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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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(Mark One)

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



For the Quarter ended April 2, 2005



| ̈ | 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: 0-19299



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Integrated Circuit Systems, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Pennsylvania                                                   |  | 23-2000174                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



2435 Boulevard of
the Generals

Norristown, Pennsylvania 19403

(Address of principal executive offices)



(610) 630-5300

(Registrants telephone number including area code)



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



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



As of May 10, 2005, there were 69,960,303 shares of Common Stock; $0.01 par value,
outstanding.



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INTEGRATED CIRCUIT SYSTEMS, INC.



INDEX



|         |  |                                                                                                                       |  |           
|-------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ----------
|         |  |                                                                                                                       |  | PageNumber
|PART I.  |  | FINANCIAL INFORMATION                                                                                                
|         |  |                                                                                                                      
|Item 1.  |  | Consolidated Financial Statements (Unaudited):                                                                        |  |           
|         |  |                                                                                                                      
|         |  | Consolidated Balance Sheets (Unaudited):April 2, 2005 and July 3, 2004                                                |  | 3         
|         |  |                                                                                                                      
|         |  | Consolidated Statements of Operations (Unaudited):Three Months and Nine Months Ended April 2, 2005 and March 27, 2004 |  | 4         
|         |  |                                                                                                                      
|         |  | Consolidated Statements of Cash Flows (Unaudited):Nine Months Ended April 2, 2005 and March 27, 2004                  |  | 5         
|         |  |                                                                                                                      
|         |  | Notes to Consolidated Financial Statements (Unaudited)                                                                |  | 6         
|         |  |                                                                                                                      
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 13        
|         |  |                                                                                                                      
|Item 3.  |  | Quantitative and Qualitative Disclosures About Market Risk                                                            |  | 23        
|         |  |                                                                                                                      
|Item 4.  |  | Controls and Procedures                                                                                               |  | 23        
|         | 
|PART II. |  | OTHER INFORMATION                                                                                                    
|         |  |                                                                                                                      
|Item 2.  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                           |  | 24        
|         |  |                                                                                                                      
|Item 6.  |  | Exhibits                                                                                                              |  | 25        



2



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PART I. FINANCIAL INFORMATION



Item 1. Consolidated Financial Statements



INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands)

(Unaudited)



|                                                                                                                                 |  |               |         |   |              |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ------------ | - | ------- | -
|                                                                                                                                 |  | April 2, 2005 |         |   | July 3, 2004 |  
|ASSETS                                                                                                                           |  |               |         |   |              |   |         |  
|Current Assets:                                                                                                                  |  |               |         |   |              |   |         |  
|Cash and cash equivalents                                                                                                        |  | $             | 43,874  |   |              | $ | 68,973  |  
|Marketable securities                                                                                                            |  |               | 24,198  |   |              |   | 126,606 |  
|Accounts receivable, net                                                                                                         |  |               | 45,489  |   |              |   | 45,717  |  
|Inventory, net                                                                                                                   |  |               | 18,431  |   |              |   | 18,772  |  
|Deferred income taxes                                                                                                            |  |               | 18,658  |   |              |   | 22,759  |  
|Prepaid assets                                                                                                                   |  |               | 3,615   |   |              |   | 6,309   |  
|Other current assets                                                                                                             |  |               | 3,545   |   |              |   | 880     |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total current assets                                                                                                             |  |               | 157,810 |   |              |   | 290,016 |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Property and equipment, net                                                                                                      |  |               | 20,417  |   |              |   | 19,254  |  
|Long term investments                                                                                                            |  |               | 139,001 |   |              |   | 5,000   |  
|Intangibles                                                                                                                      |  |               | 42,077  |   |              |   | 27,842  |  
|Goodwill                                                                                                                         |  |               | 35,422  |   |              |   | 35,422  |  
|Other assets                                                                                                                     |  |               | 5,143   |   |              |   | 62      |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total assets                                                                                                                     |  | $             | 399,870 |   |              | $ | 377,596 |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                             |  |               |         |   |              |   |         |  
|Current Liabilities:                                                                                                             |  |               |         |   |              |   |         |  
|Lease payable                                                                                                                    |  | $             | 38      |   |              | $ | 82      |  
|Accounts payable                                                                                                                 |  |               | 13,879  |   |              |   | 17,557  |  
|Accrued salaries and bonus                                                                                                       |  |               | 86      |   |              |   | 2,811   |  
|Accrued commissions                                                                                                              |  |               | 1,835   |   |              |   | 838     |  
|Accrued expenses                                                                                                                 |  |               | 1,300   |   |              |   | 1,474   |  
|Accrued vacation                                                                                                                 |  |               | 1,082   |   |              |   | 1,024   |  
|Accrued expenses and other current liabilities                                                                                   |  |               | 1,982   |   |              |   | 2,371   |  
|Income taxes payable                                                                                                             |  |               | 930     |   |              |   | 3,576   |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total current liabilities                                                                                                        |  |               | 21,132  |   |              |   | 29,733  |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Deferred tax and other liabilities                                                                                               |  |               | 12,448  |   |              |   | 11,638  |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total liabilities                                                                                                                |  |               | 33,580  |   |              |   | 41,371  |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Commitments and contingencies                                                                                                    |  |               |         |   |              |   |         |  
|Shareholders equity:                                                                                                            |  |               |         |   |              |   |         |  
|Preferred Stock, authorized 5,000; none issued                                                                                   |  |               |        |   |              |   |        |  
|Common stock, $0.01 par, authorized 300,000; Issued 73,131 and 72,701 shares, as of April 2, 2005 and July 3, 2004,
respectively |  |               | 731     |   |              |   | 727     |  
|Additional paid in capital                                                                                                       |  |               | 289,908 |   |              |   | 282,569 |  
|Retained earnings                                                                                                                |  |               | 144,276 |   |              |   | 107,140 |  
|Deferred compensation                                                                                                            |  |               | (801    | ) |              |   |        |  
|Treasury stock, at cost, 3,153 shares, as of April 2, 2005 and 2,475 shares, as of July 3, 2004                                  |  |               | (67,824 | ) |              |   | (54,211 | )
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total shareholders equity                                                                                                       |  |               | 366,290 |   |              |   | 336,225 |  
|                                                                                                                                 |  |               |         |   |              |   |         |  
|Total liabilities and shareholders equity                                                                                       |  | $             | 399,870 |   |              | $ | 377,596 |  
|                                                                                                                                 |  |               |         |   |              |   |         |  



See accompanying notes
to consolidated financial statements.



3



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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands)

(Unaudited)



|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|---------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | - | ------ | ------------ |  | - | -------------- | - |  | - | ------- | -
|                                                     |  | Three Months Ended |        |   | Nine Months Ended |  
|                                                     |  | April 2,2005       |        |   | March 27,2004     |   |        | April 2,2005 |  |   | March 27, 2004 |  
|Revenue:                                             |  | $                  | 58,124 |   |                   | $ | 67,794 |              |  | $ | 184,848        |   |  | $ | 202,644 |  
|                                                     |  |                    |        |  
|Cost and expenses:                                   |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Cost of sales                                        |  |                    | 23,817 |   |                   |   | 26,745 |              |  |   | 75,858         |   |  |   | 81,288  |  
|Research and development                             |  |                    | 9,943  |   |                   |   | 10,426 |              |  |   | 29,556         |   |  |   | 29,748  |  
|Amortization of Video research and development costs |  |                    |       |   |                   |   |       |              |  |   | 7,051          |   |  |   |        |  
|Selling, general and administrative                  |  |                    | 9,555  |   |                   |   | 8,533  |              |  |   | 29,125         |   |  |   | 26,811  |  
|Amortization of intangibles                          |  |                    | 1,115  |   |                   |   | 575    |              |  |   | 3,164          |   |  |   | 1,725   |  
|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Operating income                                     |  |                    | 13,694 |   |                   |   | 21,515 |              |  |   | 40,094         |   |  |   | 63,072  |  
|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Interest and other income                            |  |                    | 1,249  |   |                   |   | 544    |              |  |   | 2,818          |   |  |   | 1,885   |  
|Interest expense                                     |  |                    | (15    | ) |                   |   | (33    | )            |  |   | (45            | ) |  |   | (251    | )
|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Income before income taxes                           |  |                    | 14,928 |   |                   |   | 22,026 |              |  |   | 42,867         |   |  |   | 64,706  |  
|                                                     |  |                    |        |  
|Income taxes                                         |  |                    | 1,921  |   |                   |   | 3,480  |              |  |   | 5,731          |   |  |   | 10,228  |  
|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Net income                                           |  | $                  | 13,007 |   |                   | $ | 18,546 |              |  | $ | 37,136         |   |  | $ | 54,478  |  
|                                                     |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Basic income per share:                              |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Net income                                           |  | $                  | 0.19   |   |                   | $ | 0.26   |              |  | $ | 0.53           |   |  | $ | 0.77    |  
|                                                     |  |                    |        |  
|Diluted income per share:                            |  |                    |        |   |                   |   |        |              |  |   |                |   |  |   |         |  
|Net income                                           |  | $                  | 0.18   |   |                   | $ | 0.26   |              |  | $ | 0.52           |   |  | $ | 0.75    |  
|                                                     |  |                    |        |  
|Weighted average shares outstanding  basic          |  |                    | 70,041 |   |                   |   | 70,320 |              |  |   | 70,242         |   |  |   | 70,398  |  
|Weighted average shares outstanding  diluted        |  |                    | 70,718 |   |                   |   | 72,215 |              |  |   | 71,206         |   |  |   | 72,817  |  



See accompanying notes
to consolidated financial statements.





