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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended June 28, 2003

OR

Commission file number 0-19299

Integrated Circuit Systems, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (610) 630-5300

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

(Title of class)

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

On September 6, 2003, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $2,461,000,000.00.

As of September 6, 2003, there were 71,870,404 shares of Common Stock, $0.01 par value, outstanding.

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DOCUMENTS INCORPORATED BY REFERENCE

Certain statements contained in the Company’s Definitive Proxy Statement for the 2003 Annual Meeting of Shareholders (the “Definitive Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

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PART I

Item 1. BUSINESS

General

Integrated Circuit Systems, Inc. was incorporated in Pennsylvania in 1976, and began by designing and marketing custom application specific integrated circuits (“ASICs”) for various industrial customers. In particular, we were noted for our unique expertise in designing ASICs, which combined both analog and digital, or “mixed-signal”, technology. By 1988, we had adopted a strategy of developing proprietary integrated circuits (“ICs”) to capitalize on our complex mixed-signal design technology and pioneered the market for frequency timing generators or silicon timing devices which provide the timing signals or “clocks” necessary to synchronize high performance electronic systems. Clocks replaced the multiple crystal oscillators and other peripheral circuitry previously used to generate and synchronize timing signals, thus providing savings in board space, power consumption and cost. Our clock products were initially used in video graphics applications in personal computers (“PCs”), but subsequently expanded to include motherboards, PC peripheral devices such as disk drives, audio cards, laser printers and other digital consumer electronics such as digital set-top boxes and games consoles. We further extended into communications, which needs high performance clocking solutions supporting networking, telecommunication, workstation and server applications. Additionally, we now offer surface acoustic wave (“SAW”) technology to develop high performance products for telecommunications and wireless infrastructure markets.

Our “first” initial public offering of common stock occurred in June 1991, at which time our common stock commenced trading on the Nasdaq National Market under the symbol ICST.

On May 11, 1999, we merged with ICS Merger Corp., a transitory merger company formed and wholly owned by the affiliates of Bain Capital, LLC and Bear, Stearns and Company Inc. We refer to this event as the recapitalization. We issued $100.0 million in aggregate principal amount of senior subordinated notes and entered into a $95.0 million senior credit facility in connection with the recapitalization. Our common stock was no longer traded on the Nasdaq National Market. We no longer filed periodic reports with the Securities and Exchange Commission until we filed the registration statement filed in connection with the exchange offer for the senior subordinated notes in October 1999.

On May 22, 2000, we completed our “second” initial public offering of 12.5 million shares of our common stock. We used the net proceeds of this initial offering to repay our bank debt, close our tender offer for subordinated notes, and pay the fees and expenses associated with the offering.

On May 31, 2001, a secondary offering took place, in which certain shareholders of the Company sold 11.3 million shares of our common stock to the public. We did not receive any of the proceeds from the sale of the shares in this secondary offering.

On January 4, 2002 we acquired Micro Networks Corporation (“MNC”) for $74.9 million, net of cash acquired. MNC is a supplier of a broad range of precision electronic devices and modules for optical networking wireless and broadband infrastructure, high-end network servers and defense electronic markets. We believe that by acquiring MNC we now have access to technology, that will enhance the performance of our silicon timing products in order to strengthen our position within existing strategic markets such as servers and storage systems. The purchase price includes $5.6 million in purchase accounting liabilities and write-down of certain fixed assets related to our preliminary plan to restructure the activities of MNC. MNC received a $2.5 million income tax refund during fiscal year 2003 and as a

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result goodwill was adjusted. The results of MNC have been included in the consolidated financial statements since the acquisition date.

Products and Product Applications

We supply a broad line of timing products for use in PC motherboard and peripheral applications. These silicon timing devices control multiple processes by providing and synchronizing the timing of the computer system, including signals from the video screen, graphics controller, memory, keyboard, microprocessor, disk drives and communication ports.

We also design, develop and market silicon timing devices for other applications such as games consoles, digital set-top boxes, digital cameras, laser printers, flat panel displays and digital TVs. Crystal oscillators have traditionally served the timing requirements of these products. Crystal oscillators are predominately quartz-based crystals that resonate at a single set frequency. In situations where a single clock can replace multiple crystal oscillators, clocks have emerged as both more cost-effective and technologically superior solutions than the crystal-based standard. We view the $4 billion crystal-based oscillator market as a future growth opportunity, as our clock products provide viable alternatives to the present crystal-based standard. Several application segments are leading the conversion from crystal oscillators to silicon timing devices, including, telecom and networking equipment and mass storage systems.

