##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended July 2, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from _________ to _________.
 Commission File Number: 001-15181
 FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    04-3363001
(I.R.S.Employer
Identification No.)
 82 Running Hill Road
South Portland, Maine 04106
 (207) 775-8100
 þ o
  þ o o
 o þ
  Title of Each Class
    
    Number of SharesCommon Stock
    
    122,512,793




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##### 



FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of July 2, 2006
and December 25, 2005
    
    
    3Consolidated Statements of Operations
for the Three and Six Months Ended July 2, 2006 and June 26, 2005
    
    
    4Consolidated Statements of Comprehensive Income (Loss)
for the Three and Six Months Ended July 2, 2006 and June 26, 2005
    
    
    5Consolidated Statements of Cash Flows
for the Six Months Ended July 2, 2006 and June 26, 2005
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    28Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    38Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 4. Submission of Matters to a Vote of Security Holders
    
    
    49Item 6. Exhibits
    
    
    50Signature
    
    
    52Ex-10.02 Credit Agreement, dated as of June 26, 2006Ex-31.01 Section 302 Certification of the CEOEx-31.02 Section 302 Certification of CFOEx-32.01 Section 906 Certification of CEOEx-32.02 Section 906 Certification of CFO
  2




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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)
 July 2,
    
    
    December 25,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    349.9
    
    
    $
    330.7Short-term marketable securities
    
    
    164.3
    
    
    
    182.5Accounts receivable, net of allowances of $37.5 and $37.8 at
July 2, 2006 and December 25, 2005, respectively
    
    
    161.3
    
    
    
    128.6Inventories
    
    
    230.7
    
    
    
    200.5Deferred income taxes, net of allowances of $37.4 and $35.8 at
July 2, 2006 and December 25, 2005, respectively
    
    
    5.9
    
    
    
    3.3Other current assets
    
    
    33.9
    
    
    
    28.9Total current assets
    
    
    946.0
    
    
    
    874.5Property, plant and equipment, net
    
    
    641.6
    
    
    
    635.0Deferred income taxes, net of allowances of $174.4 and $178.3 at
July 2, 2006 and December 25, 2005, respectively
    
    
    1.4
    
    
    
    Intangible assets, net
    
    
    115.4
    
    
    
    126.1Goodwill
    
    
    229.9
    
    
    
    229.9Long-term marketable securities
    
    
    8.7
    
    
    
    32.7Other assets
    
    
    31.8
    
    
    
    30.1Total assets
    
    $
    1,974.8
    
    
    $
    1,928.3LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    2.8
    
    
    $
    5.6Accounts payable
    
    
    121.7
    
    
    
    95.2Accrued expenses and other current liabilities
    
    
    123.1
    
    
    
    128.9Total current liabilities
    
    
    247.6
    
    
    
    229.7Long-term debt, less current portion
    
    
    591.6
    
    
    
    641.0Deferred income taxes
    
    
    33.1
    
    
    
    33.5Other liabilities
    
    
    17.9
    
    
    
    15.6Total liabilities
    
    
    890.2
    
    
    
    919.8Commitments and contingenciesTemporary equity  deferred stock units
    
    
    1.4
    
    
    
    Stockholders equity:Common stock
    
    
    1.2
    
    
    
    1.2Additional paid-in capital
    
    
    1,303.7
    
    
    
    1,274.1Accumulated deficit
    
    
    (216.3
    )
    
    
    (265.9
    )Accumulated other comprehensive income (loss)
    
    
    (0.3
    )
    
    
    3.9Less treasury stock (at cost)
    
    
    (5.1
    )
    
    
    (4.8
    )Total stockholders equity
    
    
    1,083.2
    
    
    
    1,008.5Total liabilities, temporary equity and stockholders equity
    
    $
    1,974.8
    
    
    $
    1,928.3
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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005Total revenue
    
    $
    406.3
    
    
    $
    346.0
    
    
    $
    815.8
    
    
    $
    708.8Cost of sales
    
    
    281.3
    
    
    
    277.1
    
    
    
    568.3
    
    
    
    556.1Gross profit
    
    
    125.0
    
    
    
    68.9
    
    
    
    247.5
    
    
    
    152.7Gross profit %
    
    
    30.8
    %
    
    
    19.9
    %
    
    
    30.3
    %
    
    
    21.5
    %Operating expenses:Research and development
    
    
    26.3
    
    
    
    19.5
    
    
    
    52.5
    
    
    
    38.5Selling, general and administrative
    
    
    60.3
    
    
    
    47.5
    
    
    
    120.3
    
    
    
    94.9Amortization of
acquisition-related intangibles
    
    
    5.8
    
    
    
    6.1
    
    
    
    11.7
    
    
    
    12.2Restructuring and impairments
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    8.0Gain on sale of product line, net
    
    
    (1.7
    )
    
    
    
    
    
    
    (4.9
    )
    
    
    Total operating
expenses
    
    
    90.7
    
    
    
    77.0
    
    
    
    179.6
    
    
    
    153.6Operating income (loss)
    
    
    34.3
    
    
    
    (8.1
    )
    
    
    67.9
    
    
    
    (0.9
    )Interest expense
    
    
    11.1
    
    
    
    8.7
    
    
    
    22.4
    
    
    
    22.0Interest income
    
    
    (5.6
    )
    
    
    (2.8
    )
    
    
    (11.0
    )
    
    
    (6.0
    )Other expense
    
    
    0.1
    
    
    
    
    
    
    
    0.1
    
    
    
    23.9Income (loss) before income taxes
    
    
    28.7
    
    
    
    (14.0
    )
    
    
    56.4
    
    
    
    (40.8
    )Provision for income taxes
    
    
    5.7
    
    
    
    191.3
    
    
    
    6.8
    
    
    
    174.9Net income (loss)
    
    $
    23.0
    
    
    $
    (205.3
    )
    
    $
    49.6
    
    
    $
    (215.7
    )Net income (loss) per common share:Basic
    
    $
    0.19
    
    
    $
    (1.71
    )
    
    $
    0.41
    
    
    $
    (1.80
    )Diluted
    
    $
    0.18
    
    
    $
    (1.71
    )
    
    $
    0.40
    
    
    $
    (1.80
    )Weighted average common shares:Basic
    
    
    122.2
    
    
    
    119.8
    
    
    
    121.9
    
    
    
    119.8Diluted
    
    
    124.6
    
    
    
    119.8
    
    
    
    124.3
    
    
    
    119.8
  4




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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    23.0
    
    
    $
    (205.3
    )
    
    $
    49.6
    
    
    $
    (215.7
    )Other comprehensive
income (loss), net
of tax:Net change
associated
with
hedging
transactions
    
    
    (1.2
    )
    
    
    0.9
    
    
    
    (0.9
    )
    
    
    2.1Net amount
reclassified
to
earnings
for hedging
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    0.3Net change
associated with unrealized holding gain (loss) on marketable
securities and investments
    
    
    (1.8
    )
    
    
    0.4
    
    
    
    (2.6
    )
    
    
    (0.3
    )Net amount
reclassified
to
earnings
for
marketable
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Comprehensive income
(loss)
    
    $
    19.8
    
    
    $
    (204.1
    )
    
    $
    45.4
    
    
    $
    (213.5
    )
  5




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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 Six Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    49.6
    
    
    $
    (215.7
    )Adjustments to reconcile net income (loss) to cash
provided by operating activities:Depreciation and amortization
    
    
    57.0
    
    
    
    87.4Amortization of deferred compensation
    
    
    
    
    
    
    1.2Non-cash stock-based compensation expense
    
    
    12.9
    
    
    
    Non-cash restructuring and impairment expense
    
    
    
    
    
    
    2.1Loss on disposal of property, plant, and equipment
    
    
    0.5
    
    
    