4



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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                  |  |                   |          |   |                |   |          |  
|--------------------------------------------------------------------------------- |  | ----------------- | -------- | - | -------------- | - | -------- | -
|                                                                                  |  | Nine Months Ended |         
|                                                                                  |  | April 2,2005      |          |   | March 27, 2004 |  
|Cash flows from operating activities:                                             |  |                   |          |   |                |   |          |  
|Net income                                                                        |  | $                 | 37,136   |   |                | $ | 54,478   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |          |   |                |   |          |  
|Depreciation and amortization                                                     |  |                   | 8,632    |   |                |   | 6,855    |  
|Amortization of Video research & development costs                                |  |                   | 7,051    |   |                |   |         |  
|Gain on sale of assets                                                            |  |                   | (1,302   | ) |                |   | (659     | )
|Tax benefit of stock options                                                      |  |                   | 2,415    |   |                |   | 9,905    |  
|Deferred income taxes                                                             |  |                   | 4,989    |   |                |   | 1,491    |  
|Changes in assets and liabilities:                                                |  |                   |          |   |                |   |          |  
|Accounts receivable                                                               |  |                   | 228      |   |                |   | (13,291  | )
|Inventory                                                                         |  |                   | 341      |   |                |   | (1,065   | )
|Other assets, net                                                                 |  |                   | (5,119   | ) |                |   | 1,424    |  
|Accounts payable, accrued expenses and other current liabilities                  |  |                   | (5,839   | ) |                |   | 6,233    |  
|Restructuring costs                                                               |  |                   | (72      | ) |                |   | (753     | )
|Accrued interest expense                                                          |  |                   |         |   |                |   | (57      | )
|Income taxes payable                                                              |  |                   | (2,646   | ) |                |   | (2,439   | )
|                                                                                  |  |                   |          |   |                |   |          |  
|Net cash provided by operating activities                                         |  |                   | 45,814   |   |                |   | 62,122   |  
|                                                                                  |  |                   |          |   |                |   |          |  
|Cash flows from investing activities:                                             |  |                   |          |   |                |   |          |  
|Purchases of marketable securities                                                |  |                   | (91,834  | ) |                |   | (161,893 | )
|Purchases of long term investments                                                |  |                   | (134,001 | ) |                |   |          |  
|Sales/Maturities of marketable securities                                         |  |                   | 195,058  |   |                |   | 92,880   |  
|Capital expenditures                                                              |  |                   | (6,216   | ) |                |   | (5,641   | )
|Video business unit asset purchase                                                |  |                   | (24,450  | ) |                |   |         |  
|Other                                                                             |  |                   | 155      |   |                |   | 47       |  
|                                                                                  |  |                   |          |   |                |   |          |  
|Net cash used in investing activities                                             |  |                   | (61,288  | ) |                |   | (74,607  | )
|                                                                                  |  |                   |          |   |                |   |          |  
|Cash flows from financing activities:                                             |  |                   |          |   |                |   |          |  
|Exercise of stock options                                                         |  |                   | 3,298    |   |                |   | 11,636   |  
|Shares purchased through stock purchase plan                                      |  |                   | 798      |   |                |   | 655      |  
|Purchase of treasury stock                                                        |  |                   | (13,613  | ) |                |   | (30,251  | )
|Repayment of long-term debt                                                       |  |                   |         |   |                |   | (10,000  | )
|Capital lease payments                                                            |  |                   | (108     | ) |                |   | (111     | )
|                                                                                  |  |                   |          |   |                |   |          |  
|Net cash provided by financing activities                                         |  |                   | (9,625   | ) |                |   | (28,071  | )
|                                                                                  |  |                   |          |   |                |   |          |  
|Net (decrease) increase in cash and cash equivalents                              |  |                   | (25,099  | ) |                |   | (40,556  | )
|Cash and cash equivalents:                                                        |  |                   |          |   |                |   |          |  
|Beginning of period                                                               |  | $                 | 68,973   |   |                | $ | 118,038  |  
|                                                                                  |  |                   |          |   |                |   |          |  
|End of period                                                                     |  | $                 | 43,874   |   |                | $ | 77,482   |  
|                                                                                  |  |                   |          |   |                |   |          |  



See accompanying notes
to consolidated financial statements.



5



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INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)



(1) INTERIM ACCOUNTING POLICY



The accompanying financial statements have not been audited. In the opinion of our management, the accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly our financial position at April 2, 2005 and results of operations and cash flows for the interim periods presented.



Certain footnote information has been condensed or omitted from these financial statements.
Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended July 3, 2004. Results of operations for the nine months
ended April 2, 2005 are not necessarily indicative of results to be expected for the full year.



Per SECs Release No. 33-8040, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we have determined the critical principles by considering accounting policies that involve the
most complex or subjective decisions or assessments. We state these accounting policies in Managements Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the consolidated financial statements contained
in our Annual Report on Form 10-K for our fiscal year ended July 3, 2004. There were no significant changes to our critical accounting polices during the nine months ended April 2, 2005.



Reporting Periods



Our fiscal year is a 52/53 week operating cycle that ends on the Saturday nearest June 30. Unless otherwise noted, all periods presented herein represent a 13-week
operating cycle.



Stock Compensation



We have adopted the disclosure provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock Based Compensation  Transition and Disclosure, and amendment to FASB Statement No. 123. We continue
to apply Accounting Principles Board Opinion (APB) No. 25 Accounting for Stock Issued to Employees and related interpretations in accounting for our stock compensation plans for employees and directors. Stock options granted
to employees typically have an exercise price equal to the fair market value of our common stock and vest ratably over four years. Since the value of an option bears a direct relationship to our stock price, it is an effective incentive for
management to create value for shareholders. We therefore view stock options as a critical component of our long-term performance-based compensation philosophy.



6



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We apply APB No. 25 and related interpretations in accounting for stock option plans. Our policy is to grant stock
options at the fair market value of the underlying stock at the date of grant. Accordingly, compensation expense is generally recognized only when options are granted with a discounted exercise price. Any resulting compensation expense is recognized
ratably over the associated service period, which is generally the option vesting term. Had compensation cost been recognized consistent with SFAS No. 123, as amended by SFAS No. 148, our consolidated net earnings and earnings per share for the
three-month and nine-month periods ending April 2, 2005 and March 27, 2004 would have been as follows (in thousands except per share data):



|                                                                                                                                        |  |                    |        |                   |   |               |  |                |        |  |   |       
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------------- |  | -------------- | ------ |  | - | ------
|                                                                                                                                        |  | Three Months Ended |        | Nine Months Ended
|                                                                                                                                        |  | April 2, 2005      |        | March 27,2004     |   | April 2, 2005 |  | March 27, 2004
|Net income, as reported                                                                                                                 |  | $                  | 13,007 |                   | $ | 18,546        |  | $              | 37,136 |  | $ | 54,478
|Add: Stock-based employee compensation expense included in reported net earnings, net of related tax effects (1)                        |  |                    | 39     |                   |   | 159           |  |                | 104    |  |   | 476   
|Less: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax
effects |  |                    | 5,329  |                   |   | 3,886         |  |                | 15,025 |  |   | 11,657
|                                                                                                                                        |  |                    |        |                   |   |               |  |                |        |  |   |       
|Net income, pro forma                                                                                                                   |  | $                  | 7,717  |                   | $ | 14,819        |  | $              | 22,215 |  | $ | 43,297
|                                                                                                                                        |  |                    |        |                  
|Basic earnings per share:                                                                                                               |  |                    |        |                   |   |               |  |                |        |  |   |       
|As reported                                                                                                                             |  | $                  | 0.19   |                   | $ | 0.26          |  | $              | 0.53   |  | $ | 0.77  
|Pro forma                                                                                                                               |  | $                  | 0.11   |                   | $ | 0.21          |  | $              | 0.32   |  | $ | 0.62  
|                                                                                                                                        |  |                    |        |                  
|Diluted earnings per share:                                                                                                             |  |                    |        |                   |   |               |  |                |        |  |   |       
|As reported                                                                                                                             |  | $                  | 0.18   |                   | $ | 0.26          |  | $              | 0.52   |  | $ | 0.75  
|Pro forma                                                                                                                               |  | $                  | 0.11   |                   | $ | 0.21          |  | $              | 0.31   |  | $ | 0.61  
|                                                                                                                                        |  |                    |        |                  
|Diluted common shares:                                                                                                                  |  |                    |        |                   |   |               |  |                |        |  |   |       
|As reported                                                                                                                             |  |                    | 70,718 |                   |   | 72,215        |  |                | 71,206 |  |   | 72,817
|Pro forma                                                                                                                               |  |                    | 70,775 |                   |   | 71,351        |  |                | 70,976 |  |   | 71,429

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|(1) | In the Companys Form 10-Q for the three and nine months ending March 27, 2004 the stock-based employee compensation expense included in reported net earnings was reported as
$244,000 and $731,000, respectively. This amount has been adjusted as shown above to provide for the related tax effects.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



SFAS No. 123 requires the use of option pricing models that were not developed for use in valuing employee stock options. The Black-Scholes option-pricing model was
developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the
options expected life and the price volatility of the underlying stock. Because the companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in the opinion of management, the existing models might not provide a reliable single measure of the fair value of employee stock options.



