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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 December 28, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-19299
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Integrated Circuit Systems, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2000174
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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 [ ]
As of February 7, 2003, there were 68,048,830 shares of Common Stock; $0.01 par
value, outstanding.
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INTEGRATED CIRCUIT SYSTEMS, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
December 28, 2002 (Unaudited) and June 29, 2002 3
Consolidated Statements of Operations (Unaudited):
Three and Six Months Ended December 28, 2002 and December 29, 2001 4
Consolidated Statements of Cash Flows (Unaudited):
Six Months Ended December 28, 2002 and December 29, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 19
Item 6. Exhibits and Reports on Form 8-K 19
Item 1. Consolidated Financial Statements
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
Dec. 28, June 29,
2002 2002
----------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 97,488 $ 74,255
Marketable securities 18,201 36,266
Accounts receivable, net 28,850 28,741
Inventory, net 15,484 18,556
Deferred income taxes 8,339 6,791
Prepaid income taxes 495 1,181
Prepaid assets 5,240 4,781
Other current assets 1,345 8,924
-------- --------
Total current assets 175,442 179,495
-------- --------
Property and equipment, net 16,900 18,324
Long term investments 22,994 4,000
Intangibles 31,250 32,400
Goodwill 39,230 41,575
Other assets 419 598
-------- --------
Total assets $286,235 $276,392
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations $ 16,022 $ 13,744
Accounts payable 12,431 11,416
Accrued expenses and other current liabilities 13,703 25,272
-------- --------
Total current liabilities 42,156 50,432
-------- --------
Long-term debt, less current portion 11,006 28,514
Other liabilities 12,436 13,475
-------- --------
Total liabilities 65,598 92,421
-------- --------
Shareholders' equity:
Preferred Stock, authorized 5,000; none issued -- --
Common stock, $0.01 par, authorized 300,000;
Issued and outstanding 68,880 and 67,841 shares as
of Dec. 28, and June 29, 2002, respectively 689 678
Additional paid in capital 234,305 227,531
Accumulated deficit (2,813) (32,451)
Deferred compensation (1,219) (3,988)
Treasury stock, at cost, 850 and 655 shares as of Dec. 28
and June 29, 2002, respectively (10,328) (7,799)
Cumulative translation adjustment 3 --
-------- --------
Total shareholders' equity 220,637 183,971
-------- --------
Total liabilities and shareholders' equity $286,235 $276,392
======== ========
See accompanying notes to consolidated financial statements.
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands)
(Unaudited)
Three Months Ended Six Months Ended
------------------- -------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
-------- -------- -------- --------
Revenue: $62,026 $38,560 $119,815 $74,267
Cost and expenses:
Cost of sales 25,701 16,014 49,022 31,160
Research and development 8,803 5,846 17,021 12,494
Selling, general and administrative 9,291 5,526 19,542 9,974
------- ------- -------- -------
Operating income 18,231 11,174 34,230 20,639
------- ------- -------- -------
Interest and other income 995 666 1,588 1,591
Interest expense (430) (23) (917) (45)
------- ------- -------- -------
Income before income taxes 18,796 11,817 34,901 22,185
Income taxes 2,871 1,683 5,263 3,186
------- ------- -------- -------
Net income $15,925 $10,134 $ 29,638 $18,999
======= ======= ======== =======
Basic income per share:
Net income $ 0.24 $ 0.15 $ 0.44 $ 0.29
Diluted income per share:
Net income $ 0.23 $ 0.15 $ 0.42 $ 0.27
Weighted average share outstanding - basic 67,711 66,180 67,186 66,314
Weighted average share outstanding - diluted 70,313 69,535 69,859 69,796
See accompanying notes to consolidated financial statements.
