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SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549
   FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended March 28, 2004ORo
    
    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 0-9653 XICOR, INC.  California
(State or other jurisdiction of
incorporation or organization)
    
    94-2526781
(I.R.S. Employer
Identification No.)
 933 Murphy Ranch Road, Milpitas, California
(Address of principal executive offices)
    
    95035
(Zip Code)
 Registrants telephone number, including area code: (408) 432-8888 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 [ ] NUMBER OF SHARES OUTSTANDING AT MAY 3, 2004
29,418,805




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XICOR, INC. FORM 10-Q QUARTER ENDED MARCH 28, 2004 INDEX PagePart I:
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets at
March 28, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Operations
for the three months ended March 28, 2004
and March 30, 2003
    
    
    2Condensed Consolidated Statements of Cash Flows
for the three months ended March 28, 2004 and
March 30, 2003
    
    
    3Notes to Condensed Consolidated Financial
Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    9Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21Part II:
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    22SIGNATURES
    
    
    24EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 i




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Part I: FINANCIAL INFORMATION 
 Item 1. Financial Statements. XICOR, INC. 
  
 March 28,
    
    December 31,2004
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,253
    
    
    $
    9,213Short-term investments
    
    
    14,049
    
    
    
    13,107Accounts receivable
    
    
    6,369
    
    
    
    5,268Inventories
    
    
    3,420
    
    
    
    3,123Prepaid expenses and other current assets
    
    
    729
    
    
    
    409Total current assets
    
    
    33,820
    
    
    
    31,120Long-term investments
    
    
    1,046
    
    
    
    Property, plant and equipment,
at cost less accumulated depreciation
    
    
    2,344
    
    
    
    2,603Goodwill
    
    
    20,278
    
    
    
    20,278Purchased intangible assets, net
    
    
    4,033
    
    
    
    4,487Other assets
    
    
    158
    
    
    
    172Total assets
    
    $
    61,679
    
    
    $
    58,660LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,318
    
    
    $
    4,786Accrued expenses
    
    
    5,422
    
    
    
    5,406Deferred income on shipments to distributors
    
    
    3,501
    
    
    
    3,175Current portion of long-term obligations
    
    
    244
    
    
    
    246Total current liabilities
    
    
    14,485
    
    
    
    13,613Long-term obligations
    
    
    208
    
    
    
    274Total liabilities
    
    
    14,693
    
    
    
    13,887Shareholders equity:Preferred stock; 5,000 shares authorized
    
    
    
    
    
    
    Common stock; 200,000 shares authorized;
29,213 and 28,809 shares outstanding
    
    
    178,027
    
    
    
    175,985Accumulated deficit
    
    
    (131,041
    )
    
    
    (131,212
    )Total shareholders equity
    
    
    46,986
    
    
    
    44,773Total liabilities and shareholders equity
    
    $
    61,679
    
    
    $
    58,660
 See accompanying notes to condensed consolidated financial information 1




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XICOR, INC. 
 
 Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Net sales
    
    $
    12,011
    
    
    $
    9,604Cost of sales
    
    
    5,142
    
    
    
    4,698Gross profit
    
    
    6,869
    
    
    
    4,906Operating expenses:Research and development
    
    
    2,627
    
    
    
    2,927Selling, general and administrative
    
    
    2,910
    
    
    
    2,499Amortization of purchased intangible assets
    
    
    454
    
    
    
    225Merger  related expenses
    
    
    897
    
    
    
    6,888
    
    
    
    5,651Income (loss) from operations
    
    
    (19
    )
    
    
    (745
    )Interest expense
    
    
    (12
    )
    
    
    (806
    )Interest and other income
    
    
    258
    
    
    
    143246
    
    
    
    (663
    )Income (loss) before income taxes
    
    
    227
    
    
    
    (1,408
    )Provision for income taxes
    
    
    56
    
    
    
    Net income (loss)
    
    $
    171
    
    
    $
    (1,408
    )Net income (loss) per common share:Basic
    
    $
    0.01
    
    
    $
    (0.06
    )Diluted
    
    $
    0.01
    
    
    $
    (0.06
    )Shares used in per share calculations:Basic
    
    
    29,040
    
    
    
    23,791Diluted
    
    
    33,094
    
    
    
    23,791
 See accompanying notes to condensed consolidated financial information 2




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XICOR, INC. 
 
 Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    171
    
    
    $
    (1,408
    )Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:Depreciation
    
    
    293
    
    
    
    414Amortization of debt issuance costs and warrants
    
    
    
    
    
    
    309Amortization of purchased intangible assets
    
    
    454
    
    
    
    225Changes in assets and liabilities:Accounts receivable
    
    
    (1,101
    )
    
    
    1,107Inventories
    
    
    (297
    )
    
    
    411Prepaid expenses and other current assets
    
    
    (320
    )
    
    
    (124
    )Other assets
    
    
    14
    
    
    
    21Accounts payable and accrued expenses
    
    
    548
    
    
    
    (160
    )Deferred income on shipments to distributors
    
    
    326
    
    
    
    (1,895
    )Net cash provided by (used in) operating activities
    
    
    88
    
    
    
    (1,100
    )Cash flows from investing activities:Purchase of investments
    
    
    (2,988
    )
    
    
    (1,972
    )Sales or maturities of investments
    
    
    1,000
    
    
    
    Investments in plant and equipment, net
    
    
    (34
    )
    
    
    (145
    )Net cash used in investing activities
    
    
    (2,022
    )
    
    
    (2,117
    )Cash flows from financing activities:Repayments of long-term obligations
    
    
    (68
    )
    
    
    (151
    )Net proceeds from sale of common stock
    
    
    2,042
    
    
    
    263Net cash provided by financing activities
    
    
    1,974
    
    
    
    112Increase (decrease) in cash and cash equivalents
    
    
    40
    
    
    
    (3,105
    )Cash and cash equivalents at beginning of year
    
    
    9,213
    
    
    
    32,648Cash and cash equivalents at end of period
    
    $
    9,253
    
    
    $
    29,543Supplemental information:Cash paid (refunded) during the period for:Interest expense
    
    $
    12
    
    
    $
    18Income taxes
    
    
    17
    
    
    