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004)  Share-Based Payment. This standard supercedes APB No. 25, and requires recognition of expense in the financial statements of the cost of share based payment transactions, including stock options, based on
the fair value of the award at the grant date. The provisions of this standard are effective for public companies for annual periods beginning after June 15, 2005. We will adopt this statement beginning with our first quarter of fiscal year 2006. At
this time we have not determined the transition method that will be used. We are currently evaluating the implementation of this standard and the impact on our calculation of stock option expense. The pro forma provided in footnote 1 Stock



7



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Compensation provides a reasonable estimate of the impact on our financial statements. However, our implementation of this standard based on the new
guidelines could vary from the pro forma and have a material impact on our financial position.



In November 2004, the FASB issued SFAS No. 151  Inventory Costs  an amendment of ARB No. 43, Chapter 4. This standard clarifies the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material. The provisions of this statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Currently this statement does not have an impact on our financial position.
However, if in the future we were to experience such abnormal costs such as idle facility expense, handling costs and wasted material it could have a material impact on our operations.



In September 2004, the FASB approved issuance of Staff Position (FSP) EITF 03-1-1, Effective Date of Paragraphs 10 through
20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-1). FSP EITF 03-1-1 delays the effective date of paragraphs 10 through 20 of EITF 03-1 as they relate to
recognition of other-than-temporary impairment for cost method and marketable investments. This deferral will extend until a Staff Position is issued to provide clarification of the guidance presented in paragraphs 10 through 20. Effective July 4,
2004, we adopted all other provisions of EITF Issue 03-1, including measurement guidance for evaluating whether an impairment has occurred for marketable securities and cost method investments. Adoption of these requirements did not have a material
effect on the results of operations. Effective December 31, 2004, additional disclosures were also required for cost method investments. The effect of implementing the final provisions of paragraphs 10 through 20 cannot currently be estimated due to
the pending implementation issues, but is not expected to be material to the results of future operations.



On October 22, 2004, the American Jobs Creation Act of 2004 was enacted by President Bush. We are currently evaluating the impact of this new law on our operations and effective tax rate. At this time, we are unable
to determine the effects of this new law and will continue to analyze its potential impact as guidance is made available.



On October 4, 2004, President George W. Bush signed the Working Families Tax Relief Act of 2004, which retroactively reinstated the research tax credit to the
June 30, 2004 expiration date. This change in the law will not have a material impact on the results of future operations.



(2) ACQUISITION



In the first quarter of fiscal year 2005 we acquired assets for a purchase price of $24.5 million and formed the Video business unit, which provides us with the technology and the capability to develop a family of
high performance mixed signal products for the high definition and digital video/imaging market. The purchase consisted of intellectual property and a team of proven engineers. Some of these assets had a short useful life and resulted in $7.1
million of amortization expense in the first quarter of fiscal year 2005. The remaining assets consist of a database valued at $16.2 million with a useful life of 8 years and an assembled workforce valued at $1.2 million with a useful life of 9
years.



(3) MARKETABLE SECURITIES



Investments in marketable securities primarily consist of short-term commercial paper.
During the nine months ended April 2, 2005, proceeds from the maturities of marketable securities were used for the acquisition of intangible assets related to the Video business unit.



8



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(4) LONG TERM INVESTMENTS



Long term investments consist primarily of debt securities with maturities greater than one year. Securities classified as held-to-maturity
are reported at amortized cost. It is our intent to hold to maturity all debt securities, however, from time to time securities are designated as available-for sale. Available-for-sale securities are reported at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive income.



(5) INVENTORY



Inventory is valued at the lower of cost or
market. Cost is determined by the first in, first out (FIFO) method. The components of inventories are as follows (in thousands):



|                           |  |               |        |   |              |   |        |  
|-------------------------- |  | ------------- | ------ | - | ------------ | - | ------ | -
|                           |  | April 2, 2005 |        |   | July 3, 2004 |  
|Raw Materials              |  | $             | 7,813  |   |              | $ | 8,237  |  
|Work-in-process            |  |               | 8,226  |   |              |   | 7,953  |  
|Finished parts             |  |               | 9,661  |   |              |   | 9,296  |  
|Less: Obsolescence reserve |  |               | (7,269 | ) |              |   | (6,714 | )
|                           |  |               |        |   |              |   |        |  
|                           |  | $             | 18,431 |   |              | $ | 18,772 |  
|                           |  |               |        |   |              |   |        |  



A total of $1.2 million in inventory
was scrapped in the nine months ended April 2, 2005.



(6) DEBT



On March 1, 2004, we entered into a revolving credit loan agreement,
which will terminate March 1, 2007. The revolving credit loan agreement allows us to draw down to a maximum balance of $20.0 million in increments of not less than $500,000. At our option, the unpaid balance shall bear interest at the available
LIBOR Based Rate (as defined) or the Prime Based Rate (as defined). A commitment fee on the average daily-unused portion of the revolving credit loan balance is due and payable on a quarterly basis. The commitment fee will be between .20% (.0020)
and .25% (.0025) based on the funded debt to EBITDA ratio calculated the previous quarter. There was no outstanding balance on our revolving credit loan agreement as of April 2, 2005.



Our revolving credit loan agreement requires the maintenance of specified financial ratios and covenants, including a fixed charge coverage
ratio, a funded debt to EBITDA ratio, a liquidity ratio, a minimum tangible net worth covenant, and imposes additional financial limitations. The current revolving credit loan agreement also restricts our ability to pay dividends to the holders of
our common stock. At April 2, 2005 we were in compliance with all of these covenants.



In connection with the acquisition of Micro Networks Corporation (MNC) in fiscal year 2002, we entered into a revolving credit and term loan facility dated December 31, 2001, which would have terminated December 31, 2004. The
facility enabled us to draw down $45.0 million under the term loan and $10.0 million under the revolving credit facility. At our option, the interest rate under the term loan was either (1) an annual base rate, which is the higher of (i) a rate of
interest announced from time to time by the lenders administrative agent as the base rate (Base Rate) or (ii) the sum of the federal funds rate plus 0.5% per annum or (2) London Interbank Offer Rate (LIBOR) plus 1.75%.
At our option, the interest rate under the revolving credit facility was either (1) the Base Rate or (2) the LIBOR Rate plus a pre-formulated margin. During the first quarter of fiscal year 2004, we paid down $4.2 million of the term loan. During
the second quarter of fiscal 2004, we made the final payment of $5.8 million on our term loan. This loan agreement was terminated in the third quarter of fiscal year 2004.



9



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(7) RESTRUCTURING COST



On January 4, 2002, we acquired Micro Networks Corporation (MNC) for $74.9 million, net of cash acquired. We acquired MNC to gain access to technology that
we believe will enhance the performance of our silicon timing products, strengthening our position within existing strategic markets such as servers and storage systems. In connection with the acquisition of MNC, we put in place a restructuring plan
for the purpose of making MNC more efficient by reducing the workforce, combining facilities and moving some manufacturing operations offshore, which is still in process. The purchase price includes $5.6 million in purchase accounting liabilities
and write-down of fixed assets.



From the date of the acquisition until the end
of fiscal 2004, one plant in Bloomfield, CT was shut down and the fixed assets associated were disposed of. Sixty-four manufacturing personnel, both line and management, were laid off. In addition we planned to move the assembly process to offshore
plants. During fiscal year 2004, goodwill was adjusted due to the reversal of a portion of the restructuring reserve. As of January 1, 2005 the restructuring reserve has been fully utilized.



The following table summarizes the activity of the restructuring reserve since inception:



|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  
|-------------------------- |  | ---------------------- | ----- | ---------------- | - | -------------- |  | ---------------- | ----- | -------------- | - | ---------------- |  | ---------------- | ----- |  | -------------- | --- | ---------------- | - | -------------- | - |  | - | -- |  | - | -- |  | - | -
|(in thousands)             |  | OriginalPlanDate1/2002 |       | Utilization 2002 |   | Balance 6/2002 |  | Utilization 2003 |       | Balance 6/2003 |   | Utilization 2004 |  | Adjustments 2004 |       |  | Balance 6/2004 |     | Utilization 2005 |   | Balance 3/2005
|Plant Closing Costs        |  | $                      | 1,214 |                  | $ | 27             |  | $                | 1,187 |                | $ | 472              |  | $                | 715   |  | $              | 420 |                  | $ | 223            |   |  | $ | 72 |  | $ | 72 |  | $ | 
|Personnel Costs            |  |                        | 2,017 |                  |   | 437            |  |                  | 1,580 |                |   | 1,151            |  |                  | 429   |  |                | 496 |                  |   | (67            | ) |  |   |   |  |   |   |  |   | 
|Write-down of Fixed Assets |  |                        | 2,407 |                  |   |               |  |                  |      |                |   |                 |  |                  |      |  |                |    |                  |   |               |   |  |   |   |  |   |   |  |   | 
|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  
|Total                      |  | $                      | 5,638 |                  | $ | 464            |  | $                | 2,767 |                | $ | 1,623            |  | $                | 1,144 |  | $              | 916 |                  | $ | 156            |   |  | $ | 72 |  | $ | 72 |  | $ | 
|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  



(8) CAPITAL STOCK



In September 2001, we announced a share repurchase program, which authorized the
purchase, from time to time, of 2.0 million shares of our common stock on the open market. In October 2002, we announced that our Board of Directors approved an increase in the number of shares to be repurchased under this repurchase program to 3.0
million. In October 2004, our Board of Directors approved an additional increase in the number of shares to be repurchased under the repurchase program by 2.0 million shares for a total of 5.0 million shares authorized for repurchase. As of April 2,
2005, we had repurchased 3.2 million shares for $67.8 million. There are 1.8 million shares available for repurchase.



