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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1997
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-7935
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INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-1528961
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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233 KANSAS STREET
EL SEGUNDO, CA 90245
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (310) 726-8000
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1 New York Stock Exchange
Pacific Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $1,070,790,805 (computed
using the closing price of a share of Common Stock on September 24, 1997
reported by New York Stock Exchange).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
There were 51,176,808 shares of the registrant's Common Stock, par value
$1.00 per share, outstanding on September 24, 1997.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on November 24, 1997, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended June 30, 1997, are incorporated by reference in
Part III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
PART I
ITEM PAGE
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1. Business............................................................ 1
2. Properties.......................................................... 8
3. Legal Proceedings................................................... 9
4. Submission of Matters to a Vote of the Security Holders............. 10
Additional Item. Directors and Executive Officers of the
Registrant......................................................... 10
PART II
5. Market for the Registrants' Common Equity and Related Stockholders'
Matters............................................................ 12
6. Selected Financial Data............................................. 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 14
8. Financial Statements and Supplementary Data......................... 17
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 38
PART III
10. Directors and Executive Officers of the Registrant.................. 38
11. Executive Compensation.............................................. 38
12. Security Ownership of Certain Beneficial Owners and Management...... 38
13. Certain Relationships and Related Transactions...................... 38
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 38
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PART I
ITEM 1. BUSINESS
INTRODUCTION
International Rectifier Corporation ("IR" or "Company") is a major worldwide
supplier of power semiconductors. Power semiconductors switch or condition
electricity at relatively high voltage and current levels in products such as
power supplies, motor controls, computers/peripherals, automobiles, cellular
phones, and electronic lighting ballasts.
The Company designs, manufactures, and markets power semiconductors, which
are used for power conversion. In a manner similar to the way that oil is
refined to produce gasoline, electrical power is converted to produce efficient,
usable power. This process of power conversion can be viewed in four stages:
input rectification, control, switching, and output rectification. Input
rectification conditions off-line electricity, typically rectifying alternating
current to direct current. The control function measures incoming electricity
and sends a signal to a switch. The switch chops the energy into small elements.
Output rectification re-configures the elements into a form usable by
electrically operated equipment.
IR supplies products that perform each of the four basic functions in power
conversion, and many circuits use more than one type of IR product. This allows
IR to develop products that work together to optimize overall circuit
performance, and enables the Company to capitalize more broadly on market-
leading products.
IR's products are widely used. Applications for power semiconductors in
automobiles include anti-lock braking and fuel injection systems, power
accessories, and air bags. Computer/peripheral applications include monitors,
disk drives, and printers. Office equipment applications include copiers and
facsimile machines. Consumer electronics and lighting applications include home
entertainment, household appliances, and electronic lighting ballasts.
Communications applications include portable phones, telephone networks, and
modems. Power semiconductors are also used widely in industrial applications
such as motor-driven production lines, machine tools, fork lifts, and welders.
Based on statistics published by the Semiconductor Industry Association
("SIA"), the Company believes it is the leader in the power MOSFET (Metal Oxide
Semiconductor Field Effect Transistor) segment with its
HEXFET-Registered Trademark- power MOSFETs and IGBTs (Insulated Gate Bipolar
Transistors). SIA data indicates that over the past five years, power MOSFET
sales have grown at an average rate of 27% per year. Industry-wide sales of
power MOSFETs and IGBTs were $2.8 billion in calendar 1996, an increase of 7%
over 1995 levels, reflecting the impact of a widespread inventory correction
among distributors and OEM customers.
The Company's major customers in the automotive segment include Delco, Ford,
Siemens, and Bosch. IBM, Hewlett Packard, and Compaq are customers in the
computer segment. Consumer electronics customers include Philips and Sony.
Customers in the telecommunications segment include Lucent Technologies,
Motorola, and Nokia. Industrial customers include Emerson, Sanken Electric, and
American Power Conversion. The Company also sells its products to distributors,
including Arrow Electronics and Future Electronics. In fiscal year 1997, the
Company's product sales by region were approximately 47% from North America, 25%
from Europe, and 28% from Asia. IR has manufacturing facilities in North
America, Europe, and Asia, and uses subcontract assembly in Asia.
IR was founded as a California corporation in 1947 and reincorporated in
Delaware in 1979. Its executive offices are located at 233 Kansas Street, El
Segundo, California 90245 and its telephone number is (310) 726-8000.