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
---------------------------
December 28, December 29,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 29,638 $ 18,999
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,484 2,578
Amortization of bond premiums -- 6
Deferred financing charge 55 7
Amortization of deferred compensation 31 489
(Gain) loss on sale of assets (494) (105)
Restructuring costs (915) --
Tax benefit of stock options 6,464 5,402
Deferred income taxes (2,535) 710
Changes in assets and liabilities:
Accounts receivable (109) 4,857
Inventory 3,072 (1,713)
Other assets, net (297) (224)
Accounts payable, accrued expenses and other current liabilities (2,532) 1,006
Accrued interest expense 328 (19)
Income taxes 686 (3,496)
-------- --------
Net cash provided by operating activities 37,876 28,497
-------- --------
Cash flows from investing activities:
Purchases of marketable securities (26,000) (38,019)
Sales/Maturities of marketable securities 25,609 14,062
Capital expenditures (1,928) (1,621)
Other 2,373 192
-------- --------
Net cash provided by (used in) investing activities 54 (25,386)
-------- --------
Cash flows from financing activities:
Exercise of stock options 2,662 1,098
Shares purchased through stock purchase plan 399 314
Purchase of treasury stock (2,529) (7,799)
Repayments of long-term debt (15,229) (256)
-------- --------
Net cash used in financing activities (14,697) (6,643)
-------- --------
Net increase (decrease) in cash and cash equivalents 23,233 (3,532)
Cash and cash equivalents:
Beginning of period 74,255 91,400
-------- --------
End of period $ 97,488 $ 87,868
======== ========
See accompanying notes to consolidated financial statements.
INTEGRATED CIRCUIT SYSTEMS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 accruals) necessary to present
fairly our financial position at December 28, 2002 and results of operations and
cash flows for the interim periods presented. Certain items have been
reclassified to conform to current period presentation.
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 June 29, 2002. Results of
operations for the three months ended December 28, 2002 are not necessarily
indicative of results to be expected for the full year.
In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies," we have identified below some of
the accounting principles critical to our business and results of operations. We
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 June 29, 2002. In addition, we believe our most critical accounting
policies include, but are not limited to, the following:
Inventory
Inventory is stated at the lower of cost or market. Cost is determined by the
first in, first out (FIFO) method. We record a reserve for obsolete and
unmarketable inventory based on assumptions of future demand and market
conditions.
Consolidation Policy
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany balances
and transactions have been eliminated.
Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of net assets
acquired from business acquisitions. Prior to July 1, 2001, all goodwill was
amortized using the straight-line method over periods ranging from five to
thirty years. Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", addresses, among other things, how
goodwill and other intangible assets should be accounted for after they have
been initially recorded in the financial statements. Under SFAS 142, goodwill
and other indefinite lived intangible assets are no longer amortized, but are
required to be tested annually or whenever circumstances occur that would
indicate impairment. Beginning July 1, 2001, we ceased the amortization of
goodwill. In assessing recoverability, many factors are considered, including
historical and forecasted operating results and cash flows of the acquired
businesses. After consideration of these factors, we will determine whether or
not there is impairment to goodwill and other indefinite lived intangible
assets. We expect to complete our required annual assessment in the fourth
quarter of fiscal 2003. There can be no assurance that a future impairment test
will not result in a charge to earnings.
At December 28, 2002, we have $39.2 million of goodwill and $18.4 million of
indefinite life intangible assets. We believe that no impairment of goodwill or
other indefinite lived intangible assets existed at December 28, 2002. We had no
indefinite lived intangible assets prior to the acquisition of Micro Networks
Corporation ("MNC") on January 4, 2002.
Revenue Recognition
Revenues from product sales are recognized as revenue upon shipment to the
customer. We offer a right of return to certain customers. Allowances are
established to provide for estimated returns at the time of sale. We recognize
sales to these customers, in accordance with the criteria of SFAS No. 48,
"Revenue Recognition When Right of Return Exists", at the time of the sale based
on the following: the selling price is fixed at the date of sale, the buyer is
obligated to pay for the products, title of the products has transferred, the
buyer has economic substance apart from us, we do not have further obligations
to assist the buyer in the resale of the product and the returns can be
reasonably estimated at the time of sale.
Income Taxes
Income tax expense includes U.S., state and international income taxes and are
computed in accordance with SFAS No. 109, "Accounting for Income Taxes". Certain
items of income and expense are not reported in income tax returns and financial
statements in the same year. The income tax effects of these differences are
reported as deferred income taxes. Income tax credits are accounted for as a
reduction of income tax expense in the year in which the credits reduce income
taxes payable. Valuation allowances are provided against deferred income tax
assets, which are not likely to be realized. We currently provide income taxes
on the earnings of foreign subsidiaries to the extent those earnings are taxable
in the local jurisdictions. We do not provide for United States income tax on
foreign earnings because, in management's opinion, such earnings have been
indefinitely reinvested in foreign operations.
