our
product mix to drive higher margins and improve our profitability and return on investment. During 2006, we are focusing on raising gross margins by managing product mix more selectively and increasing the mix of our more proprietary, higher margin
new products, while also discontinuing outdated and low margin products. One element of this approach is to hold annual capital expenditures to 6 to 8% of sales. Our percentage of capital expenditures to sales for the first nine months of 2006 and
2005 was 7%. We employ a disciplined capital expenditure process that requires shifting capacity from lower margin products to higher margin, faster growing products in order for spending to remain within this lower capital budget.

In mid-2005, we changed our management and incentive structure for the distribution channel to primarily focus on distribution re-sales rather than sales
into the distribution channel. As a result of these changes, we maintained distribution inventory on hand at approximately 11 weeks in the third quarter of 2006 as compared to approximately 13 weeks in the third quarter of 2005. Internal inventories
for the same time period increased by approximately $26 million and inventory turns increased from 4.8 to 4.9 times. Internal inventory at that end of the third quarter of 2006 is slightly more than the level required to support our current shipping
rate and as a result we adjusted our build plan in the third quarter and we expect again in the fourth quarter to improve internal inventory turns.

Gross margins, operating margins and inventory turns continue to be key indices that both senior management and our investors utilize to measure our financial performance. Another key performance indicator we use is days sales outstanding
(DSO). In the third quarter of 2006, DSO was 35 days compared to 37 days in the third quarter of 2005.

The Analog Products Group continues
to develop leading edge products that provide significant performance and cost advantages to our customers. As part of our strategy, we have accelerated investments in research and development for continued development of advanced process and
package technology. We provide differentiated products with clear performance advantages by working closely with our customers to understand their system needs and delivering products on time with stable lead times.

The Functional Power Group continues to develop state of the art packaging technologies, proprietary MOFSET silicon technology, and integrated custom
power system solutions. Our proprietary silicon technology gives us technical and/or cost advantages that allow us to drive value and corresponding margin advantages. By integrating our advanced MOFSET silicon technology, analog IC expertise and
packaging technologies into a complete solution for our customers, we expect to steadily improve gross margins and at the same time, the value proposition to our customers. In addition, as we generate new business on high value products, we expect
to continue to mix out non-strategic, low margin business, which we expect will further increase overall gross margin performance.

We
continue to follow our asset-light investment strategy for many of our standard products, which typically have lower gross margins and lower or negative long-term sales growth potential. Through this strategy we are gradually
transferring the manufacturing for these mature products to third-party subcontractors, where appropriate, thereby allowing our own manufacturing facilities to focus on building higher growth, higher margin and more proprietary products. We



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believe that by following this long term asset-light approach for mature products, we will improve our return on invested capital and lessen our
exposure to falling prices on commodity products during industry downturns.

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

The first quarter of 2006 included
14 weeks compared to 13 weeks for all other quarters presented.

Results of Operations

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



|                                                |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  
|----------------------------------------------- |  | --------------------- | ----- | - | ----------------- | --- | - | --------------- | - | ----- | ----------------- |  | --- | - |  | - | ------- | - |  | --- | - |  | - | ------- | - |  | --- | -
|                                                |  | Three Months Ended    |       |   | Nine Months Ended |    
|                                                |  | October 1,2006        |       |   | September 25,2005 |     |   | October 1, 2006 |   |       | September 25,2005 | 
|                                                |  | (Dollars in millions) |      
|Total revenues                                  |  | $                     | 417.0 |   |                   | 100 | % |                 | $ | 345.5 |                   |  | 100 | % |  | $ | 1,232.8 |   |  | 100 | % |  | $ | 1,054.3 |   |  | 100 | %
|Gross profit                                    |  |                       | 127.9 |   |                   | 31  | % |                 |   | 71.7  |                   |  | 21  | % |  |   | 375.4   |   |  | 30  | % |  |   | 224.4   |   |  | 21  | %
|Operating expenses:                             |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  
|Research and development                        |  |                       | 28.5  |   |                   | 7   | % |                 |   | 19.7  |                   |  | 6   | % |  |   | 81.0    |   |  | 7   | % |  |   | 58.2    |   |  | 6   | %
|Selling, general and administrative             |  |                       | 61.4  |   |                   | 15  | % |                 |   | 51.8  |                   |  | 15  | % |  |   | 181.7   |   |  | 15  | % |  |   | 146.7   |   |  | 14  | %
|Amortization of acquisition-related intangibles |  |                       | 5.9   |   |                   | 1   | % |                 |   | 5.9   |                   |  | 2   | % |  |   | 17.6    |   |  | 1   | % |  |   | 18.1    |   |  | 2   | %
|Restructuring and impairments                   |  |                       |      |   |                   | 0   | % |                 |   | 4.2   |                   |  | 1   | % |  |   |        |   |  | 0   | % |  |   | 12.2    |   |  | 1   | %
|Gain on sale of product line, net               |  |                       | (1.1  | ) |                   | 0   | % |                 |   |      |                   |  | 0   | % |  |   | (6.0    | ) |  | 0   | % |  |   |        |   |  | 0   | %
|                                                |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  
|Total operating expenses                        |  |                       | 94.7  |   |                   | 23  | % |                 |   | 81.6  |                   |  | 24  | % |  |   | 274.3   |   |  | 22  | % |  |   | 235.2   |   |  | 22  | %
|Operating income (loss)                         |  |                       | 33.2  |   |                   | 8   | % |                 |   | (9.9  | )                 |  | -3  | % |  |   | 101.1   |   |  | 8   | % |  |   | (10.8   | ) |  | -1  | %
|Interest expense                                |  |                       | 10.2  |   |                   | 2   | % |                 |   | 9.5   |                   |  | 3   | % |  |   | 32.6    |   |  | 3   | % |  |   | 31.5    |   |  | 3   | %
|Interest income                                 |  |                       | (4.8  | ) |                   | -1  | % |                 |   | (3.4  | )                 |  | -1  | % |  |   | (15.8   | ) |  | -1  | % |  |   | (9.4    | ) |  | -1  | %
|Other expense (income)                          |  |                       | (0.5  | ) |                   | 0   | % |                 |   | (3.4  | )                 |  | -1  | % |  |   | (0.4    | ) |  | 0   | % |  |   | 20.5    |   |  | 2   | %
|                                                |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  
|Income (loss) before income taxes               |  |                       | 28.3  |   |                   | 7   | % |                 |   | (12.6 | )                 |  | -4  | % |  |   | 84.7    |   |  | 7   | % |  |   | (53.4   | ) |  | -5  | %
|Provision for income taxes                      |  |                       | 3.2   |   |                   | 1   | % |                 |   | 8.2   |                   |  | 2   | % |  |   | 10.0    |   |  | 1   | % |  |   | 183.1   |   |  | 17  | %
|                                                |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  
|Net income (loss)                               |  | $                     | 25.1  |   |                   | 6   | % |                 | $ | (20.8 | )                 |  | -6  | % |  | $ | 74.7    |   |  | 6   | % |  | $ | (236.5  | ) |  | -22 | %
|                                                |  |                       |       |   |                   |     |   |                 |   |       |                   |  |     |   |  |   |         |   |  |     |   |  |   |         |   |  |     |  

Total Revenues.Total revenue for the third quarter and first nine months of 2006 increased
$71.5 million and $178.5 million, or 21% and 17%, respectively, as compared to the same periods in 2005. The increase in revenue was seen across all segments, with Analog Products, Functional Power, and Standard Products increasing 21%, 20% and 8%,
respectively, during the first nine months of 2006, as compared to 2005. Functional Power accounted for nearly two-thirds of the dollar increase (or $117.4 million for the first nine months of 2006). In addition, throughout 2005 we were correcting
the levels of inventory in our distribution channel and constraining the sales into this channel. Included in revenue during 2006 was an additional week of revenue in the first quarter as compared to 2005. For the first nine months of 2006,
increases in unit volumes contributed approximately 25% of the increase, offset by product mix and price related decreases in average selling prices of 8%.