As of April 2, 2005, additional paid in capital increased $7.5 million from the July 3, 2004 balance as the result of the exercise of stock options, the tax benefit
relating to the exercises of non-qualified stock options, the purchase of our stock by employees in our stock purchase plan, and restricted stock grants.



On August 5, 2004 we issued restricted stock to certain employees. The issuance of this restricted stock resulted in deferred compensation of $0.9 million in the first
quarter of fiscal 2005. The deferred compensation is amortized over four years. The amortization of deferred compensation is $0.2 million through the third quarter of fiscal 2005.



10



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(9) INDUSTRY AND SEGMENT INFORMATION



Factors used in determining the reportable business segments include the nature of operating activities, existence of separate senior
management teams and the type of information presented to the companys chief operating decision maker to evaluate all results of operations.



We operate and track our results in one operating segment. We design, develop and sell silicon timing devices for various electronics applications. The nature of our
products and operating activities, as well as selling methods, is consistent among all of our products. We have one senior management team and the information is presented to the companys chief operating decision maker to evaluate all results
as one operating segment. All of our products are similar because they are sold for the purpose of sequencing and synchronizing electronic operations. Over 90% of the products are integrated circuits. Less than 10% of the products are based on
surface acoustic wave technology.



(10) NET INCOME PER SHARE



Basic net income per share is based on the weighted-average number of common shares
outstanding excluding contingently issuable or returnable shares that contingently convert into common stock upon certain events. Diluted net income per share is based on the weighted average number of common shares outstanding and diluted potential
common shares outstanding. For the three months ended April 2, 2005 and March 27, 2004, there were 5.8 million and 0.9 million options outstanding, respectively, that are excluded from the diluted net income per share calculation because their
inclusion would have had an antidilutive effect on EPS. For the nine months ended April 2, 2005 and March 27, 2004, there were 3.0 million and 0.3 million options outstanding, respectively, that are excluded from the diluted net income per share
calculation because their inclusion would have had an antidilutive effect on EPS



The following table sets forth the computation of net income (numerator) and shares (denominator) for earnings per share:



|                                                                      |  |                    |        |                   |   |               |  |                |        |  |   |       
|--------------------------------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------------- |  | -------------- | ------ |  | - | ------
|                                                                      |  | Three Months Ended |        | Nine Months Ended
|                                                                      |  | April 2, 2005      |        | March 27, 2004    |   | April 2, 2005 |  | March 27, 2004
|Numerator (in thousands):                                             |  |                    |        |                   |   |               |  |                |        |  |   |       
|Net income                                                            |  | $                  | 13,007 |                   | $ | 18,546        |  | $              | 37,136 |  | $ | 54,478
|                                                                      |  |                    |        |                   |   |               |  |                |        |  |   |       
|Denominator (in thousands):                                           |  |                    |        |                   |   |               |  |                |        |  |   |       
|Weighted average shares outstanding used for basic income per share   |  |                    | 70,041 |                   |   | 70,320        |  |                | 70,242 |  |   | 70,398
|Common stock equivalents                                              |  |                    | 677    |                   |   | 1,895         |  |                | 964    |  |   | 2,419 
|                                                                      |  |                    |        |                   |   |               |  |                |        |  |   |       
|Weighted average shares outstanding used for diluted income per share |  |                    | 70,718 |                   |   | 72,215        |  |                | 71,206 |  |   | 72,817
|                                                                      |  |                    |        |                   |   |               |  |                |        |  |   |       



11



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(11) COMPREHENSIVE INCOME



Total comprehensive income represents net income plus the results of certain equity changes not reflected in the condensed consolidated
statements of operations. The components of total comprehensive income are shown below.

|                                                         |  |                    |        |                   |                |   |               |  |   |                |   |  |   |       
|-------------------------------------------------------- |  | ------------------ | ------ | ----------------- | -------------- | - | ------------- |  | - | -------------- | - |  | - | ------
|                                                         |  | Three Months Ended |        | Nine Months Ended
|                                                         |  | April 2, 2005      |        |                   | March 27, 2004 |   | April 2, 2005 |  |   | March 27, 2004
|Net income                                               |  | $                  | 13,007 |                   |                | $ | 18,546        |  | $ | 37,136         |   |  | $ | 54,478
|                                                         |  |                    |        |                   |                |   |               |  |   |                |   |  |   |       
|Other comprehensive income:                              |  |                    |        |                   |                |   |               |  |   |                |   |  |   |       
|Unrealized gain/(loss) on available for sales securities |  |                    | (131   | )                 |                |   |               |  |   | (131           | ) |  |   |       
|Foreign currency translation                             |  |                    | (1     | )                 |                |   | 2             |  |   | 3              |   |  |   | 6     
|                                                         |  |                    |        |                   |                |   |               |  |   |                |   |  |   |       
|Total comprehensive income                               |  | $                  | 12,875 |                   |                | $ | 18,548        |  | $ | 37,008         |   |  | $ | 54,484
|                                                         |  |                    |        |                   |                |   |               |  |   |                |   |  |   |       



(12) INCOME TAX



Our effective income tax rate was 13.4% for the first nine months of fiscal year 2005 as
compared to 15.8% in the prior year period. During the third quarter of fiscal 2005 we filed our fiscal 2004 consolidated income tax return. As a result of this filing and the subsequent true-up of our fiscal 2004 tax accounts our income tax
expense decreased $0.4 million in the third quarter of fiscal 2005. Included in the true-up during the third quarter of fiscal year 2005 is a reduction in expense of $1.3 for our fiscal year 2004 R&D tax credit. This decrease was offset by an
immaterial error, also related to our R&D tax credit, which occurred in fiscal year 2004 and resulted in an increase of expense of $0.9 million in the third quarter of fiscal year 2005. This item is not material to our current or prior periods.
The effective tax rate for fiscal years 2005 and 2004 reflects the tax-exempt status of our Singapore operation, which has been given pioneer status, or exemption of taxes on non-passive income, for five years as stated in our agreement with the
Economic Development Board of Singapore. The five-year period ends December 31, 2007. The pioneer status is contingent upon ICS meeting certain investment criteria in fixed assets, personnel, and technology. We do not currently calculate deferred
taxes on our investment in our Singapore operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be a liability of approximately
$81.2 million as of April 2, 2005.



Our projected effective income tax rate for
fiscal 2005 does not take into account a new election that is available under the U.S. income tax rules regarding the allocation between U.S. and foreign jurisdictions tax deductions attributable to employee stock option compensation. If we take
advantage of this election, it could detrimentally affect our effective income tax rate. We have not yet determined the impact that the election would have on us.



The American Jobs Creation Act of 2004, enacted on October 22, 2004, provides for a special one-time tax deduction on the repatriation of
certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. At this time we are still evaluating the effect this act will have on our income tax provision. We expect to complete our evaluation in our fiscal year 2006.



(13) CONTINGENCIES



From time to time, various inquiries, potential claims and charges and litigation (collectively claims) are made, asserted or
commenced by or against us, principally arising from or related to contractual relations and possible patent infringement. We believe that any such claims currently pending, individually and in aggregate, have been adequately reserved and will not
have any material adverse effect in terms of liquidity and in terms of the financial statements as a whole, although no assurance can be made in this regard.



We indemnify certain customers for fees and damages and costs awarded against them in certain circumstances in which our products are alleged to infringe third party
intellectual property rights, including patents, registered trademarks, or copyrights. To date, we have not paid or been required to defend any indemnification claims, and accordingly, we have not accrued any amounts for our indemnification
obligations. However, there can be no assurances that we will not have any future financial exposure under those indemnification obligations.



12



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(14) CUSTOMERS



In fiscal year 2001, we entered into an Investment and Stock Trade Agreement (the Agreement) with Maxtek Technology Co. Ltd. (Maxtek), an
international stocking representative in Taiwan and China. We invested in approximately 10% of Maxtek, or 4.0 million shares, at $4.0 million. The Agreement states that if Maxtek fails to successfully complete a public offering by December 5, 2005,
we, at our sole option, have the right to demand immediate repurchase of all 4.0 million shares, at the original purchase price plus accrued annual interest (commercial rate set by the Central Bank of China) during the said period.



From December 2002 through August 2003 we sold 3.0 million shares or 75% of our ownership of
Maxtek for a total gain of $0.9 million during this period. During the first quarter of fiscal 2004 and in the second quarter of 2005, Maxtek declared stock dividends. As a result of these dividends, our ownership is 1.3 million shares or
approximately 2.3% of Maxtek.



Maxtek, our international stocking
representative for our PC business in Taiwan and China, represented approximately 24% of our sales for the first nine months of fiscal year 2005, and 23% in the prior year period. Additionally, sales to Lacewood International Corp, representing
business in Hong Kong and China, and Magic Island International representing business in Korea, entities that are commonly controlled by the owners of Maxtek, were approximately 11% and 6% of our sales for the first nine months of fiscal year
2005, respectively, and 14% for Lacewood in the prior year period.