Estimates
Our preparation of this Quarterly Report on Form 10-Q requires us to make
estimates and assumptions that affect amounts reported in the consolidated
financial statements and notes. Actual results could differ from those estimates
and assumptions. Had our estimates been based on a different set of assumptions,
then estimates may have resulting in a significant impact of the financial
statements.
(2) ACQUISITION
On January 4, 2002, we acquired MNC for $75.1 million, net of cash acquired. 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. The
purchase price includes $5.6 million in purchase accounting liabilities. Of the
total amount recorded, $4.3 million represents costs associated with closing or
moving office and production activities and $1.3 million represents severance
and other personnel costs. We expect to complete the restructuring by the end of
calendar 2003. As of December 28, 2002, we have expended approximately $1.0
million and $0.4 million of this reserve relating to severance and facility
closing costs, respectively. Approximately $0.3 million of the remaining amount
relates to severance and other personnel costs, which will to be paid in fiscal
year 2003, $1.7 million relates to vacate facilities leased with expiration
dates through 2012 and the remaining $2.6 million balance represents fixed
assets that will be disposed. This reserve is included in "Accrued expense and
other current liabilities" in the Balance Sheet. The results of MNC have been
included in the consolidated financial statements since the acquisition date.
The following unaudited pro forma combined results of operations are provided
for illustrative purposes only and assumes this acquisition occurred as of the
beginning of each of the periods presented. The following unaudited pro forma
information (in thousands, except per share amounts) should not be relied upon
as necessarily being indicative of the historical results that would have been
obtained if this acquisition had actually occurred during those periods, nor the
result that may be obtained in the future.
Three Months Ended Six Months Ended
----------------------------- -----------------------------
Dec. 28, 2002 Dec. 29, 2001 Dec. 28, 2002 Dec. 29, 2001
-------------------------------------------------------------
Pro forma revenue $62,026 $49,219 $119,815 $97,993
Pro forma net income 15,925 10,164 29,638 20,522
Diluted net income per common share as reported 0.24 0.15 0.44 0.31
Pro forma diluted net income per common share 0.23 0.15 0.42 0.29
(3) 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):
December 28, 2002 June 29, 2002
----------------- -------------
Work-in-process $ 6,089 $ 6,921
Raw Materials 8,189 8,922
Finished parts 8,952 10,797
Less: Obsolescence reserve (7,746) (8,084)
------- -------
$15,484 $18,556
======= =======
(4) DEBT
In connection with the acquisition of MNC, we entered into a revolving credit
and term loan facility dated December 31, 2001, which will expire December 31,
2004. The new facility enables 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 rates under the term loan will be 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% or (2) London Interbank Offer Rate ("LIBOR")
plus 1.75%. At our option, the interest rates under the Revolving Credit Loan,
will be either (1) the Base Rate or (2) the LIBOR Rate plus a pre-formulated
margin. Currently we have selected LIBOR plus 1.75% as the interest rate on our
term loan. During the first six months of fiscal year 2003, we paid down $15.0
million of the term loan. As of December 28, 2002, $27.0 million was outstanding
on our term loan.
In connection with our bank agreement, we entered into an 18-month interest rate
swap agreement with the same financial institution. The interest rate swap
agreement essentially enables us to manage the exposure to fluctuations in
interest rates on a portion of our term loan.
Our term loan requires us to pay interest based on a variable rate. Under the
interest rate swap agreement; we are exchanging the variable rate interest on a
portion of our term loan, equal to 50% of the outstanding loan amount, with a
fixed rate of 5.00%. The interest rate swap agreement is in effect until June
2003, with the notional amount decreasing to $14.8 million over the effective
period.
The interest rate swap agreement has been designated as a cash flow hedge and,
therefore, changes in the fair value of the agreement will be recorded in
comprehensive loss. To date there has not been a significant change in fair
value of the agreement.
Certain of our loan agreements require the maintenance of specified financial
ratios, including a fixed charge coverage ratio, a funded debt to EBITDA ratio
and a minimum tangible net worth, and impose financial limitations. At December
28, 2002, we were in compliance with the covenants.