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Geographic revenue information is based on the customer location within the indicated geographic region.
The following table presents, as a percentage of sales, geographic sales for the United States, Other Americas, Europe, China, Taiwan, Korea and Other Asia/Pacific (which for our geographic reporting purposes includes Japan and Singapore and
excludes Korea) for the three and nine months ended October 1, 2006 and September 25, 2005.



|                   |  |                    |   |  |                   |   |  |                |   |  |                   |  
|------------------ |  | ------------------ | - |  | ----------------- | - |  | -------------- | - |  | ----------------- | -
|                   |  | Three Months Ended |   |  | Nine Months Ended |  
|                   |  | October 1,2006     |   |  | September 25,2005 |   |  | October 1,2006 |   |  | September 25,2005 |  
|United States      |  | 10                 | % |  | 10                | % |  | 10             | % |  | 10                | %
|Other Americas     |  | 3                  |   |  | 2                 |   |  | 3              |   |  | 2                 |  
|Europe             |  | 11                 |   |  | 11                |   |  | 12             |   |  | 11                |  
|China              |  | 27                 |   |  | 25                |   |  | 26             |   |  | 25                |  
|Taiwan             |  | 18                 |   |  | 20                |   |  | 19             |   |  | 20                |  
|Korea              |  | 16                 |   |  | 16                |   |  | 15             |   |  | 16                |  
|Other Asia/Pacific |  | 15                 |   |  | 16                |   |  | 15             |   |  | 16                |  
|                   |  |                    |   |  |                   |   |  |                |   |  |                   |  
|Total              |  | 100                | % |  | 100               | % |  | 100            | % |  | 100               | %
|                   |  |                    |   |  |                   |   |  |                |   |  |                   |  

Gross Profit.The increase in gross profit for the third quarter and first nine months of
2006, as compared to 2005, was driven by higher unit volumes, increased factory utilization, improved product mix and lower depreciation expense, partially offset by higher variable compensation accruals and equity based compensation expense, higher
material costs and increased subcontractor costs. Unit volumes for the third quarter and first nine months of 2006 increased 22% and 25%, respectively. We had $23.9 million lower depreciation expense for the first nine months of 2006, primarily as a
result of a change in certain useful life estimates of machinery and equipment in the third quarter of 2005 from five years to eight years. Included in gross profit is an increase in variable compensation accruals of approximately $7.7 million and
$16.3 million in the third quarter and first nine months of 2006, respectively. Also included in gross profit in the third quarter and first nine months of 2006 is $1.7 million and $4.1 million of stock-based compensation expense, respectively,
which is included in our Other reportable segment.

Stock-Based Compensation Expense.On December 26, 2005 (first day of
fiscal 2006), we adopted Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), Share-Based Payment (SFAS 123(R)) using the modified prospective application method. SFAS 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income statement based on their fair values at the date of grant. Pro forma disclosure is no longer an alternative. Under the modified prospective application method, stock-based
compensation cost recognized in the first quarter of 2006 includes: (a) compensation cost for all share-based awards granted prior to but not yet vested as of December 25, 2005, based on the grant-date fair value estimated in accordance
with SFAS 123, and (b) compensation cost for all share-based awards granted subsequent to December 25, 2005, based on the grant-date fair value estimated in accordance with SFAS 123(R). In accordance with the modified prospective method of
adoption, the companys results of operations and financial position for prior periods have not been restated.

Compensation cost for
stock options is calculated on the date of grant using the fair value of the options as determined by the Black-Scholes valuation model. The Black-Scholes valuation model requires us to make several assumptions, two of which are expected volatility
and expected life. In light of SFAS 123(R), we have reevaluated the assumptions used in estimating the fair value of employee options granted. Based on this reevaluation, we have revised our methodology for estimating volatility and expected life
effective beginning in the third quarter of 2005. For expected volatility, we evaluated historical volatility and determined that using historical volatility is the most appropriate approach. As options in our stock are not actively traded, we
determined that utilizing an implied volatility factor would not be appropriate. We calculated historical volatility for the period that is commensurate with the options expected life assumption. For expected life, we evaluated terms based on
history and exercise patterns across our demographic population to determine a reasonable assumption. We estimated these assumptions considering the guidance in SFAS 123(R) and Staff Accounting Bulletin (SAB) 107.

In the third quarter and first nine months of 2006, we recognized $7.1 million and $20.0 million of stock-based compensation expense, respectively. As of
October 1, 2006, $0.8 million of stock-based compensation expense is included in inventory. Included in total stock-based compensation costs (including capitalized costs) of $7.0 million and $20.8 million for the third quarter and first nine
months of 2006, respectively, is $3.5 million and $8.8 million for the third



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quarter and first nine months of 2006, respectively, relating to deferred stock units (DSUs), restricted stock units (RSUs) and performance units (PUs) that
would have been recorded under Accounting Principles Board (APB) 25 even if SFAS 123(R) had not been adopted.

The adoption of SFAS 123(R)
impacted diluted earnings per share for the three and nine months ended October 1, 2006 by $0.03 and $0.09, respectively. We expect stock-based compensation expense to be between $6.0 million and $7.0 million per quarter for the remainder of
2006.

As of October 1, 2006, the total stock-based compensation cost related to unvested awards not yet recognized in the statement
of operations was $19.3 million for options, $4.3 million for DSUs, $4.7 million for RSUs and $9.4 million for PUs. The related weighted average remaining recognition period (in years) was 1.6 for options, 1.3 for DSUs, 1.9 for RSUs and 2.2 for PUs.

Prior to the adoption of SFAS 123(R), we accounted for stock-based compensation awards using the intrinsic value method in accordance with
APB 25. Under the intrinsic value method, no stock-based compensation expense was recognized when the exercise price of the companys stock options equaled the fair market value of the underlying stock at the date of grant. Instead, we
disclosed in a footnote the effect on net income (loss) and net income (loss) per share as if the company had applied the fair value based method of SFAS 123, to record the expense.

Prior to the adoption of SFAS 123(R), we recognized expense over the service period for each separately vesting option tranche for the pro forma footnote
disclosures required by SFAS 123. The company switched to a straight-line attribution method on December 26, 2005 for all grants that include only service vesting conditions. Due to the performance criteria associated with our performance
units, our performance units will be expensed over the service period for each separately vesting tranche. The expense associated with the unvested portion of the pre-adoption PU grants will continue to be expensed over the service period for each
separately vesting tranche.

In recent years we have shifted our equity compensation program to one that is more performance-based, and
have moved from using primarily stock option awards to a combination of stock options, RSUs and PUs. By making this shift we are able to strengthen our pay for performance philosophy by linking equity and variable cash compensation to
visible, corporate financial goals, while at the same time reducing our future equity compensation expense.

On February 18, 2005, we
announced the acceleration of certain unvested and out-of-the-money stock options previously awarded to employees and officers that had exercise prices per share of $19.50 or higher. Options to purchase approximately 6 million
shares of our common stock became exercisable as a result of the vesting acceleration. Based on our closing stock price of $16.15 on February 18, 2005, none of these options had economic value on the date of acceleration. In connection with the
modification of the terms of these options to accelerate their vesting, approximately $33.1 million, on a pre-tax basis, was included in the pro forma net income (loss) table for 2005, representing the remaining unamortized value of the impacted,
unvested options just prior to the acceleration. Because the exercise price of all the modified options was greater than the market price of the companys underlying common stock on the date of their modification, no compensation expense was
recorded in the statement of operations in accordance with APB 25. The primary purpose for modifying the terms of these options to accelerate their vesting was to eliminate the need to recognize remaining unrecognized non-cash compensation expense
as measured under SFAS 123(R) as the future expense associated with these options would have been disproportionately high compared to the economic value of the options as of the date of modification. As a result of the acceleration, we estimate that
non-cash stock option expense in accordance with SFAS 123(R) was reduced by approximately $12 million in 2006, $4 million in 2007 and $1 million in 2008 on a pre-tax basis.

See Note 2 to our Consolidated Financial Statements contained in Item 1 of this Quarterly Report for further information regarding our adoption of
SFAS 123(R).

Operating Expenses. Research and development (R&D) expenses were slightly higher as a percentage of sales for the third
quarter and first nine months of 2006, as compared to 2005. The increase is in line with our strategic decision to increase our focus on R&D as we develop new products. Included in R&D is $1.1 million and $3.4 million of stock-based
compensation expense in the third quarter and first nine months of 2006, respectively. R&D also includes an increase in variable compensation accruals of approximately $3.6 million and $8.0 million in the third quarter and first nine months of
2006, respectively. Lastly, the third quarter of 2006 includes a $0.3 million charge to realign portions of our product development organization. This action was completed in order to improve the efficiency of certain market development activities
shared by multiple product lines. Selling, general and administrative (SG&A) expenses increased for the third quarter and first nine months of 2006, as compared to 2005. The increase was primarily the result of increased variable



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compensation accruals of approximately $7.2 million and $16.3 million, respectively, stock-based compensation expense of $4.3 million and $12.5 million,
respectively, and increased year to date legal costs of approximately $2.0 million. Lastly, SG&A includes a $0.5 million charge related to the above realignment action.

The decrease in amortization of acquisition-related intangibles is due to certain intangibles becoming fully amortized during the second quarter of 2005
and the impairment loss recorded in the third quarter of 2005. During the second quarter of 2006, we completed our acquisition of the design team and certain assets of Orion Design Technologies (Orion). As part of this acquisition, we acquired $1.0
million in assembled workforce, which is being amortized over the estimated useful life of 5 years. The amortization related to the Orion acquisition slightly offset the overall decrease in acquisition amortization.

The three and nine months ended October 1, 2006 included a net gain of $1.1 million and $6.0 million, respectively, on the sale of the
light-emitting diode (LED) lamps and displays product lines.