A significant growth area for clocks is communications. As the Internet usage expands, there is a need for increased bandwidth and infrastructure. These increased requirements are driving demands for silicon timing devices.

We also sell leading edge mixed-signal (analog and digital) integrated circuits customized to the specific requirements of a broad range of customers and applications. Custom mixed-signal products are used in medical, consumer and industrial applications.

Micro Networks’ main frequency source product line includes fixed-frequency and voltage-controlled oscillators, phase-locked loops, synthesizers and clock distribution modules. Our SAW-based product offerings are narrow and wideband bandpass and band reject filters, switched filter banks and unity gain modules. SAW technology is also used for several oscillator-based products.

Sales and Marketing

We market our products through a direct sales force that manages a worldwide network of independent sales representatives and distributors. We direct our sales efforts through offices in Norristown, PA, San Jose, CA, Worcester, MA, Taipei, Taiwan, Tokyo, Japan, and Seoul, Korea and throughout Europe. We currently have more than 1,600 OEM end customers. Maxtek Technology Co. Ltd. and Lacewood Corporation, the latter formerly known as Maxtech Corporation Limited, overseas distributors in China and Taiwan and China and Hong Kong respectively, who are commonly controlled, accounted for 20% and 21% of our fiscal year 2003 revenue, respectively. These international distributors sell to approximately 130 OEM end customers.

Foreign sales are directly conducted by sales representatives and distributors located in the Pacific Rim and Europe, and managed by direct sales staff in the Europe, Taiwan, Korea and Japan sales offices. Foreign sales are denominated in U.S. dollars and are subject to risks common to export activities, including governmental regulation and trade barriers.

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Our backlog includes customer-released orders with firm schedules for shipment within the next twelve months. Generally, these orders may not be canceled without 45 days advance notice. Customer relationships are generally not subject to long-term contracts. Product delivery schedules are frequently revised to reflect changes in customer needs. For these reasons, our backlog at any particular date is not representative of actual sales or any succeeding period, and we believe that our backlog is not a meaningful indicator of future events.

Our revenues are subject to fluctuations primarily as a result of competitive pressures on selling prices, changes in the mix of products sold, the timing and success of new product introductions and the scheduling of orders by customers.

We generally warrant that our products will be free from defects in workmanship and materials for a one-year period. Defective products returned to us within the warranty period are replaced or refunded after a confirming evaluation by our quality control staff. We have not experienced significant warranty claims to date.

Manufacturing

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

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

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

We believe that adequate capacity will be available to support our manufacturing requirements. Our reliance, however, on multiple, offshore, outside subcontractors involves several risks, including capacity constraints or delays in timely delivery and reduced control over delivery schedules, quality assurance and costs. We are continuously seeking to obtain additional sources of supply and capacity for more advanced process technologies, although there can be no assurance that such additional sources and capacity can be obtained. The occurrence of any supply or other problems resulting from these risks could have a material adverse effect on our operating results.

Research and Development

The design process for our products is extremely complex and iterative, involving the development of a prototype through computer-aided design, the use of simulation methodology, the generation of photo masks for the manufacturing process, the fabrication of wafers and the characterization of the prototype on test systems before submission to customers for qualification. Research and development efforts concentrate on the design and development of new leading-edge products for our markets and the continual enhancement of our design capabilities.

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During fiscal year 2003, we developed and introduced to market 762 new products. For over twenty years, we have developed libraries of proprietary mixed-signal integrated circuit designs and have invested in extensive computer-aided design and engineering resources specifically designed to support the increasing complexity and customized nature of silicon timing devices. Our company’s SAW capabilities include a library of proprietary device design algorithms utilized by our engineers. Investments in research and development were approximately $35.0 million, $29.2 million and $28.3 million in fiscal years 2003, 2002 and 2001, respectively. Such expenses typically include costs for engineering personnel, prototype and wafer mask costs, and investment in design tools and support overhead related to new and existing product development. As of June 28, 2003, our research and development staff comprised 128 people. We will continue to invest in research and new product development and invest in new technologies to support our current and future customers.