POWER SEMICONDUCTOR INDUSTRY
Semiconductors are silicon-based chips that conduct and block electricity.
The semiconductor industry consists of two product categories: integrated
circuits ("ICs") and power semiconductors. ICs operate at low power levels and
perform multiple functions to process and convey information in
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electronic signal form. IC capability is largely defined by circuit density,
which increases as its features are miniaturized. The applications for ICs are
generally concentrated in the computer industry and have been subject to
frequent redesign, short product life cycles and rapid obsolescence. As a
result, the demand for ICs has been highly cyclical.
In contrast to ICs, power semiconductors operate at higher power levels and
perform a single function: they condition and control electricity to operate a
power supply, control a motor, or light a lamp. Their capability is largely
defined by the level of power that they can handle and their efficiency in
converting raw electric current into a more useful form. The amount of electric
current handled and the heat generated present different design challenges than
those of integrated circuits, and the miniaturization of power semiconductors
usually lags that of ICs.
Advances in power semiconductor performance and cost-per-function have been
achieved through the use of MOS technology. MOS power transistors (power MOSFETs
and IGBTs) have gained an increasing share of the power transistor market at the
expense of bipolar transistors that also serve the switch function.
MOS power transistors offer significant benefits over bipolar power
transistors. They provide much greater switching speed, which allows the design
of higher frequency, more compact circuits. They are activated by voltage rather
than current, so they require less external circuitry. MOS transistors are more
compatible with microprocessor controls. They offer more reliable long-term
performance and are more rugged, so they can better withstand adverse operating
conditions. Power MOSFETs and IGBTs compare favorably to bipolar power
transistors on a price/performance basis.
APPLICATIONS
Power semiconductors are used in a broad spectrum of commercial and
industrial applications, including many products with long life cycles. The
Company believes that because of their more gradual rate of technological change
and the diversity of applications, the demand for power semiconductors is less
cyclical than for some ICs. Power semiconductor demand is driven by conversion
to new technologies, the proliferation of new end-product applications, and
growth in the end markets. The Company believes that markets driving future
demand for power semiconductors include:
PORTABLE ELECTRONICS. Advances in power semiconductors help extend battery
life and reduce product size and weight in a variety of battery-operated
products such as lap-top and notebook computers, personal digital organizers,
cellular telephones, household appliances, and hand tools.
AUTOMOTIVE ELECTRONIC SYSTEMS. The concentration of solid state electronics
has increased rapidly in recent model year automobiles as safety and comfort
features increase demands on the battery. Applications include anti-lock braking
systems, air-bags, fuel injection systems, electronic power steering, electric
windows, and adjustable mirrors and seats. Widespread adoption of battery
operated electric vehicles to reduce emissions could dramatically increase
consumption of MOS transistors.
ELECTRONIC LIGHTING BALLASTS. Electronic lighting ballasts, which
incorporate power MOSFETs and Power ICs, significantly reduce the amount of
energy consumed in lighting. Conversion to electronic ballasts has been driven
by lower end-user operating costs and incentives from electric utilities to
encourage energy efficiency. Applications include compact fluorescent and
high-intensity discharge (HID) lamps.
VARIABLE SPEED MOTORS. Variable-speed solid state controls increase energy
efficiency and performance in a broad range of industrial and appliance motors.
Clean air legislation is driving the conversion from traditional
chlorofluorocarbons ("CFCs") to less toxic refrigerants which are also less
efficient. Manufacturers of refrigerators and air conditioners can compensate
for these less efficient chemicals by using more efficient variable-speed
motors.
PRODUCTS
The Company's products convert electrical power to make it more usable and
efficient in performing work such as operating power supplies, controlling
motors, and lighting lamps. The products'
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ability to minimize energy lost at each point in the power conversion process is
central to their value. Important growth applications include such
energy-sensitive products as electronic fluorescent lights, more energy
efficient refrigeration and air conditioning equipment, and electric vehicles.
The Company's HEXFET power MOSFET products and IGBT transistors comprised
approximately 70% of fiscal 1997 sales. IR also supplies High Voltage Control
ICs, high-performance diodes, and high power rectifiers and thyristors. The
Company believes that its full complement of power conversion technology
represents a competitive advantage, enabling IR to provide customers with
integrated solutions to their power conversion needs.