    0.2Non-cash vesting of equity awards
    
    
    
    
    
    
    3.8Non-cash financing expense
    
    
    1.2
    
    
    
    1.4Deferred income taxes, net
    
    
    1.1
    
    
    
    175.4Non-cash write off of deferred financing fees
    
    
    
    
    
    
    5.4Gain on sale of product line
    
    
    (4.9
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (32.7
    )
    
    
    10.8Inventories
    
    
    (29.2
    )
    
    
    10.5Other current assets
    
    
    (10.5
    )
    
    
    10.1Current liabilities
    
    
    20.7
    
    
    
    (70.3
    )Other assets and liabilities, net
    
    
    0.2
    
    
    
    1.4Cash provided by operating
activities
    
    
    65.9
    
    
    
    23.7Cash flows from investing activities:Purchase of marketable securities
    
    
    (94.6
    )
    
    
    (401.4
    )Sale of marketable securities
    
    
    116.8
    
    
    
    663.2Maturity of marketable securities
    
    
    19.7
    
    
    
    15.5Capital expenditures
    
    
    (56.6
    )
    
    
    (55.7
    )Purchase of molds and tooling
    
    
    (0.7
    )
    
    
    (1.0
    )Acquisitions and divestitures, net of cash
    
    
    5.4
    
    
    
    Cash provided by (used in)
investing activities
    
    
    (10.0
    )
    
    
    220.6Cash flows from financing activities:Repayment of long-term debt
    
    
    (52.2
    )
    
    
    (352.0
    )Issuance of long-term debt
    
    
    
    
    
    
    154.5Proceeds from issuance of common stock and
from exercise of stock options, net
    
    
    20.9
    
    
    
    5.7Purchase of treasury stock
    
    
    (4.0
    )
    
    
    (4.0
    )Debt issuance costs
    
    
    (1.4
    )
    
    
    (1.0
    )Cash used in financing activities
    
    
    (36.7
    )
    
    
    (196.8
    )Net change in cash and cash equivalents
    
    
    19.2
    
    
    
    47.5Cash and cash equivalents at beginning of period
    
    
    330.7
    
    
    
    146.3Cash and cash equivalents at end of period
    
    $
    349.9
    
    
    $
    193.8
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FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Note 1  Basis of Presentation
  Note 2
 Stock-based Compensation
 Share-Based Payment Accounting for Stock Issued to
Employees Statement of Cash Flows
 Accounting for Stock-Based Compensation
   Fairchild Semiconductor Stock Plan
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The 2000 Executive Stock Option Plan
 Employee Stock Purchase Plan (ESPP).
 Equity Awards Made Outside Stockholder-Approved Plans.
   Six Months EndedJuly 2,2006WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    Value(000s)
    
    
    
    
    
    
    (In years)
    
    
    (In millions)Outstanding at beginning of period
    
    
    24,014
    
    
    $
    19.29Granted
    
    
    1,847
    
    
    
    18.45Exercised
    
    
    (1,448
    )
    
    
    12.44Forfeited
    
    
    (241
    )
    
    
    14.35Expired
    
    
    (550
    )
    
    
    25.50Outstanding at end of period
    
    
    23,622
    
    
    $
    19.55
    
    
    
    5.4
    
    
    $
    44.2Exercisable at end of period
    
    
    18,356
    
    
    $
    20.52
    
    
    
    5.0
    
    
    $
    32.8
 8




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##### Table of Contents



Six Months EndedJuly 2,2006WeightedAverageGrant-dateShares
    
    
    Fair ValueNonvested at beginning of period
    
    
    799,190
    
    
    $
    14.24Granted
    
    
    77,458
    
    
    
    20.80Vested
    
    
    (504,301
    )
    
    
    12.83Forfeited
    
    
    (12,969
    )
    
    
    17.00Nonvested at end of period
    
    
    359,378
    
    
    $
    17.54
    Six Months EndedJuly 2,2006WeightedAverageGrant-dateShares
    
    
    Fair ValueNonvested at beginning of period
    
    
    34,700
    
    
    $
    16.41Granted
    
    
    257,674
    
    
    
    18.50Vested
    
    
    
    
    
    
    Forfeited
    
    
    (6,200
    )
    
    
    16.45Nonvested at end of period
    
    
    286,174
    
    
    $
    18.31
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##### Table of Contents



Six Months EndedJuly 2,2006WeightedAverageGrant-dateShares
    
    
    Fair ValueNonvested at beginning of period
    
    
    
    
    
    $
    Granted (1)
    
    
    860,194
    
    
    
    18.47Increase (decrease) for performance factors
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (13,200
    )
    
    
    18.51Nonvested at end of period
    
    
    846,994
    
    
    $
    18.47
 
 (1)
    
    Represents the maximum potential award based on the 2006 fiscal year performance
metric.  Six Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005Total Intrinsic
    
    
    Total IntrinsicValue of Awards
    
    
    Value of AwardsExercised
    
    
    Exercised(In millions)Options
    
    $
    10.8
    
    
    $
    1.4DSUs
    
    $
    9.2
    
    
    $
    1.3RSUs
    
    $
    
    
    
    $
    
  Valuation and Expense Information under SFAS 123(R)
  Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    July 2,2006
    
    
    2006(In millions)Cost of Sales
    
    $
    1.7
    
    
    $
    2.4Research and Development
    
    
    1.3
    
    
    
    2.3Selling, General and Administrative
    
    
    4.6
    
    
    
    8.2$
    7.6
    
    
    $
    12.9
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##### Table of Contents



July 2,2006Unrecognized
    
    WeightedCompensation
    
    AverageCost for
    
    RemainingUnvested
    
    RecognitionAwards
    
    Period(In millions)
    
    (In years)Options
    
    $
    20.8
    
    
    
    1.6DSUs
    
    $
    4.8
    
    
    
    1.4RSUs
    
    $
    4.6
    
    
    
    2.1PUs
    
    $
    11.6
    
    
    
    2.1
  Six Months EndedJuly 2,2006Expected volatility
    
    
    53.2
    %Dividend yield
    
    
    Risk-free interest rate
    
    
    4.5
    %Expected term, in years
    
    
    3.9Forfeiture rate
    
    
    7.7
    %
 Expected volatility.
 Dividend yield.
 Risk-free interest rate.
 11




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##### Table of Contents



Expected term.
 Forfeiture rate.
 Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans
  Three Months Ended
    
    
    Six Months EndedJune 26,
    
    
    June 26,2005
    
    
    2005(In millions, except per share data)Net loss, as reported
    
    $
    (205.3
    )
    
    $
    (215.7
    )Add: Stock compensation charge
included in net loss
determined under the intrinsic
value method, net of tax
    
    
    2.1
    
    
    
    5.0Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax
    
    
    (15.7
    )
    
    
    (52.8
    )Pro forma net loss
    
    $
    (218.9
    )
    
    $
    (263.5
    )Loss per share:Basic  as reported
    
    $
    (1.71
    )
    
    $
    (1.80
    )Basic  pro forma
    
    $
    (1.83
    )
    
    $
    (2.20
    )Diluted  as reported
    
    $
    (1.71
    )
    
    $
    (1.80
    )Diluted  pro forma
    
    $
    (1.83
    )
    
    $
    (2.20
    )
  12




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 26,
    
    June 26,2005
    
    2005Expected volatility
    
    
    64.0
    %
    
    
    64.0
    %Dividend yield
    
    
    
    
    
    
    Risk-free interest rate
    
    
    4.0
    %
    
    
    4.0
    %Expected term, in years
    
    
    6.0
    
    
    
    6.0
 Note 3
 Financial Statement Details
 July 2,
    
    
    December 25,2006
    
    
    2005(In millions)InventoriesRaw materials
    
    $
    29.7
    
    
    $
    25.3Work in process
    
    
    137.2
    
    
    