Patents, Licenses and Trademarks

We hold several patents, as well as copyrights, proprietary mask sets, and trademarks with respect to our various products and expect to continue to file applications in the future as a means of protecting our technology and market position. Most of our earlier patents carry a 20-year life and begin expiring in fiscal year 2010. In addition, we seek to protect our proprietary information and know-how through the use of trade secrets, confidentiality agreements and other security measures. To augment product feature sets or accelerate development schedules, we license certain technologies. No single license, however, is believed to be material to our business. In certain instances, we have performed design services pursuant to an agreement by which we transferred certain of our intellectual property rights in the final product to our customers. Such transfers are also not deemed material to our business. There can be no assurance, however, that these measures and/or others will be adequate to safeguard our interests or preserve our competitive position or protect us from allegations regarding potential patent infringement.

In connection with the purchase of MNC, we acquired $36.3 million of intangible assets based on an independent appraisal. Of this amount, $2.9 million was assigned to research and development assets that were written off at the date of acquisition. The remaining $33.4 million of intangible assets include a customer base valued at $12.0 million (6 year weighted-average useful life); a trade name valued at $3.0 million (ten year weighted-average useful life) and developed technology valued at $18.4 million (indefinite useful life).

As is typical in the semiconductor industry, we have, from time to time, been notified that we may be infringing certain patents and other intellectual property rights of others. Such matters are evaluated and reviewed with counsel. There can be no assurance that litigation will not be commenced in the future regarding any claim of infringement of any intellectual property right, or that, if required, any licenses or other rights could be obtained on acceptable terms.

Competition

In general, the semiconductor and PC component industries are intensely competitive and characterized by rapid technological changes, price erosion, cyclical shortages of materials and variations in manufacturing yields and efficiencies. Our ability to compete in this dynamic and opportunistic environment depends on factors both within and outside our control, including new product introduction, product quality, product performance and price, cost-effective manufacturing, general economic conditions, the performance of competition and the growth and evolution of the industry in general. There are several substantial entities in the industry who are much larger than us and who could, and do, exert significant influence in determining the pace and key trends in the development of PCs and PC components. Moreover, some of our current and potential competitors

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have significantly greater financial, technical, manufacturing and marketing resources. Competitors also include privately owned and emerging companies attempting to secure a share of the market for our products.

Forward-Looking Statements

This report contains forward-looking statements, including, without limitation, statements concerning the conditions in the semiconductor and semiconductor capital equipment industries, our operations, economic performance and financial condition, including in particular statements relating to our business and growth strategy and product development efforts. The words “believe,” “expect,” “anticipate,” “intend” and other similar expressions generally identify forward-looking statements. For such statements we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements, are based largely on our current expectations and are subject to a number of risks and uncertainties, including, without limitation, those identified under the “Factors That May Affect Future Results” section and elsewhere in this report and other risks and uncertainties indicated from time to time in our other filings with the Securities and Exchange Commission (“SEC”). Actual results could differ materially from these forward-looking statements. In addition, important factors to consider in evaluating such forward-looking statements include changes in external market factors, changes in our business or growth strategy or an inability to execute our strategy due to changes in our industry or the economy generally, the emergence of new or growing competitors and various other competitive factors. In light of these risks and uncertainties, there can be no assurance that the matters referred to in the forward-looking statements contained in this report will in fact occur.

We do not undertake to update our forward-looking statements or factors that may affect future results to reflect future events or circumstances.

Factors That May Affect Future Results

You should carefully consider the following factors in addition to the other information set forth in this 10-K in analyzing an investment in our Company. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not presently know about or that we currently believe are immaterial may also inadvertently impact our business operations. If any of the following risks actually occur, our business, financial condition or results of operations will likely suffer. In such case, the trading price of our common stock could fall, and you may lose all or part of the money you paid to buy our common stock. This 10-K contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, as well as those discussed elsewhere in this 10-K.

Our future operating results are likely to fluctuate and therefore may fail to meet expectations, which would cause our stock price to decline.

Our operating results have varied widely in the past and are likely to do so in the future. In addition, our operating results may not follow any past trends. Our future operating results will depend on many factors and might fail to meet our expectations for a number of reasons. Any failure to meet expectations could cause our stock price to significantly fluctuate or decline.