(5) CAPITAL STOCK
In September 2001, we announced a 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 to
increase the number of shares to be repurchased under this repurchase program to
3.0 million. As of December 28, 2002, we had purchased 850,000 shares for $10.3
million.
(6) STOCK OPTIONS
In October 2002, our board of directors approved the 2002 Employees' Equity
Incentive Plan ("Plan"). The Plan provides for grants of non-qualified stock
options, stock appreciation rights, restricted stock and performance awards to
employees of the Company and its subsidiaries, persons to whom an offer of
employment has been extended and others performing services for the Company or a
subsidiary, but does not permit any grants to our officers and directors. The
compensation committee of our board of directors will administer the Plan,
including determining the exercise price and other terms and conditions of
options granted under the Plan. The maximum term for exercise of options granted
under the Plan is ten years from the date of grant. Three million shares of our
common stock are available for issuance under the Plan, subject to adjustment in
the event of a reorganization, merger or similar change in our corporate
structure or change in the outstanding shares of common stock. As of December
28, 2002 there were no awards issued or outstanding under the Plan.
(7) INDUSTRY AND SEGMENT INFORMATION
We operate and track our results in one operating segment. We design, develop,
manufacture and market silicon timing devices. The nature of our products and
production processes as well as distribution methods is consistent among all of
our products.
(8) NEW ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance set forth in Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
scope of SFAS No. 146 includes costs related to terminating a contract that is
not a capital lease, costs to consolidate facilities or relocate employees, and
certain termination benefits provided to employees who are involuntarily
terminated. SFAS No. 146 also requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002.
(9) 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.
The following table set forth the computation of net income (numerator) and
shares (denominator) for earnings per share:
Three Months Ended Six Months Ended
------------------- -------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
-----------------------------------------
Numerator (in thousands):
Net income $15,925 $10,134 $29,638 $18,999
-----------------------------------------
Denominator (in thousands):
Weighted average shares outstanding used for
basic income per share 67,711 66,180 67,186 66,314
Common stock equivalents 2,602 3,355 2,673 3,482
-----------------------------------------
Weighted average shares outstanding used for
diluted income per share 70,313 69,535 69,859 69,796
=========================================
(10) COMPREHENSIVE INCOME
Total comprehensive income represents net income plus the results of certain
equity changes not reflected in the condensed consolidated and combined
statements of operations. The components of accumulated other comprehensive
income are shown below.
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 28, December 29, December 28, December 29,
2002 2001 2002 2001
---------------------------------------------------------
Net income $15,925 $10,134 $29,638 $18,999
---------------------------------------------------------
Other comprehensive income:
Unrealized Gain on Investments -- 28 -- 243
---------------------------------------------------------
Total comprehensive income $15,925 $10,162 $29,638 $19,242
=========================================================
(11) INCOME TAX
Our effective income tax rate was 15.1% for the first six months of fiscal year
2003 as compared to 14.4% in the prior year period. The effective tax rate for
fiscal years 2003 and 2002 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 a $43.6 million liability as of December 28, 2002.
(12) LEGAL PROCEEDINGS
From time to time, various inquiries, potential claims and charges and
litigation 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 of these claims currently pending, individually and in the
aggregate, have been
adequately reserved and will not have any material adverse effect on our
consolidated financial position or results of operations, although no assurance
can be made in this regard.
All subsequent litigations have been dismissed. On March 28, 2001, Cypress
Semiconductor Corporation ("Cypress"), filed a patent infringement lawsuit in
Delaware federal court against us ("Delaware Lawsuit"). On April 4, 2001, we
filed a patent infringement lawsuit in California federal court against Cypress
("California Lawsuit"). On July 20, 2001, Cypress filed a complaint with the
International Trade Commission (ITC"), against us for infringement of one
patent, and on November 5, 2001, we filed a complaint with the ITC against
Cypress for infringement of two patents (collectively, "ITC Actions"). After we
filed the second Motion for Summary Determination in the ITC Actions, which were
consolidated, we and Cypress resolved all litigation between ourselves. We have
accrued the cost of this settlement as of June 29, 2002. On August 15, 2002, the
Delaware Lawsuit was dismissed with prejudice. On August 23, 2002, the
California Lawsuit was dismissed with prejudice. On or about August 26, 2002,
the Judge in the ITC Actions granted the Joint Motion to Terminate the
Investigation. As of the date of the filing of this Form 10-Q, we are no longer
engaged in any litigation with Cypress.