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



Forward-Looking Statements



Except for the historical statements and discussions contained herein, statements contained in this Report on Form 10-Q constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as when we describe what we believe, expect or anticipate will occur, and other similar statements. You must remember that
our expectations may not be correct. While we believe these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things the
following:



| |  | Our dependence on continuous introduction of new products based on the latest technology
|- |  | ----------------------------------------------------------------------------------------



| |  | The intensely competitive semiconductor and personal computer component industries
|- |  | ----------------------------------------------------------------------------------



| |  | Our dependence on the personal computer industry and third-party silicon wafer fabricators and assemblers of semiconductors
|- |  | ---------------------------------------------------------------------------------------------------------------------------



| |  | Risks associated with international business activities and acquisitions and integration of acquired companies or product lines
|- |  | -------------------------------------------------------------------------------------------------------------------------------



| |  | Our dependence on proprietary information, technology and key personnel
|- |  | -----------------------------------------------------------------------



| |  | Our product liability exposure and the potential unavailability of insurance
|- |  | ----------------------------------------------------------------------------



| |  | General economic conditions, including economic conditions related to the semiconductor and personal computer industries
|- |  | ------------------------------------------------------------------------------------------------------------------------



We do not guarantee that the transactions and events described in this Form 10-Q will happen
as described or that they will happen at all. You should read this Form 10-Q completely and with the understanding that actual future results may be materially different from what we expect. We disclaim any intention or obligation to update these
forward-looking statements, even though our situation will change in the future.



13



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Executive Summary



We design, develop and market silicon timing devices that emit timing signals used to sequence and synchronize electronic operations to ensure that information is
interpreted at the right time and speed. Our silicon timing devices are used in computing systems, such as PCs, workstations, disk drives and printers, as well as in a wide range of digital consumer products, such as digital set-top boxes, HDTVs,
digital audio and imaging products and video game consoles. Increasingly, our silicon timing devices are also being used in products within the communications infrastructure industry, including Internet backbone, access and networking equipment,
such as optical switches, routers, cable and DSL modems, servers and storage area networks. All digital devices require a timing signal and those with any degree of complexity require silicon timing devices to time and synchronize their various
operations. Additionally, we now offer surface acoustic wave (SAW) technology to develop high performance products for optical networking and wireless infrastructure markets.



We market our products through a direct sales force that manages a worldwide network of independent sales representatives, international
stocking representatives and distributors. We direct our sales efforts through offices in Norristown, PA, San Jose, CA, Worcester, MA, Taipei, Taiwan, Tokyo, Japan, Seoul, Korea and throughout Europe.



We qualify and utilize third party suppliers for the manufacture of silicon wafers. Most of
our wafers currently are manufactured by outside suppliers, two of which supply the substantial majority of our wafers. The manufactured wafers are packaged primarily at three assemblers. We typically agree upon production schedules with our
suppliers based on order backlog and demand forecasts for the approaching three-month period.



In addition we have production facilities in Worcester, MA and Auburn, NY. Worcester is our SAW wafer fabrication facility with sub-micron capabilities. Our Auburn facility houses the personnel for testing and
assembly for the majority of our military and defense products. Low volume assembly is performed in-house while high volume is subcontracted out to offshore manufacturers.



We have our own test and drop-ship facility in Singapores Kolam Ayer Industrial Park to achieve faster delivery of our products to
customers throughout the world. The Singapore facility handles wafer probe and final testing for various integrated circuits used in personal computers, data storage devices and other peripheral applications.



Prices for our products are predominantly a function of their position in the product life
cycle, design complexity, competitive environment, the price of alternative solutions such as crystal oscillators and overall market demand. We recognize revenue upon transfer of title, and substantially all of our sales are made on the basis of
purchase orders rather than long-term agreements.



During the first quarter of
fiscal year 2005 we acquired assets and formed the Video Business Unit. This purchase gives us the capability to develop a family of high performance mixed signal products for the high definition and digital video/imaging market.



14



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Results of Operations



The following table sets forth, for the periods indicated, the percentage relationship to revenue of certain cost, expense and income items.
The table and the subsequent discussion should be read in conjunction with the financial statements and the notes thereto.

|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  
|---------------------------------------------------- |  | ------------------ | - |  | ----------------- | - |  | ----------- | - |  | ------------- | -
|                                                     |  | Three Months Ended |   |  | Nine Months Ended |  
|                                                     |  | Apr. 2, 2005       |   |  | Mar. 27, 2004     |   |  | Apr. 2,2005 |   |  | Mar. 27, 2004 |  
|Revenues                                             |  | 100.0              | % |  | 100.0             | % |  | 100.0       | % |  | 100.0         | %
|                                                     |  |                    |   | 
|Gross margin                                         |  | 59.0               |   |  | 60.6              |   |  | 59.0        |   |  | 59.9          |  
|                                                     |  |                    |   | 
|Research and development                             |  | 17.1               |   |  | 15.4              |   |  | 16.0        |   |  | 14.7          |  
|Amortization of Video research and development costs |  |                   |   |  |                  |   |  | 3.8         |   |  |              |  
|Selling, general and administrative                  |  | 16.4               |   |  | 12.6              |   |  | 15.8        |   |  | 13.2          |  
|Amortization of intangibles                          |  | 1.9                |   |  | 0.8               |   |  | 1.7         |   |  | 0.9           |  
|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  
|Operating income                                     |  | 23.6               |   |  | 31.8              |   |  | 21.7        |   |  | 31.1          |  
|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  
|Interest and other income                            |  | 2.1                |   |  | 0.8               |   |  | 1.5         |   |  | 0.9           |  
|Interest expense                                     |  | (0.03              | ) |  | (0.05             | ) |  | (0.02       | ) |  | (0.1          | )
|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  
|Income before income taxes                           |  | 25.7               |   |  | 32.5              |   |  | 23.2        |   |  | 31.9          |  
|Income taxes                                         |  | 3.3                |   |  | 5.1               |   |  | 3.1         |   |  | 5.0           |  
|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  
|Net income                                           |  | 22.4               | % |  | 27.4              | % |  | 20.1        | % |  | 26.9          | %
|                                                     |  |                    |   |  |                   |   |  |             |   |  |               |  



THIRD QUARTER FISCAL YEAR 2005 AS
COMPARED TO THIRD QUARTER FISCAL YEAR 2004



Revenue. Revenue was
$58.1 million for the third quarter ended April 2, 2005, a decrease of $9.7 million from the prior year quarter. Demand in our communication end markets declined due to weak market conditions resulting in revenue decline of $6.3 million year over
year. Our military revenue, which is included in Other end market listed below, also declined as some of the older programs have slowed. Our average selling price for our products decreased 4.8%, and the volume also decreased by 10.0%
compared to prior year quarter.



The following is a summary of revenue
percentages by end market:



|                 |  |                    |   |  |               |   |  |                              |  
|---------------- |  | ------------------ | - |  | ------------- | - |  | ---------------------------- | -
|                 |  | Three Months Ended |  
|                 |  | Apr. 2, 2005       |   |  | Mar. 27, 2004 |   |  | Year over YearRevenue Growth |  
|PC               |  | 46                 | % |  | 42            | % |  | -5                           | %
|Digital Consumer |  | 17                 | % |  | 13            | % |  | 5                            | %
|Communications   |  | 32                 | % |  | 37            | % |  | -25                          | %
|Other            |  | 5                  | % |  | 8             | % |  | -46                          | %



Foreign revenue, which includes
shipments of products to foreign companies as well as offshore subsidiaries of US multinational companies, was 73.2% of total revenue for the third quarter of fiscal year 2005 as compared to 72.3% of total revenue in the prior year quarter. Our
sales are denominated in U.S. dollars, which minimizes foreign currency risk.



Gross Margin.Gross margin represents net revenue less cost of sales. Cost of sales includes the cost of purchasing the finished silicon wafers manufactured by independent foundries, costs associated with assembly, packaging,
testing, quality assurance, product yields and the cost of personnel and equipment associated with manufacturing support. Cost



15



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of sales was $23.8 million for the quarter ended April 2, 2005, a decrease of $2.9 million from the prior year quarter, due to a decrease in units shipped as
a result of the decline in our end markets. Cost of sales as a percentage of total revenue was 41.0% for the third quarter of fiscal year 2005 and 39.4% the prior year quarter. This translates to gross margin as a percentage of total revenue of
59.0% for the third quarter of fiscal year 2005 and 60.6% in the prior year quarter.



Research and Development Expense.Research and development (R&D) expense was $9.9 million for the third quarter of fiscal year 2005, a decrease of $0.5 million from the prior year quarter. We continue to invest in
R&D through the hiring of additional personnel which resulted in an increase in compensation expense of $0.4 million. This increase is offset by a decrease in variable compensation expense in the third quarter of fiscal 2005 of $0.3 million and
other controllable expenses of $0.6 million. As a percentage of revenue, R&D increased to 17.1% in the third quarter of fiscal year 2005 as compared to 15.4% in the prior year period.



R&D costs consist primarily of the salaries and related expenses of engineering employees engaged in research, design and development
activities, costs related to design tools, supplies and services and facilities expenses. The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of
net revenues and, in part, on our success in recruiting the technical personnel needed for our new product introductions and process development. We continue to make substantial investments in research and development to enhance our product
offerings, which in turn are critical to our future growth.



