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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 2, 2004

OR

Commission File Number 000-29617

INTERSIL CORPORATION

(Exact name of Registrant as specified in its charter)

675 Trade Zone Boulevard

Milpitas, California 95035

(408) 945-1323

(Address and telephone number of principal executive offices)

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

Title of class

Class A Common Stock, par value $.01 per share

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 by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

The approximate aggregate market value of the registrant’s voting common stock held by non-affiliates, computed by reference to the price at which the common equity was last sold or the average bid and ask price of the common equity as of July 4, 2003 was $3,641,607,947.

The number of shares outstanding of the registrant’s Class A Common Stock as of March 8, 2004 was 139,890,443.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement to be filed with the Securities and Exchange Commission for the Registrant’s 2004 Annual Meeting are incorporated by reference into Part III of this Form 10-K.

Table of Contents

INTERSIL CORPORATION

FORM 10-K

January 2, 2004

TABLE OF CONTENTS

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Item 1. Business

General

We are a global designer and manufacturer of high performance analog integrated circuits (“ICs”). We believe our product portfolio addresses some of the fastest growing applications in four attractive end markets: high-end consumer, computing, communications and industrial.

Glossary of Technical Terms

We have included the following definitions of technical terms to aid the reader:

48-volt telecom: 48-volt telecom servers convert battery power, which is used by telephone switching equipment, into lower voltages, such as 1.5 volt, required by digital logic integrated circuits such as microprocessors.

ACPI: ACPI (Advanced configuration power interface) is the computing industry specification for the efficient handling of power consumption in desktop and mobile computers. ACPI specifies how a computer’s basic input/output system, operating system and peripheral devices communicate with each other. “Sleep states” like “suspend” or “hibernate” are controlled by devices following the ACPI standard.

ADSL: ADSL (Asymmetric digital subscriber line) is a technology for the transmission of digital information at a high bandwidth on existing phone lines to homes and businesses. Unlike regular dial-up phone service, ADSL provides continuously-available, “always on” digital connection. ADSL is asymmetric in that it uses most of the channel to transmit downstream to the user and only a small part to receive information from the user. ADSL can be used simultaneously with standard analog (voice) information on the same line. ADSL is generally offered at downstream data rates from 512 kilobits per second (Kbps) to about 6 megabits per second (Mbps) although speeds of up to 50 Mbps have been achieved.

DDR: DDR (Double data rate) is synchronous dynamic Random Access Memory (RAM) that can theoretically improve memory clock speed to at least 200 megahertz (MHz), enhancing the performance of a personal computer. It activates output on both the rising and falling edge of the system clock rather than just on the rising edge, potentially doubling the output for each clock cycle.

HDSL: HDSL (High bit-rate digital subscriber line), one of the earliest forms of DSL, is used for wideband digital transmission within a corporate site and between the telephone company and a customer. The main characteristic of HDSL is that it is symmetrical: an equal amount of bandwidth is available in both directions. HDSL can carry as much on a single wire of twisted-pair cable as a T1 line (up to 1.544 Mbps) in North America or an E1 line (up to 2.048 Mbps) in Europe over a somewhat longer range and is considered an alternative to a T1 or E1 connections.

Laser diode drivers: A laser diode driver is an integrated circuit design to drive a laser diode. A laser diode is a semiconductor device that produces coherent radiation (in which the waves are all at the same frequency and phase) in the visible or infrared (IR) spectrum when current passes through it. Such devices are used in all writeable optical storage devices to write to the storage media (e.g., CD-Rs or DVD-Rs).

Operational amplifier: The term operational amplifier or “op-amp” refers to a class of integrated circuit with two inputs, one output and a high-gain. This device is very flexible and is used in signal amplification and conditioning applications.

TFT-LCD: A display screen made with TFT (thin-film transistor) technology is a liquid crystal display (LCD), used in phones, televisions, notebook and laptop computers, that has a transistor for each pixel (that is, for each of the tiny elements that control the illumination of the display). Having a transistor at each pixel means that the current that triggers pixel illumination can be smaller than with other technologies and therefore can be switched on and off more quickly. TFT is also known as active matrix display technology (and contrasts with “passive matrix” which does not have a transistor at each pixel).

VDSL: VDSL (Very high bit rate digital subscriber line) is a higher speed version of ADSL. VDSL operates at data rates up to 70 to 80 Mbps, with its corresponding maximum reach ranging from 4500 feet to 1000 feet of 24 gauge twisted-pair cable.

VOIP: VOIP (Voice over Internet protocol) uses the Internet Protocol (IP) to transmit voice as packets over an IP network.

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Our Business Strategy

Our business strategy emphasizes the following key elements:

History

We were formed on August 13, 1999 through a series of transactions, in which we and our wholly-owned subsidiary, Intersil Communications, Inc. (“Intersil Communications”), acquired the semiconductor business of Harris Corporation (“Harris”). On March 16, 2001, we sold the assets of our Discrete Power products group to Fairchild Semiconductor Corporation (“Fairchild”) for $338.0 million in cash and the assumption by Fairchild of certain liabilities of the product group. On May 14, 2002, we consummated a merger with Elantec Semiconductor, Inc. (“Elantec”). On August 28, 2003, we sold the assets of our Wireless Networking products group to GlobespanVirata, Inc. (“GlobespanVirata”) for $250.0 million in cash and $114.4 million in GlobespanVirata common stock. Additionally, we kept the product group’s accounts receivable and accounts payable balances that existed at the time of sale.

Products and Technology

Our ongoing products are organized into four end market categories.

High End Consumer

Our high-end consumer products include our optical storage and video display products, our handheld power management products, and certain standard analog drivers. These products target high growth applications such as DVD recorders for the home market, liquid crystal display (“LCD”) televisions, smart phones and digital still cameras. High-end consumer represented 16% of our fiscal year 2003 revenue.

Computing

Our computing category includes desktop, server and notebook power management, including core power devices and other peripheral applications, such as graphics, ACPI control and DDR memory. Computing represented 32% of our sales in fiscal year 2003.

Communication

Our communications group is made up of our line drivers, broadband and hot plug power management products and high speed converters targeted to applications in markets such as DSL, home gateway, space and VOIP. Communications accounted for 24% of our sales in fiscal year 2003.

Industrial

Our industrial products include our Elantec family of operational amplifiers, bridge driver power management products, interface and analog switches and multiplexers, and other standard analog products. These products target end markets including medical imaging, energy management and factory automation. Industrial products represented 28% of fiscal year 2003 sales.

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Geographic Financial Summary

We operate exclusively in the semiconductor industry. Substantially all revenues were the result of sales from semiconductor products. A summary of the operations by geographic area is summarized below ($ in thousands):

We market our products for sale to customers, including distributors, primarily in the United States, China, Taiwan, Japan, Germany, Singapore, Korea, Thailand, Malaysia and the United Kingdom. Of our sales from continuing operations in fiscal year 2003, 25% were made to customers in the United States, 24% to customers in China, 13% to customers in Taiwan and 12% to customers in Japan. Customers in each of Germany, Singapore, Korea, Thailand, Malaysia and the United Kingdom accounted for at least 1% of our sales.

Export sales included in U.S. operations were $89.2 million, $139.6 million and $146.1 million during fiscal years 2001, 2002 and 2003, respectively.

Sales, Marketing and Distribution

In fiscal year 2003, we derived 71% of our sales from original equipment manufacturer (“OEM”) customers, original design manufacturer (“ODM”) customers, and contract manufacturers. We derived 29% of our sales through distributors and valued added resellers. Of our sales from continuing operations for fiscal year 2003, 12% were made to one distributor that supports a wide range of customers in Taiwan and China.

Our sales organizations are supported by customer service and logistics organizations throughout the world. Product orders flow to our fabrication facilities or to foundries where the semiconductor wafers are made. Most of our semiconductors are assembled and tested at the facilities of independent subcontractors. Finished products are then shipped to customers either directly or indirectly via third parties or internally–owned warehouses in the United States, Asia/Pacific and Europe.

To serve our customer base, we maintain a highly focused sales team, which focuses on those major accounts that are strategic to our marketing and product strategies. We also have direct geographical sales organizations, selling products in regions throughout the world. The geographical sales force works closely with a network of distributors and manufacturers’ representatives, creating a worldwide selling network. We have dedicated direct sales organizations operating in the North American, European, Japanese, and Asian Pacific markets. Sales offices are strategically located near major OEM and ODM customers throughout the world. The technical applications organization is deployed alongside the direct sales force, and is aligned by specific product grouping, ensuring both applications and product/customer focus. Our dedicated marketing organization supports field sales and is aligned by specific product group.

Manufacturers’ representatives generally do not offer products that compete directly with our products, but may offer complementary items manufactured by others. Manufacturers’ representatives do not maintain product inventory; instead, customers place large quantity orders either directly with us or through these Manufacturers’ representatives. Smaller quantity multiple product orders are placed through distribution.