    126.4Finished goods
    
    
    63.8
    
    
    
    48.8$
    230.7
    
    
    $
    200.5Property, plant and equipmentLand and improvements
    
    $
    26.5
    
    
    $
    32.0Buildings and improvements
    
    
    316.4
    
    
    
    307.2Machinery and equipment
    
    
    1,388.0
    
    
    
    1,341.8Construction in progress
    
    
    66.2
    
    
    
    75.4Total property, plant and equipment
    
    
    1,797.1
    
    
    
    1,756.4Less accumulated depreciation
    
    
    1,155.5
    
    
    
    1,121.4$
    641.6
    
    
    $
    635.0Accrued expenses and other current liabilitiesPayroll and employee related accruals
    
    $
    65.2
    
    
    $
    42.9Accrued interest
    
    
    2.3
    
    
    
    7.6Income taxes payable
    
    
    19.0
    
    
    
    30.2Restructuring
    
    
    1.4
    
    
    
    4.9Reserve for potential settlement losses
    
    
    5.8
    
    
    
    17.2Other
    
    
    29.4
    
    
    
    26.1$
    123.1
    
    
    $
    128.9
 Note 4
 Computation of Net Income (Loss) Per Share
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share data)Basic:Net income (loss)
    
    $
    23.0
    
    
    $
    (205.3
    )
    
    $
    49.6
    
    
    $
    (215.7
    )Weighted average shares outstanding
    
    
    122.2
    
    
    
    119.8
    
    
    
    121.9
    
    
    
    119.8Net income (loss) per share
    
    $
    0.19
    
    
    $
    (1.71
    )
    
    $
    0.41
    
    
    $
    (1.80
    )Diluted:Net income (loss)
    
    $
    23.0
    
    
    $
    (205.3
    )
    
    $
    49.6
    
    
    $
    (215.7
    )Weighted average shares outstanding
    
    
    122.2
    
    
    
    119.8
    
    
    
    121.9
    
    
    
    119.8Assumed exercise of common stock equivalents
    
    
    2.4
    
    
    
    
    
    
    
    2.4
    
    
    
    Weighted-average common and common equivalent shares
    
    
    124.6
    
    
    
    119.8
    
    
    
    124.3
    
    
    
    119.8Net income (loss) per share
    
    $
    0.18
    
    
    $
    (1.71
    )
    
    $
    0.40
    
    
    $
    (1.80
    )Anti-dilutive common stock equivalents, non-vested stock,
DSUs and RSUs
    
    
    16.9
    
    
    
    17.1
    
    
    
    16.7
    
    
    
    17.0
  Note 5  Supplemental Cash Flow Information
 Six Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005(In millions)Cash paid, net for:Income taxes
    
    $
    16.9
    
    
    $
    4.9Interest
    
    $
    25.7
    
    
    $
    34.4
 Note 6
 Marketable Securities
  Accounting for Certain Investments in Debt and Equity Securities
  14




---



##### Table of Contents



Amortized
    
    
    MarketCost
    
    
    Value(In millions)Due in one year or less
    
    $
    85.7
    
    
    $
    84.9Due after one year through three years
    
    
    8.9
    
    
    
    8.7Due after three years through ten years
    
    
    
    
    
    
    Due after ten years
    
    
    79.4
    
    
    
    79.4$
    174.0
    
    
    $
    173.0
 Note 7
 Goodwill and Intangible Assets
  As of July 2, 2006
    
    
    As of December 25, 2005Period of
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortization
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(In millions)Identifiable intangible assets:Developed technology
    
    515 years
    
    $
    225.6
    
    
    $
    (116.4
    )
    
    $
    225.6
    
    
    $
    (108.1
    )Customer base
    
    8 years
    
    
    55.8
    
    
    
    (50.8
    )
    
    
    55.8
    
    
    
    (47.5
    )Covenant not to compete
    
    5 years
    
    
    30.4
    
    
    
    (30.4
    )
    
    
    30.4
    
    
    
    (30.4
    )Assembled workforce
    
    5 years
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    Trademarks and tradenames
    
    4 years
    
    
    24.9
    
    
    
    (24.9
    )
    
    
    24.9
    
    
    
    (24.9
    )Patents
    
    4 years
    
    
    5.4
    
    
    
    (5.2
    )
    
    
    5.4
    
    
    
    (5.1
    )Subtotal
    
    
    
    
    
    
    343.1
    
    
    
    (227.7
    )
    
    
    342.1
    
    
    
    (216.0
    )Goodwill
    
    
    
    
    
    
    229.9
    
    
    
    
    
    
    
    229.9
    
    
    
    Total
    
    
    
    
    
    $
    573.0
    
    
    $
    (227.7
    )
    
    $
    572.0
    
    
    $
    (216.0
    )
   Analog
    
    
    Functional
    
    
    StandardProducts
    
    
    Power
    
    
    Products
    
    
    Total(In millions)Balance as of July 2, 2006
and December 25, 2005
    
    $
    15.5
    
    
    $
    159.9
    
    
    $
    54.5
    
    
    $
    229.9
   15




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##### Table of Contents



Estimated Amortization Expense:
    
    (In millions)Remainder of 2006
    
    $
    11.82007
    
    
    18.52008
    
    
    16.72009
    
    
    16.72010
    
    
    16.62011
    
    
    12.3
 Note 8  Segment Information
   Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Revenue and Operating Income (Loss):Functional PowerTotal revenue
    
    $
    231.5
    
    
    $
    193.1
    
    
    $
    467.3
    
    
    $
    397.7Operating income
    
    
    29.4
    
    
    
    5.7
    
    
    
    56.0
    
    
    
    21.0Analog ProductsTotal revenue
    
    
    80.2
    
    
    
    66.3
    
    
    
    161.9
    
    
    
    136.1Operating income (loss)
    
    
    0.2
    
    
    
    (9.5
    )
    
    
    3.5
    
    
    
    (16.0
    )Standard ProductsTotal revenue
    
    
    94.6
    
    
    
    86.6
    
    
    
    186.6
    
    
    
    175.0Operating income (loss)
    
    
    11.0
    
    
    
    (0.4
    )
    
    
    16.8
    
    
    
    2.1OtherOperating loss (1)
    
    
    (6.3
    )
    
    
    (3.9
    )
    
    
    (8.4
    )
    
    
    (8.0
    )Total ConsolidatedTotal revenue
    
    $
    406.3
    
    
    $
    346.0
    
    
    $
    815.8
    
    
    $
    708.8Operating income (loss)
    
    $
    34.3
    
    
    $
    (8.1
    )
    
    $
    67.9
    
    
    $
    (0.9
    )
 
 (1)
    
    Includes $7.6 million and $12.9 million of stock-based compensation expense in
the three and six months ended July 2, 2006, respectively. Also
includes a net gain of $1.7
million and $4.9 million on the sale of a product line in the three and six
months ended July 2, 2006, respectively. In addition, included is $0.4 million of fees
associated with the refinancing of the senior credit facility in the three and six
months ended July 2, 2006. Includes $3.9 million and $8.0 million of restructuring in
the three and six months ended June 25, 2005, respectively. 16




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##### Table of Contents



Note 9  Restructuring and Impairments
    Accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccrualBalance at
    
    
    New
    
    
    Cash
    
    
    Reserve
    
    
    Non-Cash
    
    
    Balance at12/25/2005
    
    
    Charges
    
    
    Paid
    
    
    Release
    
    
    Items
    
    
    4/2/20062004 Infrastructure Realignment Program:Employee Separation Costs
    
    $
    0.8
    
    
    $
    
    
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    
    
    
    $
    0.62005 Infrastructure Realignment Program:Employee Separation Costs
    
    
    4.1
    
    
    
    
    
    
    