Factors that could cause our operating results to fluctuate that relate to our internal operations include:

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Factors that could cause our operating results to fluctuate that depend on our suppliers and customers include:

Downturns in the business cycle could reduce our revenues and the profitability of our business.

The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. This industry has experienced significant downturns, which have been characterized by diminished product demand, production overcapacity, high inventory levels, accelerated erosion of average prices and industry-wide fluctuations in the demand for semiconductors, which have resulted in under-utilization of design capacity. Any future downturns could have a material adverse effect on our business and operating results. Furthermore, any upturn in the semiconductor industry could result in increased demand for, and possible shortages of, components we use to manufacture and assemble our ICs. Such shortages could have a material adverse effect on our business and operating results.

Our markets may experience severe and prolonged downturns in the future. According to the Semiconductor Industry Association (“SIA”), calendar year 2001 was the most severe year ever in the semiconductor industry, experiencing a 32% decline. However, sales began to turn towards the end of calendar year 2001 and growth for calendar year 2002 was 1.3%. The projected compounded annual growth rate for calendar years 2003-2006, per the SIA, is forecasted to be 9.6%.

The markets for our products depend on continued demand for PCs, communications equipment and consumer electronics. There can be no assurance that these end-user markets will not experience changes in demand that will adversely affect our business.

Our inability to introduce new products based on the latest technology could adversely affect our business.

The markets for our products are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Product life cycles are continually becoming shorter, which may cause the gross margins of semiconductor products to decline as the next generation of competitive products is introduced. Therefore, our future success is highly dependent upon our ability to continually develop new products using the latest and most cost-effective technologies, introduce our products in commercial quantities to the marketplace ahead of the competition and have our products selected for inclusion in products of leading systems manufacturers’ products. We cannot assure you that we will be able to regularly develop and introduce such new products on a timely basis or that our products, including recently introduced products, will be selected by systems manufacturers for incorporation into their products. Our failure to design and develop such new products, to have our products available in commercial quantities ahead of competitive products or to have our products selected for inclusion in products of systems manufacturers would have a material adverse effect on our results of operations and financial condition.

Rapidly changing technology and continuing process development characterize the market for communications applications. Our future success in the communications applications market depends in part on our ability to design and produce products that meet the changing needs of customers in this

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market. We can not assure you that we will be able to regularly develop and introduce products that will be selected by communications applications manufacturers for incorporation into their products.

Our business is very competitive and increased competition could adversely affect us.

The semiconductor and PC component industries are intensely competitive. Our ability to compete depends heavily upon elements outside our control, such as general economic conditions affecting the semiconductor and PC industries and the introduction of new products and technologies by competitors. Many of our competitors and potential competitors have significant financial, technical, manufacturing and marketing resources. These competitors include major multinational corporations possessing worldwide wafer fabrication and integrated circuit production facilities and diverse, established product lines. Competitors also include emerging companies attempting to obtain a share of the existing market for our current and proposed products. We also compete with alternative timing solutions, such as crystal oscillators. To the extent that PCs, communications equipment and consumer electronics OEMs choose to install crystal oscillators as timing devices in their products, demand for our products may decline. To the extent that our products achieve market acceptance, competitors typically seek to offer competitive products or embark on pricing strategies, which, if successful, could have a material adverse effect on our results of operation and financial condition.

We depend on the PC Industry and our business could be adversely affected by a decline in the PC market.

A substantial portion of the sales of our products depends largely on sales of PCs and peripherals for PCs. The PC industry is subject to price competition, rapid technological change, evolving standards, short product life cycles and continuous erosion of average selling prices. Should the PC market decline or experience slower growth, then a decline in the order rate for our products could occur. A downturn in the PC market could also affect the financial health of some of our customers, which could affect our ability to collect outstanding accounts receivable from such customers.

Our inability to obtain wafers and assemblers could seriously affect our operations.