SWITCHING PRODUCTS
MOS TRANSISTORS. MOS transistors (power MOSFETs and IGBTs) serve the switch
function in power conversion to provide an even, usable flow of power for
electronic equipment.
POWER MOSFETS. Through its HEXFET product line, the Company believes it is
the market leader in power MOSFETs. The breadth and diversity of the market for
these products help to stabilize demand.
Applications for MOSFETs in automobiles include anti-lock braking and fuel
injection systems, electronic power steering, power accessories, and air bags.
Computer/peripheral applications include power supplies, disk drives, and
printers. Office equipment applications include copiers and facsimile machines.
Consumer electronics applications include home entertainment, video cameras,
household appliances, and power tools. Lighting applications include electronic
lighting ballasts and compact fluorescent bulbs. Industrial applications include
motor control, instrumentation, and test equipment. Communications applications
include telephone networks and modems. Government and aerospace applications
include commercial and military satellites, communications equipment, command-
and-control systems, and missiles.
Market acceptance and brand recognition of the Company's HEXFET line of
products have benefited from the Company's emphasis on quality control and
reliability, and the Company believes its standards to be among the most
stringent in the industry. Cumulative and current data on long and short term
product reliability is made available to customers quarterly.
The Company fabricates the majority of its power MOSFET wafers at HEXFET
America. Die from these wafers are assembled into packaged devices at IR's
facilities in England and Mexico, and subcontract facilities in Asia. See "--
Manufacturing."
IGBTS. IGBTs typically serve the switch function in power conversion
applications that require higher current and voltage than power MOSFETs can
handle efficiently. IGBTs combine the ease of voltage-driven power MOSFET
technology with the conduction efficiency of bipolar transistor technology. The
performance and ruggedness of these devices enable them to replace bipolar
transistors and thyristors in many high-voltage, high-current motor control and
power conditioning applications. Energy-efficient, variable-speed motor controls
are an emerging application, and the Company believes electric vehicles will
require large quantities of IGBTs for each vehicle.
The Company's IGBT technology is closely related to its MOSFET technology,
and the Company views them as complementary products. The Company believes that
its patents on fundamental MOSFET technology also apply to IGBTs, and it is
seeking further patent protection on its IGBT technology, as well as on its
MOSFET technology.
CONTROL PRODUCTS
HIGH VOLTAGE CONTROL INTEGRATED CIRCUITS. These devices serve the control
function of power conversion. They perform the functions of several discrete
components. This integration allows IR's customers to simplify circuit design
and assembly, improve reliability, and reduce overall system size and cost. In
sensing and responding to adverse operating conditions the performance of high
voltage control integrated circuits is superior to that of discrete components
in a safety or diagnostic circuit.
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IR's high voltage control integrated circuits draw on the Company's MOSFET
technology and are designed to optimize the performance of both power MOSFETs
and IGBTs. The Company believes that its power MOSFET patents also apply to a
broad range of high voltage control integrated circuits.
High voltage control integrated circuits are used in a wide variety of power
supply, motor, and lighting control applications. These include industrial motor
controls, home appliance motor controls, solenoid drivers, welding equipment,
telecom switchers, computer/peripherals, instrumentation and test equipment,
electronic lighting ballasts, and compact fluorescent light bulbs.
OUTPUT RECTIFICATION PRODUCTS
The Company's Schottky diodes and Fast-Recovery diodes serve the output
rectification function of power conversion. Output rectification reconfigures
the elements into a form usable by electrically-operated equipment. Schottky
diodes are used with power MOSFETs in high-frequency applications such as
computer/peripherals. The Company's HEXFRED-Registered Trademark- Fast-Recovery
diodes are used with IGBTs in higher-current, lower-frequency applications such
as motor controls.
INPUT RECTIFICATION PRODUCTS
The Company also manufactures a broad line of rectifiers, diodes and
thyristors that serve the input rectification function of power conversion.
These products condition power to make it more efficient and usable, principally
in industrial end products that require power-handling capability from one amp
to 5000 amps and from 20 volts to 5000 volts. Applications include motor and
lighting controls, welding equipment, fork lifts, machine tools, induction
heating, locomotives, motor-driven production lines, smelting equipment, and
power supplies.