(13) CUSTOMERS
In fiscal year 2001, we entered into an Investment and Stock Trade Agreement
(the "agreement") with Maxtek, a distributor in Taiwan. 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.
In the second quarter of fiscal 2003, we sold 1.0 million shares or 25% of our
investment in Maxtek for a gain of $0.3 million. The sale agreements also
provide the buyers the option to buy another 25% of our shares by the later of
March 31, 2003 or one month after the buyers receive certain Maxtek financial
statements. As of December 28, 2002, we owned 3.0 million shares, or
approximately 7 1/2 % of Maxtek.
Maxtek, our distributor for our PC business in Taiwan and China, represented
approximately 20% of our sales for the first six months of fiscal year 2003, and
18% in the prior year period. Additionally, sales to Lacewood International
Corp, formerly known as Maxtech Corporation Limited, an entity which is commonly
controlled by the owners' of Maxtek representing business in Hong Kong and
China, were 20% of our sales in both of the six month 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:
.. Our dependence on continuous introduction of new products based on the
latest technology
.. The intensely competitive semiconductor and personal computer component
industries
.. The importance of frequency timing generator products to total revenue
.. 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 and technology and on 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.
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 Six Months Ended
------------------- -------------------
Dec. 28, Dec. 29, Dec. 28, Dec. 29,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues 100.0% 100.0% 100.0% 100.0%
Gross margin 58.6 58.5 59.1 58.0
Research and development 14.2 15.2 14.2 16.8
Selling, general and administrative 15.0 14.3 16.3 13.4
----- ----- ----- -----
Operating income 29.4 29.0 28.6 27.8
----- ----- ----- -----
Interest and other income 1.6 1.7 1.3 2.1
Interest expense (0.7) (0.1) (0.8) (0.0)
----- ----- ----- -----
Income before income taxes 30.3 30.6 29.1 29.9
Income taxes 4.6 4.3 4.4 4.3
----- ----- ----- -----
Net income 25.7% 26.3% 24.7% 25.6%
===== ===== ===== =====
SECOND QUARTER FISCAL YEAR 2003 AS COMPARED TO SECOND QUARTER FISCAL YEAR 2002
Revenue. Revenue was $62.0 million for the second quarter ended December 28,
2002, an increase of $23.4 million from the prior year quarter. This increase is
attributable to several factors: the addition of Micro Network Corporation (MNC)
products due to the acquisition in the third quarter of fiscal 2002, silicon
content of PC clocks per motherboard increased and the beginning ramp for clocks
in Double Data Rate ("DDR") registered memory modules. The average selling price
for our products increased 7.5%, while the volume increased 49.5%.
Foreign revenue, which includes shipments of products to foreign companies as
well as offshore subsidiaries of US multinational companies, was 74.5% of total
revenue for the second quarter of fiscal year 2003 as compared to 78.9% of total
revenue in the prior year quarter. Our sales are denominated in U.S. dollars,
which minimizes foreign currency risk.
Gross Margin. Cost of sales were $25.7 million for the quarter ended December
28, 2002, an increase of $9.7 million from the prior year quarter. Cost of sales
as a percentage of total revenue was 41.4% for the second quarter of fiscal year
2003 as compared to 41.5% in the prior year quarter. Gross profit 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, test, quality assurance and product yields and the
cost of personnel and equipment associated with manufacturing support.
Research and Development Expense. Research and development (R&D) expense was
$8.8 million for the second quarter of fiscal year 2003 an increase of $3.0
million from the prior year quarter. This increase is due to the acquisition of
MNC in the third quarter of fiscal 2002 and the related increase in the number
of products developed in the second quarter of fiscal 2003. As a percentage of
revenue, research and development decreased to 14.2% in the second quarter of
fiscal year 2003 as compared to 15.2% in the prior year period. The increased
expense represented a lower percentage of revenue due to the significant
increase in sales during the second quarter of fiscal year 2003 as compared to
the prior year quarter.