We currently depend upon third-party suppliers for the manufacture of the silicon wafers from which our finished ICs are manufactured and for the packaging of finished ICs from silicon wafers. We cannot assure you that we will be able to obtain adequate quantities of processed silicon wafers within a reasonable period of time or at commercially reasonable rates. In the past, the semiconductor industry has experienced disruptions from time to time in the supply of processed silicon wafers due to quality or yield problems or capacity limitations. Two outside foundries manufacture virtually all of our wafers. If one or more of these foundries is unable or unwilling to produce adequate supplies of processed wafers on a timely basis, it could cause significant delays and expense in locating a new foundry and redesigning circuits to be compatible with the new manufacturer’s processes and, consequently, could have a material adverse effect on our results of operations and financial condition. We also rely upon third parties for the assembly of our finished integrated circuits from processed silicon wafers. We currently rely on three assemblers, two of which produce most of our finished integrated circuits. While we believe that there is typically a greater availability of assemblers than silicon wafer foundries, we could nonetheless incur significant delays and expense if one or more of the assemblers upon which we currently rely are unable or unwilling to assemble finished integrated circuits from silicon wafers.

If we lose any customers, our sales could decline.

Our 10 largest OEM end customers accounted for approximately 50% of our total revenue in fiscal year 2003. Maxtek Technology Co. Ltd. and Lacewood Corporation, the latter formerly known as Maxtech Corporation Limited, overseas distributors in China and Taiwan and China and Hong Kong respectively, who are commonly controlled, accounted for 20% and 21% of our fiscal year 2003 revenue, respectively. These international distributors sell to approximately 130 OEM end customers. Because we are dependent upon continued revenue from OEM end customers, any material delay,

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cancellation or reduction of orders from these or other major customers could cause our sales to decline significantly. There is no guarantee that we will be able to retain any of our customers. In addition, our customers may materially reduce the amount of product ordered from us at any time. This could cause a significant decline in our net sales and we may not be able to reduce the accompanying expenses at the same time.

If we fail to accurately forecast demand for our products, we may have large amounts of unsold products or we may not be able to fill all orders.

We provision semiconductors based primarily on our internal forecasts, and secondarily on existing orders, which may be cancelled under many circumstances. Consequently, we depend on our forecasts to determine inventory levels for our products. Because our markets are volatile and subject to rapid technological and price changes, our forecasts may be wrong, and we may make too many or too few of certain products. Also, our customers frequently place orders requesting product delivery almost immediately after the order is made, which makes forecasting customer demand even more difficult. The above factors also make it difficult to forecast quarterly operating results. If we are unable to predict accurately the appropriate amount of product required to meet customer demand, our business, financial condition and results of operations could be seriously harmed.

Our business could be adversely affected by changes in political and economic conditions abroad.

For the fiscal years 2003, 2002, and 2001, we generated approximately 74.6%, 78.6% and 71.0% of our revenue, respectively, from international markets. These sales were generated primarily from customers in the Pacific Rim region and included sales to foreign corporations, as well as to foreign subsidiaries of U.S. corporations. Certain of our international sales are to customers in the Pacific Rim region, who in turn sell some of their products to North America, Europe and other non-Asian markets. In addition, two of our wafer suppliers and all of our assemblers are located in the Pacific Rim region. There can be no assurance that the effect of an economic crisis on our suppliers will not impact our wafer supply or assembly operations, or that the effect on our customers in that region will not adversely affect both the demand for our products and the collectibility of our receivables. Our international business activities in general are subject to a variety of potential risks resulting from certain political, economic and other uncertainties including, without limitation, political risks relating to a substantial number of our customers being in Taiwan. Certain aspects of our operations are subject to governmental regulations in the countries in which we do business, including those relating to currency conversion and repatriation, taxation of our earnings and earnings of our personnel, and our use of local employees and suppliers. Our operations are also subject to the risk of changes in laws and policies in the various jurisdictions in which we do business, which may impose restrictions on us. We cannot determine to what extent our future operations and earnings may be affected by new laws, new regulations, changes in or new interpretations of existing laws or regulations or other consequences of doing business outside the U.S. Our activities outside the U.S. are subject to additional risks associated with fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange, even though business is denominated in U.S. dollars. Additionally, worldwide semiconductor pricing is influenced by currency fluctuations and the devaluation of foreign currencies could have a significant impact on the prices of our products if our competitors offer products at significantly lower prices in an effort to maximize cash flows to finance short-term, dollar denominated obligations; such devaluation could also impact the competitive position of our customers in Taiwan and elsewhere, which could impact our sales. Currently, we do not engage in currency hedging activities as all transactions are denominated in U.S. dollars.