During the three and nine months ended September 25, 2005, we recorded
restructuring charges of $4.2 million and $12.2 million, respectively. In the third quarter of 2005, these charges include $2.9 million in employee separation costs, $1.6 million in asset impairment charges, and a $0.3 million net release due to a
revised estimate of employee separation medical costs. For the nine months ended September 25, 2005, these charges also include $5.7 million in employee separation costs, $0.5 million in office closure costs, $2.1 million in asset impairment
charges, $0.2 million of other charges, a $0.3 million reserve release associated with the 2004 Infrastructure Realignment Program due to new estimates in restructuring expenses, and a $0.2 million net release due to a revised estimate associated
with first quarter employee separation charges.

The 2005 Infrastructure Realignment Program commenced during the first quarter of 2005 and
is expected to be substantially complete by the fourth quarter of 2006. This program impacted approximately 140 manufacturing and non-manufacturing personnel. We anticipate annual cost savings associated with employee separation of approximately
$7.5 million beginning in the fourth quarter of 2006. In addition, we expect annualized cost savings of $0.5 million associated with depreciation savings related to the second quarter 2005 asset impairment charge.

Interest Expense.Interest expense in the third quarter and first nine months of 2006 increased $0.7 million and $1.1 million, respectively, as compared to
2005, due to rising interest rates on our variable rate term loan. In addition, there was an extra week of interest expense in the first quarter of 2006.

Interest Income.Interest income in the third quarter and first nine months of 2006 increased $1.4 million and $6.4 million, respectively, as compared to 2005, due to improved rates of return earned on cash and short-term
marketable securities as well as higher cash balances. In addition, there was an extra week of interest income in the first quarter of 2006.

Other
Expense (Income). The third quarter and first nine months of 2006 includes a gain of $(0.6) million on the sale of a strategic investment. In the third quarter and first nine months of 2005, we recorded $(2.7) million for lawsuit settlement
gains and a net $(0.7) million recovery of equity investment write-offs. The net $(0.7) million recovery includes a $1.1 million charge associated with the write-down of an equity investment, offset by a $1.8 million recovery of a third quarter 2004
equity investment write-off. The first nine months of 2005 also included $23.9 million for costs associated with the redemption of our 101/2% Notes. These costs included $18.5 million for the call premium and other transaction fees and a $5.4 million non-cash write off of deferred financing fees.

Income Taxes.Included in income tax expense during the third quarter and first nine months of 2005 is a non-cash tax charge of $9.2 million and $204.6
million, respectively, recorded to increase the valuation allowance for U.S. deferred tax assets.

The effective tax rate for the third
quarter and first nine months of 2006 was 11.3% and 11.8%, respectively. The effective tax rate for the first nine months of 2006 includes a net tax benefit of $3.5 million recorded in the first quarter as a result of finalization of certain tax
filings and audit outcomes and a $2.4 million tax benefit from the adjustment of certain foreign tax assets and liabilities recorded in the third quarter of 2006.

Changes in the location of taxable income and losses could result in significant changes in the underlying effective tax rate.



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Reportable Segments.

The following tables present comparative disclosures of revenue and gross profit of our reportable segments.



|                  |  |                       |       |            |                    |   |               |      |   |                        |   |       |         |  |            |       |  |               |   |  |                        |   |  |   |       |  
|----------------- |  | --------------------- | ----- | ---------- | ------------------ | - | ------------- | ---- | - | ---------------------- | - | ----- | ------- |  | ---------- | ----- |  | ------------- | - |  | ---------------------- | - |  | - | ----- | -
|                  |  | Three Months Ended    |      
|                  |  | October 1, 2006       |       |            | September 25, 2005 |  
|                  |  | Revenue               |       | % of total |                    |   | GrossProfit % |      |   | OperatingIncome (loss) |   |       | Revenue |  | % of total |       |  | GrossProfit % |   |  | OperatingIncome (loss) |  
|                  |  | (Dollars in millions) |      
|Functional Power  |  | $                     | 242.8 |            | 58.2               | % |               | 33.2 | % |                        | $ | 35.3  |         |  | $          | 195.0 |  | 56.4          | % |  | 23.5                   | % |  | $ | 6.1   |  
|Analog Products   |  |                       | 76.4  |            | 18.3               | % |               | 29.6 | % |                        |   | (10.2 | )       |  |            | 61.5  |  | 17.8          | % |  | 14.5                   | % |  |   | (15.0 | )
|Standard Products |  |                       | 97.8  |            | 23.5               | % |               | 26.9 | % |                        |   | 14.0  |         |  |            | 89.0  |  | 25.8          | % |  | 19.0                   | % |  |   | 3.2   |  
|Other (1)         |  |                       |      |            | 0.0                | % |               | 0.0  | % |                        |   | (5.9  | )       |  |            |      |  | 0.0           | % |  | 0.0                    | % |  |   | (4.2  | )
|                  |  |                       |       |            |                    |   |               |      |   |                        |   |       |         |  |            |       |  |               |   |  |                        |   |  |   |       |  
|Total             |  | $                     | 417.0 |            | 100.0              | % |               | 30.7 | % |                        | $ | 33.2  |         |  | $          | 345.5 |  | 100.0         | % |  | 20.8                   | % |  | $ | (9.9  | )
|                  |  |                       |       |            |                    |   |               |      |   |                        |   |       |         |  |            |       |  |               |   |  |                        |   |  |   |       |  



|                  |  |                       |         |            |                    |   |               |      |   |                        |   |       |         |  |            |         |  |               |   |  |                        |   |  |   |       |  
|----------------- |  | --------------------- | ------- | ---------- | ------------------ | - | ------------- | ---- | - | ---------------------- | - | ----- | ------- |  | ---------- | ------- |  | ------------- | - |  | ---------------------- | - |  | - | ----- | -
|                  |  | Nine Months Ended     |        
|                  |  | October 1, 2006       |         |            | September 25, 2005 |  
|                  |  | Revenue               |         | % of total |                    |   | GrossProfit % |      |   | OperatingIncome (loss) |   |       | Revenue |  | % of total |         |  | GrossProfit % |   |  | OperatingIncome (loss) |  
|                  |  | (Dollars in millions) |        
|Functional Power  |  | $                     | 710.1   |            | 57.6               | % |               | 31.7 | % |                        | $ | 91.3  |         |  | $          | 592.7   |  | 56.2          | % |  | 23.8                   | % |  | $ | 27.1  |  
|Analog Products   |  |                       | 238.3   |            | 19.3               | % |               | 35.9 | % |                        |   | (6.7  | )       |  |            | 197.6   |  | 18.7          | % |  | 19.2                   | % |  |   | (31.0 | )
|Standard Products |  |                       | 284.4   |            | 23.1               | % |               | 24.2 | % |                        |   | 30.8  |         |  |            | 264.0   |  | 25.1          | % |  | 17.2                   | % |  |   | 5.3   |  
|Other (1)         |  |                       |        |            | 0.0                | % |               | 0.0  | % |                        |   | (14.3 | )       |  |            |        |  | 0.0           | % |  | 0.0                    | % |  |   | (12.2 | )
|                  |  |                       |         |            |                    |   |               |      |   |                        |   |       |         |  |            |         |  |               |   |  |                        |   |  |   |       |  
|Total             |  | $                     | 1,232.8 |            | 100.0              | % |               | 30.5 | % |                        | $ | 101.1 |         |  | $          | 1,054.3 |  | 100.0         | % |  | 21.3                   | % |  | $ | (10.8 | )
|                  |  |                       |         |            |                    |   |               |      |   |                        |   |       |         |  |            |         |  |               |   |  |                        |   |  |   |       |  



|(1) | Operating loss includes $7.1 million and $20.0 million of stock-based compensation expense and a net gain of $1.1 million and $6.0 million on the sale of a product line in the three
and nine months ended October 1, 2006, respectively, and also includes $0.4 million of fees associated with the refinancing of the senior credit facility in the second quarter of 2006. Operating loss includes $4.2 million and $12.2 million of
restructuring expense in the three and nine months ended September 25, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Functional Power

Functional Power revenues increased approximately 25% and 20% in the third quarter and first nine months of 2006, respectively, compared to the same
periods of 2005. The first quarter of 2006 includes 14 weeks compared to 13 weeks in the first quarter of 2005. During the first nine months of 2006, an increase in unit volumes grew revenues 23%, offset by a price and product mix related decline in
average selling prices of 3%. Gross profits increased due to higher unit volumes, improved product mix, better management of channel and internal inventory and lower depreciation expense. Gross profit was also positively impacted approximately $4.2
million as the result of a sales reserve adjustment between the product lines. The overall increase in gross profit was slightly offset by declines due to higher material costs and increased subcontractor costs.

Functional Power had operating income of $35.3 million and $91.3 million in the third quarter and first nine months of 2006, respectively, compared to
$6.1 million and $27.1 million for the comparable period of 2005. The increase in operating income was due to higher gross profits partially offset by higher R&D and SG&A expenses. R&D expenses increased due to higher variable
compensation accruals and our continued focus on developing new products. SG&A expenses increased mainly due to increased variable compensation accruals and spending to support our continued growth in 2006.