    10
 See accompanying notes to condensed consolidated financial information 3




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XICOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) Note 1  Interim financial information: In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair statement of the results of the
interim periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
these estimates. The condensed consolidated results of operations for the three
months ended March 28, 2004 are not necessarily indicative of the results to be
expected for the full year. These financial statements, notes and analyses
should be read in conjunction with our Annual Report on Form 10-K for the year
ended December 31, 2003 filed with the Securities and Exchange Commission. Note 2  Net income (loss) per share and comprehensive net income (loss): Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common shares and all dilutive potential
common shares outstanding. The following table sets forth the computation of
basic and diluted net income (loss) per share (in thousands, except per share
amounts): Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Basic:Net income (loss)
    
    $
    171
    
    
    $
    (1,408
    )Weighted shares outstanding
    
    
    29,040
    
    
    
    23,791Basic EPS
    
    $
    0.01
    
    
    $
    (0.06
    )Diluted:Net income (loss)
    
    $
    171
    
    
    $
    (1,408
    )Weighted shares outstanding
    
    
    29,040
    
    
    
    23,791Effect of dilutive securities
    
    
    4,054
    
    
    
    Weighted average common and
common equivalent shares
    
    
    33,094
    
    
    
    23,791Diluted  EPS
    
    $
    0.01
    
    
    $
    (0.06
    )
 4




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Potential common shares consisting of 4.0 million stock options and 0.1 million
warrants to purchase Xicor common stock were the only reconciling items between
the number of shares used to calculate Basic EPS and Diluted EPS for the first
quarter of 2004. Thirty-two thousand anti-dilutive weighted average shares
have been excluded from the effect of diluted securities because the options
exercise prices were greater than the average price of the common stock for the
first quarter of 2004. For the first quarter of 2003, the number of shares
used in the calculations of both EPS amounts were the same since stock options
aggregating 7.3 million at a weighted average price of $4.75 per share and
warrants to purchase 1.0 million shares of common stock at $12.24 per share
were excluded as they were antidilutive due to the net loss. The net income (loss) for the periods reported also represented the
comprehensive income (loss) for such periods. Note 3  Accounting for stock options In accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), we apply Accounting
Principles Board Opinion No. 25 as interpreted in Financial Accounting
Standards Board Interpretation No. 44 for purposes of accounting for employee
stock options. Because the exercise prices of our employee stock options equal
the market price of the underlying stock on the date of grant, no compensation
expense at time of grant is recognized in the financial statements. The
following table summarizes the effect on net income and earnings per share if
we applied the fair value provisions of SFAS 123 to stock-based employee
compensation (in thousands, except per share amounts): Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Net income (loss), as reported
    
    $
    171
    
    
    $
    (1,408
    )Total pro forma stock-based employee
compensation expense
    
    
    (1,194
    )
    
    
    (1,286
    )Pro forma net income (loss)
    
    $
    (1,023
    )
    
    $
    (2,694
    )Net income (loss) per share:Basic  as reported
    
    $
    0.01
    
    
    $
    (0.06
    )Basic  pro forma
    
    $
    (0.04
    )
    
    $
    (0.11
    )Diluted  as reported
    
    $
    0.01
    
    
    $
    (0.06
    )Diluted  pro forma
    
    $
    (0.04
    )
    
    $
    (0.11
    )
 5




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Note 4  Balance sheet components: March 28,
    
    December 31,2004
    
    2003(In thousands)Inventories:Raw materials and supplies
    
    $
    196
    
    
    $
    29Work in process
    
    
    2,057
    
    
    
    2,003Finished goods
    
    
    1,167
    
    
    
    1,091$
    3,420
    
    
    $
    3,123Property, plant and equipment:Leasehold improvements
    
    $
    71
    
    
    $
    71Equipment
    
    
    24,223
    
    
    
    24,209Furniture and fixtures
    
    
    98
    
    
    
    9224,392
    
    
    
    24,372Accumulated depreciation
    
    
    (22,048
    )
    
    
    (21,769
    )$
    2,344
    
    
    $
    2,603Accrued expenses:Accrued wages and employee benefits
    
    $
    1,337
    
    
    $
    1,199Other accrued expenses
    
    
    4,085
    
    
    
    4,207$
    5,422
    
    
    $
    5,406
 Accounts receivable: Accounts receivable at March 28, 2004 and December 31, 2003 are presented net
of an allowance for doubtful accounts of $500,000. Goodwill and intangibles: At March 28, 2004 and December 31, 2003 goodwill, which resulted from the April
2002 acquisition of Analog Integration Partners LLC (AIP) and the October 2003
acquisition of Poweready, Inc. (PRI), totaled $20.3 million. In accordance
with SFAS No. 142 goodwill is not amortized but instead evaluated periodically
to determine whether events or circumstances have occurred indicating that
goodwill might be impaired. The following table summarizes our purchased intangible assets and related
accumulated amortization from our 2003 acquisition of PRI and our 2002
acquisition of AIP: March 28, 2004
    
    December 31, 2003Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    Amortization(In thousands)Current technology
    
    $
    5,100
    
    
    $
    (1,966
    )
    
    $
    5,100
    
    
    $
    (1,621
    )Customer contracts
and relationship
    
    
    700
    
    
    
    (59
    )
    
    
    700
    
    
    
    (24
    )Non-compete agreement
    
    
    300
    
    
    
    (42
    )
    
    
    300
    
    
    
    (17
    )Order backlog
    
    
    160
    
    
    
    (160
    )
    
    
    160
    
    
    
    (111
    )Total
    
    $
    6,260
    
    
    $
    (2,227
    )
    
    $
    6,260
    
    
    $
    (1,773
    )
 6




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Amortization of purchased intangible assets was $454,000 in the first quarter
of 2004 and $225,000 in the first quarter of 2003. Estimated annual
amortization of purchased intangible assets, based on our intangible asset
balance at March 28, 2004, is as follows: Amortization ofYears:
    
    intangible assets(In thousands)2004 (remaining 3 quarters)
    