Typically distributors handle a wide variety of products, including products that compete with our products. Some of our sales to distributors are made under agreements allowing for market price fluctuations and/or the right to return some unsold merchandise. Virtually all distribution agreements contain an industry standard stock rotation provision allowing for minimum levels of inventory returns. In our experience, these inventory returns can usually be resold. We recognize revenue shipped to North American distributors when the distributor sells the product. Sales made to international distributors are recognized when product is shipped.

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Research and Development

We believe that the continued introduction of new products in our target markets is essential to our growth. We incurred costs of $91.3 million, $77.9 million and $66.7 million on internal research and development projects for fiscal years 2003, 2002 and 2001, respectively. In 2003, we announced over 300 new products for our target markets. We believe that we must continue to innovate, enhance and expand our products and services to maintain our leadership position, and we intend to achieve this through in-house research and development efforts and acquisitions. As of January 2, 2004, we had 397 employees engaged in research and development efforts.

We also engage in advanced research projects with a number of universities, including the University of Florida, the Georgia Institute of Technology and Virginia Polytechnic Institute and State University. Technology and research has also been extended through selective investments in privately held emerging companies.

Manufacturing

We manufacture products using our own fabrication facility as well as external foundry companies, which produce products to our specifications. Our internal facility is located in Palm Bay, Florida.

In July 2002, we announced the closing of our factory located in Milpitas, California. This activity was successfully completed, on schedule, in November 2003. We also successfully completed the transfer of our operational amplifier/DSL production process to our Palm Bay facility.

Our Palm Bay, Florida facility features 6 inch, 0.6 micron processing capability utilizing an extensive set of manufacturing processes to fabricate our products including technologies such as: BiCMOS, Power BiCMOS, High Frequency Bipolar and CMOS. We outsource complex sub-micron CMOS and BiCMOS manufacturing to Taiwan Semiconductor Manufacturing Company (“TSMC”), AMI Semiconductor, IBM Semiconductor and others. The table below sets forth certain information regarding our manufacturing facility, products, wafer diameter and annual wafer capacity:

Our manufacturing processes use many raw materials, including silicon wafers and various chemicals and gases. We obtain our raw materials and supplies from a large number of sources on a just-in-time basis. Under a multi-year supply agreement with ChipPAC, Inc. (“ChipPAC”), it is our primary provider of semiconductor assembly and test services. We augment ChipPAC’s capabilities by utilizing several other assembly and test service companies. We also have limited assembly and testing capabilities in Palm Bay, Florida and Milpitas, California. Although supplies for the raw materials used by us are currently adequate, shortages could occur in various essential materials due to interruption of supply or increased demand in the industry.

Backlog

Our sales are made pursuant to cancelable purchase orders that are generally booked from one to six months in advance of delivery. Backlog is influenced by several factors, including market demand, pricing and customer order patterns in reaction to product lead times. We had backlog at January 2, 2004 of $83.6 million compared to $98.1 million at January 3, 2003. The backlog as of January 3, 2003 excludes $33.2 million related to the Wireless Networking product group.

Seasonality

The high end consumer and computing markets generally experience weak demand in the first fiscal quarter of each year and stronger demand in the third and fourth quarters.

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Competition

We compete in our targeted markets on the basis of technical performance, product features, customized design, price, availability, quality and sales and technical support. Our ability to compete successfully depends on elements both within and outside of our control, including successful and timely development of new products and manufacturing processes, product performance and quality, manufacturing yields, product availability, intellectual property protection obtained by us and our competitors, customer service, pricing, industry trends and general economic trends.

Our major competitors include Analog Devices, Semtech Corporation, Linear Technology, Maxim Integrated Products, National Semiconductor and Texas Instruments.

Trademarks and Patents

We own rights to a number of trademarks and patents that are important to our business. Among others, we consider Intersil^™, Elantec^™, Endura^™ and CommLink^™ to be trademarks that are material to our operations. These trademarks do not expire, provided we continue to use the trademarks in our business. Some of our trademarks have been registered with U.S. and other trademark authorities that provide rights in addition to basic trademark rights. As long as we comply with renewal and other procedures specified by the applicable trademark laws, these additional rights will not expire.

Our corporate policy is to protect proprietary products by obtaining patents for these products when practicable. We currently possess over 1,050 US and foreign patents and have approximately 300 US and foreign patents pending. The expiration dates of these patents range from 2004 to 2022.

Employees

Our worldwide workforce consisted of 1,598 employees (full- and part-time) as of January 2, 2004. None of the Company’s employees is subject to a collective bargaining agreement.

Environmental Matters

Our operations are subject to environmental laws in the countries in which we operate. The regulations govern, among other things, air and water emissions at our manufacturing facilities, the management and disposal of hazardous substances, and the investigation and remediation of environmental contamination. As with other companies in our business, the nature of our operations exposes us to the risk of environmental liabilities and claims. We believe, however, that our operations are substantially in compliance with applicable environmental requirements. Our costs to comply with environmental regulations were about $2.6 million, $2.1 million and $1.7 million in fiscal years 2001, 2002 and 2003, respectively.

The Harris Corporation (“Harris”) facilities in Palm Bay, Florida, are listed on the National Priorities List (“NPL”) for groundwater clean up under the Comprehensive Environmental Response, Compensation and Liabilities Act (“Superfund”). Our adjacent facility is included in the listing since it was owned by Harris at the time of the listing. Remediation activities associated with the NPL site have ceased. However, Harris is still obligated to conduct groundwater monitoring on our property for an unspecified period of time. Harris has indemnified us against any environmental liabilities associated with this contamination. This indemnification does not expire, nor does it have a maximum amount.

Our former facility in Kuala Lumpur, Malaysia, which we sold to ChipPAC in June 2000, has known groundwater contamination from past operations. The contamination was discovered in May 2000, during the closure activities associated with a former waste storage pad. This contamination has been attributed to activities conducted prior to our acquisition of the facility from Harris. Harris is conducting additional investigations and some remediation may be required. Harris has indemnified us against any environmental liabilities associated with this contamination, and we indemnified ChipPAC against those liabilities. This indemnification does not expire, nor does it have a maximum amount.

Also, an industrial wastewater treatment plant at our former facility in Kuala Lumpur did not have sufficient hydraulic capacity to effectively treat the wastewater flows associated with the level of production at the time of the sale to ChipPAC. In May, 2003 ChipPAC accepted a cash settlement for upgrading the industrial wastewater treatment plant and has issued us a release of claim.

Our former facility in Mountaintop, Pennsylvania, which we sold to Fairchild Semiconductor (“Fairchild”) in February 2001, has experienced groundwater and subsurface contamination from past operations, all of which occurred prior to our acquisition of those facilities from Harris. Some

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remediation has been conducted, and additional remediation may be required. Additionally, the neutralization plant suffered an out of compliance occurrence on November 11, 2000. As a result, we agreed to provide a redundant system to prevent any further disruptions. Also, the fluoride pretreatment plant for industrial wastewater, which was installed by Harris in 1995, failed to operate to design specifications and occasionally made discharges to the local sanitary authority that exceed pretreatment standards. Harris has conducted pilot studies and prepared a preliminary design to address the system’s deficiencies and local discharge requirements. Harris indemnified us in connection with the fluoride wastewater system, and we subsequently indemnified Fairchild in connection with Fairchild’s purchase of the facility. This matter was resolved in 2003, when we, Harris and Fairchild released each other from any future claims related to the treatment plant.

Based on the historical costs of these projects and previous experience with other remediation activities, we do not believe that the future cleanup costs related to the Palm Bay, Kuala Lumpur and Mountaintop facilities will be material.

Future laws or regulations and changes in the existing environmental laws or regulations may subject our operations to different, additional or more stringent standards. While historically the cost of compliance with environmental laws has not had a material adverse effect on our business, financial condition or results of operations, we cannot predict with certainty our future costs of compliance because of changing standards and requirements. We cannot be certain that materials costs will not be incurred in connection with the future compliance with environmental laws or with future cleanup costs related to currently unknown contamination.

Available Information

We routinely file reports, as required, with the SEC, including but not limited to Forms 10-Q, Forms 10-K and Forms 8-K (and amendments thereto), all of which the public can access, free of charge, from our website (www.intersil.com). The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549 and may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Item 2. Properties

In the United States, we lease our corporate headquarters in Milpitas, California. Additional manufacturing, warehouse and office facilities are housed in about 846,000 square feet of owned facilities in Palm Bay, Florida.

We conduct engineering activity in our owned and leased facilities in Palm Bay, Florida; Milpitas, California; Raleigh, North Carolina (Research Triangle Park); Somerville, New Jersey; Irvine, California; Dallas, Texas; and Seattle, Washington.