MANUFACTURING
Semiconductor manufacturing involves two phases of production: wafer
fabrication and assembly (or packaging). Wafer fabrication exposes silicon
wafers to chemicals that change their electrical properties in a sequence of
process steps. The chemicals are applied in patterns that define cells or
circuits within numerous individual devices (often termed "die" or "chips") on
each wafer. Packaging or assembly is the sequence of production steps that
divide the wafer into individual chips and enclose the chips in external
structures (termed packages) that make them usable in a circuit. Power
semiconductors generally use the process technology and equipment already proven
in the manufacturing of ICs.
The Company has production facilities in California, England, Italy, Mexico,
India, and China. In addition, the Company has equipment at, or manufacturing
supply agreements with, subcontractors located in the Philippines, Japan,
Taiwan, Malaysia, and the United States.
IR fabricates the majority of its power MOSFET and IGBT wafers at HEXFET
America in Temecula, California. A wafer fabrication facility for high voltage
power integrated circuits and other advanced products, as well as assembly
operations for components used in government/space applications, are located in
El Segundo, California. Facilities that assemble MOSFETs and other products are
located overseas, in Company-owned and subcontract facilities. In the second
half of fiscal 1997, the Company completed a new assembly facility in Tijuana,
Mexico, that assembles MOSFETs, Schottkys, IGBTs, and other modules. The
Company's Oxted, England facility, which qualifies as a duty-free facility,
assembles MOSFETs, IGBTs, Schottkys, and diodes. The Company manufactures
substantially all its high power rectifiers and thyristors at its Turin, Italy
facility. A Schottky wafer fabrication facility at its Turin facility went into
production in late calendar 1996. The Company also has arrangements with third
parties for product assembly in the Philippines, Malaysia, Taiwan, Japan, and
Mexico. In a duty-free zone in India, the Company has an assembly facility for
rectifiers and thyristors.
To address the fastest growing segments of the power transistor market, high
density MOSFETs and IGBTs, the Company installed a second wafer fabrication unit
at HEXFET America. Phase one, completed in September 1995, and phase two,
completed in the second half of fiscal 1997, combined are expected to add about
$297 million in additional annual revenues at full utilization. Estimated
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additional annual revenues from the expansion assume fiscal year 1997 pricing
levels and the sale of all products manufactured at the facility.
Next-generation devices designed for production in the new fabrication unit
incorporate design and process advancements in the Company's proprietary HEXFET
and IGBT technologies. A core process with shared elements for both products
enables the unit to combine flexibility with efficient high-volume manufacturing
techniques. Fabrication is performed on six-inch wafers and uses a
continuous-flow layout similar to the one already in use at HEXFET America.
In the second half of fiscal 1997, the Company completed the transfer of its
assembly lines from HEXFET America to its assembly facility in Tijuana, Mexico
and to independent subcontractors. The move affected only the assembly phase of
manufacturing. It allows the California plant to focus on expansion of its
benchmark wafer fabrication capability and enables the Company to reduce the
cost of assembling its HEXFET power MOSFET chips into finished devices.
MARKETING, SALES, AND DISTRIBUTION
The Company markets its products through sales staff, representatives, and
distributors. The Company believes its ability to offer products that serve each
of the four functions of power conversion enhances its competitive position in
the overall power semiconductor market.
In fiscal year 1997, the Company's product sales by region were
approximately 47% from North America, 25% from Europe, and 28% from Asia. The
Company's domestic direct sales force is organized into four sales zones. In
Western Europe, the Company's products are sold through its own sales force as
well as through sales agents and distributors. The Company's European sales and
representative offices are in England, Italy, Sweden, France, Germany, Finland,
Denmark, Switzerland, Russia, the Czech Republic, and Hungary. In Asia, IR has
sales, representative, and liaison offices in India, Japan, Singapore, China,
Hong Kong, South Korea, Taiwan, and the Philippines.
Because many applications require products from several product groups, the
Company has organized its marketing efforts by application, rather than product
type. These business management groups focus on several key commercial sectors
and on government and aerospace business. In addition, the Company's staff of
application engineers provides customers with technical advice and support
regarding the use of IR's products.