    (2.4
    )
    
    
    
    
    
    
    
    
    
    
    1.7$
    4.9
    
    
    $
    
    
    
    $
    (2.6
    )
    
    $
    
    
    
    $
    
    
    
    $
    2.3
 Accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccrualBalance at
    
    
    New
    
    
    Cash
    
    
    Reserve
    
    
    Non-Cash
    
    
    Balance at4/2/2006
    
    
    Charges
    
    
    Paid
    
    
    Release
    
    
    Items
    
    
    7/2/20062004 Infrastructure Realignment Program:Employee Separation Costs
    
    $
    0.6
    
    
    $
    
    
    
    $
    (0.4
    )
    
    $
    
    
    
    $
    
    
    
    $
    0.22005 Infrastructure Realignment Program:Employee Separation Costs
    
    
    1.7
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    1.2$
    2.3
    
    
    $
    
    
    
    $
    (0.9
    )
    
    $
    
    
    
    $
    
    
    
    $
    1.4
  Note
10  Derivatives
 Accounting for Certain Derivative Instruments and Certain Hedging
Activities
 Accounting for Certain Derivative Instruments and Certain Hedging Activities  an
amendment of FASB Statement 133
 17




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##### Table of Contents



Note
11  Contingencies
      18




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##### Table of Contents



Note
12  Acquisitions and Divestitures
    Note
13  Refinancing of Senior Credit Facility
  Note
14  Condensed Consolidating Financial Statements
  19




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##### Table of Contents



July 2, 2006Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc.(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    155.6
    
    
    $
    
    
    
    $
    194.3
    
    
    $
    
    
    
    $
    349.9Short-term marketable securities
    
    
    
    
    
    
    164.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    164.3Accounts receivable, net
    
    
    
    
    
    
    19.5
    
    
    
    (5.7
    )
    
    
    147.5
    
    
    
    
    
    
    
    161.3Inventories
    
    
    
    
    
    
    124.6
    
    
    
    0.6
    
    
    
    105.5
    
    
    
    
    
    
    
    230.7Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    5.9Other current assets
    
    
    
    
    
    
    18.3
    
    
    
    4.1
    
    
    
    11.5
    
    
    
    
    
    
    
    33.9Total current assets
    
    
    
    
    
    
    482.3
    
    
    
    (1.0
    )
    
    
    464.7
    
    
    
    
    
    
    
    946.0Property, plant and equipment, net
    
    
    
    
    
    
    277.0
    
    
    
    1.3
    
    
    
    363.3
    
    
    
    
    
    
    
    641.6Deferred income taxes
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    1.4Intangible assets, net
    
    
    
    
    
    
    28.7
    
    
    
    12.7
    
    
    
    74.0
    
    
    
    
    
    
    
    115.4Goodwill
    
    
    
    
    
    
    167.7
    
    
    
    61.8
    
    
    
    0.4
    
    
    
    
    
    
    
    229.9Long-term marketable securities
    
    
    
    
    
    
    8.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.7Investment in subsidiary
    
    
    1,084.9
    
    
    
    943.4
    
    
    
    250.2
    
    
    
    92.4
    
    
    
    (2,370.9
    )
    
    
    Other assets
    
    
    
    
    
    
    15.1
    
    
    
    2.1
    
    
    
    14.6
    
    
    
    
    
    
    
    31.8Total assets
    
    $
    1,084.9
    
    
    $
    1,923.1
    
    
    $
    327.1
    
    
    $
    1,010.6
    
    
    $
    (2,370.9
    )
    
    $
    1,974.8LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    2.8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2.8Accounts payable
    
    
    
    
    
    
    75.9
    
    
    
    0.8
    
    
    
    45.0
    
    
    
    
    
    
    
    121.7Accrued expenses and other current liabilities
    
    
    
    
    
    
    66.2
    
    
    
    2.8
    
    
    
    54.1
    
    
    
    
    
    
    
    123.1Total current liabilities
    
    
    
    
    
    
    144.9
    
    
    
    3.6
    
    
    
    99.1
    
    
    
    
    
    
    
    247.6Long-term debt, less current portion
    
    
    
    
    
    
    591.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    591.6Net intercompany (receivable) payable
    
    
    
    
    
    
    77.3
    
    
    
    (257.0
    )
    
    
    179.7
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    24.2
    
    
    
    
    
    
    
    8.9
    
    
    
    
    
    
    
    33.1Other liabilities
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    17.4
    
    
    
    
    
    
    
    17.9Total liabilities
    
    
    
    
    
    
    838.5
    
    
    
    (253.4
    )
    
    
    305.1
    
    
    
    
    
    
    
    890.2Commitments and contingenciesTemporary equity  deferred stock units
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.4Stockholders equity:Common stock
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Additional paid-in capital
    
    
    1,303.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,303.7Retained earnings (accumulated deficit)
    
    
    (216.3
    )
    
    
    1,084.9
    
    
    
    580.5
    
    
    
    705.5
    
    
    
    (2,370.9
    )
    
    
    (216.3
    )Accumulated other comprehensive loss
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Less treasury stock (at cost)
    
    
    (5.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.1
    )Total stockholders equity
    
    
    1,083.5
    
    
    
    1,084.6
    
    
    
    580.5
    
    
    
    705.5
    
    
    
    (2,370.9
    )
    
    
    1,083.2Total liabilities,
temporary equity and
stockholders equity
    
    $
    1,084.9
    
    
    $
    1,923.1
    
    
    $
    327.1
    
    
    $
    1,010.6
    
    
    $
    (2,370.9
    )
    
    $
    1,974.8
 20




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##### Table of Contents



Three Months Ended July 2,
2006Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc(In millions)Total revenue
    
    $
    
    
    
    $
    52.7
    
    
    $
    
    
    
    $
    353.6
    
    
    $
    
    
    
    $
    406.3Cost of sales
    
    
    
    
    
    
    13.7
    
    
    
    2.0
    
    
    
    265.6
    
    
    
    
    
    
    
    281.3Gross profit (loss)
    
    
    
    
    
    
    39.0
    
    
    
    (2.0
    )
    
    
    88.0
    
    
    
    
    
    
    
    125.0Operating Expenses:Research and development
    
    
    
    
    
    
    15.2
    
    
    
    3.7
    
    
    
    7.4
    
    
    
    
    
    
    
    26.3Selling, general and administrative
    
    
    
    
    
    
    37.5
    
    
    
    2.3
    
    
    
    20.5
    
    
    
    
    
    
    
    60.3Amortization of acquisition-related intangibles
    
    
    
    
    
    
    1.4
    
    
    
    0.4
    
    
    
    4.0
    
    
    
    
    
    
    
    5.8Gain on sale of product line, net
    
    
    
    
    
    
    
    
    
    
    (1.5
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (1.7
    )Total operating expenses
    
    
    
    
    
    
    54.1
    
    
    
    4.9
    
    
    
    31.7
    
    
    
    
    
    
    
    90.7Operating income (loss)
    
    
    
    
    
    
    (15.1
    )
    
    
    (6.9
    )
    
    
    56.3
    
    
    
    
    
    
    
    34.3Interest expense
    
    
    
    
    
    
    11.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.1Interest income
    
    
    
    
    
    
    (3.3
    )
    
    
    (0.2
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    (5.6
    )Other expense
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Equity in subsidiary income
    
    
    (23.0
    )
    
    
    (50.3
    )
    
    
    (6.8
    )
    
    
    
    
    
    
    80.1
    
    
    
    Income before income taxes
    
    
    23.0
    
    
    
    27.3
    
    
    
    0.1
    
    
    
    58.4
    
    
    
    (80.1
    )
    
    
    28.7Provision for income taxes
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    1.4
    
    
    
    
    
    
    