We maintain regional sales offices in Milpitas, California; Irvine, California; Palm Bay, Florida; Framingham, Massachusetts; Hauppauge, New York; Hillsboro, Oregon; North Branch, New Jersey; Research Triangle Park, North Carolina; Richardson, Texas; Lausanne, Switzerland; Ismaning, Germany; St. Aubin, France; Espoo, Finland; Danderyd, Sweden; Milan, Italy; Camberly, United Kingdom; Hong Kong, China; Shenzhen, China; Shanghai, China; Taipei, Taiwan; Singapore; Yokohama, Japan; and Seoul, South Korea. All of our offices are leased generally under short-term leases, except our offices in Palm Bay, Florida.

We believe that our facilities around the world, whether owned or leased, are well maintained.

Item 3. Legal Proceedings

On November 23, 1998, Harris Corporation (“Harris”), our predecessor, filed suit against Ericsson and Telefonaktiebolaget LM Ericsson for infringement of various cellular technology patents. Ericsson countersued and filed a complaint in the United States District Court for the Eastern District of Texas against Harris for infringement of certain telecommunication patents. Shortly after we purchased the semiconductor business from Harris, Ericsson joined us in the suit by filing an Amended Complaint on October 15, 1999. After discovery and depositions by the parties, only Ericsson’s U.S. patent 4,961,222 remains in the suit. Ericsson sought damages from Harris and us, as well as injunctive relief prohibiting sales of the products at issue. On June 3, 2001, the jury returned a verdict against Harris and us regarding patent infringement of our 5513/5514/5518 SLIC families. The total amount awarded against Harris is $4.1 million, and the amount against us

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is $151,000. We have the benefit of an indemnity from Harris for this amount, but the possibility of an injunction exists against future affected SLIC sales. On July 11, 2002, the court granted Harris’ and our post-trial motion for summary judgment, setting aside the entire jury verdict and giving Ericsson nothing. Ericsson filed an appeal in the United States Court of Appeals for the Federal Circuit, and we cross-appealed on September 4, 2002 to preserve our rights. On December 9, 2003, the Court of Appeals reversed the District Court’s granting of judgment as a matter of law on non-infringement and affirmed the denial of judgment as a matter of law relating to damages. A motion for Rehearing has been denied, and the case will be now be remanded to the District Court.

We and certain of our present officers and directors as well as our lead initial public offering underwriter and lead underwriter of our September 2000 offering, Credit Suisse First Boston Corporation, were named as defendants in several law suits, the first of which is a class action filed on June 8, 2001 in the United States District Court for the Southern District of New York. The complaints allege violations of Rule 10b-5 based on, among other things, the dissemination of statements containing material misstatements and/or omissions concerning the commissions received by the underwriters of the initial public offering, as well as failure to disclose the existence of purported agreements by the underwriters with some of the purchasers in these offerings to thereafter buy additional shares of Intersil in the open market at pre-determined prices above the offering prices. These lawsuits against us, as well as those alleging similar claims against other issuers in initial public offerings, have been consolidated for pre-trial purposes with a multitude of other securities related suits. In April 2002, the plaintiffs filed a consolidated amended complaint against us and certain of our officers and directors. The consolidated amended complaint pleads claims under both the 1933 Securities Act and under the 1934 Securities Exchange Act. In addition to the allegations of wrongdoing described above, plaintiffs also now allege that analysts employed by underwriters who were acting as investment bankers for us improperly touted the value of our shares during the relevant class period as part of the purported scheme to artificially inflate the value of our shares. In October 2002, the individual employee defendants were dismissed from the class action suit. The plaintiffs seek unspecified damages, litigation costs and expenses. A tentative settlement has recently been reached between the plaintiffs and all defendant stock issuers, with ongoing negotiations as to the specific terms of the settlement agreement. Under that agreement, we would not be required to pay any damages, expenses or litigation costs to the plaintiffs. When negotiations are completed and the parties have agreed upon the final terms of the settlement agreement, the agreement must be approved by the court before dismissal of us and other parties to the agreement from the suit.

In June 2001, Harris filed suit against United States Filter Wastewater Group (“USF”) regarding a fluoride wastewater treatment system that USF’s predecessor designed, manufactured and installed at Harris’s former Mountaintop, Pennsylvania facility pursuant to a December 1993 contract. Harris alleges the system does not comply with the December 1993 contractual specifications or other requirements imposed by the local sewer authority. Harris is seeking from USF approximately $3,500,000 in operating costs, consultant fees and the cost of constructing a new wastewater treatment system. Harris sold the facility and system to us in 1999 and we sold the facility and system to Fairchild Semiconductor Corp. (“Fairchild”) in 2001. We and Fairchild intervened as party-plaintiffs in the lawsuit against USF. The parties signed a settlement agreement on November 21, 2003, and the suit was permanently discontinued on January 4, 2004 at no cost to us other than attorneys’ fees. As part of the settlement between us, Fairchild and Harris, each party released the others from any future claims related to the fluoride wastewater system.

On October 17, 2002, Agere Systems, Inc. (“Agere”) filed suit against us in the United States District Court for the District of Delaware alleging that we have infringed U.S. Patent Nos. 5,128,960, 5,420,599, 5,862,182, 6,067,291, 6,404,732B1, and 6,452,958B1 by making, using, selling, offering to sell, and/or importing products that infringe these patents, which pertain solely to wireless signal transmission technology. In August 2003, we completed the sale of our wireless product operations, including our entire wireless product line, to GlobespanVirata, Inc. (“GlobespanVirata”). Therefore, none of our current products are affected by this claim. Agere seeks a permanent injunction as well as unspecified actual and treble damages including costs, expenses, and attorneys’ fees. We have filed counterclaims against Agere, including claims that Agere infringes 2 telecommunication and 8 semiconductor technology patents. The parties are currently in the discovery phase of the litigation. A trial has been scheduled for November 2004.

On July 22, 2003, Agere filed a second patent suit against us in the United States District Court for the District of Delaware alleging that we have infringed U.S. Patent Nos. 6,563,786, 6,323,126, 5,227,335, and 5,102,827 by making, using, selling, offering to sell, and/or importing products that infringe these patents, three of which allegedly pertain to our semiconductor process technology. A finding of infringement could affect any of the products proved to have been manufactured using the claimed processes. Based on current knowledge, we do not believe that any of our semiconductor manufacturing processes infringe the patents asserted by Agere and therefore believe

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that our products should not be detrimentally affected. Agere seeks a permanent injunction as well as unspecified actual and treble damages including costs, expenses, and attorneys’ fees. We have counter-sued Agere for infringement of 4 semiconductor technology patents. We have also sued Lucent Technologies, Agere’s customer and former parent corporation, for infringement of 12 semiconductor technology patents.

On October 30, 2002, we, Intersil Americas Inc., and our subsidiary at that time, Choice-Intersil Microsystems, Inc. (“Choice”), filed a Complaint and associated motion for preliminary injunction against Agere in the United States District Court for the Eastern District of Pennsylvania for misappropriation of trade secrets developed pursuant to a Joint Development Agreement (“JDA”) between Choice and Lucent. On September 9, 2003, the District Court issued an order denying our motion and we have filed an interlocutory appeal of this order with the United States Court of Appeals for the Third Circuit (the “Appeal”). We have amended the Complaint to add claims against Agere for copyright infringement. In August 2003, we sold Choice to GlobespanVirata, Inc. (“GlobespanVirata”). Agere counterclaimed against us, Intersil Americas Inc., Choice, and GlobespanVirata (“Counterclaim Defendants”), alleging trade secret misappropriation, unjust enrichment, declaratory judgment regarding Agere’s alleged rights under the JDA, breach of contract, tortious interference with contract, and copyright infringement, involving alleged acts and omissions before and after our sale of Choice. Agere seeks a preliminary and permanent injunction as well as unspecified actual damages including costs, expenses, and attorneys’ fees. In February 2004, the Court dismissed us and Intersil Americas Inc. as co-Plaintiffs, leaving Choice as the Plaintiff. We and Intersil Americas Inc. remain as Counterclaim Defendants. The parties have requested a jury trial which is presently expected to take place in the fourth quarter of 2004. We dispute Agere’s counterclaims and intend to vigorously defend the lawsuit.

On July 23, 2003, Symbol Technologies, Inc (“Symbol”), our customer, filed suit against us and our subsidiary, Choice, in the Supreme Court of the State of New York, Suffolk County. Symbol alleges that we and Choice are required to indemnify Symbol in an amount in excess of $1.5 million for Symbol’s expenses, including attorneys fees, incurred in defending certain patent infringement claims asserted against Symbol by Proxim Incorporated in two separate civil actions pending in the United States District Court for the District of Delaware. Symbol contends that the alleged infringement was caused by hardware and firmware components purchased from us and included in Symbol products. We dispute Symbol’s indemnification claims and intend to vigorously defend the lawsuit.