    $
    1,2462005
    
    
    9652006
    
    
    7012007
    
    
    6202008
    
    
    501Total expense
    
    $
    4,033
 Product Warranties: In accordance with industry practice, we provide a limited warranty for our
devices against defects in materials and workmanship for periods ranging from
90 days to one year. We accrue for warranty costs based on historical trends in
product failure rates and the expected costs to provide warranty replacements.
The following table summarizes the activity related to the product warranty
liability (in thousands): Three Months EndedMarch 28, 2004
    
    March 30, 2003Balance at
beginning of year
    
    $
    248
    
    
    $
    250Accrual for warranties issued
    
    
    38
    
    
    
    24Warranty replacements
    
    
    (38
    )
    
    
    (26
    )Balance at
end of period
    
    $
    248
    
    
    $
    248
 As is customary in our industry, we commit to indemnify our customers and
selected business partners in connection with certain intellectual property
infringement claims with respect to our products. Historically, we have not
incurred significant costs related to such indemnities. Note 5.  Other Income: Other income for the first quarter of 2004 consists of a one-time gain of $0.2
million resulting from stock received from the demutualization of an insurance
company in which we were a policyholder. 7




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Note 6.  Proposed Merger with Intersil Corporation On March 14, 2004, we announced the execution of a definitive merger agreement
with Intersil Corporation (Intersil) whereby we will merge with a
wholly-owned subsidiary of Intersil. Under the terms of the Merger Agreement,
subject to availability of desired consideration types, Xicor shareholders may
elect to receive the merger consideration in all cash, all stock, or a
combination of cash and stock, in each case having a value per Xicor share of
$8.00 plus 0.335 of a share of Intersil common stock, allocated by prorating
the cash and shares available in the merger among elections made. If the value
of Intersil common stock issued in the merger is equal to or greater than 40%
of the total consideration to be paid for Xicor common stock, the merger is
intended to be reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended. The consummation of the merger is
subject to the approvals of our stockholders, effectiveness of the Intersil S-4
registration statement that is being reviewed by the SEC and other customary
closing conditions. Under certain circumstances, we may be required to pay a
$15.8 million termination fee if the merger agreement is terminated. In
connection with the merger agreement, we entered into Amendment No. 1 to our
Rights Agreement to exempt the proposed merger from the application of the
Rights Agreement. During the first quarter of 2004, we incurred $0.9 million
in merger-related expenses. On April 14, 2004, Freeport Partners, LLC (Freeport), a purported shareholder
of Xicor, filed an action in the California Superior Court in Santa Clara
County against Intersil, Xicor and Xicors directors. The complaint alleges
causes of action for breach of fiduciary duty, failure to disclose, and
indemnification, arising out of the negotiation of Intersils proposed
acquisition of Xicor. Specifically, the complaint alleges that defendants
breached fiduciary duties to the Xicor shareholders by agreeing to sell Xicor
for an allegedly unfair price while allegedly receiving remuneration not
received by other shareholders. The complaint seeks an injunction against Intersils
acquisition of Xicor, additional disclosures to Xicor shareholders, damages of an unspecified amount
and attorneys fees. On May 6, 2004, the Court denied
Freeports motion for a temporary restraining order and
expedited discovery. Intersil, Xicor, and Xicors directors have
filed demurrers to the complaint, arguing that it fails to state an
actionable claim against them. The hearing on the demurrers currently
is scheduled for June 22, 2004. A case management conference has
been set for August 10, 2004. Discovery has commenced, but no trial
date has been set. We intend to vigorously defend
against the lawsuit. Note 7.  Recent Accounting Pronouncements: In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. In December 2003, the FASB issued FIN 46R which supercedes
FIN 46. FIN 46R will be applicable to all non-SPEs created prior to February
1, 2003 by Public Entities that are not small business issuers at the end of
the first 8




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interim or annual reporting period ending after March 15, 2004. We believe
that the adoption of this standard will have no material impact on our
financial statements. In April 2004, the Emerging Issues Task Force issued Statement No. 03-06, or
EITF 03-06, Participating Securities and the Two-Class Method Under FASB
Statement No. 128, Earnings Per Share. EITF 03-06 addresses a number of
questions regarding the computation of earnings per share by companies that
have issued securities other than common stock that contractually entitle the
holder to participate in dividends and earnings of the company when, and if, it
declares dividends on its common stock. The issue also provides further
guidance in applying the two-class method of calculating earnings per share,
clarifying what constitutes a participating security and how to apply the
two-class method of computing earnings per share once it is determined that a
security is participating, including how to allocate undistributed earnings to
such a security. EITF 03-06 is effective for fiscal periods beginning after
March 31, 2004. The adoption of EITF 03-06 is not expected to have a material
effect on our results of operations or financial position. 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations. The following discussion should be read in conjunction with the accompanying
Quarterly Financial Information and Notes thereto and our Annual Report on Form
10-K for the year ended December 31, 2003. The results of operations for the
three months ended March 28, 2004 are not necessarily indicative of results to
be expected in future periods. The following discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could differ materially from those contained in the forward-looking
statements due to a variety of factors, including, but not limited to, the
factors identified in the Factors Affecting Future Results section below.
Also see Safe Harbor Statement under the Private Securities Litigation Reform
Act of 1995 below. RESULTS OF OPERATIONS Overview and Recent Developments We design, develop and market high performance analog mixed-signal integrated
circuits used in communications, computing, networking, consumer and industrial
applications. Our Mixed-Signal Products include data conversion products,
power management integrated circuits, application specific standard products
and time-keeping devices. Our programmable analog mixed-signal components
regulate, control, convert and manage various voltages and currents through the
use of a serial interface and internal EEPROM. On March 14, 2004, we announced the execution of a definitive merger agreement
with Intersil Corporation (Intersil) whereby we will be acquired by Intersil.
Under the terms of the merger agreement, subject to availability of desired
consideration types, Xicor shareholders may elect to receive the merger
consideration in all cash, all stock, or a combination of cash and stock, in
each case having a value per Xicor share of $8.00 plus 0.335 of a share of
Intersil common stock, allocated by prorating the cash and shares available in
the merger among elections made. If the value of Intersil common stock issued
in the merger is equal to or greater than 40% of the total consideration to be
paid for Xicor common stock, the merger is intended to be reorganization 9