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Analog Products

Analog Products revenues increased approximately 24% and 21% in the third quarter and first nine months of 2006, respectively, as compared to the same periods of 2005. The first quarter of 2006 includes 14 weeks
compared to 13 weeks in the first quarter of 2005. During the first nine months of 2006, unit volumes increased revenues 27%, while product mix and price related decreases in average selling prices reduced revenue by 6%. Gross profit increased due
to higher unit volumes, better product mix of higher margin products, improved inventory management, and lower depreciation expenses. The overall increase in gross profit was slightly offset by declines due to higher material costs and increased
subcontractor costs. Gross profit was also negatively impacted approximately $5.8 million as the result of a sales reserve adjustment between the product lines.

Analog products had operating loss of $10.2 million and $6.7 million in the third quarter and first nine months of 2006, respectively, compared to $15.0 million and $31.0 million for the comparable period in 2005,
respectively. The improvement in operating loss was due to higher gross profit, partially offset by higher R&D and SG&A expenses. R&D expenses increased due to continued investment in developing differentiated, high value products
leveraging our expertise across product, process and package development. In addition, R&D in the third quarter of 2006 includes a $0.3 million charge to realign portions of our product development organization. This action was completed in
order to improve the efficiency of certain market development activities. Lastly, higher variable compensation accruals contributed to the R&D increase. SG&A expenses increased primarily due to higher variable compensation accruals and
increased legal expenses. SG&A also increased due to a $0.5 million charge related to the above realignment action. Acquisition amortization decreased due to certain intangible assets becoming fully amortized during the second quarter of 2005,
offset slightly by an increase as a result of the Orion acquisition during the second quarter of 2006.

Standard Products

Standard Products revenues increased approximately 10% and 8% in the third quarter and first nine months of 2006, respectively, as compared to the same
periods of 2005. The first quarter of 2006 includes 14 weeks compared to 13 weeks in the first quarter of 2005. During the first nine months of 2006, increases in unit volumes grew revenues by 26%, while product mix and price related decreases in
average selling prices reduced revenue 18%. The decrease in average selling prices was due to increasing our volumes on lower cost, higher margin products. During the first quarter of 2006 we sold our LED lamps and displays product line, which
resulted in a decrease in revenue of $21.1 million in the first nine months of 2006, as compared to 2005. Generally, we anticipate that Standard Products as a percentage of total revenue will continue to decrease, as our strategic focus shifts to
the Analog Products and Functional Power segments.While we anticipate revenues will continue to decline as a percentage of our total revenues, our strategy is to manage Standard Products more selectively, while maintaining or increasing our
margins in this business. Gross profit, excluding the effect of the sale of the LED lamps and displays product line, which was approximately $3.5 million, increased due to product mix improvements, lower costs, lower depreciation expense and
improved inventory management and factory utilization. Gross profit was positively impacted $1.4 million due to the recovery of costs relating to a subcontractor settlement. In addition, gross profit was positively impacted approximately $1.6
million as the result of a sales reserve adjustment between the product lines. The overall increase in gross profit was slightly offset by higher material costs and increased subcontractor costs.

Standard Products had operating income of $14.0 million and $30.8 million in the third quarter and first nine months of 2006, respectively, compared to
$3.2 million and $5.3 million for the comparable period in 2005, respectively. The increase in operating income was primarily due to higher gross profit. R&D expenses decreased due to the LED lamps and displays product line divestiture and the
reduction of certain factory R&D efforts, offset somewhat by higher variable compensation accruals. SG&A expenses decreased due to the LED lamps and displays divestiture, offset by increases in variable compensation accruals. Acquisition
amortization decreased due to certain intangibles becoming fully amortized in the second quarter of 2005.

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Liquidity and Capital Resources

On June 22, 2006, we used $50.0 million of cash to pay down the senior credit facility from $444.4 million to $394.4 million. Subsequently, on June 26, 2006, we refinanced the senior credit facility and
replaced the $394.4 million remaining balance on the term loan with a new $375.0 million term loan as well as replaced the $180.0 million revolving line of credit with a new $100.0 million line of credit, of which $19.4 million was drawn on
June 26, 2006. In addition, the new senior credit facility includes a $200.0 million uncommitted incremental term loan feature. The refinancing reduced the variable interest rate on the term loan from Libor plus 1.75% to Libor plus 1.50% and
reduced the variable interest rate on the revolving line of credit from Libor plus 2.25% to Libor plus 1.50%. We incurred cash charges of $1.9 million in the second quarter of 2006 related to the refinancing, of which $1.4 million were deferred.

We have a borrowing capacity of $100.0 million on a revolving basis for working capital and general corporate purposes, including
acquisitions, under our senior credit facility. At October 1, 2006, $19.4 million was drawn on the revolver and after adjusting for outstanding letters of credit we had up to $79.5 million available under this senior credit facility. We had
additional outstanding letters of credit of $1.1 million that do not fall under the senior credit facility. We also had $14.8 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 $375.0 million term loan and the
$100.0 million revolving line of credit, the indenture governing our 5% Convertible Senior Subordinated Notes, and other debt instruments we may enter into in the future, impose various restrictions and contain various covenants which could 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, creating liens,
paying dividends or making other similar restricted payments, asset sales, capital expenditures and 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 net leverage ratio and a minimum EBITDA (earnings before interest, taxes, depreciation and amortization) less capital expenditures measure. At October 1, 2006, we were in compliance with these covenants. The
senior credit facility also limits our ability to modify our certificate of incorporation and bylaws, or enter into shareholder agreements, voting trusts or similar arrangements. Under our debt instruments, the subsidiaries of Fairchild
Semiconductor Corporation cannot be restricted, except to a limited extent, from paying dividends or making advances to Fairchild Semiconductor Corporation. We believe that funds to be 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 over the next twelve months. We had capital expenditures of $85.6 million in the first nine months of 2006.

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 October 1, 2006, our cash, cash equivalents, and short-term and long-term marketable securities were $556.0
million, an increase of $10.1 million from December 25, 2005.



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During the first nine months of 2006, our cash provided by operations was $127.6 million compared to
$85.1 million in the comparable period of 2005. The following table presents a summary of net cash provided by operating activities during the first nine months of 2006 and 2005, respectively.



|                                         |  |                   |       |   |                   |   |        |  
|---------------------------------------- |  | ----------------- | ----- | - | ----------------- | - | ------ | -
|                                         |  | Nine Months Ended |      
|                                         |  | October 1,2006    |       |   | September 25,2005 |  
|                                         |  | (In millions)     |      
|Net income (loss)                        |  | $                 | 74.7  |   |                   | $ | (236.5 | )
|Depreciation and amortization            |  |                   | 86.4  |   |                   |   | 119.4  |  
|Non-cash stock-based compensation        |  |                   | 20.0  |   |                   |   | 5.4    |  
|Deferred income taxes, net               |  |                   | (0.1  | ) |                   |   | 177.1  |  
|Other, net                               |  |                   | (3.7  | ) |                   |   | 11.8   |  
|Change in other working capital accounts |  |                   | (49.7 | ) |                   |   | 7.9    |  
|                                         |  |                   |       |   |                   |   |        |  
|Cash provided by operating activities    |  | $                 | 127.6 |   |                   | $ | 85.1   |  
|                                         |  |                   |       |   |                   |   |        |  

The change in cash provided by operating activities was primarily due to an increase in net income
of $311.2 million, which includes $195.4 relating to the non-cash deferred income tax reserve expense recorded in the second quarter of 2005. Depreciation and amortization decreased by $33.0 million primarily as a result of a change in certain
useful life estimates of machinery and equipment from five years to eight years. The changes in the working capital accounts were primarily driven by increases in accounts receivable and inventories, which is attributable to an increase in revenue
and activities to support business growth. Our current liabilities increased primarily due to increases in accounts payable and higher variable compensation accruals. These increases were partially offset by income tax payments, payments made in the
first quarter of 2006 on accruals relating to litigation settlements, and payments made on restructuring accruals.

Cash provided by
investing activities during the first nine months of 2006 totaled $98.4 million compared to $300.2 million for the comparable period of 2005. The decrease primarily results from the net reduction of purchases and sales of marketable securities as we
move away from the use of auction rate securities to other cash equivalent investments with improved rates of return. Our capital expenditures during the first nine months of 2006 increased in comparison to 2005, which is in line with our continued
efforts to hold annual capital expenditures to 6 to 8 % of sales.

Cash used in financing activities of $37.2 million for the first
nine months of 2006 was primarily due to the repayment of long term debt. We paid down $50.0 million on our term loan during the second quarter of 2006. Cash used in financing activities of $197.4 million for the first nine months of 2005 was
primarily due to the repayment of the companys 101/2% Notes, net of the issuance of long-term debt.

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, Inc. on a stand-alone basis had no cash flow from operations and has no cash requirements for the next twelve months.