In relation to the above matters, we have accrued $19.1 million in estimated legal costs to defend our positions.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of fiscal year 2003.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

(a) Our Class A Common Stock has been traded on the NASDAQ Stock Market’s National Market since February 25, 2000 under the symbol “ISIL.” Prior to that time, there was no public market for our common stock, and there is currently no public market for our Class B Common Stock which has all been converted to Class A. The following table sets forth, for the periods indicated, the high and low closing prices per share of our Class A Common Stock as reported in NASDAQ Stock Market trading.

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(b) Holders. On March 8, 2004 the last reported sale price for our Class A Common Stock was $22.93 per share. As of March 8, 2004, there were about 300 record holders of our Class A Common Stock.

(c) Dividends. In September 2003, our Board of Directors declared our first common stock dividend, of $0.03 per share, which was paid on November 24, 2003 to stockholders of record as of November 3, 2003. Our dividend policy is impacted by, among other items, our views on potential future capital requirements relating to research and development, creation and expansion of sales distribution channels, investments and acquisitions, share dilution management, legal risks, liquidity, and profitability. Any determination to declare and pay dividends will be made by our Board of Directors in light of these and other factors the Board of Directors deems relevant.

(d) Recent Sales of Unregistered Securities. We did not sell unregistered securities during fiscal year 2003.

Item 6. Selected Financial Data

SELECTED FINANCIAL DATA

The following table sets forth selected financial data for us and our predecessor operations, when we were part of Harris Corporation (“Harris”). The historical financial data as of and for the fiscal year ended 1999 and for the six weeks ended August 13, 1999 are derived from our predecessor’s audited consolidated financial statements, which are not included elsewhere in this report. The historical financial data as of and for the 46 weeks ended June 30, 2000, the 26 weeks ended December 29, 2000, fiscal year ended 2001, fiscal year ended 2002 and fiscal year ended 2003 are derived from our audited consolidated financial. All periods presented have been audited. This information should be read in conjunction with the consolidated financial statements included elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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The following transactions significantly affect the comparability of the results between the fiscal periods above:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by reference to our consolidated financial statements, including the notes thereto. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

This Annual Report contains statements relating to expected future results and business trends of the Company that are based upon our current estimates, expectations, and projections about our industry, and upon management’s beliefs, and certain assumptions we have made, that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” and variations of these words or similar expressions are intended to identify “forward-looking statements.” In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are “forward-looking statements.” Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Therefore, our actual results may differ materially and adversely from those expressed in any “forward-looking statement” as a result of various factors. These factors include, but are not limited to: global economic and market conditions, including the cyclical nature of the semiconductor industry

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and the markets addressed by our and our customers’ products; demand for, and market acceptance of, new and existing products; successful development of new products; the timing of new product introductions; the successful integration of acquisitions; the availability and extent of utilization of manufacturing capacity and raw materials; the need for additional capital; pricing pressures and other competitive factors; changes in product mix; fluctuations in manufacturing yields; product obsolescence; the ability to develop and implement new technologies and to obtain protection of the related intellectual property. These “forward-looking statements” are made only as of the date hereof, and we undertake no obligation to update or revise the “forward-looking statements”, whether as a result of new information, future events or otherwise.

Overview

We are a global designer and manufacturer of high performance analog integrated circuits. We believe our product portfolio addresses some of the fastest growing applications within four attractive end markets: high-end consumer, computing, communications and industrial.

Basis of Presentation

On March 16, 2001, we sold the assets of our Discrete Power products group to Fairchild Semiconductor Corporation (“Fairchild”) for $338.0 million in cash and the assumption by Fairchild of certain liabilities of the product group. The Consolidated Balance Sheet as of December 28, 2001 has been reduced by the assets purchased and liabilities assumed by Fairchild.

Additionally, the operating results of our Discrete Power products group are shown within continuing operations in the Consolidated Statements of Operations.

On May 14, 2002, we consummated the merger with Elantec. The merger was accounted for using the purchase method of accounting and, accordingly, the results of operations of Elantec have been included in the accompanying financial schedules since the merger date.

On July 15, 2003, we announced that we had entered into a definitive agreement to sell our Wireless Networking product group to GlobespanVirata, Inc. (“GlobespanVirata”). The Wireless Networking product group provides complete silicon, software and reference design solutions that meet the IEEE’s 802.11 standards. The sale was consummated on August 28, 2003. We received $250 million in cash and approximately $114.4 million in GlobespanVirata stock. We also retained the accounts receivable and accounts payable of the product group in place at the time of sale.

The following results and discussion of the results of operations reflect reclassifications for discontinued operations in accordance with Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” We adopted SFAS 144 on December 29, 2001.

In June 2001 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets”, which we adopted on December 29, 2001. Under these new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives. As required by SFAS 142, we ceased amortizing goodwill and other indefinite lived intangible assets beginning December 29, 2001. Included in the above is assembled workforce, which under SFAS 142, is defined as an indefinite lived asset.

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Fiscal Year 2003 Compared with Fiscal Year 2002

The following table sets forth statement of operations data in dollars and as a percentage of revenue for the periods indicated:

Revenue

Revenue from continuing operations for fiscal year 2003 increased 21.0% to $507.7 million from $419.6 million during fiscal year 2002. Increased demand for desktop and notebook power management, optical storage and DSL products increased revenue by $77.2 million. In addition, fiscal year 2003 contained a full-year of Elantec revenues and fiscal year 2002 contained approximately six months of such revenues. This resulted in an additional $41.8 million in revenue for fiscal year 2003. We also changed our revenue recognition for North American distribution in fiscal year 2002, which caused revenues to be higher in fiscal year 2003 by $14.7 million. These increases were offset by a $45.4 million decline in automotive related products as a result of our exit of that product group.

Geographically, 59.6%, 26.6% and 13.8% of product sales were derived from Asia/Pacific, North America and Europe, respectively, during fiscal year 2003 compared to 48.9%, 31.1% and 20.0% during fiscal year 2002. The increase in the percentage of revenue generated from Asia/Pacific in 2002 over 2003 is primarily due to the acquisition of Elantec, which shipped approximately 40% of its products to Japan during fiscal year 2003. We ship our products to a variety of countries (in descending order by volume) including the United States, China, Taiwan, Japan, Germany, Singapore, Korea, Thailand, United Kingdom and Malaysia as well as others with less volume. The United States comprised approximately 25% of the shipments, followed by China with 24% and Taiwan with 13% during fiscal year 2003. Significant customers in the United States include two of our major distributors, who accounted for 20% and 18% of our revenues in the region, respectively. Also, during fiscal year 2003, we made significant sales to one distributor that supports customers in Taiwan and China. This distributor comprised approximately 58% of our sales to Taiwan and 18% of our sales to China.

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Gross Profit

Cost of product sales consists primarily of purchased materials, labor and overhead (including depreciation) associated with product manufacturing, plus licensing and sustaining engineering expenses pertaining to products sold. In fiscal year 2003, gross profit from continuing operations increased 30.3% or $66.5 million to $285.9 million from $219.4 million in fiscal year 2002. As a percentage of sales, gross margin from continuing operations was 56.3% during fiscal year 2003 compared to 52.3% during fiscal year 2002, a 4-percentage point improvement. The primary driver of the increase, was growth in revenue, which increased gross profit by $43.6 million. In addition, the full-year of Elantec increased gross profit by $22.4 million. The closure of our Findlay facility in mid 2002, improved gross profit by approximately $10.5 million. We also changed our revenue recognition policy during fiscal year 2002 due to changes in our ability to estimate product returns. Since this change was not repeated in fiscal year 2003, gross profit improved by $10.2 million. The exit of our lower margin Automotive products group decreased gross profit by $19.8 million. Approximately one-third of our wafer manufacturing is performed by third-party foundries. We continue to analyze our mix of internal versus external manufacturing and any decision to increase our volume at third-party foundries could have an affect on the carrying value of our internal fabrication equipment.

Research and Development (“R&D”)

R&D expenses consist primarily of salaries and costs of employees engaged in product/process research, design and development activities, as well as related subcontracting activities, prototype development, cost of design tools and technology license agreement expenses. R&D expenses from continuing operations increased 17.2% to $91.3 million during fiscal year 2003 from $77.9 million during fiscal year 2002. The full year impact of the acquisition of Elantec contributed approximately $10 million in additional spending during the first four and one half months of fiscal year 2003. Also we increased overall R&D expenditures primarily on payroll, which contributed to a record year for new product introductions: 312 in 2003 versus 158 in 2002.