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 continuously attempt to
control expense levels in all areas including research and development. However,
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, Administrative and Other. Selling, general, administrative and
other expense (SG&A) was $9.3 million for the second quarter of fiscal year
2003, an increase of $3.8 million from the prior year quarter. As a percentage
of total revenue, selling, general and administrative expenses increased to
15.0% in the second quarter of fiscal year 2003 as compared to 14.3% in the
prior year quarter. SG&A expenses consist mainly of salaries and related
expenses, sales commissions, professional and legal fees, facilities expenses
and amortization of intangibles. The increase from the prior year quarter is
primarily due to the acquisition of MNC and variable expenses relating to
increased revenues. These increases were offset by declines in general and
administrative expenses specifically from a reduction of legal fees due to the
settlement with Cypress (see Note 12).
Operating Income. In dollar terms, operating income was $18.2 million in the
second quarter of fiscal year 2003 compared to $11.2 million in the second
quarter of fiscal year 2002. Expressed as a percentage of revenue,
operating income was 29.4% and 29.0% in the second quarter of fiscal year 2003
and the prior year quarter, respectively.
Interest Expense. Interest expense was $0.4 million in the second quarter of
fiscal year 2003 and $23,000 in the second quarter of fiscal year 2002. The
increase in interest expense is due to the funds borrowed to acquire MNC in the
third quarter of fiscal 2002.
Interest and Other Income. Interest and other income was $1.0 million for the
quarter ended December 28, 2002 and $0.7 million in the prior year quarter. The
increase is attributable to the sale of 1.0 million shares of our investment in
Maxtek Technology Co. Ltd (Maxtek) for a gain of $0.3 million. (See Liquidity
and Capital Resource section of this Form 10-Q).
Income Tax Expense. Our effective income tax rate was 15.3% for the second
quarter of fiscal year 2003 as compared to 14.2% in the prior year period. The
effective tax rate for fiscal years 2003 and 2002 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
revenue and income in our US operations 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 a $43.6 million liability as of December 28, 2002.
SIX MONTHS ENDED DECEMBER 28, 2002 AS COMPARED TO SIX MONTHS ENDED DECEMBER 29,
2001
Revenue. Consolidated revenue for the first half of fiscal year 2003 was $119.8
million, an increase of $45.5 million from the corresponding prior year period.
The major revenue growth driver from the same period last year was the
acquisition of new technology in the communications sector. In addition, revenue
growth from a beginning ramp for clocks into DDR registered memory modules also
contributed and the unexpected demand in PC markets. The average selling price
increased 15.0%, while the volume increased 40.2%.
Foreign revenue (which includes shipments of integrated circuits ("ICs") to
foreign companies as well as offshore subsidiaries of US multinational
companies) was 75.5% of total revenue for the first six months of fiscal year
2003 as compared to 78.6% of total revenue in the prior year period. This
decrease is attributable to percentage of domestic sales acquired from our
purchasing MNC. Certain of our international sales were to customers in the
Pacific Rim, which in turn sold some of their products to North America, Europe
and other non-Asian markets. Our sales are denominated in U.S. dollars and
minimize foreign currency risk.
Gross Margin. Cost of sales for the first half of fiscal year 2003 was $49.0
million, an increase of $17.9 million from the corresponding prior year period.
Cost of sales as a percentage of total revenue was 40.9% for the first six
months of fiscal year 2003 as compared to 42.0% in the prior year period. The
overall increase in margin is due to product mix and material cost savings.
Research and Development Expense. Research and development expense for the first
half of fiscal year 2003 was $17.0 million, an increase of $4.5 million from the
corresponding prior year period. As a percentage of revenue, research and
development decreased to 14.2% in the first six months of fiscal year 2003 as
compared to 16.8% in the prior year period. Although our acquisition is
attributable to a portion of the increase, the increase in the number of new
products developed in the second quarter of fiscal 2003 was also a contributing
factor. The increased expense represented a lower percentage of revenue due to
the significant increase in sales during the first six months of fiscal year
2003.
Selling, General, Administrative and Other. SG&A expense for the first half of
fiscal year 2003 was $19.5 million, an increase of $9.5 million from the
corresponding prior year period. As a percentage of total revenue, selling,
general, administrative and other expenses increased to 16.3% in the first half
of fiscal year 2003, compared to 13.4% in the prior year period. The increase is
attributable to several factors, including the acquisition of MNC and the
amortization of intangibles acquired in the purchase of MNC, a non-recurring
deferred compensation charge in the first quarter of fiscal 2003 and an increase
in variable expenses due to the increase in sales during the first six months of
fiscal year 2003.