    5.7Net income
    
    $
    23.0
    
    
    $
    23.0
    
    
    $
    0.1
    
    
    $
    57.0
    
    
    $
    (80.1
    )
    
    $
    23.0
 21




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##### Table of Contents



Six Months Ended July 2, 2006Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc(In millions)Total revenue
    
    $
    
    
    
    $
    103.0
    
    
    $
    
    
    
    $
    712.8
    
    
    $
    
    
    
    $
    815.8Cost of sales
    
    
    
    
    
    
    29.0
    
    
    
    1.8
    
    
    
    537.5
    
    
    
    
    
    
    
    568.3Gross profit (loss)
    
    
    
    
    
    
    74.0
    
    
    
    (1.8
    )
    
    
    175.3
    
    
    
    
    
    
    
    247.5Operating expenses:Research and development
    
    
    
    
    
    
    30.6
    
    
    
    7.3
    
    
    
    14.6
    
    
    
    
    
    
    
    52.5Selling, general and administrative
    
    
    
    
    
    
    76.7
    
    
    
    4.1
    
    
    
    39.5
    
    
    
    
    
    
    
    120.3Amortization of acquisition-related intangibles
    
    
    
    
    
    
    2.7
    
    
    
    1.0
    
    
    
    8.0
    
    
    
    
    
    
    
    11.7Gain on sale of product line, net
    
    
    
    
    
    
    
    
    
    
    (4.5
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    (4.9
    )Total operating expenses
    
    
    
    
    
    
    110.0
    
    
    
    7.9
    
    
    
    61.7
    
    
    
    
    
    
    
    179.6Operating income (loss)
    
    
    
    
    
    
    (36.0
    )
    
    
    (9.7
    )
    
    
    113.6
    
    
    
    
    
    
    
    67.9Interest expense
    
    
    
    
    
    
    22.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.4Interest income
    
    
    
    
    
    
    (6.8
    )
    
    
    (0.2
    )
    
    
    (4.0
    )
    
    
    
    
    
    
    (11.0
    )Other expense
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Equity in subsidiary income
    
    
    (49.6
    )
    
    
    (101.2
    )
    
    
    (10.2
    )
    
    
    
    
    
    
    161.0
    
    
    
    Income before income taxes
    
    
    49.6
    
    
    
    49.5
    
    
    
    0.7
    
    
    
    117.6
    
    
    
    (161.0
    )
    
    
    56.4Provision (benefit) for income taxes
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    6.8Net income
    
    $
    49.6
    
    
    $
    49.6
    
    
    $
    0.7
    
    
    $
    110.7
    
    
    $
    (161.0
    )
    
    $
    49.6
 22




---



##### Table of Contents



Six Months Ended July 2, 2006Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    SemiconductorInternational, Inc.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    International, Inc(In millions)Cash flows provided by (used in) operating activities:
    
    $
    
    
    
    $
    (20.8
    )
    
    $
    0.1
    
    
    $
    86.6
    
    
    $
    65.9Investing activities:Purchase of marketable securities
    
    
    
    
    
    
    (94.6
    )
    
    
    
    
    
    
    
    
    
    
    (94.6
    )Sale of marketable securities
    
    
    
    
    
    
    116.8
    
    
    
    
    
    
    
    
    
    
    
    116.8Maturity of marketable securities
    
    
    
    
    
    
    19.7
    
    
    
    
    
    
    
    
    
    
    
    19.7Capital expenditures
    
    
    
    
    
    
    (15.1
    )
    
    
    (0.1
    )
    
    
    (41.4
    )
    
    
    (56.6
    )Purchase of molds and tooling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.7
    )Acquisitions and divestitures, net of cash
    
    
    
    
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    5.4Investment (in) from affiliate
    
    
    (16.9
    )
    
    
    16.9
    
    
    
    
    
    
    
    
    
    
    
    Cash provided by (used in) investing activities
    
    
    (16.9
    )
    
    
    49.1
    
    
    
    (0.1
    )
    
    
    (42.1
    )
    
    
    (10.0
    )Financing activities:Repayment of long-term debt
    
    
    
    
    
    
    (52.2
    )
    
    
    
    
    
    
    
    
    
    
    (52.2
    )Proceeds from issuance of common stock and
from exercise of stock options, net
    
    
    20.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.9Purchase of treasury stock
    
    
    (4.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )Debt Issuance costs
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Cash provided by (used in) financing activities
    
    
    16.9
    
    
    
    (53.6
    )
    
    
    
    
    
    
    
    
    
    
    (36.7
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    (25.3
    )
    
    
    
    
    
    
    44.5
    
    
    
    19.2Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    180.9
    
    
    
    
    
    
    
    149.8
    
    
    
    330.7Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    155.6
    
    
    $
    
    
    
    $
    194.3
    
    
    $
    349.9Supplemental Cash Flow Information:Cash paid during the period for:Income taxes
    
    $
    
    
    
    $
    12.4
    
    
    $
    
    
    
    $
    4.5
    
    
    $
    16.9Interest
    
    $
    
    
    
    $
    25.7
    
    
    $
    
    
    
    $
    
    
    
    $
    25.7
 23




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##### Table of Contents



December 25, 2005Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc.(In millions)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    180.9
    
    
    $
    
    
    
    $
    149.8
    
    
    $
    
    
    
    $
    330.7Short-term marketable securities
    
    
    
    
    
    
    182.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182.5Accounts receivable, net
    
    
    
    
    
    
    16.5
    
    
    
    
    
    
    
    112.1
    
    
    
    
    
    
    
    128.6Inventories
    
    
    
    
    
    
    101.9
    
    
    
    1.3
    
    
    
    97.3
    
    
    
    
    
    
    
    200.5Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.3
    
    
    
    
    
    
    
    3.3Other current assets
    
    
    
    
    
    
    18.7
    
    
    
    
    
    
    
    10.2
    
    
    
    
    
    
    
    28.9Total current assets
    
    
    
    
    
    
    500.5
    
    
    
    1.3
    
    
    
    372.7
    
    
    
    
    
    
    
    874.5Property, plant and equipment, net
    
    
    
    
    
    
    281.5
    
    
    
    1.4
    
    
    
    352.1
    
    
    
    
    
    
    
    635.0Intangible assets, net
    
    
    
    
    
    
    30.6
    
    
    
    13.8
    
    
    
    81.7
    
    
    
    
    
    
    
    126.1Goodwill
    
    
    
    
    
    
    167.7
    
    
    
    61.8
    
    
    
    0.4
    
    
    
    
    
    
    
    229.9Long-term marketable securities
    
    
    
    
    
    
    32.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32.7Investment in subsidiary
    
    
    1,004.6
    
    
    
    906.6
    
    
    
    263.2
    
    
    
    92.3
    
    
    
    (2,266.7
    )
    
    
    Other assets
    
    
    
    
    
    
    14.1
    
    
    
    1.8
    
    
    
    14.2
    
    
    
    
    
    
    
    30.1Total assets
    
    $
    1,004.6
    
    
    $
    1,933.7
    
    
    $
    343.3
    
    
    $
    913.4
    
    
    $
    (2,266.7
    )
    
    $
    1,928.3LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    
    
    
    $
    5.6
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5.6Accounts payable
    
    
    
    
    
    
    56.5
    
    
    
    0.5
    
    
    
    38.2
    
    
    
    
    
    
    
    95.2Accrued expenses and other current liabilities
    
    
    
    
    
    
    87.3
    
    
    
    0.6
    
    
    
    41.0
    
    
    
    
    
    
    
    128.9Total current liabilities
    
    
    
    
    
    
    149.4
    
    
    
    1.1
    
    
    
    79.2
    
    
    
    
    
    
    
    229.7Long-term debt, less current portion
    
    
    
    
    
    
    641.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    641.0Net
intercompany (receivable) payable
    
    
    