Selling, General and Administrative (“SG&A”)

SG&A costs, which include marketing, selling, general and administrative expenses, from continuing operations was relatively flat with expenses of $88.3 million during fiscal year 2003 compared to $89.6 million during fiscal year 2002. However, as a percentage of sales, SG&A costs decreased to 17.4% in fiscal year 2003 from 21.4% in fiscal year 2002. This decrease is primarily due to workforce reduction actions taken during 2002 and 2003. Specifically, we expect to see annual savings of $3.0 million, $2.1 million and $2.6 million in future periods for actions taken for the integration of Elantec (second quarter 2002), a workforce reduction (first quarter 2003) and the Wireless Networking product group divestiture (third quarter 2003), respectively. These savings were partially offset by the full year effects of the SG&A costs for Elantec, which contributed approximately $6.1 million in increased spending.

Amortization

Amortization of intangible assets from continuing operations decreased to $6.3 million during the fiscal year 2003 from $6.8 million during fiscal year 2002. Definite lived assets are being amortized over their useful lives ranging from 9 to 11 years.

Currently, FAS 142 requires testing goodwill for impairment at least annually while checking for impairment indicators quarterly. During the fourth quarter of 2003, we determined that the value of each of our reporting units exceeded its book value. Therefore, no impairments were taken. Depending on the future market demand for our products, among other factors, we could experience an impairment on this balance.

Unearned Compensation

Amortization of unearned compensation from continuing operations decreased to $12.0 million during fiscal year 2003 from $14.5 million during fiscal year 2002. This decrease is the result of the winding down of unearned compensation resulting from the Elantec merger.

Impairment of Long-Lived Assets

During fiscal year 2002, we recorded two impairments totaling $5.9 million. The first impairment of $3.6 million ($2.3 million net of tax) related to the property, plant and equipment within the Findlay, Ohio manufacturing facility. The write-down reduced the carrying value of the assets to their fair value, which was based on the contractual sales price of the assets in accordance with SFAS 144. Prior to this impairment, the carrying value of the Findlay assets was $5.2 million. As these assets were held and used until their disposal, we continued depreciation over their remaining useful lives. The remaining $2.3 million ($1.3 million net of tax) impairment is primarily related to the adjustment of idle equipment to their fair value based on estimated future cash flows from these assets in accordance with SFAS 144.

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We recorded an impairment of long-lived assets of $12.6 million ($7.5 million net of tax) during fiscal year 2003. This primarily consisted of a $10.4 million ($6.4 million net of tax) write-down of certain definite-lived intangible assets, which were tested for impairment following the sale of our Wireless Networking product group. Specifically, we impaired a portion of its customer base and developed technology balances that resulted from the purchase of the net assets of Harris Corporation’s semiconductor business. The impairments were measured as the excess of the assets’ carrying value over the assets fair value as determined by the present value of cash flows arising from the assets in accordance with SFAS 144. Also included in the aforementioned $12.6 million impairment was a $2.0 million impairment ($1.2 million after tax) related to the write-off of a prepaid royalty for which we were not going to incorporate the related technology into our products. In accordance with SFAS 144, the write-off reduced the value of the prepaid to zero as we did not expect to realize any future benefit from the asset.

Gain (Loss) on Investments

During fiscal year 2002, we recorded a gain of $1.3 million ($0.8 million after tax) from the sale of our investment in PowerSmart, Inc. The gain was calculated as the excess of the proceeds from disposition of the investment over its carrying value.

During fiscal year 2003, we recorded an impairment charge of $13.0 million related to an investment, which is accounted for under the cost method of accounting since we hold less than 20% ownership and can not exercise influence over the investee. The impairment reflects the excess of the investment’s carrying value over the estimated undiscounted cash flows resulting from the eventual disposal of the securities. The impairment was a result of a significant reorganization at the investee, which we believe, substantially eliminated their chances of making a profit in the future.

During fiscal year 2003, we recognized a $7.2 million gain ($4.7 million after tax) from the sale of all shares of GlobespanVirata common stock received as part of the sale (15,462,185 shares). The gain was calculated as the net proceeds from the sale less the carrying value of the stock, which was determined as the fair market value during the five-day period including the date of the transaction and the two days preceding and succeeding this date. The GlobespanVirata common stock represented a portion of the consideration paid to us by GlobespanVirata in connection with the sale of our Wireless Networking product group.

During fiscal year 2003, we recorded a gain of $0.6 million ($0.4 million after tax) from the collection of previously escrowed funds resulting from the sale of our investment in PowerSmart, Inc. in June 2002. The entire escrow receipt was recorded as a gain as the investment had no carrying value.

Marketable securities consist of shares of ChipPAC, Inc. (“ChipPAC”) common stock that have been classified as investments on the balance sheet. They are recorded at fair value, which is determined based on quoted market prices. As of January 2, 2004 we carried an unrealized gain on the investment of $1.7 million, before taxes. We held 998,816 shares, or approximately 1% of total ChipPAC shares outstanding, at January 2, 2004.

In-Process Research and Development

In connection with our merger with Elantec in May 2002, we allocated $53.8 million of the purchase price to in-process research and development projects. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the incomplete projects. At the date of the merger, the development of these projects had not yet reached technological feasibility and the in-process research and development had no alternative future uses and did not otherwise qualify for capitalization. Accordingly, these costs were expensed as a charge to income in fiscal year 2002.

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In making the purchase price allocation, our management relied on present value calculations of income, an analysis of project accomplishments and completion costs and an assessment of overall contribution and project risk. The present value was determined by discounting 2 to 8 years of after tax cash flow projections depending on the individual project. We used a discount rate of 13% based on an approximation of the cost of capital. The percentage of completion for the projects ranges from 10% to 90%, and the total cost to complete all projects at the time of the acquisition was approximately $38.4 million. The various project groupings, the cost to complete the projects and the average percentage complete within each grouping as of January 2, 2004 are set forth in the table below ($ in millions):

Although these estimates were developed with the assistance of an independent third party, management is primarily responsible for the valuation. These estimates are subject to change given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. We expect to continue these development efforts and believe we have a reasonable chance of successfully completing the research and development programs. However, there is risk associated with the completion of the projects, and there is no assurance that any will meet either technological or commercial success.

Interest Income/Expense

Interest income decreased to $9.6 million during fiscal year 2003 from $12.1 million during fiscal year 2002. The decrease was due to a decrease in short-term interest rates during fiscal years 2002 and 2003. This was partially offset by our investments in long-term held-to-maturity investments. Interest expense also decreased to $0.6 million from $0.8 million for same time periods.

Tax Expense

The tax rate for fiscal year 2003 of 26% differs from the tax expense for fiscal year 2002 of (20)% due primarily to the write off of in-process research and development resulting from the Elantec acquisition during the second quarter of 2002. This difference in rates can also be attributed to higher research and development credits, increased sales in lower tax jurisdictions and a shift from taxable to tax-exempt investments during 2003.

In determining net income, we must make certain estimates and judgments in the calculation of tax expense and tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenues and expenses.

In the ordinary course of business, there may be many transactions and calculations where the ultimate tax outcome is uncertain. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws. We recognize potential liabilities for anticipated tax audit issues in the United States and other tax jurisdictions based on an estimate of the ultimate resolution of whether, and the extent to which, additional taxes will be due. Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. Such differences could have a material impact on the income tax provision and operating results in the period in which such determination is made.

In addition to the risks to the effective tax rate described above, the effective tax rate reflected in forward-looking statements is based on current enacted tax law. Significant changes in enacted tax law could materially affect these estimates.

Backlog

We had backlog at January 2, 2004 of $83.6 million compared to $98.1 million at January 3, 2003. The backlog as of January 3, 2003 excludes $33.2 million related to the Wireless Networking product group.

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Fiscal Year 2002 Compared Fiscal Year 2001

The following table sets forth statement of operations data in dollars and as a percentage of revenue for the periods indicated below:

Revenue

Revenue from continuing operations for fiscal year 2002 increased 5.3% to $419.6 million from $398.5 million during fiscal year 2001. The acquisition of Elantec during the second quarter of 2002 contributed $63.6 million to the increase in sales year over year. Also, our Power Management product group grew $46.7 million due to increased demand in Desktop computer products. The exits of our Discrete Power and Automotive product groups offset revenue increases by $48.8 million. We also experienced a decline in revenue of approximately $25.8 million due to an economic downturn in the communication end market. In addition, our change in revenue recognition decreased revenue by $14.7 million.

Geographically, 48.9%, 31.1% and 20.1% of product sales were derived in Asia/Pacific, North America and Europe, respectively, during fiscal year 2002 compared to 37.0%, 38.3% and 24.7% during fiscal year 2001. This change is the result of increased demand from Asian-based customers and increased customer use of Asian-based contract manufacturers. Also, the acquisition of Elantec contributed to the increase in this region as that product group’s sales are generated primarily from shipments to Japan.

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Gross Profit

In fiscal year 2002, gross profit on product sales increased 21.4% or $38.7 million to $219.4 million from $180.7 million in the fiscal year 2001. As a percentage of sales, gross margin was 52.3% during fiscal year 2002 compared to 45.3% during the fiscal year 2001, a 7.0 percentage point improvement. The acquisition of Elantec, which increased our mix of higher margin products, improved gross profit by $35.9 million. In addition, we closed our Findlay fabrication facility in fiscal year 2002, which had approximately a $10.5 million improvement on gross profit. These improvements were primarily offset by a $10.2 million decline as a result of our change in revenue recognition for North American distributors.