CUSTOMERS
International Rectifier's devices are incorporated in subsystems and end
products manufactured by other companies. IR's customers in the automotive
segment include Delco, Ford, Siemens, and Bosch. IBM, Hewlett Packard, and
Compaq are customers in the computer segment. Consumer electronics customers
include Philips and Sony. Customers in the telecommunications segment include
Lucent Technologies, Motorola, and Nokia. Industrial customers include Emerson,
Sanken Electric, and American Power Conversion. Over the long term,
approximately 35% of the Company's revenues have come from sales of its products
to distributors, including Arrow Electronics and Future Electronics. The Company
has historically found it more difficult to determine distributor demand than
demand from its other customers. There were no sales to a single customer that
accounted for 10% or more of fiscal 1997 revenues.
BACKLOG
As of June 30, 1997, the Company's backlog of orders was $143.8 million
compared to $315.5 million as of June 30, 1996. Backlog is comprised of purchase
orders and customer forecast commitments scheduled to be shipped within the
following 12 months. Increasingly, major customers are operating their
businesses with shorter lead-times and are placing orders on a periodic rather
than an annual basis, which tends to reduce backlog relative to future revenue.
The sharp decrease in backlog at June 30, 1997 is mainly attributable to an
industry-wide inventory correction, competitive price pressures triggered by
shorter lead-times, and greater product availability. In most circumstances IR
allows customers to cancel purchase orders without penalty. Backlog is not
necessarily indicative of sales for any future period.
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RESEARCH AND DEVELOPMENT
The Company's breadth of technology and focus on power conversion underlie
an integrated approach to developing complementary products that are designed to
add value and differentiate International Rectifier from its competitors. IR
conducts research and development activities to improve the price/performance
ratio of its product offerings to customers across a wide range of end-use
applications. The Company's research and development program focuses on the
advancement and diversification of its HEXFET and IGBT product lines and the
development of high voltage control integrated circuits and power products that
work in combination with HEXFET power MOSFETs and IGBTs. IR's program places
increasing emphasis on the development of chipsets and system-level solutions
that optimize components to improve overall system performance and cost. These
devices will also enable customers to accelerate market introduction of their
products.
In fiscal years 1997, 1996, and 1995, the Company spent approximately $35.5
million, $27.0 million, and $20.1 million, respectively, on research and
development activities.
In fiscal 1996, IR previewed its most comprehensive offering to date in the
area of "solution" products that combine multiple components and technologies to
improve overall circuit size, cost, and performance. These products have been
designed-in by customers throughout the world since market introduction in late
calendar 1996.
Fiscal 1997 product introductions included the proprietary PowIRTrain-TM-
line, which may reduce by as much as half the size, cost, and development time
for advanced motion control systems. Other important product introductions
included a broad family of IGBTs with decisive speed and efficiency advantages;
the industry's first 1200V IC, which serves as the core of IR's
highly-integrated motor drive solutions; a specialized series of
highly-competitive IGBTs for high-volume power supplies; and co-packaged power
MOSFETs and diodes in proprietary FETKY-Registered Trademark- packages that
offer the industry's smallest footprint.
A new Development Center in El Segundo is scheduled to come on line in the
first quarter of fiscal 1998. This facility provides greater capacity and
submicron capability for development and pilot production of advanced power
MOSFETs and IGBTs. The 55,000 square foot facility incorporates a 12,000 square
foot clean-room and is designed to support a greater activity level as IR
aggressively addresses high-growth market opportunities in the field of power
conversion. The cost for construction and equipment is expected to total $46
million.
INTELLECTUAL PROPERTY
The Company has made significant investments in developing and protecting
its intellectual property. Through successful enforcement of its patents, the
Company has entered into a number of license agreements, generated royalty
income, and received substantial payments in settlement of litigation. The
Company currently has 92 unexpired U.S. patents and 68 U.S. patents pending.
Those patents fundamental to the Company's products expire between 2000 and
2010. In addition, the Company has 76 issued foreign patents and 291 foreign
patents pending in a number of countries. The Company is also licensed to use
certain patents owned by others. Under the terms of an agreement with Unitrode
Corporation, the Company pays Unitrode approximately 12% of the Company's net
patent royalty income. The Company has several registered trademarks in the
United States and abroad including the trademark HEXFET. The Company believes
that its proprietary technology and intellectual property contribute to its
competitive advantage.
Since the Company believes that its power MOSFET patents are broadly
applicable, it is committed to enforcing its rights under those patents and is
pursuing additional license agreements. The Company presently has license
agreements with most of the major power MOSFET manufacturers in the United
States and abroad (20). In fiscal 1997, $20.3 million of net revenues were
derived from royalty-bearing license agreements.