    
    
    
    112.0
    
    
    
    (247.7
    )
    
    
    135.7
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    22.3
    
    
    
    
    
    
    
    11.2
    
    
    
    
    
    
    
    33.5Other liabilities
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    15.1
    
    
    
    
    
    
    
    15.6Total liabilities
    
    
    
    
    
    
    925.2
    
    
    
    (246.6
    )
    
    
    241.2
    
    
    
    
    
    
    
    919.8Commitments and contingenciesStockholders equity:Common stock
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2Additional paid-in capital
    
    
    1,274.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,274.1Retained earnings (accumulated deficit)
    
    
    (265.9
    )
    
    
    1,004.6
    
    
    
    589.9
    
    
    
    672.2
    
    
    
    (2,266.7
    )
    
    
    (265.9
    )Accumulated other comprehensive income
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.9Less treasury stock (at cost)
    
    
    (4.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.8
    )Total stockholders equity
    
    
    1,004.6
    
    
    
    1,008.5
    
    
    
    589.9
    
    
    
    672.2
    
    
    
    (2,266.7
    )
    
    
    1,008.5Total liabilities and stockholders equity
    
    $
    1,004.6
    
    
    $
    1,933.7
    
    
    $
    343.3
    
    
    $
    913.4
    
    
    $
    (2,266.7
    )
    
    $
    1,928.3
 24




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##### Table of Contents



Three
Months Ended June 26,
2005Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc.(In millions)Total revenue
    
    $
    
    
    
    $
    326.8
    
    
    $
    0.9
    
    
    $
    434.2
    
    
    $
    (415.9
    )
    
    $
    346.0Cost of sales
    
    
    
    
    
    
    301.4
    
    
    
    2.8
    
    
    
    388.8
    
    
    
    (415.9
    )
    
    
    277.1Gross profit (loss)
    
    
    
    
    
    
    25.4
    
    
    
    (1.9
    )
    
    
    45.4
    
    
    
    
    
    
    
    68.9Operating Expenses:Research and development
    
    
    
    
    
    
    10.7
    
    
    
    2.8
    
    
    
    6.0
    
    
    
    
    
    
    
    19.5Selling, general and administrative
    
    
    
    
    
    
    31.1
    
    
    
    1.0
    
    
    
    15.4
    
    
    
    
    
    
    
    47.5Amortization of acquisition-related intangibles
    
    
    
    
    
    
    1.5
    
    
    
    0.6
    
    
    
    4.0
    
    
    
    
    
    
    
    6.1Restructuring and impairments
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    3.9Total operating expenses
    
    
    
    
    
    
    46.9
    
    
    
    4.4
    
    
    
    25.7
    
    
    
    
    
    
    
    77.0Operating income (loss)
    
    
    
    
    
    
    (21.5
    )
    
    
    (6.3
    )
    
    
    19.7
    
    
    
    
    
    
    
    (8.1
    )Interest expense
    
    
    
    
    
    
    8.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.7Interest income
    
    
    
    
    
    
    (2.6
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (2.8
    )Equity in subsidiary (income) loss
    
    
    199.4
    
    
    
    0.8
    
    
    
    (2.0
    )
    
    
    
    
    
    
    (198.2
    )
    
    
    Income (loss) before income taxes
    
    
    (199.4
    )
    
    
    (28.4
    )
    
    
    (4.3
    )
    
    
    19.9
    
    
    
    198.2
    
    
    
    (14.0
    )Provision for income taxes
    
    
    5.9
    
    
    
    171.0
    
    
    
    12.4
    
    
    
    2.0
    
    
    
    
    
    
    
    191.3Net income (loss)
    
    $
    (205.3
    )
    
    $
    (199.4
    )
    
    $
    (16.7
    )
    
    $
    17.9
    
    
    $
    198.2
    
    
    $
    (205.3
    )
 25




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##### Table of Contents



Six Months Ended June 26, 2005Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    
    
    
    
    SemiconductorInternational, Inc
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    International, Inc.(In millions)Total revenue
    
    $
    
    
    
    $
    683.4
    
    
    $
    2.6
    
    
    $
    883.0
    
    
    $
    (860.2
    )
    
    $
    708.8Cost of sales
    
    
    
    
    
    
    630.7
    
    
    
    4.8
    
    
    
    780.8
    
    
    
    (860.2
    )
    
    
    556.1Gross profit (loss)
    
    
    
    
    
    
    52.7
    
    
    
    (2.2
    )
    
    
    102.2
    
    
    
    
    
    
    
    152.7Operating expenses:Research and development
    
    
    
    
    
    
    21.2
    
    
    
    5.4
    
    
    
    11.9
    
    
    
    
    
    
    
    38.5Selling, general and administrative
    
    
    
    
    
    
    63.6
    
    
    
    2.0
    
    
    
    29.3
    
    
    
    
    
    
    
    94.9Amortization of acquisition-related intangibles
    
    
    
    
    
    
    2.9
    
    
    
    1.3
    
    
    
    8.0
    
    
    
    
    
    
    
    12.2Restructuring and impairments
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    8.0Total operating expenses
    
    
    
    
    
    
    94.6
    
    
    
    8.7
    
    
    
    50.3
    
    
    
    
    
    
    
    153.6Operating income (loss)
    
    
    
    
    
    
    (41.9
    )
    
    
    (10.9
    )
    
    
    51.9
    
    
    
    
    
    
    
    (0.9
    )Interest expense
    
    
    
    
    
    
    22.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.0Interest income
    
    
    
    
    
    
    (5.7
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (6.0
    )Other expense
    
    
    
    
    
    
    23.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.9Equity in subsidiary (income) loss
    
    
    209.8
    
    
    
    (26.1
    )
    
    
    (10.5
    )
    
    
    
    
    
    
    (173.2
    )
    
    
    Income (loss) before income taxes
    
    
    (209.8
    )
    
    
    (56.0
    )
    
    
    (0.4
    )
    
    
    52.2
    
    
    
    173.2
    
    
    
    (40.8
    )Provision for income taxes
    
    
    5.9
    
    
    
    153.8
    
    
    
    12.4
    
    
    
    2.8
    
    
    
    
    
    
    
    174.9Net income (loss)
    
    $
    (215.7
    )
    
    $
    (209.8
    )
    
    $
    (12.8
    )
    
    $
    49.4
    
    
    $
    173.2
    
    
    $
    (215.7
    )
 26




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##### Table of Contents



Six Months Ended June 26, 2005Unconsolidated
    
    
    Unconsolidated
    
    
    
    
    
    
    
    
    
    
    ConsolidatedFairchild
    
    
    Fairchild
    
    
    
    
    
    
    Non-
    
    
    FairchildSemiconductor
    
    
    Semiconductor
    
    
    Guarantor
    
    
    Guarantor
    
    
    SemiconductorInternational, Inc.
    