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within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. The consummation of the merger is subject to the approval of our
stockholders, effectiveness of the Intersil S-4 registration statement that is
being reviewed by the SEC, and other customary closing conditions. On April 14, 2004, Freeport Partners, LLC (Freeport), a purported shareholder
of Xicor, filed an action in the California Superior Court in Santa Clara
County against Intersil, Xicor and Xicors directors. The complaint alleges
causes of action for breach of fiduciary duty, failure to disclose, and
indemnification, arising out of the negotiation of Intersils proposed
acquisition of Xicor. Specifically, the complaint alleges that defendants
breached fiduciary duties to the Xicor shareholders by agreeing to sell Xicor
for an allegedly unfair price while allegedly receiving remuneration not
received by other shareholders. The complaint seeks an injunction against Intersils
acquisition of Xicor, additional disclosures to Xicor shareholders, damages of an unspecified amount
and attorneys fees. On May 6, 2004, the Court denied
Freeports motion for a temporary restraining order and
expedited discovery. Intersil, Xicor, and Xicors directors have
filed demurrers to the complaint, arguing that it fails to state an
actionable claim against them. The hearing on the demurrers currently
is scheduled for June 22, 2004. A case management conference has
been set for August 10, 2004. Discovery has commenced, but no trial
date has been set. We intend to vigorously defend
against the lawsuit. Sales Total sales for the three months ended March 28, 2004 were $12.0 million, a 25%
increase compared to total sales for the corresponding prior year quarter of
$9.6 million. Our sales are derived from two product groups, mixed-signal and memory.
Mixed-signal sales represent our core market. Memory sales comprise our legacy
businesses of serial EEPROMs, which we have substantially exited and parallel
EEPROMs, which business we are retaining. Sales by product group were (in
thousands): Three Months EndedMarch 28,
    
    March 30,2004
    
    2003Mixed-signal sales
    
    $
    9,754
    
    
    $
    6,926Memory sales
    
    
    2,257
    
    
    
    2,678Total sales
    
    $
    12,011
    
    
    $
    9,604
 We have had several consecutive quarters of sequential growth in mixed-signal
sales, which has lead to increases in total sales. Mixed-signal sales
increased $2.8 million or 41% in the first quarter of 2004 compared to the
first quarter of 2003 primarily due to a broad-based increase in product sales
of approximately $2.5 million and to a lesser extent, an increase in engineering revenues of
approximately $0.3 million. Engineering revenues were 5% of total sales in the first
quarter of 2004 compared to 4% in the first quarter of 2003. Memory product sales declined $0.4 million or 16% in the first quarter of 2004
compared to the first quarter of 2003. Parallel EEPROM product sales decreased
in the first quarter of 2004 compared to the first quarter of 2003 principally
due to $0.3 million lower sales of high density parallel EEPROMs as the overall
market for these products has contracted and we continue to focus on
our mixed-signal business. Serial EEPROM 10




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product sales declined $0.1 million year over year and are expected to continue
to decline as we have substantially exited from that business. Cost of Sales and Gross Profit Our gross profit percentage is expected to fluctuate from quarter to quarter as
a result of changes in product mix, product costs and average selling prices.
Over the past several years we have been transitioning the company from a
manufacturer of commodity memory products with low gross margins into a fabless
semiconductor company focused on the high performance analog mixed-signal
segment of the semiconductor market with higher margins. Gross profit as a percentage of sales was 57% in the first quarter of 2004 and
51% in the first quarter of 2003. The gross profit percentage in the first
quarter of 2004 improved compared to the first quarter of 2003 due to a product
mix that consisted of a higher proportion of mixed-signal products and better
absorption of fixed costs as production volumes were higher in the first
quarter of 2004 than the first quarter of 2003. The net benefit to the gross
profit percentage resulting from the sale of products that had previously been
written down was less than $0.1 million in the first quarter of both 2004 and
2003. Research and Development Research and development expenses amounted to $2.6 million or 22% of sales in
the first quarter of 2004 compared to $2.9 million or 30% of sales in the first
quarter of 2003. Research and development expenses decreased by $0.3 million in
the first quarter of 2004 compared to the first quarter of 2003 principally due
to a $0.3 million reduction in spending associated with improved
productivity in new product development activities. Selling, General and Administrative Selling, general and administrative expenses amounted to $2.9 million or 24% of
sales in the first quarter of 2004 compared to $2.5 million or 26% of sales in
the first quarter of 2003. The $0.4 million increase in selling, general and
administrative expenses was primarily due to a $0.3 million increase in
personnel costs and to a lesser extent, a $0.1 million increase in advertising
to promote new products. Amortization of Purchased Intangible Assets Amortization of intangibles was $0.5 million in the first quarter of 2004
compared to $0.2 million in the first quarter of 2003. Amortization of
purchased intangibles increased in 2004 compared to 2003 due to our acquisition
of PRI in the fourth quarter of 2003. Merger  Related Expenses Merger-related expenses are the expenses we incurred during the first quarter
of 2004 related to the proposed merger with Intersil Corporation. Since we are
being acquired, all merger-related expenses we incur are expensed. The first
quarter 2004 merger-related expenses consist primarily of financial advisory,
legal and accounting fees. We expect merger-related expenses to be significant
and ongoing as we work towards completing the merger. 11




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Other Income and Expense Interest expense in the first quarter of 2004 amounted to $12,000 compared to
$0.8 million in the first quarter of 2003. In April 2003, we repurchased all
$35 million of the outstanding 5.5% convertible subordinated notes, which
substantially reduced our interest expense and amortization commencing in the
second quarter of 2003. Interest income in the first quarter of 2004 amounted to $68,000 compared to
$143,000 in the first quarter of 2003. Interest income decreased year over
year primarily as a result of a decrease in the average balance invested and,
to a lesser extent, lower interest rates. Other income for the first quarter of 2004 consists of a one-time gain of $0.2
million resulting from stock received from the demutualization of an insurance
company in which we were a policyholder. Taxes The first quarter 2004 provision for income taxes consisted primarily of
federal and state minimum taxes, which resulted from limitations on the use of
net operating loss carryforwards, and foreign taxes. No taxes were provided in
the first quarter of 2003 due to the net loss. Net deferred tax assets at
March 28, 2004 and December 31, 2003 were fully reserved because of the
uncertainty regarding the ultimate realization of these assets. LIQUIDITY AND CAPITAL RESOURCES March 28,
    