Certain of the Company's fundamental power MOSFET patents have been
subjected, and continue to be subjected, to reexamination in the United States
Patent and Trademark Office ("PTO").
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The patents subject to reexamination are fundamental to the Company's MOS
transistors and their loss would allow competitors to use currently patented
features of the Company's MOS transistor technology without liability for
infringement of those patents. The following patents of the Company are
currently undergoing reexamination in the PTO: 4,642,666; 4,959,699; 5,008,725;
5,130,767; and 4,593,302.
Although no assurance can be given as to the ultimate outcome of the
Company's patent enforcement efforts, the PTO reexamination proceedings, or the
success of the Company's patent licensing program, the Company believes that its
patent portfolio will be the source of continuing royalty income.
COMPETITION
The Company encounters differing degrees of competition for its various
products, depending upon the nature of the product and the particular market
served. Generally, the semiconductor industry is highly competitive and subject
to rapid price changes, and many of the Company's competitors are larger
companies with greater financial resources than IR. The Company believes that it
is distinguished from competitors by its breadth of product line and ability to
combine multiple power conversion products into compact, cost-effective packages
and system-level solutions. IR's products compete with products manufactured by
others based on breadth of product line, quality, price, reliability, over-all
performance of the products, delivery time to the customer, and service
(including technical advice and support). The Company's competitors include
Eupec, Harris Corporation, Hitachi Ltd., Motorola, Inc., NEC Corporation,
Philips International B.V., Powerex, Inc., Samsung Semiconductor Inc.,
SGS-Thomson Microelectronics, Siemens AG, Siliconix incorporated, Toshiba
Corporation, and Westcode Semiconductors Ltd.
ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations impose various restrictions
and controls on the discharge of certain materials, chemicals, and gases used in
semiconductor processing. The Company does not believe that compliance with such
laws and regulations will have a material adverse effect on its financial
position.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), its former
pharmaceutical subsidiary which discontinued operations in 1986, have been named
among several hundred entities as potentially responsible parties ("PRPs") under
the provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), in connection with the United States
Environmental Protection Agency's ("EPA") investigation of the disposal of
allegedly hazardous substances at a major superfund site in Monterey Park,
California ("OII Site"). Certain PRPs who settled certain claims with the EPA
under consent decrees filed suit in Federal Court in May 1992 against a number
of other PRPs, including the Company, for cost recovery and contribution under
CERCLA. The lawsuit against the Company, relating to the first and second
consent decrees, was settled in August 1993 for the sum of $40,000 to avoid
protracted and expensive litigation. In June 1995, the Company was named among
others as a party defendant in Federal Court apparently in connection with a
third consent decree with respect to the OII Site. The Company received a letter
(dated July 25, 1995) from the U.S. Department of Justice offering to settle
claims against Rachelle relating to the first three elements of clean-up work at
the OII Site for the sum of $4,953,148 (the final remedy assessment has not yet
been made). This settlement offer expired by its terms on September 1, 1995. The
Company also received a separate letter from the EPA dated July 25, 1995, with
respect to International Rectifier only, notifying the Company that it may
qualify for a settlement with de minimis generators under CERCLA Section 122(g).
The Company has received no further communications in this regard.
On August 7, 1995, the Company received a Supplemental Information Request
from the EPA, directed to Rachelle. In its response, dated October 20, 1995, the
Company explained that none of the wastes generated by Rachelle were hazardous.
The Company has received no further communications in connection with the
Supplemental Information Request.
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Claims have been made with the Company's insurers with respect to the OII
site matter, which the insurers have not accepted. There can be no assurance
that the insurance coverage attaches to these claims. The Company does not
believe that either it or Rachelle is responsible for the disposal at the OII
site of any material constituting hazardous substances under CERCLA. Although
the ultimate resolution of this matter is unknown, the Company believes that it
will not have a material adverse impact on its financial position.
In May 1993, the Company purchased property from its Employee Profit Sharing
and Retirement Plan. It was determined that the property required clean-up of
seepage from a storage tank. The Company commenced the clean-up in fiscal year
1994 and completed it in fiscal year 1997. The total cost thereof ($585,000) has
been capitalized as additional costs of the property.