    
    Corporation
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    International, Inc(In millions)Cash flows provided by (used in) operating activities:
    
    $
    
    
    
    $
    (11.2
    )
    
    $
    
    
    
    $
    34.9
    
    
    $
    23.7Investing activities:Capital expenditures
    
    
    
    
    
    
    (19.9
    )
    
    
    
    
    
    
    (35.8
    )
    
    
    (55.7
    )Purchase of molds and tooling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.0
    )
    
    
    (1.0
    )Purchase of marketable securities
    
    
    
    
    
    
    (401.4
    )
    
    
    
    
    
    
    
    
    
    
    (401.4
    )Sale of marketable securities
    
    
    
    
    
    
    663.2
    
    
    
    
    
    
    
    
    
    
    
    663.2Maturity of marketable securities
    
    
    
    
    
    
    15.5
    
    
    
    
    
    
    
    
    
    
    
    15.5Investment (in) from affiliate
    
    
    (1.7
    )
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    Cash provided by (used in) investing activities
    
    
    (1.7
    )
    
    
    259.1
    
    
    
    
    
    
    
    (36.8
    )
    
    
    220.6Financing activities:Repayment of long-term debt
    
    
    
    
    
    
    (352.0
    )
    
    
    
    
    
    
    
    
    
    
    (352.0
    )Issuance of long-term debt
    
    
    
    
    
    
    154.5
    
    
    
    
    
    
    
    
    
    
    
    154.5Proceeds from issuance of common stock and
from exercise of stock options, net
    
    
    5.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.7Purchase of treasury stock
    
    
    (4.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )Other
    
    
    
    
    
    
    (1.0
    )
    
    
    
    
    
    
    
    
    
    
    (1.0
    )Cash provided by (used in) financing activities
    
    
    1.7
    
    
    
    (198.5
    )
    
    
    
    
    
    
    
    
    
    
    (196.8
    )Net change in cash and cash equivalents
    
    
    
    
    
    
    49.4
    
    
    
    
    
    
    
    (1.9
    )
    
    
    47.5Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    96.6
    
    
    
    
    
    
    
    49.7
    
    
    
    146.3Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    146.0
    
    
    $
    
    
    
    $
    47.8
    
    
    $
    193.8Supplemental Cash Flow Information:Cash paid during the period for:Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4.9
    
    
    $
    4.9Interest
    
    $
    
    
    
    $
    34.4
    
    
    $
    
    
    
    $
    
    
    
    $
    34.4
 27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
      SFAS 123(R)
   28




---



##### Table of Contents



Results of Operations
  Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Total revenues
    
    $
    406.3
    
    
    
    100
    %
    
    $
    346.0
    
    
    
    100
    %
    
    $
    815.8
    
    
    
    100
    %
    
    $
    708.8
    
    
    
    100
    %Gross profit
    
    
    125.0
    
    
    
    31
    %
    
    
    68.9
    
    
    
    20
    %
    
    
    247.5
    
    
    
    30
    %
    
    
    152.7
    
    
    
    22
    %Operating expenses:Research and development
    
    
    26.3
    
    
    
    6
    %
    
    
    19.5
    
    
    
    6
    %
    
    
    52.5
    
    
    
    6
    %
    
    
    38.5
    
    
    
    5
    %Selling, general and administrative
    
    
    60.3
    
    
    
    15
    %
    
    
    47.5
    
    
    
    14
    %
    
    
    120.3
    
    
    
    15
    %
    
    
    94.9
    
    
    
    13
    %Amortization of acquisition-related intangibles
    
    
    5.8
    
    
    
    1
    %
    
    
    6.1
    
    
    
    2
    %
    
    
    11.7
    
    
    
    1
    %
    
    
    12.2
    
    
    
    2
    %Restructuring and impairments
    
    
    
    
    
    
    0
    %
    
    
    3.9
    
    
    
    1
    %
    
    
    
    
    
    
    0
    %
    
    
    8.0
    
    
    
    1
    %Gain on sale of product line, net
    
    
    (1.7
    )
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    (4.9
    )
    
    
    -1
    %
    
    
    
    
    
    
    0
    %Total operating expenses
    
    
    90.7
    
    
    
    22
    %
    
    
    77.0
    
    
    
    22
    %
    
    
    179.6
    
    
    
    22
    %
    
    
    153.6
    
    
    
    22
    %Operating income (loss)
    
    
    34.3
    
    
    
    8
    %
    
    
    (8.1
    )
    
    
    -2
    %
    
    
    67.9
    
    
    
    8
    %
    
    
    (0.9
    )
    
    
    0
    %Interest expense
    
    
    11.1
    
    
    
    3
    %
    
    
    8.7
    
    
    
    3
    %
    
    
    22.4
    
    
    
    3
    %
    
    
    22.0
    
    
    
    3
    %Interest income
    
    
    (5.6
    )
    
    
    -1
    %
    
    
    (2.8
    )
    
    
    -1
    %
    
    
    (11.0
    )
    
    
    -1
    %
    
    
    (6.0
    )
    
    
    -1
    %Other expense
    
    
    0.1
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    0.1
    
    
    
    0
    %
    
    
    23.9
    
    
    
    3
    %Income (loss) before income taxes
    
    
    28.7
    
    
    
    7
    %
    
    
    (14.0
    )
    
    
    -4
    %
    
    
    56.4
    
    
    
    7
    %
    
    
    (40.8
    )
    
    
    -6
    %Provision for income taxes
    
    
    5.7
    
    
    
    1
    %
    
    
    191.3
    
    
    
    55
    %
    
    
    6.8
    
    
    
    1
    %
    
    
    174.9
    
    
    
    25
    %Net income (loss)
    
    $
    23.0
    
    
    
    6
    %
    
    $
    (205.3
    )
    
    
    -59
    %
    
    $
    49.6
    
    
    
    6
    %
    
    $
    (215.7
    )
    
    
    -30
    %
 Total Revenues.
 29




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJuly 2,
    
    
    June 26,
    
    
    July 2,
    
    
    June 26,2006
    
    
    2005
    
    
    2006
    
    
    2005United States
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %
    
    
    10
    %Other Americas
    
    
    3
    
    
    
    2
    
    
    
    3
    
    
    
    2Europe
    
    
    12
    
    
    
    12
    
    
    
    12
    
    
    
    12China
    
    
    27
    
    
    
    26
    
    
    
    26
    
    
    
    24Taiwan
    
    
    19
    
    
    
    18
    
    
    
    20
    
    
    
    19Korea
    
    
    15
    
    
    
    16
    
    
    
    15
    
    
    
    17Other Asia/Pacific
    
    
    14
    
    
    
    16
    
    
    
    14
    
    
    
    16Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Gross Profit.
 Stock-Based Compensation Expense.
   30




---



##### Table of Contents



Operating Expenses.
 31




---



##### Table of Contents



Interest Expense.
 Interest Income.
 Other Expense. 1 2
 Income Taxes.
   32




---



##### Table of Contents



Reportable Segments.
  Three Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005Gross
    
    
    Operating
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    OperatingRevenue
    
    
    % of total
    
    
    Profit %
    
    
    Income (loss)
    
    
    Revenue
    
    
    % of total
    
    
    Profit %
    
    
    Income (loss)(Dollars in millions)Functional Power
    
    $
    231.5
    
    
    
    57.0
    %
    
    
    31.5
    %
    
    $
    29.4
    
    
    $
    193.1
    
    
    
    55.8
    %
    
    
    22.1
    %
    
    $
    5.7Analog Products
    
    
    80.2
    
    
    
    19.7
    %
    
    
    37.7
    %
    
    
    0.2
    
    
    
    66.3
    
    
    
    19.2
    %
    
    
    20.7
    %
    
    
    (9.5
    )Standard Products
    
    
    94.6
    
    
    
    23.3
    %
    
    
    24.8
    %
    
    
    11.0
    
    
    
    86.6
    
    
    
    25.0
    %
    
    
    14.4
    %
    
    
    (0.4
    )Other (1)
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (6.3
    )
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (3.9
    )Total
    
    $
    406.3
    
    
    
    100.0
    %
    
    
    30.8
    %
    
    $
    34.3
    
    
    $
    346.0
    
    
    
    100.0
    %
    
    
    19.9
    %
    
    $
    (8.1
    )
 Six Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005Gross
    
    
    Operating
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    OperatingRevenue
    
    
    % of total
    
    
    Profit %
    
    
    Income (loss)
    
    
    Revenue
    
    
    % of total
    
    
    Profit %
    
    
    Income (loss)(Dollars in millions)Functional Power
    
    $
    467.3
    
    
    
    57.3
    %
    
    
    30.9
    %
    
    $
    56.0
    
    
    $
    397.7
    
    
    