    December 31,2004
    
    2003(In thousands)Cash, cash equivalents & investments
    
    $
    24,348
    
    
    $
    22,320Total long-term obligations
    
    
    452
    
    
    
    520Shareholders equity
    
    
    46,986
    
    
    
    44,773Total capitalization (long-term obligations
plus equity)
    
    
    47,438
    
    
    
    45,293Long-term obligations to total capitalization
    
    
    1.0
    %
    
    
    1.1
    %
 At March 28, 2004, we had $24.3 million in cash, cash equivalents and
short-term and long-term investments compared to $22.3 million at the end of
2003. During the first quarter of 2004 we generated $88,000 of net cash from
operating activities and we had net income of $171,000. Accounts receivable
increased by $1.1 million in the first quarter due to the timing of sales
within the quarter which was partially offset by a $0.5 million increase in
accounts payable due to merger-related expenses. Cash used in investing
activities of $2 million in the first quarter of 2004 consisted of net
investments in cash-based available for sale securities. We generated $2
million of cash from financing activities in the first quarter of 2004 from the
issuance of common stock under employee stock plans. 12




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On March 14, 2004 we announced the execution of a definitive merger agreement
with Intersil whereby we will be acquired by Intersil. We expect
merger-related expenses to be significant and ongoing as we work towards
completion of the merger. Under certain circumstances, we may be required to
pay a $15.8 million termination fee if the merger agreement is terminated. Capital expenditures for 2004 are currently planned at less than $1 million and
are primarily related to test and product design equipment. At March 28, 2004,
we had entered into commitments for equipment purchases aggregating less than
$0.5 million. At March 28, 2004, our principal sources of liquidity were cash, cash
equivalents and short and long-term investments aggregating $24.3 million.
Management believes that our existing sources of liquidity will be adequate to
support our activities for the next 12 months. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. In December 2003, the FASB issued FIN 46R which supercedes
FIN 46. FIN 46R will be applicable to all non-SPEs created prior to February
1, 2003 by Public Entities that are not small business issuers at the end of
the first interim or annual reporting period ending after March 15, 2004. We
believe that the adoption of this standard will have no material impact on our
financial statements. In April 2004, the Emerging Issues Task Force issued Statement No. 03-06, or
EITF 03-06, Participating Securities and the Two-Class Method Under FASB
Statement No. 128, Earnings Per Share. EITF 03-06 addresses a number of
questions regarding the computation of earnings per share by companies that
have issued securities other than common stock that contractually entitle the
holder to participate in dividends and earnings of the company when, and if, it
declares dividends on its common stock. The issue also provides further
guidance in applying the two-class method of calculating earnings per share,
clarifying what constitutes a participating security and how to apply the
two-class method of computing earnings per share once it is determined that a
security is participating, including how to allocate undistributed earnings to
such a security. EITF 03-06 is effective for fiscal periods beginning after
March 31, 2004. The adoption of EITF 03-06 is not expected to have a material
effect on our results of operations or financial position. Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 This Quarterly Report contains 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, including without limitation statements regarding
completion of, and the terms of, our proposed merger with Intersil, the
expectation that serial EEPROM sales will continue to decline, that our gross
profit percentage will fluctuate from quarter to quarter as a result of changes
in the product mix, 13




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product costs and average selling prices, that merger-related expenses will be
significant and ongoing as we work towards completion of the merger,
the projection that 2004 capital expenditures will be less than
$1 million, and that
our existing sources of liquidity will be adequate to support our activities
for the next 12 months. Forward-looking statements are subject to certain risks and uncertainties that
could cause the actual results to differ materially from those projected.
Factors that could cause actual results to differ materially include the
following: failure to satisfy various conditions to the closing of our merger
with Intersil, including requisite shareholder approval; general economic
conditions and conditions specific to the semiconductor industry; fluctuations
in customer demand, including loss of key customers, order cancellations or
reduced bookings; product mix; competitive factors such as pricing pressures on
existing products and the timing and market acceptance of new product
introductions (both by us and our competitors); our ability to have available
an appropriate amount of low cost foundry production capacity in a timely
manner; our foundry partners timely ability to successfully manufacture
products for us using our proprietary technology; any disruptions of our
foundry relationships; manufacturing efficiencies; the ability to continue
effective cost reductions; currency fluctuations; the successful and timely
development and introduction of new products and submicron processes; and the
risk factors listed from time to time in our SEC reports, including but not
limited to the Factors Affecting Future Results section following and Part I,
Item 1. of our Annual Report on Form 10-K for the year ended December 31, 2003.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We undertake no obligation
to publicly release or otherwise disclose the result of any revision to these
forward-looking statements that may be made as a result of events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. RISK FACTORS AFFECTING FUTURE RESULTS The risks described below are not the only ones facing our Company. Additional
risks not presently known to us or that we currently believe are not material
may also impair our business operations. RISKS RELATED TO OUR PROPOSED MERGER WITH INTERSIL CORPORATION We face numerous risks in connection with the proposed merger with Intersil
Corporation, which may adversely affect our results of operations whether or
not the merger is completed, and the merger may not be completed on a timely
basis or at all. On March 14, 2004, we entered into a merger agreement with Intersil. Under the
terms of the merger agreement, subject to the receipt of required shareholder
and regulatory approvals, Xicor will merge with a wholly-owned subsidiary of
Intersil. This transaction creates additional risks including:  
    
    Unanticipated costs relating to the merger;  
    
    Diversion of managements time and attention from our existing business;  
    
    Disruption of our ongoing business operations;  
    
    Potential loss of key employees and employee productivity; 14




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
    
    Adverse effects on existing business relationships with customers
and customer prospects, including potential loss of customers;  
    
    Potential revenue declines as a result of customer, potential
customer and distributor uncertainty;  
    