Operating Income. Operating income increased by $13.6 million to $34.2 million,
compared to the corresponding prior year period. Expressed as a percentage of
revenue, operating income was 28.6% and 27.8% in the first six months of fiscal
year 2003 and the prior year period, respectively.
Interest Expense. Interest expense increased by $0.9 million to $0.9 million,
compared to the corresponding prior year period. The increase in interest
expense is due to the funds borrowed to acquire MNC in the third quarter of
fiscal 2002.
Interest and Other Income. Interest and other income was $1.6 million for both
six months period. Although an increase in cash flows from operations has
contributed to greater cash balance available for investing, reductions by the
Federal Reserve over the past few years have impacted rates available for
investing.
Income Tax Expense. Our effective income tax rate for the first six months of
fiscal year 2003 was 15.1% as compared to 14.4% in the corresponding prior year
period. The effective tax rate for fiscal years 2003 and 2002 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 revenue and income in our domestic operations,
including income from the acquisition of MNC. 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 $43.6 million liability as of December 28, 2002.
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 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 ("ASSP"), 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 December 28, 2002, our principal sources of liquidity included cash and
investments of $115.7 million as compared to the June 29, 2002 balance of $110.5
million. Net cash provided by operating activities was $40.7 million in the
first six months of fiscal year 2003, as compared to $28.5 million in the prior
year period. This increase is primarily attributable to the increase in our
profitability and the decrease in inventory. As a result of our continued
collection efforts, our days sales outstanding decreased to 42 days, while our
effort on improving our inventory controls and increased sales volume resulted
in inventory turns increasing from 4.7 times in fiscal year 2002 to 6.3 times in
the quarter ending December 28, 2002.
Purchases for property and equipment were $1.9 million in the first six months
of fiscal year 2003 as compared to $1.6 million in the prior year period as we
purchased production equipment for our Singapore and Worcester facilities and
began the conversion of MNC onto our business systems.
In fiscal year 2001, we entered into an Investment and Stock Trade Agreement
(the "agreement") with Maxtek, a distributor in Taiwan. 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.
In the second quarter of fiscal 2003, we sold 1.0 million shares or 25% of our
investment in Maxtek for a gain of $0.3 million. The sale agreements also
provide the buyers the option to buy another 25% of our shares by the later of
March 31, 2003 or one month after the buyers receive certain Maxtek financial
statements. As of December 28, 2002, we owned 3.0 million shares, or
approximately 7 1/2 % of Maxtek.
Maxtek, our distributor for our PC business in Taiwan and China, represented
approximately 20% of our sales for the first six months of fiscal year 2003, and
18% in the prior year period. Additionally, sales to Lacewood International
Corp, formerly known as Maxtech Corporation Limited, an entity which is commonly
controlled by the owners' of Maxtek representing business in Hong Kong and
China, were 20% of our sales in both six month periods.
In September 2001, we announced a 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 to
increase the number of shares to be repurchased under this repurchase program to
3.0 million. As of December 28, 2002, we had purchased 850,000 shares for $10.3
million.
On January 4, 2002, we acquired MNC for $75.1 million, net of cash acquired. 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. The
purchase price includes $5.6 million in purchase accounting liabilities. Of the
total amount recorded, $4.3 million represents costs associated with closing or
moving office and production activities and $1.3 million represents severance
and other personnel costs. We expect to complete the restructuring by the end of
calendar 2003. As of December 28, 2002, we have expended approximately $1.0
million and $0.4 million of this reserve relating to severance and facility
closing costs, respectively. Approximately $0.3 million of the remaining amount
relates to severance and other personnel costs, which will to be paid in fiscal
year 2003, $1.7 million relates to vacate facilities leased with expiration
dates through 2012 and the remaining $2.6 million balance represents fixed
assets that will be disposed. This reserve is included in "Accrued expense and
other current liabilities" in the Balance Sheet. The results of MNC have been
included in the consolidated financial statements since the acquisition date.