Forward Looking Statements

This quarterly report includes forward-looking statements as
that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as we believe, we expect, we intend,
may, will, should, seeks, approximately, plans, estimates, anticipates, or hopeful, or the negative of those terms or other comparable terms,
or by discussions of our strategy, plans or future performance. For example, the Outlook section below contains numerous forward-looking statements. All forward-looking statements in this 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 Risk Factors section. 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, including but not limited to distributors; 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 Risk Factors 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 expressed in forward-looking statements. Readers are cautioned not to place undue reliance on the forward-looking statements.



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Policy on Business Outlook Disclosure and Quiet Periods

It is our current policy to update our business outlook at least twice each quarter. The first update is near the beginning of each quarter, within the
press release that announces the previous quarters results. The business outlook below is consistent with the business outlook included in our October 19, 2006 press release announcing third quarter results. The second update is within a
press release issued approximately two months into each quarter. The current business outlook is accessible at the Investor Relations section of our website at 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 business outlook is not updated to reflect managements current expectations. The quiet period for the fourth quarter of 2006 will be from
December 16, 2006 until January 25, 2007 when we plan to release our fourth quarter and full year 2006 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 quarter in question.

Outlook

We expect fourth quarter revenues will be flat to up 2% sequentially and gross margins to be 50 to 200 basis points lower sequentially as we work to
reduce internal inventories during the fourth quarter, especially for our analog products, to better position us for the first half of 2007. We expect R&D and SG&A spending, including equity based compensation, to remain at about 21.0 
21.5% of sales for the fourth quarter. Equity based compensation expense is expected to continue to be between $67 million.

Recently Issued
Financial Accounting Standards

In September 2006, the FASB issued SFAS 157, Fair Value Measurements. This statement defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value. This statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within that fiscal year. We have yet to determine the impact, if any, of SFAS 157 on our consolidated financial statements.

In September 2006, the FASB issued SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans - An Amendment of FASB Statements No. 87, 88, 106, and 123(R).This statement requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes that occur through
comprehensive income. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The requirement to recognize the funded status of a benefit plan and the disclosure
requirements are effective as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employers fiscal-end statement of financial position is
effective for fiscal years ending after December 15, 2008. We have yet to determine the impact, if any, of SFAS 158 on our consolidated financial statements.

In June 2006, the FASB issued Interpretation (FIN) 48, Accounting for Uncertainty in Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. This statement also provides guidance on derecognition, classification, interest and penalties, accounting in the interim periods, disclosure, and transition. This statement is effective for fiscal years beginning after
December 15, 2006. We have yet to determine the impact, if any, of FIN 48 on our consolidated financial statements.

In February 2006,
the FASB issued SFAS 155, Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB Statements 133, Accounting for Derivative Instruments and Hedging Activities, and 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. This statement is intended to improve the financial reporting of certain hybrid financial instruments by requiring more consistent accounting that eliminates exemptions and provides a means to simplify
the accounting for these instruments. This statement is effective for all



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financial instruments acquired or issued after the beginning of fiscal years that begin after September 15, 2006. We do not expect the adoption of SFAS
155 to have a material impact on our consolidated financial statements.

In May 2005, the FASB issued SFAS 154, Accounting Changes and
Error Corrections. This statement replaces APB Opinion 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements  an Amendment of APB Opinion 28, and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS 154 requires the retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine either the
period specific effects or the cumulative effect of the change. This statement is effective for fiscal years beginning after December 15, 2005. The adoption of SFAS 154 did not have a material impact on our consolidated financial statements.

In November 2004, the FASB issued SFAS 151, Inventory Costs. This statement amends the guidance in Accounting Research Bulletin
(ARB) 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement is effective for fiscal years beginning after
June 15, 2005. The adoption of SFAS 151 did not have a material affect on our consolidated financial statements.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Reference is made to Part II, Item 7A, Quantitative and Qualitative Disclosure about Market Risk, in Fairchild Semiconductor Internationals annual report on Form 10-K for the year ended December 25,
2005 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 44 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.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures

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. As of the
end of the period covered by this report, our chief executive officer (CEO) and chief financial officer (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 as of October 1, 2006, our disclosure controls and procedures are effective.

Inherent Limitations on
Effectiveness of Controls

The companys management, including the CEO and CFO, does not expect that our disclosure controls or our
internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will
be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Projections of any evaluation of a control effectiveness in future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or a deterioration in the degree of
compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the first nine months of 2006 that have materially affected, or are
reasonably likely to materially affect, our own internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Phosphorus Mold Compound Litigation and Claims. From time to time since late 2001, we have received claims from a number of customers seeking damages resulting from certain products manufactured with a phosphorus-containing mold
compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip failure. We have been named in lawsuits relating to these mold
compound claims. In January 2005 we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The Lucent lawsuit alleges breach of contract and breach of warranty claims and seeks unspecified
damages allegedly caused by our products. Lucent amended the lawsuit in the second quarter of 2006 to include a fraud claim against us. We believe we have strong defenses against Lucents claims and intend to vigorously defend the lawsuit.

Several other customers have made claims for damages or threatened to begin litigation as a result of the mold compound issue if their
claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have resolved similar claims with several of our leading customers. We have exhausted insurance coverage for such customer claims. While the
exact amount of these losses is not known, we recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the second quarter of 2004 and $6.9 million in the fourth quarter of 2005.
These estimates were based upon current assessments of the potential liability using an analysis of the claims and our historical experience in defending and/or resolving these claims. At October 1, 2006 and December 25, 2005, the reserve
for estimated potential settlement losses was $5.8 million and $17.2 million, respectively. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of these claims
proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve.

Patent Litigation With Power Integrations, Inc.On October 20, 2004, we and our wholly owned subsidiary, Fairchild Semiconductor Corporation, were sued by Power Integrations, Inc. in the United States
District Court for the District of Delaware. Power Integrations alleges that certain of our pulse width modulation (PWM) integrated circuit products infringe four Power Integrations U.S. patents, and seeks a permanent injunction preventing us from
manufacturing, selling or offering the products for sale in the United States, or from importing the products into the United States, as well as money damages for past infringement. We have analyzed the Power Integrations patents in light of our
products and, based on that analysis, do not believe our products violate Power Integrations patents. Accordingly, we are vigorously contesting this lawsuit. The trial in the case has been divided into three phases. The first phase, held
October 2-10, 2006, was on infringement, the willfulness of any infringement, and damages. On October 10, 2006, a jury returned a verdict finding that 33 of our PWM products infringe one or more of seven claims of the four patents being
asserted. The jury also found that our infringement was willful, and assessed damages against us of approximately $34 million. That verdict remains subject to our appeal. The second phase of the trial, scheduled to begin December 4, 2006 before
a different jury, will be on the validity of the Power Integrations patents being asserted. The enforceability of the patents will be handled in a third phase before the judge who is overseeing the case. For Power Integrations to prevail in the case
and receive a judgment and injunction against us, the patent claims found to have been infringed must also be found to be valid and enforceable in the remaining phases of the trial. We believe we have identified inventions and publications, known as
prior art, that pre-date the Power Integrations patents which we believe would invalidate the patents. We are also claiming that Power Integrations officials engaged in inequitable conduct before the United States Patent and Trademark Office at the
time when one or more of the patents was obtained, and we believe that conduct should make the patent claims unenforceable.

In the second
phase of the trial scheduled to begin December 4, 2006, the Power Integrations patents will be presumed to be valid and we will have the burden of proving, by clear and convincing evidence, that the patents are invalid. To the extent we are
unable to do this, Power Integrations will be entitled to a judgment and damages as further discussed below. Power Integrations may also seek an injunction to prevent us from making, selling or offering to sell in the United States, or from
importing into the United States, products that infringe patents that are found valid and enforceable. Power Integrations has announced its intention to seek such an injunction in such event.

The jury in the first phase of the trial assessed damages against us of approximately $34 million. Because the jury also found that our infringement was
willful, the judge in the case will have discretion to increase the damages award by up to three times the amount of the final damages award. The final damages award would be determined after the next two



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phases of the trial. To the extent we succeed in proving the patent claims invalid, the damages amount may be reduced, including to zero if we prove all the
claims invalid or unforceable. If we are not successful, damages may also be increased by the judge to account for certain sales by us after October 20, 2006 and as a result of the willful infringement finding. It is also possible that we could
be required to pay Power Integrations attorneys fees and pre-judgment interest.

Although we believe, based on the prior art we
have identified, that we have invalidity and unenforceability defenses to Power Integrations patent claims, the results of litigation are difficult to predict and no assurance can be given that we will succeed in proving the patents invalid or
unenforceable. As discussed above, the judge overseeing the case has discretion over the amount of damages awarded, and over the granting and scope of any injunction against us. Any damages award or injunction would be subject to appeal and we would
expect to carefully consider an appeal at the appropriate time. In such a case, if we choose to appeal, we would likely be required to post a bond or provide other security for some or the entire amount of the final damages award during the pendency
of the appeal.