    The inability to successfully integrate our operations, products
and personnel with those of Intersil in a timely and efficient manner,
or at all; and  
    
    The inability to achieve the strategic objectives and anticipated
potential benefits of the merger. In addition, if the merger is not consummated for any reason, we may be subject
to a number of risks including:  
    
    The effect of incurring substantial costs related to the merger,
such as legal, accounting and financial advisor fees, which will be
required to be paid even if the merger is not consummated;  
    
    Our ability to retain key employees may be adversely affected;  
    
    Our relationships with customers, distributors and
manufacturers' representatives may be adversely affected;  
    
    The price of our common stock may decline; and  
    
    Depending upon the circumstances of termination of the merger, the
possible requirement that we pay a $15.8 million termination fee to
Intersil. We do not know whether the acquisition will close, or, if it closes, that we
will be able to successfully integrate our business, products, technologies or
personnel with those of Intersil or meet our financial or other strategic
objectives. Any failure to do so could seriously harm our business, financial
condition and results of operations. RISKS RELATED TO OUR OPERATIONS Our operating results fluctuate significantly, and an unanticipated decline in
revenue may disappoint securities analysts or investors and result in a decline
in our stock price. You should not use our past financial performance to predict future operating
results. We have incurred net losses in two of the last three years. Our recent
quarterly and annual operating results have fluctuated, and will continue to
fluctuate, due to the following factors, all of which are difficult to forecast
and many of which are out of our control: the cyclical nature of both the
semiconductor industry and the markets addressed by our products; competitive
pricing pressures and related changes in selling prices; new product
announcements and introductions of competing products by us or our competitors;
market acceptance and subsequent design-in of new products; unpredictability of
changes in demand for, or in the mix of, our products; the timing of
significant orders including the fact that the sales level in any specific
quarter depends significantly on orders received during that quarter; the gain
or loss of significant customers; the availability, timely deliverability and
cost of products manufactured on our behalf by third-party suppliers; product
obsolescence; lower of cost or market inventory adjustments; changes in the
channels through which our products are distributed; exchange rate
fluctuations; general economic, political and environmental-related conditions,
such as natural disasters; difficulties in forecasting, planning and managing
of inventory levels; and unanticipated research and development expenses
associated with new product introductions. 15




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Our markets are subject to rapid technological change and, therefore, our
success depends on our ability to develop and introduce new products. The markets for our products are characterized by rapidly changing
technologies; evolving and competing industry standards; changing customer
needs; frequent new product introductions and enhancements; increased
integration with other functions; and rapid product obsolescence. To develop new products for our target markets, we must develop, gain access to
and use leading technologies in a cost-effective and timely manner and continue
to expand our technical and design expertise. In addition, we must have our
products designed into our customers future products and maintain close
working relationships with key customers in order to develop new products that
meet their rapidly changing needs. We cannot assure you that we will be able to identify new product opportunities
successfully, develop and bring to market new products at competitive costs,
achieve design wins or respond effectively to new technological changes or
product announcements by our competitors. Furthermore, we may not be successful
in developing or using new technologies or in developing new products or
product enhancements that achieve market acceptance. Our pursuit of necessary
technological advances may require substantial time and expense. Failure in any
of these areas could harm our business, operating results and financial
condition and potentially impair the $20.3 million assigned to goodwill. We do not typically enter into long-term contracts with our customers and we
cannot be certain as to future order levels from our customers. The composition of our major customer base changes as the market demand for our
customers products change. A small number of customers have accounted for a
substantial portion of our sales. A reduction, delay, or cancellation of orders
from a large customer could harm our business. The loss of, or reduced orders
by, any of our key customers could result in a significant decline in our
sales. We depend on distributors and manufacturers representatives to generate a
majority of our sales. Distributors serve as a channel of sale to many end users of our products. Our
distributors and manufacturers representatives could discontinue selling our
products at any time. The loss of any significant distributor or manufacturers
representative could seriously harm our operating results by impairing our
ability to sell our products. Our backlog may not result in future revenue, which would seriously harm our
business. Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business. 16




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Our dependence on third-party foundries to manufacture our products and on
subcontractors to sort, assemble and test our products and ship our products to
customers subjects us to a number of risks. We out-source all manufacturing operations to subcontractors located in Asia
and Europe. Our reliance on third-party foundries and subcontractors to
manufacture, sort, assemble and test our products and to ship our products to
customers involves the following significant risks:  
    
    reduced control over delivery schedules and quality;  
    
    the potential lack of adequate capacity, particularly during periods of strong demand;  
    
    difficulties selecting and integrating new foundries and subcontractors;  
    
    Limited warranties by third-party manufacturers on products supplied to us; and  
    
    potential increases in product costs due to capacity shortages and other factors. These risks may lead to a possible loss of sales, increased costs, delayed
product delivery or loss of competitive advantage, which would harm our
profitability and customer relationships. Additionally, as we shift
manufacturing of existing products between foundries and third-party
subcontractors, certain customers require requalification of such products
prior to accepting delivery. Delays in customer qualification schedules or lack
of qualification of such products could result in the loss of sales, which
could seriously harm our operating results. The selling prices for our products are volatile and have historically declined
over the life of a product. In addition, the cyclical nature of the
semiconductor industry produces fluctuations in our operating results. The semiconductor industry has historically been cyclical, characterized by
wide fluctuations in product supply and demand. From time to time, the industry
has also experienced significant downturns, often in connection with, or in
anticipation of, maturing product cycles and declines in general economic
conditions. Downturns are generally characterized by diminished product demand,
production over-capacity and accelerated decline of average selling prices, and
in some cases have lasted for more than one year. Our success depends, in part,
on the supply and demand balance within the industry and the various
electronics industries that use semiconductors, including networking,
communications and industrial companies. Our future success depends in part on the continued services of our key design,
engineering, sales, marketing and executive personnel and our ability to
identify, recruit and retain qualified personnel. There is significant competition for qualified personnel in the semiconductor
industry, in particular for the highly skilled engineers involved in the design
and development of our mixed-signal products. At times competition has been
especially intense in Silicon Valley, where our design, research and
development, and corporate headquarters are located. The failure to recruit and
retain key design engineers or other technical and management personnel would
likely harm our business. 17