Selling,
General and Administrative.Selling, general and administrative expense (SG&A) was $9.6 million for the third quarter of fiscal year 2005, an increase of $1.0 million from the prior year quarter. Selling expense increased $0.6
million in the third quarter of fiscal year 2005 as compared to the prior year period, which is attributable to an increase of $0.3 million in commission expense due to a change in our commission rate structure and $0.3 million related to
compensation expense. G&A increased $0.6 million as a result of consulting services performed for Sarbanes-Oxley compliance. These increases in SG&A were offset by a $0.2 million decrease in variable compensation. As a percentage of total
revenue, SG&A expenses increased to 16.4% in the third quarter of fiscal year 2005 as compared to 12.6% in the prior year quarter. SG&A expenses consist mainly of salaries and related expenses, sales commissions and professional and legal
fees.



Included in SG&A in fiscal 2005 is the amortization of deferred
compensation for restricted stock issued in the first quarter of fiscal 2005. Included in SG&A in fiscal 2004 is the amortization of deferred compensation for options issued in fiscal 2002 below fair market value. The amortization of deferred
compensation is $60,000 in the third quarter of fiscal 2005 as compared to $0.2 million in the third quarter of fiscal 2004.



Amortization of Intangibles.Amortization of intangibles was $1.1 million for the third quarter of fiscal year 2005 as compared to $0.6 million in the prior year
quarter. Intangibles consist of assets acquired in connection with the acquisition of MNC and assets acquired for the Video business unit. The increase is due to the additional amortization of intangible assets related to the acquisition of assets
for the Video business unit which occurred in the first quarter of fiscal 2005.



Operating Income.In dollar terms, operating income was $13.7 million in the third quarter of fiscal year 2005 compared to $21.5 million in the third quarter of fiscal year 2004. Expressed as a percentage of revenue, operating income
was 23.6% and 31.8% in the third quarter of fiscal year 2005 and the prior year quarter, respectively.



Interest Expense.Interest expense was $15,000 in the third quarter of fiscal year 2005 and $33,000 in the third quarter of fiscal year 2004. This decrease is due to acceleration of financing fees in the third
quarter of fiscal year 2004 as a result of the termination of our term loan in the third quarter of fiscal year 2004. Refer to footnote 6 for additional information.



16



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Interest and Other Income.Interest and other income was $1.2 million for the quarter ended April 2, 2005 and $0.5
million in the prior year quarter due to an increase in cash invested.



Income Tax Expense.Our effective income tax rate was 12.9% for the third quarter of fiscal year 2005 as compared to 15.8% in the prior year period. During the third quarter of fiscal 2005 we filed our fiscal 2004 consolidated income
tax return. As a result of this filing and the subsequent true-up of our fiscal 2004 tax accounts our income tax expense decreased $0.4 million in the third quarter of fiscal 2005. Included in the true-up during the third quarter of fiscal year 2005
is a reduction in expense of $1.3 for our fiscal year 2004 R&D tax credit. This decrease was offset by an immaterial error, also related to our R&D tax credit, which occurred in fiscal year 2004 and resulted in an increase of expense of $0.9
million in the third quarter of fiscal year 2005. This item is not material to our current or prior periods. The effective tax rate for fiscal years 2005 and 2004 reflects the tax-exempt status of our Singapore operation, which has been given
pioneer status, or exemption of taxes on non-passive income, for five years as stated in our agreement with the Economic Development Board of Singapore. The five-year period ends December 31, 2007. We do not currently calculate deferred taxes on our
investment in our Singapore operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be an $81.2 million liability as of April 2,
2005.



NINE MONTHS ENDED APRIL 2, 2005 AS COMPARED TO NINE MONTHS ENDED
MARCH 27, 2004



Revenue. Revenue was $184.8 million for the first
nine months of fiscal year 2005, a decrease of $17.8 million from the corresponding prior year period. The decrease is attributable to a decline in volume and average selling price due to change in demand in our PC end markets and weaker demand in
our communication end markets. Our military revenue also declined as some of the older programs have slowed. Our average selling price for our products decreased 3.1% and the volume decreased 5.9%.



The following is a summary of revenue percentages by end market:



|                 |  |                   |   |  |               |   |  |                              |  
|---------------- |  | ----------------- | - |  | ------------- | - |  | ---------------------------- | -
|                 |  | Nine Months Ended |  
|                 |  | Apr. 2, 2005      |   |  | Mar. 27, 2004 |   |  | Year over YearRevenue Growth |  
|PC               |  | 46                | % |  | 44            | % |  | -6                           | %
|Digital Consumer |  | 16                | % |  | 14            | % |  | 5                            | %
|Communications   |  | 32                | % |  | 33            | % |  | -10                          | %
|Other            |  | 6                 | % |  | 9             | % |  | -41                          | %



Foreign revenue, which includes
shipments of products to foreign companies as well as offshore subsidiaries of US multinational companies, was 73.9% of total revenue for the first nine months of fiscal year 2005 as compared to 75.0% of total revenue in the prior year period. Our
sales are denominated in U.S. dollars, which minimizes foreign currency risk.



Gross Margin.Gross margin represents net revenue less cost of sales. Cost of sales includes the cost of purchasing the finished silicon wafers manufactured by independent foundries, costs associated with assembly, packaging,
testing, quality assurance, product yields and the cost of personnel and equipment associated with manufacturing support. Cost of sales was $75.9 million for the first nine months of fiscal year 2005, a decrease of $5.4 million from the prior year
period because of lower unit shipments. Cost of sales as a percentage of total revenue was 41.0% for the first nine months of fiscal year 2005 as compared to 40.1% in the prior year period. This translates to gross margin of 59.0% for the first nine
months of fiscal year 2005 as compared to 59.9% in the prior year period.



Research and Development Expense.R&D expense was $36.6 million for the first nine months of fiscal year 2005, an increase of $6.9 million from the prior year period. This increase is due to the amortization of $7.1 million for
assets



17



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with a short useful life related to the purchase of assets for the Video business unit. Excluding this charge, R&D expense decreased $0.2 million in the
first nine months of fiscal year 2005 as compared to the prior year period. As a result of the hiring of additional personnel compensation expense increased $1.8 million but was offset by a decrease in variable compensation of $1.7 million and other
controllable expenses of $0.3 million in the first nine months of fiscal year 2005. As a percentage of revenue, R&D increased to 19.8% in the first nine months of fiscal year 2005 as compared to 14.7% in the prior year period. Excluding the
amortization of Video business unit assets, R&D increased to 16.0% as a percentage of revenue in the first nine months of fiscal 2005.



R&D costs consist primarily of the salaries and related expenses of engineering employees engaged in research, design and development activities, costs related to
design tools, supplies and services and facilities expenses. The level of research and development expenditures as a percentage of net revenues will vary from period to period, depending, in part, on the level of net revenues and, in part, on our
success in recruiting the technical personnel needed for our new product introductions and process development. We continue to make substantial investments in research and development to enhance our product offerings, which in turn are critical to
our future growth.



Selling, General and Administrative.Selling,
general, administrative and other expense (SG&A) was $29.1 million during the first nine months of fiscal year 2005, an increase of $2.3 million from the prior year period. The increase is attributable to legal and consulting fees of
$0.6 million related to the acquisition of assets for the Video business unit, an increase in consulting fees related to our Sarbanes-Oxley compliance of $0.8 million, an increase in compensation expense of $0.8 million and an increase in other
controllable expenses of $0.5 million. Sales commission expense increased $1.4 million from the prior period as a result of a change in our commission rate structure. These increases were offset by a decrease in deferred compensation of $0.6 million
and a decrease in variable compensation of $1.2 million. As a percentage of total revenue, SG&A expenses increased to 15.8% in the first half of fiscal year 2005 as compared to 13.2% in the prior year period. The percentage increase is
attributable to the decrease in revenue from the prior year period. SG&A expenses consist mainly of salaries and related expenses, sales commissions and professional and legal fees.



Included in SG&A in fiscal 2005 is the amortization of deferred compensation for restricted stock issued in the first quarter of fiscal
2005. Included in SG&A in fiscal 2004 is the amortization of deferred compensation for options issued in fiscal 2002 below fair market value. The amortization of deferred compensation is $0.2 million in the first nine months of fiscal 2005 as
compared to $0.7 million in the fiscal 2004 period.



Amortization of
Intangibles.Amortization of intangibles was $3.1 million for the first nine months of fiscal year 2005 as compared to $1.7 million in the prior year corresponding period. Intangibles consist of assets acquired in connection with the acquisition
of MNC and assets acquired for the Video business unit. The increase is due to the additional amortization of intangible assets related to the acquisition of assets for the Video business unit which occurred in the first quarter of fiscal 2005.



Operating Income.In dollar terms, operating income was $40.1 million
in the first nine months of fiscal year 2005 compared to $63.1 million in the prior year period. Expressed as a percentage of revenue, operating income was 21.7% and 31.1% for the first nine months of fiscal year 2005 and the prior year period,
respectively.



Interest Expense.Interest expense was $45,000 in the
first nine months of fiscal year 2005 and $0.3 million in the prior year period. This decrease is due to acceleration of financing fees in the nine months of fiscal year 2004 as a result of the termination of our term loan in the third quarter of
fiscal year 2004. Refer to footnote 6 for additional information.



Interest
and Other Income.Interest and other income was $2.8 million for the first nine months of fiscal year 2005 and $1.9 million in the prior year period. Included in other income for the first nine months of fiscal 2004 is a gain of $0.3 million as
a result of the sale of 25% of our investment in Maxtek Technology Co. Ltd.