Research and Development (“R&D”)

R&D expenses increased 16.8% to $77.9 million during fiscal year 2002 from $66.7 million during the fiscal year 2001. As a percentage of sales, R&D expenses increased to 18.6% for fiscal year 2002 from 16.7% for fiscal year 2001. The acquisition of Elantec contributed approximately $13.7 million to the overall increase as well as increased spending in for our Power Management product development.

Selling, General and Administrative (“SG&A”)

SG&A costs increased to $89.6 million during fiscal year 2002 from $75.1 million during the fiscal year 2001. As a percentage of sales, SG&A costs increased to 21.4% for 2002 from 18.8% for the fiscal year 2001. The acquisition of Elantec was again the primary driver for this increase with approximately $10.4 million of SG&A expenses during 2002.

Amortization

Amortization of intangible assets decreased to $6.8 million for fiscal year 2002 from $7.4 million for the same time period in fiscal year 2001.

Unearned Compensation

Amortization of unearned compensation was $14.5 million during fiscal year 2002. This was a result of the acquisition of Elantec and is the intrinsic value of unvested Elantec options outstanding at the time of the merger. The intrinsic value of each option was calculated as the excess of the fair market value of one share of our Class A common stock as determined using the average closing sales price of our Class A common stock on May 13, 2002 and May 14, 2002 of $28.41 over the option price. The unearned compensation costs are recognized over the remaining vesting period of the options as an operating expense.

Impairment of Long-lived Assets

In connection with the closure of our Findlay, Ohio manufacturing operation, we recorded an impairment of $7.6 million ($3.7 million after tax) on the property, plant and equipment during the fiscal year 2001. The impairment was determined by comparing the carrying value of the assets to an appraised value on the land, equipment and buildings and the expected future undiscounted net cash flows from the equipment to be disposed in accordance with SFAS 121.

During fiscal year 2002, we recorded two impairments totaling $5.9 million. The first impairment of $3.6 million ($2.3 million net of tax) related to the property, plant and equipment within the Findlay, Ohio manufacturing facility. The write-down reduced the carrying value of the assets to their fair value, which was based on the contractual sales price of the assets. Prior to this impairment, the carrying value of the Findlay assets was $5.2 million. As these assets were held and used until their disposal, we continued depreciation over their remaining useful lives. The remaining $2.3 million ($1.3 million net of tax) impairment is primarily related to the adjustment of idle equipment to their fair value based on estimated future cash flows from these assets.

Interest Income/Expense

Interest income decreased to $12.1 million during fiscal year 2002 from $20.9 million during the fiscal year 2001. The decrease was due to a decrease in short-term interest rates during fiscal years 2001 and 2002. Interest expense also decreased to $0.8 million in fiscal year 2002 from $2.3 million in fiscal year 2001. This decrease was due to the elimination of our long-term debt during the first quarter of fiscal year 2001.

Gain (Loss) on Investments

Marketable securities consist of shares of ChipPAC common stock that have been classified as other long-term investments. They are recorded at fair value, which is determined based on quoted market prices. During fiscal year 2001, we recorded an impairment charge of $8.2 million related to our

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investment in ChipPAC common stock, which reflected an other than temporary decline in value. In arriving at this decision, we considered various factors, including the fact that ChipPAC’s stock price was less than its carrying value during two consecutive quarters. We also considered the overall macroeconomic condition of the semiconductor industry at the time.

During fiscal year 2002, we recorded a gain of $1.3 million ($0.8 million after tax) from the sale of our investment in PowerSmart, Inc. The gain was calculated as the excess of the proceeds from disposition of the investment over its carrying value.

Loss on Extinguishment of Debt

During fiscal year 2001, we repurchased all $61.4 million of our outstanding 13.25% Senior Subordinated Notes in the open market. These repayments included certain pre-payment penalties and accrued interest. In connection with the early extinguishment of debt, we recorded a $19.7 million charge ($12.2 million net of tax). The charges consisted of the write-off of deferred financing fees and premiums paid on repurchase.

Gain on Sale of Certain Operations

On March 16, 2001, we sold the assets of its Discrete Power product group to Fairchild for $338.0 million in cash and the assumption by Fairchild of certain liabilities of the product group. As a result of the sale, we recognized a gain of $168.4 million ($81.8 million after tax), which was net of the assets purchased and liabilities assumed by Fairchild, transaction fees and other exit costs associated with the sale. The exit costs include employee termination benefits to be incurred within one year from the sale date as well as information technology costs required to cover transferred software license fees and system modifications necessary to support the business transition activity. We also closed three foreign sales offices as a result of the sale. Also, included in the calculation of the gain was the write-off of $14.8 million of intangible assets that were related to our formation from the assets of Harris Corporation’s Semiconductor Business in August 1999. The assets represent the developed technology, customer base and assembled workforce for the Discrete Power product group, which were derived from the original valuation completed at the time of the acquisition.

Tax Expense

The tax rate of 40% for fiscal year 2001 differs from the tax rate for fiscal year 2002 of (20)% primarily due to the gain generated from the sale of our Discrete Power products group recorded during fiscal year 2001 and the write-off of Elantec’s in-process R&D in fiscal year 2002.

Backlog

We had backlog at January 3, 2003 of $98.1 million compared to $85.9 million at December 28, 2001. This excludes $33.2 million and $34.9 million related to the Wireless Networking product group.

Business Outlook

On January 28, 2004, we announced our outlook for the first quarter of 2004. We expected revenue for the first quarter to be equal to or slightly above the revenue for the fourth quarter of fiscal year 2003. We also expected cost of product sales, research and development and selling, general and administrative costs to generally trend in the same direction as revenue. We expected intangible amortization expense to be $1.2 million and amortization of unearned compensation to be $1.6 million. We expect our effective tax rate to be approximately 26%–28% for fiscal year 2004. We expect to finalize the Internal Revenue Service (“IRS”) audits for calendar years 1999 and 2000 by the end of the first quarter of 2004. This could have a material positive impact on our tax provision and operating results for fiscal year 2004.

Restructurings

March 2001

In March 2001, our Board of Directors approved and we announced major restructuring activities to improve ongoing operations and product gross margins. This restructuring plan was predicated on the phased closure of our Findlay, Ohio manufacturing operation and the exit of the modem board assembly manufacturing process in Scottsdale, Arizona. In connection with the restructuring, we recorded expenses of approximately $22.7 million ($13.9 million after tax) within continuing operations during fiscal year 2001. Costs of the restructuring plan include employee termination costs, costs incurred to decontaminate and defacilitate the fabrication facility and contract cancellation costs. Employee termination costs include involuntary severance payments and outplacement training. Decontamination and defacilitation costs include costs for removing and disposing of air handlers, exhausts, structural steel, process cooling loops, gas piping and acid distribution systems used in conjunction with equipment. Other decommission costs include costs to secure equipment remaining on site after closure. Contract cancellation costs include fees charged

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to us under non-cancelable purchase orders from three vendors. In connection with the announced restructuring, approximately 522 employees were notified that their employment would be terminated and were apprised of the specifics of their severance benefits. The affected positions included manufacturing, selling, general and administrative employees. 521 of the employees were located in the United States and 1 was located in Europe. The sale of the Findlay, Ohio manufacturing operation was completed late in September 2002, and, accordingly, all of the affected employees had been terminated as of January 2, 2004. No remaining activities exist with respect to the execution of this plan. We estimated that annual savings of cost of product sales would be approximately $25.0 million to $30.0 million annually. These savings are largely in the form of decreased payroll, healthcare costs, and factory overhead, which is comprised of depreciation, utilities and property taxes. Although determination of actual savings is difficult to determine because of changes in product mix, technological specifications and product demand, we believe that actual savings have been approximately $21.0 million annually.

June 2002

After the merger with Elantec, we accrued for restructuring activities relating to the consolidation of the combined entity’s business operations. These costs were not included in the purchase price determination and the allocation thereof as they relate to our activities that were conducted prior to the merger. As a result of the restructuring, we recorded a charge of $4.7 million ($2.8 million after tax) in continuing operations during fiscal year 2002. The restructuring plan includes employee termination costs and the elimination of certain sales and marketing activities existing prior to the merger. Employee termination costs include involuntary severance payments and outplacement training. Costs incurred to eliminate certain sales and marketing activities include lease cancellation costs and costs associated with the termination of sales representative agreements. As a result of the merger with Elantec, 24 of our employees were notified that their employment would be terminated and were apprised of the specifics of their severance benefits. Affected positions included primarily selling employees, of whom 13 were located in the United States, 7 in Europe and 4 in Asia. As of January 2, 2004, all of the affected employees had been terminated. No remaining activities exist with respect to the execution of this plan. We estimated that annual savings of selling, general and administrative costs to be approximately $3.0 million, which includes decreased payroll, healthcare costs, sales office lease expenses, and decreased payments to sales representatives. We believe there has not been significant variances between the expected savings and actual savings.