    56.1
    %
    
    
    23.9
    %
    
    $
    21.0Analog Products
    
    
    161.9
    
    
    
    19.8
    %
    
    
    38.9
    %
    
    
    3.5
    
    
    
    136.1
    
    
    
    19.2
    %
    
    
    21.3
    %
    
    
    (16.0
    )Standard Products
    
    
    186.6
    
    
    
    22.9
    %
    
    
    22.8
    %
    
    
    16.8
    
    
    
    175.0
    
    
    
    24.7
    %
    
    
    16.3
    %
    
    
    2.1Other (1)
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (8.4
    )
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (8.0
    )Total
    
    $
    815.8
    
    
    
    100.0
    %
    
    
    30.3
    %
    
    $
    67.9
    
    
    $
    708.8
    
    
    
    100.0
    %
    
    
    21.5
    %
    
    $
    (0.9
    )
 
 (1)
    
    Operating loss includes $7.6 million and $12.9 million of stock-based compensation
expense and a net gain of $1.7 million and $4.9 million on the sale of a product line
in the three and six months ended July 2, 2006, respectively. In addition,
operating loss includes $0.4 million of fees associated with the refinancing of the senior
credit facility in the three and six months ended July 2, 2006. Operating loss includes
$3.9 million and $8.0 million of restructuring expense in the three and six months ended
June 25, 2005. Functional Power
 . ® ®
  33




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Analog Products
 TM
  Standard Products
   Liquidity and Capital Resources
  34




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Six Months EndedJuly 2,
    
    
    June 26,2006
    
    
    2005(In millions)Net income (loss)
    
    $
    49.6
    
    
    $
    (215.7
    )Depreciation and amortization
    
    
    57.0
    
    
    
    87.4Non-cash stock-based compensation
    
    
    12.9
    
    
    
    5.0Deferred income taxes, net
    
    
    1.1
    
    
    
    175.4Other, net
    
    
    (3.2
    )
    
    
    9.1Change in other working capital accounts
    
    
    (51.5
    )
    
    
    (37.5
    )Cash provided by operating activities
    
    $
    65.9
    
    
    $
    23.7
  35




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##### Table of Contents



1 2
 Liquidity and Capital Resources of Fairchild International, Excluding Subsidiaries
  Forward Looking Statements
  Policy on Business Outlook Disclosure and Quiet Periods
 http://investor.fairchildsemi.com
 36




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##### Table of Contents



Outlook
  Recently Issued Financial Accounting Standards
 Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes
 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.
 Accounting Changes and Error Corrections. Accounting Changes Reporting Accounting Changes in
Interim Financial Statements  an Amendment of APB Opinion 28
 Inventory Costs Inventory Pricing
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  37




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Inherent Limitations on Effectiveness of Controls
  Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
    38




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Item 1A. Risks Factors
  The price of our common stock has fluctuated widely in the past and may fluctuate widely in
the future.
  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.
  39




---



##### Table of Contents



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.
  We may not be able to develop new products to satisfy changing demands from customers.
  If some original equipment manufacturers do not design our products into their equipment, our
revenue may be adversely affected.
  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.
 40




---



##### Table of Contents



Our failure to protect our intellectual property rights could adversely affect our future
performance and growth.
  
    
    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.
   Our failure to obtain or maintain the right to use some technologies may negatively affect our
financial results.
  41




---



##### Table of Contents




    
    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 may not be able to consummate future acquisitions or successfully integrate acquisitions
into our business.
    
    
    unexpected losses of key employees, customers or suppliers of the acquired company;
    
    conforming the acquired companys standards, processes, procedures and controls with
our operations;
    
    coordinating new product and process development;
    
    hiring additional management and other critical personnel;
    
    negotiating with labor unions; and
    
    increasing the scope, geographic diversity and complexity of our operations.
   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.
 42




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##### Table of Contents



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.
   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.
  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.
 43




---



##### Table of Contents



We may not be able to attract or retain the technical or management employees necessary to
remain competitive in our industry.
  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.
    We may face product warranty or product liability claims that are disproportionately higher
than the value of the products involved.
 44




---



##### Table of Contents



Our international operations subject our company to risks not faced by domestic competitors.
  
    
    economic and political instability;
    
    foreign currency fluctuations;
    
    transportation delays;
 45




---



##### Table of Contents




    
    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.
    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.
  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.
  46




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##### Table of Contents



We are subject to many environmental laws and regulations that could affect our operations or
result in significant expenses.
  
    
    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.
  We are a leveraged company with a ratio of debt to equity at July 2, 2006 of approximately 0.5
to 1, which could adversely affect our financial health and limit our ability to grow and compete.
 1 2
 
    
    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;
 47




---



##### Table of Contents




    
    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 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.
   48




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    
    Maximum Number (orShares Purchased as
    
    
    Approximate Dollar Value)Total Number of
    
    
    Average
    
    
    Part of Publicly
    
    
    of Shares that May Yet BeShares (or Units)
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under the PlansPeriod
    
    Purchased (1)
    
    
    per Share
    
    
    Programs
    
    
    or ProgramsApril 3, 2006 
April 30, 2006
    
    
    97,000
    
    
    $
    20.57
    
    
    
    
    
    
    
    May 1, 2006 
May 28, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 29, 2006 
July 2, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    97,000
    
    
    $
    20.57
    
    
    
    
    
    
    
    
 
 (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 4. Submission of Matters to a Vote of Security Holders
  49




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##### Table of Contents



VOTES FOR
    
    
    VOTES WITHHELDRichard A.
Aurelio
    
    
    109,415,759
    
    
    
    485,992Charles P.
Carinalli
    
    
    109,291,145
    
    
    
    610,606Charles M.
Clough
    
    
    105,721,737
    
    
    
    4,180,014Robert F.
Friel
    
    
    109,415,867
    
    
    
    485,884Thomas L.
Magnanti
    
    
    108,922,121
    
    
    
    979,630Kevin J.
McGarity
    
    
    109,292,832
    
    
    
    608,919Kirk P.
Pond
    
    
    107,766,110
    
    
    
    2,135,641Bryan R.
Roub
    
    
    109,415,303
    
    
    
    486,448Ronald W.
Shelly
    
    
    108,897,358
    
    
    
    1,004,393William N.
Stout
    
    
    109,015,989
    
    
    
    885,762Mark S.
Thompson
    
    
    109,402,154
    
    
    
    499,597
      
 Item 6. Exhibits
 ExhibitNo.
    
    Description3.01
    
    Bylaws (as amended through May 3, 2006) (incorporated by reference from our current report on
Form 8-K filed on May 5, 2006).7.01
    
    Corporate Governance Guidelines (as amended through May 3, 2006) (incorporated by reference
from our current report on Form 8-K filed on May 5, 2006).10.01
    
    Fairchild Semiconductor Stock Plan, as amended on May 3, 2006 (incorporated by reference
from our current report on Form 8-K filed on May 5, 2006).10.02
    
    Credit Agreement, dated as of June 26, 2006, among Fairchild Semiconductor International,
Inc., Fairchild Semiconductor Corporation, Deutsche Bank Trust Company Americas, Bank of
America, N.A., JP Morgan Chase Bank, N.A., Citicorp USA, Inc., Citizens Bank of Massachusetts
and various lenders party to the agreement.31.01
    
    Section 302 Certification of the Chief Executive Officer.31.02
    
    Section 302 Certification of the Chief Financial Officer.
 50




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ExhibitNo.
    
    Description32.01
    
    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, and 5 are not applicable and have been omitted.
 51




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##### Table of Contents



SIGNATURE
  Fairchild Semiconductor International, Inc.Date: August 9, 2006
    By:
    /s/ Robin A. SawyerRobin A. SawyerVice President, Corporate Controller
(Principal Accounting Officer) 52