18



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Income Tax Expense.Our effective income tax rate was 13.4% for the first nine months of fiscal year 2005 as
compared to 15.8% in the prior year period. During the third quarter of fiscal 2005 we filed our fiscal 2004 consolidated income tax return. As a result of this filing and the subsequent true-up of our fiscal 2004 tax accounts our income tax expense
decreased $0.4 million in the third quarter of fiscal 2005. Included in the true-up during the third quarter of fiscal year 2005 is a reduction in expense of $1.3 for our fiscal year 2004 R&D tax credit. This decrease was offset by an immaterial
error, also related to our R&D tax credit, which occurred in fiscal year 2004 and resulted in an increase of expense of $0.9 million in the third quarter of fiscal year 2005. This item is not material to our current or prior periods. The
effective tax rate for fiscal years 2005 and 2004 reflects the tax-exempt status of our Singapore operation, which has been given pioneer status, or exemption of taxes on non-passive income, for five years as stated in our agreement with the
Economic Development Board of Singapore. The five-year period ends December 31, 2007. The increase in overall tax rate was directly attributable to increased income in our USA locations relative to our total operations. We do not currently calculate
deferred taxes on our investment in our Singapore operations, as all undistributed earnings are permanently reinvested back into the Singapore facility. If we were to record deferred taxes on our investment, the amount would be an $81.2 million
liability as of April 2, 2005.



INDUSTRY FACTORS



Our strategy has been to develop new products and introduce them ahead of the competition in
order to have them selected for design into products of leading OEMs. Our newer components, which include advanced motherboard Frequency Timing Generator (FTG) components, data communication components and memory components, are examples
of this strategy. However, there can be no assurance that we will continue to be successful in these efforts or that further competitive pressures would not have a material impact on revenue growth or profitability.



We include customer-released orders in our backlog, which may generally be canceled with 45
days advance notice without significant penalty to the customers. Accordingly, we believe that our backlog, at any time, should not be used as a measure of future revenues.



The semiconductor and personal computer industry, in which we participate, is generally characterized by rapid technological change, intense
competitive pressure, and, as a result, products price erosion. Our operating results can be impacted significantly by the introduction of new products, new manufacturing technologies, rapid changes in the demand for products, decreases in the
average selling price over the life of a product and our dependence on third-party wafer suppliers. Our operating results are subject to quarterly fluctuations as a result of a number of factors, including competitive pressures on selling prices,
availability of wafer supply, fluctuation in yields, changes in the mix of products sold, the timing and success of new product introductions and the scheduling of orders by customers. We believe that our future quarterly operating results may also
fluctuate as a result of Company-specific factors, including pricing pressures on our more mature FTG components, continuing demand for our Application Specific Standard Products, acceptance of our newly introduced components and market acceptance
of our customers products. Due to the effect of these factors on future operations, past performance may be a limited indicator in assessing potential future performance.



LIQUIDITY AND CAPITAL RESOURCES



At April 2, 2005, our principal sources of liquidity included cash and marketable securities of $68.1 million as compared to the July 3, 2004 balance of $195.6 million.
Net cash provided by operating activities was $45.8 million in the first nine months of fiscal year 2005, as compared to $62.1 million in the prior year period. This decrease is attributable to expenses related to the acquisition of assets for the
Video business unit. Our days sales outstanding increased from 58 days at July 3, 2004 to 62 days at April 2, 2005 as a result of back ended shipments during the quarter ending April 2, 2005. Inventory turns decreased from 5.2 times at July 3, 2004
to 4.4 times at April 2, 2005. Inventory is turning slower as demand for our products decreased in the first nine months of fiscal year 2005.



19



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Purchases for property and equipment were $6.2 million in the first nine months of fiscal year 2005 as the company
invested in production capacity and research and development versus $5.6 million in the prior year period. Purchases of marketable securities were $91.8 million in the first nine months of fiscal year 2005 compared to $161.9 million in the prior
year period. During this period, we invested $134.0 million in long term securities to improve our return on investments. Long term investments consist primarily of debt securities with maturities greater than one year.



In fiscal year 2001, we entered into an Investment and Stock Trade Agreement (the
Agreement) with Maxtek, an international stocking representative in Taiwan and China. We invested in approximately 10% of Maxtek, or 4.0 million shares, at $4.0 million. The Agreement states that if Maxtek fails to successfully complete
a public offering by December 5, 2005, we, at our sole option, have the right to demand immediate repurchase of all 4.0 million shares, at the original purchase price plus accrued annual interest (commercial rate set by the Central Bank of China)
during the said period.



From December 2002 through August 2003 we sold 3.0
million shares or 75% of our ownership of Maxtek for a total gain of $0.9 million during this period. During the second quarter of fiscal 2005, Maxtek declared a stock dividend. As a result of this dividend, our ownership is 1.3 million shares or
approximately 2.3 % of Maxtek.



Maxtek, our international stocking
representative for our PC business in Taiwan and China, represented approximately 24% of our sales for the first nine months of fiscal year 2005, and 23% in the prior year period. Additionally, sales to Lacewood International Corp, representing
business in Hong Kong and China, and Magic Island International representing business in Korea, entities that are commonly controlled by the owners of Maxtek, were approximately 11% and 6% of our sales for the first nine months of fiscal year
2005, respectively, and 14% for Lacewood in the prior year period.



During the
first nine months of fiscal 2005, we received $3.3 million from the exercise of stock options.



In September 2001, we announced a stock repurchase program, which authorized the purchase, from time to time, of 2.0 million shares of our common stock on the market. In October 2002, we announced that our Board of
Directors approved an increase in the number of shares to be repurchased under this repurchase program to 3.0 million. In October 2004, we announced that our Board of Directors approved an increase in the number of shares to be repurchases by an
additional 2.0 million for a total of 5.0 million shares authorized for repurchase. As of April 2, 2005, we had repurchased 3.2 million shares for $67.8 million.



On January 4, 2002, we acquired MNC, net of cash, for $74.9 million. We believe that by acquiring MNC we now have access to technology that
will broaden our offering of silicon timing products to strengthen our position within strategic markets such as servers, storage systems and communications. In connection with the acquisition of MNC, we put in place a restructuring plan for the
purpose of making MNC more efficient by reducing the work force, combining facilities and moving some manufacturing operations offshore, which is still in process. The purchase price included $5.6 million in purchase accounting liabilities and
write-down of fixed assets.



From the date of the acquisition until the end of
fiscal 2004, one plant in Bloomfield, CT was shut down and the fixed assets associated were disposed of. Sixty-four manufacturing personnel, both line and management, were laid off. In addition we planned to move the assembly process to offshore
plants.



20



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The following table summarizes the activity of the restructuring reserve since inception:



|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  
|-------------------------- |  | ---------------------- | ----- | ---------------- | - | -------------- |  | ---------------- | ----- | -------------- | - | ---------------- |  | ---------------- | ----- |  | -------------- | --- | ---------------- | - | -------------- | - |  | - | -- |  | - | -- |  | - | -
|(in thousands)             |  | OriginalPlanDate1/2002 |       | Utilization 2002 |   | Balance 6/2002 |  | Utilization 2003 |       | Balance 6/2003 |   | Utilization 2004 |  | Adjustments 2004 |       |  | Balance 6/2004 |     | Utilization 2005 |   | Balance 4/2005
|Plant Closing Costs        |  | $                      | 1,214 |                  | $ | 27             |  | $                | 1,187 |                | $ | 472              |  | $                | 715   |  | $              | 420 |                  | $ | 223            |   |  | $ | 72 |  | $ | 72 |  | $ | 
|Personnel Costs            |  |                        | 2,017 |                  |   | 437            |  |                  | 1,580 |                |   | 1,151            |  |                  | 429   |  |                | 496 |                  |   | (67            | ) |  |   |   |  |   |   |  |   | 
|Write-down of Fixed Assets |  |                        | 2,407 |                  |   |               |  |                  |      |                |   |                 |  |                  |      |  |                |    |                  |   |               |   |  |   |   |  |   |   |  |   | 
|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  
|Total                      |  | $                      | 5,638 |                  | $ | 464            |  | $                | 2,767 |                | $ | 1,623            |  | $                | 1,144 |  | $              | 916 |                  | $ | 156            |   |  | $ | 72 |  | $ | 72 |  | $ | 
|                           |  |                        |       |                  |   |                |  |                  |       |                |   |                  |  |                  |       |  |                |     |                  |   |                |   |  |   |    |  |   |    |  |   |  



During fiscal year 2004, goodwill was
adjusted due to the reversal of a portion of the restructuring reserve. The results of MNC have been included in the consolidated financial statements since the acquisition date.



On March 1, 2004, we entered into a revolving credit loan agreement, which will terminate March 1, 2007. The revolving credit loan agreement
allows us to draw down to a maximum balance of $20.0 million in increments of not less than $500,000. At our option, the unpaid balance shall bear interest at the available LIBOR Based Rate (as defined) or the Prime Based Rate (as defined). A
commitment fee on the average daily-unused portion of the revolving credit loan balance is due and payable on a quarterly basis. The commitment fee will be between .20% (.0020) and .25% (.0025) based on the funded debt to EBITDA ratio calculated the
previous quarter. There was no outstanding balance on our revolving credit loan agreement as of April 2, 2005.