January 2003

In January 2003, we announced a cost reduction initiative predicated on a 3% reduction in workforce. Due to the implementation of SFAS 146, severance related costs cannot be expensed until incurred. However, the severance agreements under this restructuring plan entitle terminated employees to benefits upon notification of termination. Accordingly, we expensed $1.3 million ($0.8 million net of tax) in continuing operations during fiscal year 2003. The restructuring plan includes employee termination costs, which include involuntary severance payments and outplacement training. In connection with the cost reduction initiative, 22 employees were notified that their employment would be terminated and were apprised of the specifics of their severance benefits. The affected positions included manufacturing, selling, general and administrative employees; all of such employees were located in the United States. As of January 2, 2004, all of the affected employees had been terminated. No remaining activities exist with respect to the execution of this plan. We estimate that annual savings of cost of product sales are approximately $0.2 million. We also estimate that annual savings of research and development expenses are $0.1 million. Finally, we estimate that annual savings of selling, general and administrative expenses are $2.1 million. These savings are in the form of decreased payroll and healthcare costs. We believe there have not been significant variances between the planned savings and actual savings. We believe there have not been significant variances between the planned savings and actual savings.

August 2003

In August 2003, we announced a restructuring plan that coincided with the sale of our Wireless Networking product group. The restructuring plan includes the termination of approximately 8% of the remaining workforce and the closure of three sales office locations in the United States and Europe. In accordance with Statements of Financial Accounting Standards No. 146 (SFAS 146), “Accounting for Costs Associated with Exit or Disposal Activities”, a company can only accrue costs related to liabilities that have been incurred. The terms of the relevant severance benefits stipulate that an employee is entitled to payments if that employee remains employed with us through his or her termination date. Thus during fiscal year 2003, we recorded charges of $4.1 million for the portion of severance benefits and lease payments that we were obligated to pay as of January 2, 2004. Employee termination costs include involuntary severance payments and the provision of outplacement training. In connection with the cost reduction initiative, 129 employees were notified that their employment would be terminated and were apprised of the specifics of their

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severance benefits. The affected positions included manufacturing, research and development, and selling, general and administrative employees; 119 of such employees were located in the United States, 6 in Europe and 4 in Asia. As of January 2, 2004, 98% of the affected employees had been terminated. The remaining employees will be terminated within the next 12 months at a cost of $0.1 million. We estimate that annual savings of cost of product sales are approximately $4.2 million. We also estimate that annual savings of research and development expenses are $1.1 million. Finally, we estimate that annual savings of selling, general and administrative expenses are $2.6 million. These savings are in the form of decreased payroll, healthcare costs and lease expenses. Due to the recent date of this plan, it is difficult to ascertain if there have been significant variances between the expected savings and actual savings.

Off-Balance Sheet Arrangements

The following table sets forth our future contractual obligations, all of which are off balance sheet arrangements, as of January 2, 2004 ($ in millions):

Our future minimum lease commitments consist primarily of leases for buildings and other real property. Open raw material purchase commitments are comprised of purchase orders for foundry wafers ($7.8 million), silicon wafers ($0.4 million) as well other miscellaneous expense items. We utilize standby letters of credit primarily for security for workers compensation ($1.5 million), environmental items ($1.3 million), electricity ($0.7 million) as well as for security for our vendors. These standby letters of credit have annual renewals.

We have an agreement in place with ChipPAC pursuant to which they provide us with, among other things, testing and packaging services for fees, subject to certain limits and exceptions, including competitive pricing. The initial term of this agreement expires on June 30, 2005.

We do not have any guarantees that would affect our liquidity, cash flow or financial position. We do not have any relationships with other parties that would have a negative impact on our liquidity, cash flow or financial position.

Liquidity and Capital Resources

Our capital requirements depend on a variety of factors, including but not limited to, the rate of increase or decrease in our existing business base; the success, timing and amount of investment required to bring new products on-line; revenue growth or decline; and potential acquisitions. We believe that we have the financial resources necessary to meet business requirements for the next 12 months, including the requisite capital expenditures for the expansion or upgrading of worldwide manufacturing capacity, working capital requirements, our dividend program, our treasury share repurchase program and potential future acquisitions or strategic investments. As of January 2, 2004, our total shareholders’ equity was $2,252.1 million. Also, we had $819.5 million in cash and short-term securities, as well as $144.5 million in long-term investments held to maturity.

Net cash provided by operating activities for fiscal year 2003 was $71.1 million. This was primarily due to operating income of $72.4 million. This was offset by our changes in assets and liabilities of $21.8 million including increased inventories (for both our continuing and discontinued operations) offset by timing of income tax payments. Net cash provided by investing activities for fiscal year 2003 was $147.2 million. We have received $250 million in cash proceeds from the sale our Wireless Networking product group to GlobespanVirata. This was offset

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by $12.5 million of transaction costs relating to the sale. We also received $126.7 million in proceeds from the sale of GlobespanVirata and ChipPAC common stock during fiscal year 2003. This was offset by investments in long-term cash investments of $144.5 million to improve interest yields and $62.5 million in property, plant and equipment to increase our production capacity. We expect our expenditures for property, plant and equipment to be within the $30 million to $40 million range during fiscal year 2004. Net cash used by financing activities for fiscal year 2003 was $30.5 million resulting from purchase of treasury stock under the stock repurchase plan offset by the proceeds of exercised stock options. We expect to continue this level of share repurchases for the foreseeable future. Our cash, cash equivalents and short-term investments balance at January 2, 2004 was $819.5 million.

We have a treasury stock repurchase program, which authorizes us to repurchase up to $150.0 million in our common stock, of which $82.1 million had been used as of January 2, 2004. The program was set to expire on September 26, 2002, but by a vote of the Board of Directors it has been extended through December 2004.

We have separately classified on the face of the balance sheet our current held-to-maturity investments, which consist of securities with maturities less than one year but greater than 90 days. These balances can be converted to cash upon request at a minimal discount. We have reclassified prior period balance sheet and cash flow information to conform with the current classification.

Working Capital

Trade accounts receivable, less the allowance for collection losses, totaled $82.6 million at January 2, 2004 compared to $93.9 million at January 3, 2003. This decrease was a result of the sale of our Wireless Networking product group, which had over $20 million in receivables at the time of the sale, the majority of which had been collected by the end of fiscal year 2003. However, inventories increased 37% to $83.6 million at January 2, 2004 from $61.0 million at January 3, 2003. The majority of the increase is attributable to purchases made in order to build end-of-life inventory for Elantec products in anticipation of moving the production operations to Palm Bay from Milpitas as well as buffer inventory for our power management products required by certain customers. Our income taxes payable also increased $57.7 million from $26.3 million driven primarily by income tax provisions relating to the sale of our Wireless Networking group. Trade accounts payable decreased $14.8 million as we saw reduced purchases from the foundries we used for Wireless Networking product materials as well as decreased expenditures on manufacturing equipment. However, litigation accruals increased $11.9 million from fiscal year 2002 to fiscal year 2003. This was primarily driven by our lawsuit with Agere.

Sales reserves fluctuate from year to year based on items such as the level of inventory at distributors and customer returns near year-end as well as sales volume. The sales reserves increased 14.2% to $9.7 million at January 2, 2004 from $8.5 million at January 3, 2003. This increase was driven by increased sales volume of 21% over fiscal year 2002 as well as rebates of approximately $0.8 million.

Capital Expenditures

Capital expenditures were $62.5 million for fiscal year 2003 and $53.0 million for fiscal year 2002. The increase is due primarily to increased investments in our foundry operations, for which we spent $12.9 million during fiscal year 2003. Additional capital expenditures during fiscal year 2003 includes the expansion of our fabrication facility in Palm Bay, Florida in order to accommodate the transfer of certain production processes from our Findlay, Ohio and Milpitas, California facilities, as well as general manufacturing capacity increases of $41.2 million, research and development capital of $5.7 million and information technology equipment of $2.2 million.

Transactions with Related and Certain Other Parties

We hold a receivable balance within the other assets section in our balance sheet resulting from a loan made to one of our employees who is neither the CFO or CEO. The loan, which totaled $0.5 million at January 3, 2004, was made by Elantec prior to the merger as part of employment offers. The loan is a recourse loan, and the security is in the form of a second trust deed on the employee’s real property. The loan earns interest in excess of the Prime Rate. The loan is due on April 18, 2007.