We have analyzed the potential for a loss from this litigation in accordance with Statement of Financial Accounting
Standards 5, Accounting for Contingencies. Due to our beliefs about our position in the case, and because we are unable to reasonably estimate the amount of loss we would incur if we do not prevail, we have not recorded a reserve for
contingent loss. Should we ultimately lose the lawsuit, such result could have an adverse impact on our ability to sell products found to be infringing, either directly or indirectly in the U.S.

In a separate action, we filed a lawsuit on April 11, 2006, against Power Integrations in the United States District Court for the Eastern District
of Texas. The lawsuit asserts that Power Integrations PWM products infringe U.S. Patent No. 5,264,719. Intersil Americas owns U.S. Patent No. 5,264,719, for High Voltage Lateral Semiconductor Devices, and is a co-plaintiff with us in
the lawsuit. We have held license rights under the patent since acquiring Intersils power discrete business in 2001, and we more recently secured exclusive rights to assert the patent against Power Integrations. We intend to take all possible
steps to seek a court order to stop Power Integrations from making, using, selling, offering for sale or importing the infringing products into the U.S. and to obtain monetary damages for Power Integrations infringing activities.

ZTE Corporation v. Fairchild Semiconductor Corporation.On December 30, 2004, our wholly owned subsidiary, Fairchild Semiconductor
Corporation, was sued by ZTE Corporation, a communications equipment manufacturer, in Guangdong Higher Peoples Court in Guangzhou, Peoples Republic of China. The complaint filed by ZTE alleges that certain of our products were defective
and caused personal injury and/or property loss to ZTE. ZTE claims 65,733,478 Chinese yuan as damages (equivalent to approximately $8.2 million U.S. dollars based on exchange rates at October 1, 2006). We contested the lawsuit in a trial held
on October 20, 2005. The courts decision remains pending and we are unable to predict when a decision will be reached. We continue to deny the allegations in the lawsuit.

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



|Item 1A. | Risk Factors
|-------- | ------------

A description of the risk
factors associated with our business is set forth below. We review and update our risk factors each quarter. The description set forth below includes any changes to and supersedes the description of the risk factors associated with our business
previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 25, 2005. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we
currently believe are immaterial also may impair our business operations and financial condition.

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

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



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in particular have experienced extreme price fluctuations which have often been unrelated to the operating performance of the affected companies. Any similar
fluctuations in the future could adversely affect the market price of our common stock.

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

We manufacture
products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory
in the supply channel as a result of shifts in end market demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the production of products without any
advance purchase commitments from customers. Even in cases where our standard terms and conditions of sale or other contractual arrangements do not permit a customer to cancel an order without penalty, we may from time to time accept cancellations
because of industry practice or custom or other factors. Our inability to sell products after we devote significant resources to them could have a material adverse effect on both our levels of inventory and revenues.

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

The
semiconductor industry is highly cyclical, and the value of our business may decline during the down portion of these cycles. Beginning in the fourth quarter of 2000 and continuing into 2003, we and the rest of the semiconductor industry
experienced backlog cancellations and reduced demand for our products, resulting in significant revenue declines, due to excess inventories at computer and telecommunications equipment manufacturers and general economic conditions, especially in the
technology sector. Although we believe the low point of this most recent cycle occurred in the third quarter of 2001, the semiconductor industry did not experience a recovery in orders until 2003. We may experience renewed, possibly more severe and
prolonged, downturns in the future as a result of such cyclical changes. Even as demand increases following such downturns, our profitability may not increase because of price competition that historically accompanies recoveries in demand. For
example, in 2002, we sold approximately 7% more units than in 2001, yet our revenues were essentially unchanged. And, in 2003 we sold approximately the same number of units as in 2002, while at the same time experiencing revenue declines due to
price decreases. In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix, changes in end user markets and the costs associated with the introduction of new products, and our
efforts to reduce excess inventories that may have built up as a result of any of these factors. The markets for our products depend on continued demand for consumer electronics such as personal computers, cellular telephones, and digital cameras,
and automotive, household and industrial goods. These end user markets may experience changes in demand that could adversely affect our prospects.

We may not be able to develop new products to satisfy changing demands from customers.

Our failure to develop new
technologies, or react to changes in existing technologies, could materially delay development of new products, which could result in decreased revenues and a loss of market share to our competitors. The semiconductor industry is characterized by
rapidly changing technologies and industry standards, together with frequent new product introductions. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and
enhancements on a timely and cost-effective basis. New products often command higher prices and, as a result, higher profit margins. We may not successfully identify new product opportunities and develop and bring new products to market or succeed
in selling them into new customer applications in a timely and cost-effective manner. Products or technologies developed by other companies may render our products or technologies obsolete or noncompetitive. Many of our competitors are larger, older
and well established international companies with greater engineering and research and development resources than us. A fundamental shift in technologies in our product markets that we fail to identify correctly or adequately, or that we fail to
capitalize on, in each case relative to our competitors, could have material adverse effects on our competitive position within the industry. In addition, to remain competitive, we must continue to reduce die sizes, develop new packages and improve
manufacturing yields. We cannot assure you that we can accomplish these goals.

If some original equipment manufacturers do not design
our products into their equipment, our revenue may be adversely affected.

The success of our products often depends on whether
original equipment manufacturers (OEMs), or their contract manufacturers, choose to incorporate or design in our products, or identify our products, with those from a limited



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number of other vendors, as approved for use in particular OEM applications. Even receiving design wins from a customer does not guarantee future
sales to that customer. We may be unable to achieve these design wins due to competition over the subject products functionality, size, electrical characteristics or other aspect of its design, price, or due to our inability to
service expected demand from the customer or other factors. Without design wins, we would only be able to sell our products to customers as a second source, if at all. If an OEM designs another suppliers product into one of its applications,
it is more difficult for us to achieve future design wins with that application because, for the customer, changing suppliers involves significant cost, time, effort and risk. In addition, achieving a design win with a customer does not ensure that
we will receive significant revenue from that customer and we may be unable to convert design into actual sales.

We depend on demand
from the consumer, original equipment manufacturer, contract manufacturing, industrial, automotive and other markets we serve for the end market applications which incorporate our products. Reduced consumer or corporate spending due to increased oil
prices or other economic factors could affect our revenues.

Our revenue and gross margin guidance are based on certain levels of
consumer and corporate spending. If our projections of these expenditures fail to materialize, due to reduced consumer or corporate spending from increased oil prices or otherwise, our revenues and gross margins could be adversely affected.

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

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



| |  |  | 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 party for technologies we use could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes
requiring the technologies.

Our failure to obtain or maintain the right to use some technologies may negatively affect our financial
results.

Our future success and competitive position depend in part upon our ability to obtain or maintain proprietary technologies
used in our principal products, which is achieved in part by defending claims by competitors and others of intellectual property infringement. The semiconductor industry is characterized by claims of intellectual property infringement and litigation
regarding patent and other intellectual property rights. From time to time, we may be notified of claims (often implicit in offers to sell us a license to another companys patents) that we may be infringing patents issued to other companies,
and we may subsequently engage in license negotiations regarding these claims. Such claims relate both to products and manufacturing processes. Even though we maintain procedures to avoid infringing others rights as part of



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our product and process development efforts, it is impossible to be aware of every possible patent which our products may infringe, and we cannot assure you
that we will be successful. Furthermore, even if we conclude our products do not infringe anothers patents, others may not agree. We have been and are involved in lawsuits, and could become subject to other lawsuits, in which it is alleged
that we have infringed upon the patent or other intellectual property rights of other companies. For example, since October 2004, we have been in litigation with Power Integrations, Inc. See Legal Proceedings. Our involvement in this
lawsuit and future intellectual property litigation, or the costs of avoiding or settling litigation by purchasing licenses rights or by other means, could result in significant expense to our company, adversely affecting sales of the challenged
products or technologies and diverting the efforts and attention of our technical and management personnel, whether or not such litigation is resolved in our favor. We may decide to settle patent infringement claims or litigation by purchasing
license rights from the claimant, even if we believe we are not infringing, in order to reduce the expense of continuing the dispute or because we are not sufficiently confident that we would eventually prevail. In the event of an adverse outcome as
a defendant in any such litigation, we may be required to:



| |  |  | 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. The costs of acquiring and integrating related businesses, or our failure to integrate them successfully into our existing businesses, could result in our company incurring
unanticipated expenses and losses. In addition, we may not be able to identify or finance additional acquisitions or realize any anticipated benefits from acquisitions we do complete.

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

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



| |  |  | unexpected losses of key employees, customers or suppliers of the acquired company;
| | - |  | -----------------------------------------------------------------------------------



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



| |  |  | coordinating new product and process development;
| | - |  | -------------------------------------------------



| |  |  | hiring additional management and other critical personnel;
| | - |  | ----------------------------------------------------------



| |  |  | negotiating with labor unions; and
| | - |  | ----------------------------------



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| |  |  | 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 intangible assets, all of which could have a material adverse effect on our financial condition and
operating results.