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We may fail to successfully integrate our business and technologies with those
of the company that we recently acquired. We completed the acquisition of Poweready, Inc. in October 2003. If we fail to
integrate this business successfully or properly, our quarterly and annual
results may be seriously harmed. Integrating people, technology, products and
services with our existing business could be expensive, time-consuming and a
strain on our resources. Specific issues that we face with regard to our
acquisition include the difficulty of integrating acquired technology, the need
to integrate and coordinate geographically separated organizations, the
potential disruption of our ongoing business and distraction of management, the
failure to successfully develop acquired technology resulting in the impairment
of amounts capitalized as intangible assets, unanticipated expenses related to
technology integration and the potential unknown liabilities associated with
the acquired business. Our operating expenses are relatively fixed, and we order materials in advance
of anticipated customer demand. Therefore, we have limited ability to reduce
expenses quickly in response to any revenue shortfalls. Our operating expenses are relatively fixed, and we therefore have limited
ability to reduce expenses quickly in response to any revenue shortfalls.
Consequently, our operating results will be harmed if our sales do not meet our
revenue projections. Revenue shortfalls can occur for any of the following
reasons: economic slowdowns in the markets we serve; significant pricing
pressures that occur because of declines in selling prices of a product; the
reduction, rescheduling or cancellation of customer orders; and sudden
shortages of raw materials or fabrication, sort, test or assembly capacity
constraints that lead our suppliers to allocate available supplies or capacity
to other customers which, in turn, harms our ability to meet our sales
obligations. In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which are highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long
lead times to obtain inventory and materials from our outside suppliers and
foundries, we order materials and produce finished products in advance of
anticipated customer demand. This advance ordering and production has resulted
in, and may continue to result in, excess inventory levels or inventory
write-downs if expected orders fail to materialize or prices decrease
substantially. We presently have minimum wafer purchase commitments with a foundry that were
made in exchange for a capacity commitment from them. Should demand for our
products be less than the capacity commitment, we may be required to make
payments for unused capacity which would cause our costs to increase. Because our products typically have lengthy sales cycles, we may experience
substantial delays between incurring expenses related to research and
development and the generation of sales. Due to the length of the product design-in cycle, we usually require more than
nine months to realize volume shipments after a customer first samples our
product. We first work with customers to achieve a design win, which may take
three months or longer. Our customers then complete the design, testing and
evaluation process and begin to ramp up production, a period which typically
lasts an additional six months or longer. As a result, a significant period of
time 18




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may elapse between our research and development efforts and our realization of
revenue, if any, from volume purchasing of our products by our customers. We face intense competition from companies with significantly greater
financial, technical and marketing resources that could adversely affect sales
of our products. We compete with major semiconductor companies such as Analog Devices, Atmel
Corporation, Linear Technology Corporation and Maxim Integrated Products, that
have substantially greater financial, technical, marketing, distribution, and
other resources than we do and have their own facilities for the production of
semiconductor components. In addition, our foundry partners have the right to
develop and fabricate products based on our process technology. From time to time, we may have to defend lawsuits in connection with the
operation of our business. We are subject to litigation in the ordinary course of our business. If we do
not prevail in any lawsuit which may occur we could be subject to significant
liability for damages, our patents and other proprietary rights could be
invalidated, and we could be subject to injunctions preventing us from taking
certain actions. If any of the above occurs, our business and financial
position could be harmed. Our cost of sales may increase if we are required to purchase additional
manufacturing capacity in the future. To obtain additional manufacturing capacity in the future, we may be required
to make deposits, equipment purchases and loans and enter into joint ventures,
equity investments or technology licenses in or with wafer fabrication
companies. These transactions could involve a commitment of substantial
amounts of our capital and technology licenses in return for production
capacity. We may be required to seek additional debt or equity financing in
order to secure this capacity and we may not be able to obtain such financing. Our ability to compete successfully will depend, in part, on our ability to
protect our intellectual property rights, which we may not be able to do
successfully. We rely on a combination of patents, trade secrets, copyright and mask work
production laws and rights, nondisclosure agreements and other contractual
provisions and technical measures to protect our intellectual property rights.
Our business, operating results and financial condition could be seriously
harmed by the failure to be able to protect our intellectual property.
Policing unauthorized use of our intellectual property, however, is difficult,
especially in foreign countries. Litigation may be necessary to enforce our
intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others, or to defend against
claims of infringement or invalidity. Litigation of this type can result in
substantial costs and diversion of resources and can harm our business,
operating results and financial condition regardless of the outcome of the
litigation. 19




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If we or any of our foundries or third-party subcontractors is accused of
infringing the intellectual property rights of other parties, we may become
subject to time-consuming and costly litigation. If we lose or settle claims,
we could suffer a significant negative impact on our business and be forced to
pay royalties and damages. Third parties have and may continue to assert that our products infringe their
proprietary rights, or may assert claims for indemnification resulting from
infringement claims against us. Any such claims may cause us to delay or cancel
shipment of our products or pay royalties and damages that could seriously harm
our business, financial condition and results of operations. In addition,
irrespective of the validity or the successful assertion of such claims, we
could incur significant costs in defending against such claims. We have received notices claiming infringement of patents from third parties
with respect to certain aspects of our processes and devices, and these matters
are under investigation and review. Although patent holders typically offer
licenses and we have entered into such license agreements in the past, we may
not be able to obtain licenses on acceptable terms, and disputes may not be
resolved without costly litigation. Our business may suffer due to risks associated with international sales and
operations. Sales outside of North America, based upon the location to which the product
was shipped, accounted for approximately 61% of total net sales in the first
quarter of 2004. Our international business activities are subject to a number
of risks, any of which could impose unexpected costs on us that would have an
adverse effect on our operating results. These risks include difficulties in
complying with regulatory requirements and standards; tariffs and other trade
barriers; costs and risks of localizing products for foreign countries; severe
currency fluctuations and economic deflation; reliance on third parties to
distribute our products; longer accounts receivable payment cycles; potentially
adverse tax consequences; and burdens of complying with a wide variety of
foreign laws. We may require additional capital in order to bring new products to market, and
the issuance of new equity securities will dilute your investment in our common
stock. To implement our strategy of diversified product offerings, we need to bring
new products to market. Bringing new products to market and ramping up
production requires significant working capital. We may sell additional shares
of our stock or seek additional borrowings or outside capital infusions. We
cannot assure you that such financing options will be available on terms
acceptable to us, if at all. In addition, if we issue shares of our common
stock, our shareholders will experience dilution of their investment. Changes in stock option accounting rules may adversely impact our operating
results prepared in accordance with generally accepted accounting principles. Technology companies like ours have a history of using broad based employee
stock option programs to hire, incentivize and retain our workforce in a
competitive marketplace. Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, allows companies the choice of
either using a fair value method of accounting for options which would result
in expense recognition for all options granted, or using an intrinsic value
method, as 20