We have a contract in place with ChipPAC in which ChipPAC provides us with testing and packaging services for a fee, subject to certain limits and exceptions. This commitment expires June 30, 2005. We had $4.3 million and $3.7 million of trade accounts payable to ChipPAC as of January 2, 2004 and January 3, 2003, respectively. All of our obligations under this agreement are paid in cash and are the result of arms-length transactions. Purchases under this contract during fiscal year 2003 totaled $50.4 million.

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Critical Accounting Policies

In response to the SEC’s financial reporting release, FR-60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”, we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimates, in addition to the inherent uncertainties pertaining to the estimates, and the possible effects on our financial condition. The five accounting estimation processes discussed below are the allowance for collection losses on trade receivables, reserves for excess or obsolete inventory, distributor reserves, the assessment of recoverability of goodwill and tax valuation allowances. These estimates involve certain assumptions that if incorrect could create an adverse impact on our operations and financial position. Below, we discuss these policies further, as well as the estimates and judgments involved. We also have other policies that we consider key accounting policies; however, these policies do not meet the definition of critical accounting policies, because they do not generally require us to make estimates or judgments that are difficult or subjective.

The allowance for collection losses on trade receivables was $1.1 million on gross trade receivables of $83.7 million at January 2, 2004. This allowance is used to state trade receivables at a net realizable value or the amount that we estimate will be collected on our gross receivables as of January 2, 2004. Since the amount that we will actually collect on the receivables outstanding as of January 2, 2004 can not be known until the future, we rely primarily on prior experience. Our historical collection losses have been typically infrequent with write-offs of trade receivables being less than 1% of sales. We maintain an allowance of approximately 1% of a gross trade receivable balance in order to allow for future collection losses that arise from customer accounts that do not indicate the inability to pay but will have such an inability. We also maintain a specific allowance for customer accounts that we know may not be collectible due to various reasons, such as bankruptcy and other customer liquidity issues. We analyze our trade receivable portfolio based on the age of each customer’s invoice. In this way, we can identify the accounts that are more likely to have collection problems. We then reserve a portion or all of the customer’s balance.

The reserve for excess or obsolete inventory was $21.2 million at January 2, 2004. The reserve for excess or obsolete inventory is used to state our inventories at the lower of standard cost or market as described in the footnotes to the financial statements. As the ultimate market value that we will recoup through sales on our inventory levels as of January 2, 2004 can not be known with exact certainty as of the date of this filing, we rely on past sales experience and future sales forecasts. In analyzing our inventory levels, we classify certain inventory as either excess or obsolete. These classifications are maintained for all classes of inventory, although due to the commonality between our products, raw materials are seldom deemed excess or obsolete. We classify inventory as obsolete if we have withdrawn it from the marketplace or if we have had no sales of the product for the past 12 months and no sales forecasted for the next 12 months. We reserve 100% of the standard cost of obsolete inventory. It is our policy to scrap obsolete inventory. Reviews are conducted of excess inventory on a monthly basis. We classify inventory as excess if we have quantities of product greater than the amounts we have sold in the past 12 months or have forecasted to sell in the next 12 months. We typically retain excess inventory until the inventory is sold or re-classified as obsolete. We reserve approximately 40% to 50% of the standard cost of the excess inventory. We believe that 40% to 50% represents the portion we will not be able to recover when we attempt to sell this inventory due to our new product (next generation) introductions and other technological advancements. For all items identified as excess or obsolete during the process described above, management reviews the individual facts and circumstances (i.e. competitive landscape, industry economic conditions, product lifecycles and product cannibalization) specific to that inventory.

Distributor reserves were $1.2 million at January 2, 2004. Revenue is recognized from sales to all other customers, excluding North American distributors, when a product is shipped. Sales to international distributors are made under agreements, which provide the distributors certain price protection on and rights to periodically exchange a percentage of unsold inventory they hold. Accordingly, distributor reserves are amounts within the liability section of the balance sheet that estimate the amount of inventory adjustments that will be encountered in the future on the inventory that is held by international distributors as of the balance sheet date. As the amount of inventory held by international distributors as of January 2, 2004 that will be adjusted in the future cannot be known with certainty as of the date hereof, we rely primarily on historical international distributor transactions. The international distributor reserves comprise two components that are reasonably estimable. The first component of international distributor reserves is the price protection reserve, which protects the distributors’ gross margins in the event of falling prices. This reserve is based on the relationship of historical credits issued to

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distributors in relation to historical inventory levels and price paid by the distributor as applied to current inventory levels. The second component is a stock rotation reserve, which is based on the percentage of sales made to certain distributors in Europe whereby the distributors can periodically exchange a percentage of older inventories with newer products. Actual price protection and stock rotation changes have historically been within management’s expectations. International distributor reserves are combined with other product sales reserves within the sales reserves line item on the balance sheet. These include reserves for unearned revenue for payments on last time buy products of $3.8 million, price rebates of $0.8 million product warranties for $1.2 million, as well as other revenue related accruals of $2.7 million.

Effective March 30, 2002, we began to recognize revenue to North American distributors on a sell-through basis. As such, we now recognize sales to North American distributors upon shipment to the end customer. Formerly, we recognized revenue from North American distributor sales upon shipment to the distributors. The combination of the changes resulting from the integration with Elantec, changes in the distributor mix and changes in market pricing affect the estimability of customer acceptance of our products.

Pursuant to SFAS 142, we completed an initial impairment review of our goodwill and intangible assets deemed to have indefinite lives as of December 29, 2001 and found no impairment. According to our accounting policy, we also performed an annual review during the fourth quarter of 2002, and in both reviews we found no impairment. We will perform a similar review in the fourth quarter of each year, or more frequently if indicators of potential impairment exist. Goodwill is tested under the two-step method for impairment at a level of reporting referred to as a reporting unit. Our reporting units are the High Performance Analog and Elantec product groups because they are each managed by a general manager and have discrete financial information. The first step of the goodwill impairment test, the purpose of which is to identify potential impairment, compares the fair value of each reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test will be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, the purpose of which is to measure the amount of impairment loss, compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss will be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill will be its new accounting basis.

As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax liability together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. We have not provided for a valuation allowance because we believe it is more likely than not that our deferred tax assets will be recovered from future taxable income. At January 2, 2004, our net deferred tax asset amounted to $49.4 million.

Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”) “Consolidation of Variable Interest Entities.” This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities. Under current practice, two enterprises generally have been included in consolidated financial statements because one enterprise controls the other through voting interests. This interpretation defines the concept of “variable interests” and requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse the risks among the parties involved. This interpretation applied immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applied in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. If it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity when this interpretation becomes effective, the enterprise shall disclose information about those entities in all financial statements issued after January 31, 2003. The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. We have completed our assessment of this interpretation and determined that we are not party to any variable interest entities as of January 2, 2004.

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In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145 (“SFAS 145”), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Under previous guidance, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This Statement eliminates SFAS 4 and thus the extraordinary treatment related to the extinguishment of debt in most instances. As a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in APB Opinion 30. The provisions of this Statement related to the rescission of Statement 4 shall be applied in fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB Opinion 30 for classification as an extraordinary item shall be reclassified. We adopted the provisions of this standard and have reclassified our loss on the extinguishment of debt for fiscal year 2001 on the face of the Consolidated Statement of Operations.

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies 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).” SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when a liability is incurred rather than when an exit or disposal plan is approved. We adopted the provisions of SFAS 146 for any exit or disposal activities initiated after December 31, 2002.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS 149”), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under Statement of Financial Accounting Standards No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities.” The statement was effective for contracts entered into or modified after June 30, 2003. The adoption of this standard did not have a material impact on our financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This standard was effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities that are subject to the provisions of this Statement for the first fiscal period beginning after December 15, 2003. The adoption of this standard did not have a material impact on our financial position or results of operations.

Subsequent Events

On January 28, 2004, our Board of Directors declared a quarterly dividend of $0.03 per share of common stock. Payment of the dividend was made on February 27, 2004 to shareholders of record as of the close of business on February 17, 2004.

Stock Option Disclosures

On November 5, 1999, we adopted the 1999 Equity Compensation Plan (the “Plan”), which became effective on August 13, 1999 for salaried officers and key employees. The Plan originally authorized the grant of options for up to 7.5 million shares of our Class A common stock and can include (i) options intended to constitute incentive stock options under the Internal Revenue Code, (ii) non-qualified stock options, (iii) restricted stock, (iv) stock appreciation rights, and (v) phantom share awards. The number of shares authorized for the Plan was increased to 17.5 million shares by the shareholders at the Annual Meeting of Shareholders held May 15, 2001.

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Employee and Executive Option Grants

Summary of Option Activity

In-the-Money and Out-of-the-Money Option Information

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The following table provides information concerning stock options granted to the executive officers named in the Summary Compensation Table during fiscal year 2003.

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The following sets forth information regarding the number and value of options held by the executive officers named in the Summary Compensation Table during fiscal year 2003:

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values