We may make acquisitions, which could subject us to a number of operational risks.

In order to grow our business and maintain our competitive position, we may acquire other businesses in the future. We cannot predict whether or when any acquisitions will occur. Acquisitions commonly

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involve certain risks, and we cannot assure you that any acquired business will be successfully integrated into our operations or will perform as we expect. Any future acquisitions could involve certain other risks, including the assumption of additional liabilities, potentially dilutive issuances of equity securities and diversion of management’s attention from other business concerns. Furthermore, we may issue equity securities or incur debt to pay for any future acquisitions. If we issue equity securities, your percentage of ownership of our company would be reduced. If we issue debt securities, our financial condition may be strained by the requirement to pay interest and other debt-related costs. In addition, our operations may be restricted by the covenants associated with these debt securities. We may also enter into joint venture transactions. Joint ventures have the added risk that the other joint venture partners may have economic, business or legal interests or objectives that are inconsistent with our interests and objectives. We may also have to fulfill our joint venture partners’ economic or other obligations if they fail to do so.

Our inability to secure and protect our intellectual property, and/or the effort of third parties to enforce their own intellectual property rights against us, has in the past resulted and may in the future result in costly and time-consuming litigation.

We hold several patents as well as copyrights, mask works and trademarks with respect to various products and expect to continue to file applications in the future as a means of protecting our technology and market position. In addition, we seek to protect our proprietary information and know-how through the use of trade secrets, confidentiality agreements and other similar security measures. With respect to patents, there can be no assurance that any applications for patent protection will be granted, or, if granted, will offer meaningful protection. Additionally, there can be no assurance that competitors will not develop, patent or gain access to similar know-how and technology, or reverse engineer our products, or that any confidentiality agreements upon which we rely to protect our trade secrets and other proprietary information will be adequate to protect our proprietary technology. The occurrence of any such events could have a material adverse effect on our results of operations and financial condition.

Patents covering a variety of semiconductor designs and processes are held by various companies. We have from time to time received, and may in the future receive, communications from third parties claiming that we might be infringing certain of such parties’ patents and/or other intellectual property rights. Any infringement claim or other litigation against or by us could have a material adverse effect on our results of operations and financial condition.

Virtually all of our key engineers worked at other companies or at universities and research institutions before joining us. Disputes may arise as to whether technology developed by such engineers was first discovered when they were employed by or associated with other institutions in a manner that would give third parties rights to such technology superior to our rights, if any. Disputes of this nature may arise in the future, and there can be no assurance that we will prevail in these disputes. To the extent that consultants, vendors or other third parties apply technological information independently developed by them or by others to our proposed products, disputes may also arise as to the proprietary rights to such information, which may not be resolved in our favor.

Loss of certain key members of our management or inability to attract and retain skilled personnel could negatively impact our business prospects.

We are dependent upon our ability to attract and retain highly skilled technical and managerial personnel. We do not maintain “key man” life insurance on Mr. Tan or any of our other technical or managerial personnel. We believe that our future success in developing marketable products and achieving a competitive position will depend in large part upon whether we can attract and retain skilled personnel. Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting and retaining the personnel we require to successfully develop new and

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enhanced products and to continue to grow and operate profitably. Furthermore, retention of technical and engineering personnel in our industry typically requires us to present competitive compensation packages, including stock option grants.

Some of our products may be subject to product liability claims.

Certain of our custom ICs products are sold into medical markets for applications, such as hearing aids. Although we believe that exposure to third-party claims has been minimized, there can be no assurance that we will not be subject to third-party claims in these or other applications or that any indemnification or insurance available to us will be adequate to protect us from liability. A product liability claim, product recall or other claim, as well as any claims for uninsured liabilities or in excess of insured liabilities, could have a material adverse effect on our results of operations and financial condition.

Provisions of our charter documents and Pennsylvania law could discourage potential acquisition proposals and could delay, deter or prevent a change in control.

Provisions of our articles of incorporation and by-laws may inhibit changes in control of our company not approved by our board of directors and would limit the circumstances in which a premium may be paid for the common stock in proposed transactions, or a proxy contest for control of the board may be initiated. These provisions provide for:

Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of 1988 prohibits certain transactions with a 20% shareholder, an “ interested shareholder,” for a period of five years after the date any shareholder becomes an interested shareholder unless the interested shareholder’s acquisition of 20% or more of the common stock is approved by our board of directors. This provision may discourage potential acquisition proposals and limit the circumstances in which a premium may be paid for our company.