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

Our manufacturing operations depend upon obtaining adequate supplies of raw materials on a
timely basis. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of raw materials in a timely manner or if the costs of raw materials increased significantly. Results could also be adversely affected
if there is a significant degradation in the quality of raw materials used in our products, or if the raw materials give rise to compatibility or performance issues in our products, any of which could lead to an increase in customer returns or
product warranty claims. Although we maintain rigorous quality control systems, errors or defects may arise from a supplied raw material and be beyond our detection or control. For example, some phosphorus-containing mold compound received from one
supplier and incorporated into our products has resulted in a number of claims for damages from customers. We purchase raw materials such as silicon wafers, lead frames, mold compound, ceramic packages and chemicals and gases from a limited number
of suppliers on a just-in-time basis. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. We subcontract a minority of our wafer fabrication needs, primarily to Advanced
Semiconductor Manufacturing Corporation, Phenitec Semiconductor, Taiwan Semiconductor Manufacturing Company, Central Semiconductor Manufacturing Corporation, UMC, WIN Semiconductor, Jilin Magic Semiconductor, More Power Electric Corporation and New
Japan Radio Corporation. In order to maximize our production capacity, some of our back-end assembly and testing operations are also subcontracted. Primary back-end subcontractors include Amkor, AUK, Enoch, SP Semiconductor, Liteon and STATS
ChipPAC.

Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these
subcontractors were disrupted or terminated.

Delays in beginning production at new facilities, expanding capacity at existing
facilities, implementing new production techniques, or incurring problems associated with technical equipment malfunctions, all could adversely affect our manufacturing efficiencies.

Our manufacturing efficiency is an important factor in our profitability, and we cannot assure you that we will be able to maintain our manufacturing
efficiency or increase manufacturing efficiency to the same extent as our competitors. Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and
product performance. Impurities or other difficulties in the manufacturing process can lower yields. In 2003, we began initial production at a new assembly and test facility in Suzhou, China. We are transferring some production from subcontractors
to this new facility. Delays or technical problems in completing these transfers could lead to order cancellations and lost revenue. In addition, we are currently engaged in an effort to expand capacity at some of our manufacturing facilities. As is
common in the semiconductor industry, we have from time to time experienced difficulty in beginning production at new facilities or in completing transitions to new manufacturing processes at existing facilities. As a consequence, we have suffered
delays in product deliveries or reduced yields.

We may experience delays or problems in bringing our new factory in Suzhou, China or other
new manufacturing capacity to full production. Such delays, as well as possible problems in achieving acceptable yields, or product delivery delays relating to existing or planned new capacity could result from, among other things, capacity
constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues. Our operating results could also be adversely affected by the increase in
fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately.



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Approximately two-thirds of our sales are made to 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 67% of our net sales for the first nine months of 2006. Our top five distributors worldwide accounted for 18% of our net sales for the first nine months of 2006. As a general rule, we do not have long-term agreements with our
distributors, and they may terminate their relationships with us with little or no advance notice. Distributors generally offer competing products. The loss of one or more of our distributors, or the decision by one or more of them to reduce the
number of our products they offer or to carry the product lines of our competitors, could have a material adverse effect on our business, financial condition and results of operations. The termination of a significant distributor, whether at our or
the distributors initiative, or a disruption in the operations of one or more of our distributors, could reduce our net sales in a given quarter and could result in an increase in inventory returns.

The semiconductor business is very competitive, especially in the markets we serve, and increased competition could reduce the value of an investment
in our company.

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

We may not be able to attract or retain the technical or management employees necessary to remain competitive in our
industry.

Our continued success depends on the retention and recruitment of skilled personnel, including technical, marketing,
management and staff personnel. In the semiconductor industry, the competition for qualified personnel, particularly experienced design engineers and other technical employees, is intense, particularly in the up portions of our business
cycle, when competitors may try to recruit our most valuable technical employees. There can be no assurance that we will be able to retain our current personnel or recruit the key personnel we require.

If we must reduce our use of options and other equity awards, our competitiveness in the employee marketplace could be adversely affected. Our results
of operations could vary as a result of the methods, estimates and judgments we use to value our stock-based compensation.

Like most
technology companies, we have a history of using broad-based employee stock option programs to recruit and retain our workforce in a competitive employment marketplace. Although we have reduced our use of traditional stock options in the past
several years in favor of deferred stock units, restricted stock units and performance-based equity awards, we still use stock options and expect to continue to use them as one component of our stock-based compensation program. As a result, our
success will depend in part upon the continued use of stock options as a compensation tool. We plan to seek stockholder approval for increases in the number of shares available for grant under the Fairchild Semiconductor Stock Plan as well as other
amendments that may be adopted from time to time which require stockholder approval. If these proposals do not receive stockholder approval, we may not be able to grant stock options and other equity awards to employees at the same levels as in the
past, which could adversely affect our ability to attract, retain and motivate qualified personnel, and we may need to increase cash compensation in order to attract, retain and motivate employees, which could adversely affect our results of
operations.

In addition, we implemented SFAS 123(R) in the first quarter of 2006. This resulted in $0.03 and $0.09, lower reported
earnings per diluted share for the three and nine months ended October 1, 2006, respectively, which could negatively affect our future stock price. The impact of SFAS 123(R) could also negatively affect our ability to utilize broad-based
employee stock plans to reward employees and could result in a competitive disadvantage to us in the employee marketplace.

The calculation
of stock-based compensation expense under SFAS 123(R) requires us to use valuation methodologies and a number of estimates, assumptions and conclusions regarding matters such as the expected volatility of



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our share price, the expected life of our options, the expected dividend rate with respect to our common stock, expected forfeitures and the exercise
behavior of our employees. See the Stock-Based Compensation Expense section of Item 2 of this report for further information. There are no means, under applicable accounting principles, to compare and adjust this expense if and when we learn of
additional information that may affect the estimates that we previously made, with the exception of changes in expected forfeitures of stock-based awards. Certain factors may arise over time that lead us to change our estimates and assumptions with
respect to future stock-based compensation, resulting in variability in our stock-based compensation expense over time. Changes in forecasted stock-based compensation expense could impact our gross margin percentage, research and development
expenses, marketing, general and administrative expenses and our tax rate.

We may face product warranty or product liability claims
that are disproportionately higher than the value of the products involved.

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

For example, from time to time since late 2001, we have received claims from a number of customers seeking damages resulting
from certain products manufactured with a phosphorus-containing mold compound. Mold compound is the plastic resin used to encapsulate semiconductor chips. This particular mold compound causes some chips to short in some situations, resulting in chip
failure. We have been named in lawsuits relating to these mold compound claims. In January 2005, we were named as a defendant in a lawsuit filed by Lucent Technologies Inc. in the Superior Court of New Jersey. The Lucent lawsuit alleges breach of
contract and breach of warranty claims and seeks unspecified damages allegedly caused by our products. Lucent amended the lawsuit in the second quarter of 2006 to include a fraud claim against us. We believe we have strong defenses against
Lucents claims and intend to vigorously defend the lawsuit.

Several other customers have made claims for damages or threatened to
begin litigation as a result of the mold compound issue if their claims are not resolved according to their demands, and we may face additional lawsuits as a result. We have resolved similar claims with several of our leading customers. We have
exhausted insurance coverage for such customer claims. While the exact amount of these losses is not known, we recorded a reserve for estimated potential settlement losses of $11.0 million in the Consolidated Statement of Operations during the
second quarter of 2004 and $6.9 million the fourth quarter of 2005. These estimates were based upon assessments of the potential liability using an analysis of the claims and historical experience. At October 1, 2006 and December 25, 2005,
the reserve for estimated potential settlement losses was $5.8 million and $17.2 million, respectively. If we continue to receive additional claims for damages from customers beyond the period of time normally observed for such claims, if more of
these claims proceed to litigation, or if we choose to settle claims in settlement of or to avoid litigation, then we may incur a liability in excess of the current reserve.

In a related action, we filed a lawsuit in August 2002 against the mold compound supplier, Sumitomo Bakelite Co., Ltd. and other related parties in
California Superior Court for Santa Clara County, alleging claims for breach of contract, misrepresentation, negligence and other claims and seeking unspecified damages, including damages caused to our customers as a result of mold compound supplied
by Sumitomo. Other manufacturers also filed lawsuits against Sumitomo relating to the same mold compound issue. On September 30, 2005, we agreed to settle the lawsuit against Sumitomo. We previously agreed to settle litigation against Amkor
Technology, Inc., a co-defendant with Sumitomo.



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

Through our subsidiaries we maintain significant operations and facilities in the Philippines, Malaysia, China, South Korea and
Singapore. We have sales offices and customers around the world. Approximately 75% of our revenues in the first nine months of 2006 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;
| | - |  | -------------------



| |  |  | changes in laws and regulations relating to, amongst other things, import and export tariffs, taxation, environmental regulations, land use rights and property,
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | work stoppages; and
| | - |  | -------------------



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

We acquired significant operations and revenues when we acquired a business from Samsung Electronics and, as a result, are subject 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 16% of our revenue for third quarter of 2006.