In connection with the acquisition of MNC, we entered into a revolving credit
and term loan facility dated December 31, 2001, which will expire December 31,
2004. The new facility enables 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 rates under the term loan will be 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% or (2) London Interbank Offer Rate ("LIBOR")
plus 1.75%. At our option, the interest rates under the Revolving Credit Loan,
will be either (1) the Base Rate or (2) the LIBOR Rate plus a pre-formulated
margin. Currently we have selected LIBOR plus 1.75% as the interest rate on our
term loan. During the first six months of fiscal year 2003, we paid down $15.0
million of the term loan. As of December 28, 2002, $27.0 million was outstanding
on our term loan.
The following summarizes our significant contractual obligations and commitments
as of December 28, 2002 (in thousands):
Contractual Less than After
Obligations Total 1 year 1 - 3 years 4 - 5 years 5 years
- ------------------------------------------------------------------------------
Long-Term Debt $27,000 $16,000 $11,000 $ -- $ --
Operating Leases 16,540 2,913 5,430 4,990 3,207
- ------------------------------------------------------------------------------
Total $43,540 $18,913 $16,430 $4,990 $3,207
- ------------------------------------------------------------------------------
Operating leases primarily consist of leased facilities that we utilize in
various locations.
Certain of our loan agreements require the maintenance of specified financial
ratios, including a fixed charge coverage ratio, a funded debt to EBITDA ratio
and a minimum tangible net worth, and impose financial limitations. At December
28, 2002, we were in compliance with the covenants.
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 were 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 July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the recognition,
measurement and reporting of costs associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance set forth in Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
The scope of SFAS No. 146 includes costs related to terminating a contract that
is not a capital lease, costs to consolidate facilities or relocate employees,
and certain termination benefits provided to employees who are involuntarily
terminated. SFAS No. 146 also requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan. SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002.
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.
Interest Rate Risk
In connection with our bank agreement, we entered into an 18-month interest rate
swap agreement with the same financial institution. The interest rate swap
agreement essentially enables us to manage the exposure to fluctuations in
interest rates on a portion of our term loan.
Our term loan requires us to pay interest based on a variable rate. Under the
interest rate swap agreement; we are exchanging the variable rate interest on a
portion of our term loan, equal to 50% of the outstanding loan amount, with a
fixed rate of 5.0%. The interest rate swap agreement is in effect until June
2003, with the notional amount decreasing to $14.8 million over the effective
period.
The interest rate swap agreement has been designated as a cash flow hedge and,
therefore, changes in the fair value of the agreement will be recorded in
comprehensive loss. To date there has not been a significant change in fair
value of the agreement.
We do not use derivatives for trading or speculative purposes, nor are we party
to leverage derivatives.
The company had interest expense of $0.9 million for the first six months of
fiscal year 2003. The potential increase in interest expense for the first six
months of fiscal year 2003 from hypothetical 2% adverse change in variable
interest rates would be approximately $0.2 million.
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 a date within 90 days of the filing date of this Quarterly Report on Form
10-Q, 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.
Changes in internal controls. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their most recent evaluation.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held October 29, 2002, the
stockholders of the Company elected two directors of the Company.
Mr. Michael A Krupka and Mr. John D. Howard were elected to serve as
directors at the meeting. The voting results were 60,132,768 shares in
favor and 949,542 shares abstained for Mr. Krupka and 60,132,768 shares in
favor and 949,542 shares abstained for Mr. Howard.
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K:
None
(b) The following is a list of exhibits filed as part of the Form 10-Q:
(99.1) Certification pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer)
(99.2) Certification pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer)
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: February 11, 2003 By: /s/ Hock E. Tan
------------------------------------------
Hock E. Tan
President and Chief Executive Officer
Date: February 11, 2003 By: /s/ Justine F. Lien
--------------------------------------
Justine F. Lien
Vice President, Finance and Chief
Financial Officer
(Principal financial & accounting officer)
CERTIFICATIONS
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Hock E. Tan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integrated
Circuit Systems, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the Evaluation Date, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
February 11, 2003 /s/ Hock E. Tan
Date --------------------------------------
Hock E. Tan
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Justine F. Lien, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Integrated
Circuit Systems, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the Evaluation Date, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
February 11, 2003 /s/ Justine F. Lien
Date --------------------------------------
Justine F. Lien
Senior Vice President and Chief
Financial Officer