Our revolving credit loan agreement requires the maintenance of specified financial ratios and covenants, including a fixed charge coverage ratio, a funded debt to EBITDA ratio, a liquidity ratio, a minimum tangible
net worth covenant, and imposes additional financial limitations. The current revolving credit loan agreement also restricts our ability to pay dividends to the holders of our common stock. At April 2, 2005, we were in compliance with all of these
covenants.



Off-Balance Sheet Arrangements



Our purchase obligations consist of purchase commitments with our manufacturers and are
based on a six-month rolling forecast. The purchase commitments are utilized to ensure capacity at our various manufacturers.



The following summarizes our significant contractual obligations and commitments as of April 2, 2005 (in thousands):



|                        |  |       |        |                  |   |            |  |            |       |               |   |     |  |   |  
|----------------------- |  | ----- | ------ | ---------------- | - | ---------- |  | ---------- | ----- | ------------- | - | --- |  | - | -
|Contractual Obligations |  | Total |        | Less than 1 year |   | 1 3 years |  | 4 5 years |       | After 5 years
|(in thousands)          |  |       |        |                  |   |            |  |            |       |              
|Operating Leases        |  |       | 10,384 |                  |   | 2,941      |  |            | 6,492 |               |   | 951 |  |   | 
|Purchase Obligations    |  |       | 19,259 |                  |   | 19,259     |  |            |      |               |   |    |  |   | 
|                        |  |       |        |                  |   |            |  |            |       |               |   |     |  |   |  
|Total                   |  | $     | 29,643 |                  | $ | 22,200     |  | $          | 6,492 |               | $ | 951 |  | $ | 
|                        |  |       |        |                  |   |            |  |            |       |               |   |     |  |   |  



Operating leases primarily consist of
leased facilities that we utilize in various locations.



21



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We believe that the funds on hand together with funds expected to be generated from our operations as well as borrowings
under our bank revolving credit facility will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next twelve months. Thereafter, we may need to raise additional funds in future periods to
fund our operations and potential acquisitions if any. We may also consider conducting future equity or debt financings if we perceive an opportunity to access the capital markets on a favorable basis, within the next twelve months or thereafter.
Any such additional financing, if needed, might not be available on reasonable terms or at all. Failure to raise capital when needed could seriously harm our business and results of operations. If additional funds would be raised through the
issuance of equity securities or convertible debt securities, the percentage of ownership of our shareholders would be reduced. Furthermore, such equity securities or convertible debt securities might have rights, preferences or privileges senior to
our common stock.



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123 (revised 2004)  Share-Based Payment. This standard supercedes APB No. 25, and requires recognition of expense in the financial statements of the cost of share based payment transactions, including stock options, based on
the fair value of the award at the grant date. The provisions of this standard are effective for public companies for annual periods beginning after June 15, 2005. We will adopt this statement beginning with our first quarter of fiscal year 2006. At
this time we have not determined the transition method that will be used. We are currently evaluating the implementation of this standard and the impact on our calculation of stock option expense. The pro forma provided in footnote 1 Stock
Compensation provides a reasonable estimate of the impact on our financial statements. However, our implementation of this standard based on the new guidelines could vary from the pro forma and have a material impact on our financial position.



In November 2004, the FASB issued SFAS No. 151  Inventory Costs
 an amendment of ARB No. 43, Chapter 4. This standard clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. The provisions of this statement are effective for inventory costs
incurred during fiscal years beginning after June 15, 2005. Currently this statement does not have an impact on our financial position. However, if in the future we were to experience such abnormal costs such as idle facility expense, handling costs
and wasted material it could have a material impact on our operations.



In
September 2004, the FASB approved issuance of Staff Position (FSP) EITF 03-1-1, Effective Date of Paragraphs 10 through 20 of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments (EITF 03-1). FSP EITF 03-1-1 delays the effective date of paragraphs 10 through 20 of EITF 03-1 as they relate to recognition of other-than-temporary impairment for cost method and marketable investments. This deferral
will extend until a Staff Position is issued to provide clarification of the guidance presented in paragraphs 10 through 20. Effective July 4, 2004, we adopted all other provisions of EITF Issue 03-1, including measurement guidance for evaluating
whether an impairment has occurred for marketable securities and cost method investments. Adoption of these requirements did not have a material effect on the results of operations. Effective December 31, 2004, additional disclosures were also
required for cost method investments. The effect of implementing the final provisions of paragraphs 10 through 20 cannot currently be estimated due to the pending implementation issues, but is not expected to be material to the results of future
operations.



On October 22, 2004, the American Jobs Creation Act of 2004 was
enacted by President Bush. We are currently evaluating the impact of this new law on our operations and effective tax rate. At this time, we are unable to determine the effects of this new law and will continue to analyze its potential impact as
guidance is made available.



On October 4, 2004, President George W. Bush
signed the Working Families Tax Relief Act of 2004, which retroactively reinstated the research tax credit to the June 30, 2004 expiration date. This change in the law will not have a material impact on the results of future operations.



22



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Item 3. Quantitative and Qualitative Disclosures About Market Risk



Foreign Currency Exposures.Our sales are denominated in U.S. dollars and accordingly, we do not use forward exchange contracts to hedge exposures denominated in foreign currencies or any other derivative
financial instruments for trading or speculative purposes. The effect of an immediate 10% change in exchange rates would not have a material impact on our future operating results or cash flows.



The company had interest expense of $45,000 for the first nine months of fiscal year 2005 and
consists of the commitment fee for our revolving credit loan agreement. We had no outstanding debt during the third quarter of fiscal year 2005; therefore, there is no potential increase in interest expense for the first nine months of fiscal year
2005 from hypothetical 2% adverse change in variable interest rates.



Item 4. Controls and Procedures



Evaluation of
disclosure controls and procedures. Based on their evaluation of the Companys disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act)) as of
April 2, 2005, the Companys president, chief executive officer and chief financial officer (principal executive officer and principal financial officer) have concluded that the Companys disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commissions rules and forms and are operating in an effective manner.



As
of April 2, 2005, we are continuing our assessment of the effectiveness of our internal control procedures related to information systems access controls, financial reporting and certain entity-wide controls related to corporate governance. As of
the date of this filing, we have identified and will remediate deficiencies relating to information systems access, procedure documentation and internal controls. We expect to fully remediate these matters by the end of fiscal year 2005.



Changes in internal controls.There have not been any changes in the Companys
internal controls over financial reporting during the quarter ended April 2, 2005 that materially affected, or are reasonably likely to materially affect, the Companys internal controls over financial reporting.



23



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PART II. OTHER INFORMATION



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



|                                      |  |                            |  |                            |         |                                                                              |         |                                                                        |          
|------------------------------------- |  | -------------------------- |  | -------------------------- | ------- | ---------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------- | ---------
|Period                                |  | Total # of SharesPurchased |  | AveragePrice PaidPer Share |         | Total # of SharesPurchased as Part ofPublicly Announced Plansor Programs (1) |         | Maximum # of Sharesthat May Yet BePurchased Under thePlans or Programs
|January 2, 2005 To January 29, 2005   |  | 180,500                    |  | $                          | 19.5848 |                                                                              | 180,500 |                                                                        | 2,057,000
|                                      |  |                            |  |                            |         |                                                                              |         |                                                                        |          
|January 30, 2005 To February 26, 2005 |  | 210,000                    |  |                            | 18.5744 |                                                                              | 210,000 |                                                                        | 1,847,000
|                                      |  |                            |  |                            |         |                                                                              |         |                                                                        |          
|February 27, 2005 To April 2, 2005    |  |                           |  |                            |        |                                                                              |        |                                                                        | 1,847,000
|                                      |  |                            |  |                            |         |                                                                              |         |                                                                        |          
|Total                                 |  | 390,500                    |  | $                          | 19.0414 |                                                                              | 390,500 |                                                                        | 1,847,000

---

|(1) | These shares were repurchased in open-market transactions pursuant to a stock repurchase program announced in September 2001. Up to 3.0 million shares of our common stock were
authorized for repurchase under the repurchase program. On October 26, 2004, 2.0 million additional shares were authorized for repurchase to bring the total amount of shares to 5.0 million. The repurchase program does not have an expiration date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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Item 6. Exhibits



| | (a) | The following is a list of exhibits filed as part of the Form 10-Q:
| | --- | -------------------------------------------------------------------



|     |  |                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        
|     | 
|32.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hock E. Tan    
|     | 
|32.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Justine F. Lien

|
|

|
|





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SIGNATURES



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.



|                   |  |                                  |  |                                                    
|------------------ |  | -------------------------------- |  | ---------------------------------------------------
|                   |  | INTEGRATED CIRCUIT SYSTEMS, INC.
|                   |  |                                 
|Date: May 12, 2005 |  | By:                              |  | /s/ Hock E. Tan                                    
|                   |  |                                  |  | Hock E. Tan                                        
|                   |  |                                  |  | President and Chief Executive Officer              
|                   |  |                                 
|Date: May 12, 2005 |  | By:                              |  | /s/ Justine F. Lien                                
|                   |  |                                  |  | Justine F. Lien                                    
|                   |  |                                  |  | Vice President, Finance and Chief Financial Officer
|                   |  |                                  |  | (Principal financial & accounting officer)         



26



---

EXHIBIT INDEX



|       |  |                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                               
|31.1   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        
|       | 
|31.2   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        
|       | 
|32.1   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Hock E. Tan    
|       | 
|32.2   |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Justine F. Lien



27