The stock prices of technology companies such as ours are highly volatile and could drop unexpectedly.

The public markets have experienced volatility that has particularly affected the market prices of securities of many technology companies for reasons that have often been unrelated to operating results. During the course of the preceding twelve months ended June 28, 2003 the market price of our common stock traded within a range of $11.64 to $33.20 per share. This volatility may adversely affect the market price of our common stock and our visibility and credibility in the markets.

Employees

As of June 28, 2003, we had 503 full-time employees, 128 of whom were engaged in research and development, 44 in sales, 28 in marketing and technical support, 53 in finance and administration and 250 in manufacturing support and operations. We have incentive programs to reward and retain our personnel, especially our key research and development staff.

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Item 2. PROPERTIES

Our corporate headquarters, covering approximately 61,000 square feet, is located in Norristown, Pennsylvania. The lease will expire in February 2007 with monthly rent of approximately $56,000 in fiscal year 2003 and progressively increasing each year to approximately $63,000 in the final year of the lease term. We also have a renewal option of three years after the initial term.

We opened an approximate 10,000 square foot design facility in Tempe, Arizona in January 2000. The lease term for this facility is five years with monthly rent beginning at approximately $9,300 for the first year and progressively increasing each year to approximately $10,100 in the fifth year.

We utilize a facility located in Singapore for testing, warehousing, sales and administration, which consists of approximately 24,000 square feet of space leased pursuant to an agreement, which have various expiration dates through September 2006. The rent for this facility is approximately $19,000 per month.

Our San Jose operations consist of approximately 70,000 square feet of office space pursuant to a lease agreement, which will expire in December 2008. We believe that this facility is adequate to meet our requirements going forward. Monthly rent began at $100,100 per month, increasing annually to approximately $130,608 per month in 2008.

Our Worcester, Massachusetts facility consists of approximately 86,200 square feet of space leased pursuant to an agreement, which expires in December 2010 with monthly rent of approximately $39,400, progressively increasing each year to approximately $48,000 in the tenth year, with an option to renew for two more terms of 5 years.

Our Bloomfield, Connecticut facility consisted of approximately 16,400 square feet of space leased pursuant to an agreement, which was terminated in July 2003. The rent was approximately $6,700 per month.

Our Auburn, New York facility, which is primarily our defense production location, consists of approximately 21,533 square feet. This property was purchased in March of 1998.

Item 3. 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.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded in the over-the-counter market on the Nasdaq National Market System under the symbol ICST. Below are the quarterly high and low sale prices of our common stock for the fiscal years ended June 28, 2003 and June 29, 2002.

We have not in the past, and do not expect for the foreseeable future to pay dividends on our common stock. Instead, we anticipate that all of our earnings in the foreseeable future will be used for working capital and other general corporate purposes. Our existing term loan restricts our ability to pay dividends to the holders of our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions.

As of June 28, 2003, we had 70.2 million shares outstanding.

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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

Five Year Summary

(In thousands, except for per share data)

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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

Significant Transactions

Acquisition of Micro Networks Corporation

On January 4, 2002 we acquired Micro Networks Corporation (“MNC”) for $74.9 million, net of cash. We believe that by acquiring MNC we now have access to technology that will enhance the performance of our silicon timing products in order to strengthen our position within existing strategic markets such as servers and storage systems. The purchase price includes $5.6 million in purchase accounting liabilities and write-down of certain fixed assets related to our preliminary plan to restructure the activities of the acquired entity. MNC received a $2.5 million income tax refund during fiscal year 2003 and as a result goodwill was adjusted. The results of MNC have been included in the consolidated financial statements since the acquisition date.

Secondary Public Offering

In May 2001, a secondary offering took place, in which certain shareholders of the Company sold 11.3 million shares of our common stock to the public. We did not receive any of the proceeds from the sale of the shares in this secondary offering.

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Annual Results of Operations

The following table sets forth statement of operations line items as a percentage of total revenue for the periods indicated and should be read in conjunction with the Consolidated Financial Statements and Notes thereto.

(Expressed as a percentage of total revenue)