Relations between South Korea and North Korea have been tense over most of South Koreas history, and more recent concerns over North Koreas
nuclear capability, and relations between the United States and North Korea, have created a global security issue that may adversely affect Korean business and economic conditions. We cannot assure you as to whether or when this situation will be
resolved or change abruptly as a result of current or future events. An adverse change in economic or political conditions in South Korea or in its relations with North Korea could have a material adverse effect on our Korean subsidiary and our
company. In addition to other risks disclosed relating to international operations, some businesses in South Korea are subject to labor unrest.

Our Korean sales are increasingly denominated primarily in U.S. dollars while a significant portion of our Korean operations costs of goods sold and operating expenses are denominated in South Korean won. Although we have taken steps
to fix the costs subject to currency fluctuations and to balance won revenues and won costs as much as possible, a significant change in this balance, coupled with a significant change in the value of the won relative to the dollar, could have a
material adverse effect on our financial performance and results of operations (see Item 3, Quantitative and Qualitative Disclosures about Market Risk).

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 income and 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 78% in the eighth
year and a 28% 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.



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

In 2003, we
completed the first phase of construction of an 800,000 square foot assembly and test facility in Suzhou, China, and in 2004 began implementing the second phase. The factory began production in July 2003 and is steadily increasing its output.
Although we expect a significant portion of our production from this new facility will be exported out of China, especially initially, we are hopeful that a significant portion of our future revenue will result from the Chinese markets in which our
products are sold, and from demand in China for goods that include our products. Our ability to operate in China may be adversely affected by changes in that countrys laws and regulations, including those relating to taxation, import and
export tariffs, environmental regulations, land use rights, property and other matters. In addition, our results of operations in China are subject to the economic and political situation there. We believe that our operations in China are in
compliance with all applicable legal and regulatory requirements. However, there can be no assurance that Chinas central or local governments will not impose new, stricter regulations or interpretations of existing regulations that would
require additional expenditures. Changes in the political environment or government policies could result in revisions to laws or regulations or their interpretation and enforcement, increased taxation, restrictions on imports, import duties or
currency revaluations. In addition, a significant destabilization of relations between China and the United States could result in restrictions or prohibitions on our operations or the sale of our products in China. The legal system of China
relating to foreign trade is relatively new and continues to evolve. There can be no certainty as to the application of its laws and regulations in particular instances. Enforcement of existing laws or agreements may be sporadic and implementation
and interpretation of laws inconsistent. Moreover, there is a high degree of fragmentation among regulatory authorities resulting in uncertainties as to which authorities have jurisdiction over particular parties or transactions.

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

Increasingly stringent environmental regulations restrict the amount and types of pollutants that can be released from our operations into the
environment. While the cost of compliance with environmental laws has not had a material adverse effect on our results of operations historically, compliance with these and any future regulations could require significant capital investments in
pollution control equipment or changes in the way we make our products. In addition, because we use hazardous and other regulated materials in our manufacturing processes, we are subject to risks of liabilities and claims, regardless of fault,
resulting from our use, transportation, emission, discharge, storage, recycling or disposal of hazardous materials, 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 indemnification agreements with Raytheon Company,
National Semiconductor, Samsung Electronics and Intersil Corporation, these indemnities are limited to conditions that occurred prior to the consummation of the transactions through which we acquired facilities from those companies. Moreover, we
cannot assure you that their indemnity obligations to us for the covered liabilities will be available, or, if available, adequate to protect us.

We are a leveraged company with a ratio of debt to equity at October 1, 2006 of approximately 0.5 to 1, which could adversely affect our financial health and limit our ability to grow and compete.

At October 1, 2006, we had total debt of $593.5 million, and the ratio of this debt to equity was approximately 0.5 to 1. In January 2005, we
increased the senior credit facility to $630 million, consisting of a term loan of $450 million replacing the previous $300 million term loan, and a $180 million revolving line of credit. The proceeds from the increased senior credit facility were
used, together with approximately $216 million in cash, to redeem all our outstanding 101/2% Senior Subordinated
Notes due 2009. On June 22, 2006 we reduced the outstanding balance on the term loan by $50 million to $394 million. On June 26, 2006 we refinanced the existing senior credit facility consisting of a term loan of



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$375 million, replacing the previous $450 million term loan and replacing the previous $180 million revolving line of credit with a $100 million revolving
line of credit, of which $79.5 million remained undrawn as of October 1, 2006, adjusted for outstanding letters of credit. In addition, there is a $200 million uncommitted incremental term loan feature. Despite reducing some of our long-term
debt, we continue to carry substantial indebtedness which could have important consequences. For example, it could:



| |  |  | require us to dedicate a 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, repurchase
stock 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 credit agreement relating to
the senior credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, additional indebtedness incurred in
compliance with these restrictions or upon further amendment of the credit facility could be substantial. The senior credit facility, from June 2006, permits borrowings of up to $100 million in revolving loans under the line of credit and up to $200
million under the uncommitted incremental term loan feature, in addition to the outstanding $375 million term loan that is currently outstanding under that facility. As of October 1, 2006, adjusted for outstanding letters of credit, we had up
to $79.5 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.



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We cannot assure you that we would be able to refinance any of our indebtedness, sell assets or raise equity on
commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity. Restrictions imposed by the credit agreement relating to our senior credit facility restrict or prohibit our ability to engage in
or enter into some business operating and financing arrangements, which could adversely affect our ability to take advantage of potentially profitable business opportunities.

The operating and financial restrictions and covenants in the credit agreement relating to our senior credit facility may limit our ability to finance
our future operations or capital needs or engage in other business activities that may be in our interests. The credit agreement imposes significant operating and financial restrictions that affect our ability to incur additional indebtedness or
create liens on our assets, pay dividends, sell assets, engage in mergers or acquisitions, make investments or engage in other business activities. These restrictions could place us at a disadvantage relative to competitors not subject to such
limitations.

In addition, the senior credit facility also requires us to maintain specified financial ratios. Our ability to meet those
financial ratios can be affected by events beyond our control, and we cannot assure you that we will meet those ratios. As of October 1, 2006, we were in compliance with these ratios. A breach of any of these covenants, ratios or restrictions
could result in an event of default under the senior credit facility. Upon the occurrence of an event of default under the senior credit facility, the lenders could elect to declare all amounts outstanding under the senior credit facility, together
with accrued interest, to be immediately due and payable. If we were unable to repay those amounts, the lenders could proceed against our assets, including any collateral granted to them to secure the indebtedness. If the lenders under the senior
credit facility accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

There were no sales of unregistered equity securities in the third quarter of 2006. The following table provides information with respect to purchases made by the company of its own common stock.



|                                  |  |                                               |  |                            |       |                                                                              |   |                                                                                                          |  
|--------------------------------- |  | --------------------------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------------------------------- | -
|Period                            |  | Total Number ofShares (or Units)Purchased (1) |  | AveragePrice Paidper Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans
orPrograms |   | Maximum Number (orApproximate Dollar Value)of Shares that May Yet BePurchased Under the
Plansor Programs
|July 3, 2006 - July 30, 2006      |  |                                              |  | $                          |      |                                                                              |  |                                                                                                          | 
|July 31, 2006 - August 27, 2006   |  | 195,000                                       |  |                            | 16.17 |                                                                              |  |                                                                                                          | 
|August 28, 2006 - October 1, 2006 |  |                                              |  |                            |      |                                                                              |  |                                                                                                          | 
|                                  |  |                                               |  |                            |       |                                                                              |   |                                                                                                          |  
|Total                             |  | 195,000                                       |  | $                          | 16.17 |                                                                              |  |                                                                                                          | 
|                                  |  |                                               |  |                            |       |                                                                              |   |                                                                                                          |  



|(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. The
purchase of these shares satisfied the conditions of the safe harbor provided by the Securities Exchange Act of 1934.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 6. | Exhibits
|------- | --------



|            |  |                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                          
|            | 
|31.01       |  | Section 302 Certification of the Chief Executive Officer.                                                                            
|            | 
|31.02       |  | Section 302 Certification of the Chief Financial Officer.                                                                            
|            | 
|32.01       |  | Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Mark S. Thompson.
|            | 
|32.02       |  | Certification, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Mark S. Frey.    

Items 3, 4, and 5 are not applicable and have been omitted.



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SIGNATURE

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



|                       |  |  |  |                                             |  |                     |  |                                                                    
|---------------------- |  |  |  | ------------------------------------------- |  | ------------------- |  | -------------------------------------------------------------------
|                       |  |  |  | Fairchild Semiconductor International, Inc.
|                       |  |  | 
|Date: November 9, 2006 |  |  |  | By:                                         |  | /s/ Robin A. Sawyer
|                       |  |  |  |                                             |  |                     |  | Robin A. Sawyer                                                    
|                       |  |  |  |                                             |  |                     |  | Vice President, Corporate Controller (Principal Accounting Officer)



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