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prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), with a pro forma disclosure of the impact on net
income (loss) of using the fair value option expense recognition method. We
have elected to apply APB 25 and accordingly we generally do not recognize any
expense with respect to employee stock options as long as such options are
granted at exercise prices equal to the fair value of our common stock on the
date of grant. On March 31, 2004, the Financial Accounting Standard Board (FASB) issued an
Exposure Draft, Share-Based Payment: an amendment of FASB statements No. 123
and 95, which would require a company to recognize, as an expense, the fair
value of stock options and other stock-based compensation, thereby eliminating
the ability to account for share-based compensation transactions using APB
Opinion No. 25, Accounting for Stock Issued to Employees.The FASB expects to
have the new standard become effective sometime in 2005. If the FASB requires
expensing of employee stock options by all companies, our results of operations
prepared in accordance with generally accepted accounting principles would be
adversely impacted. Business interruptions could harm our business. Our operations and those of our foundries and other manufacturing
subcontractors are vulnerable to interruption by fire, earthquake, power loss,
telecommunications failure and other events beyond our control. Business
interruption insurance may not provide protection due to the deductible periods
or be enough to compensate us for losses that may occur. Additionally, we have
been unable to obtain earthquake insurance of reasonable costs and limits. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. We do not use derivative financial instruments in our investment portfolio. We
have an investment portfolio of fixed income securities that are classified as
available-for-sale securities. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if market
interest rates increase. We attempt to limit this exposure by investing
primarily in short-term securities. Due to the short duration and conservative
nature of our investment portfolio a movement of 10% by market interest rates
would not have a material impact on our operating results and the total value
of the portfolio over the next fiscal year. We are exposed to risks associated with foreign exchange rate fluctuations due
to our international manufacturing and sales activities. We generally have not
hedged currency exposures. These exposures may change over time as business
practices evolve and could negatively impact our operating results and
financial condition. All of our sales are denominated in U.S. dollars. An
increase in the value of the U.S. dollar relative to foreign currencies could
make our products more expensive and therefore reduce the demand for our
products. Such a decline in the demand could reduce sales and/or result in
operating losses. 
 Item 4. Controls and Procedures. Evaluation of disclosure controls and procedures. Our management evaluated,
with the participation of our Chief Executive Officer and our Chief Financial
Officer, the effectiveness of 21




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our disclosure controls and procedures as of the end of the period covered by
this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms. Changes in internal controls over financial reporting. There was no change in
our internal control over financial reporting that occurred during the period
covered by this Quarterly Report on Form 10-Q that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting. 
 PART II: OTHER INFORMATION 
 Item 1. Legal Proceedings On April 14, 2004, Freeport Partners, LLC (Freeport), a purported shareholder
of Xicor, Inc. (Xicor), filed an action in the California Superior Court in
Santa Clara County against Intersil Corporation, Xicor, Inc., and Xicors
directors. The complaint alleges causes of action for breach of fiduciary
duty, failure to disclose, and indemnification, arising out of the negotiation
of Intersils proposed acquisition of Xicor. Specifically, the complaint
alleges that defendants breached fiduciary duties to the Xicor shareholders by
agreeing to sell Xicor for an allegedly unfair price while allegedly receiving
remuneration not received by other shareholders. The complaint seeks
an injunction against Intersils acquisition of Xicor,
additional disclosures to Xicor shareholders, damages of an
unspecified amount and attorneys fees. On May 6, 2004,
the Court denied Freeports motion for a temporary restraining
order and expedited discovery. Intersil, Xicor, and Xicors
directors have filed demurrers to the complaint, arguing that it
fails to state an actionable claim against them. The hearing on the
demurrers currently is scheduled for June 22, 2004. A case
management conference has been set for
August 10, 2004. Discovery has commenced, but no trial date has been set. We intend to vigorously defend against the lawsuit. 
 Item 6. Exhibits and Reports on Form 8-K. (a)
    
    Exhibits:31.1
    
    
    Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 22




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##### Table of Contents



(b)        Reports on Form 8-K: Date Filed or
Furnished
    
    Item No.
    
    DescriptionJanuary 21, 2004
    
    Item 12.
    
    We issued a press release announcing
the appointment of Co-Chairman to the
Board of Directors which included
certain fourth quarter and year end
2003 financial results.January 21, 2004
    
    Item 12.
    
    We issued a press release reporting
fourth quarter and fiscal year 2003
results.February 23, 2004
    
    Item 7.
    
    On October 28, 2003 we completed our
acquisition of Poweready, Inc. (PRI)
in a transaction accounted for using
the purchase method of accounting.
This Current Report on Form 8-K
includes the audited financial
statements of PRI for the fiscal year
ended December 31, 2002, and includes
unaudited pro forma condensed combined
statement of operations for Xicor for
the year ended December 31, 2003.March 16, 2004
    
    Items 5 & 7
    
    We issued a press release announcing
the signing of a definitive agreement
for Intersil Corporation to acquire
Xicor.
 23




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##### Table of Contents



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. XICOR, INC., a
California CorporationBy
    
        /s/ Louis DiNardoLouis DiNardoChief Executive Officer
(Principal Executive Officer) By
    
/s/ Geraldine N. HenchGeraldine N. HenchVice President, Finance and Administration
(Principal Financial Officer) Date: May 7, 2004 24




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##### Table of Contents



EXHIBIT INDEX ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 25