On July 18, 1994, the Company received a letter from the State of Washington
Department of Ecology ("Department") notifying the Company of a proposed finding
that the Company is a potentially liable person ("PLP") for alleged PCE
contamination (also known as perchloroethylene, tetrachloroethylene, and other
names) of real property and groundwater in Yakima County, Washington. The letter
alleged that the Company arranged for disposal or treatment of the PCE or
arranged with a transporter for the disposal or treatment of the PCE in Yakima
County. The Company replied by a letter dated August 11, 1994, stating that it
has not contributed to PCE or other solvent contamination at the Yakima County
site (resulting from sending carbon canisters for regeneration to a facility in
the county) and that it should not be designated a PLP. On October 11, 1994, the
Company received a letter from the Department notifying the Company of its
finding that the Company is a PLP in the above matter. The Company settled this
matter with the Department by the payment of $51,906 in July 1997. No further
costs are expected to be incurred in connection with the alleged PCE
contamination.
The Company received a letter dated September 9, 1994, from the State of
California Department of Toxic Substances Control stating that the Company may
be a PRP for the deposit of hazardous substances at a facility in Whittier,
California. The Company, in June 1995, joined a group of other PRPs to remove
contamination from the site. The group currently estimates the total cost of the
clean-up to be between $3.1 million and $4 million, of which between $12,000 and
$15,000 is presently expected to be allocated to the Company. However, the
ultimate cost borne by the Company will depend on the extent of the clean-up
undertaken by the group and the actual clean-up costs and the final allocation
scheme agreed upon by the group.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 4,385 people, of
whom approximately 3,310 are employed in North America, 975 in Western Europe,
and 100 in Asia. The Company is not a party to any collective bargaining
agreements. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
The Company's operations occupy a total of approximately 983,000 square
feet, of which approximately 592,000 square feet are located within the United
States. Of the worldwide total, approximately 254,000 square feet are leased and
the balance is owned by the Company.
IR's leases expire between 1997 and 2012. If the Company is unable to renew
these leases upon expiration, it believes that it could find other suitable
premises without any material adverse impact on its operations.
8
<PAGE>
The Company's major facilities are in the following locations:
<TABLE>
<CAPTION>
TOTAL SQUARE FEET
---------------------
FACILITY OWNED LEASED EXPIRATION OF LEASE
- ----------------------------------- --------- --------- ----------------------------------------
<S> <C> <C> <C>
Temecula, California............... 297,000 --
El Segundo, California............. 132,000 163,000 May 31, 1999 -- July 31, 2004(1)
Tijuana, Mexico.................... 150,000 10,000 Month to Month
Oxted, England..................... 40,000 32,000 June 30, 2000 -- March 27, 2012
Turin, Italy....................... 110,000 9,000 September 30, 2001
</TABLE>
- ------------------------
(1) Owned facilities include approximately 55,000 square feet for the new
development center that was substantially complete at year-end. A
certificate of occupancy is expected in the second quarter of fiscal 1998.
The Company believes that these facilities are adequate for its current and
anticipated near term operating needs. IR estimates that it currently utilizes
approximately 69% of its worldwide manufacturing capacity, including the
capacity added in the second half of fiscal 1997 (see "Business --
Manufacturing").
The Company has sales and technical support offices located throughout the
United States, Canada, France, Germany, Switzerland, Finland, Scandinavia,
Russia, Czech Republic, Hungary, Hong Kong, Japan, China, Korea, Taiwan, the
Philippines, Singapore, and India which operate in leased facilities.
ITEM 3. LEGAL PROCEEDINGS
On May 22, 1997, the Company entered into an agreement with SGS-Thomson
Microelectronics, Inc. ("SGS") settling all outstanding litigation in the United
States and Great Britain between the Company and SGS and its affiliated
companies relating to MOSFET, IGBT, and IC patents on the basis of world-wide
cross licenses. The agreement superseded the former agreement between the
Company and SGS, which was limited to the United States. The new agreement
provides for continued payment of royalties by SGS on certain sales in the
United States and provides for the payment of royalties by SGS on certain sales
in Japan.
The Company and certain of its directors and officers have been named as
defendants in three class action lawsuits filed in Federal District Court in
California. These suits seek unspecified but substantial compensatory and
punitive damages for alleged intentional and negligent misrepresentations and
violations of the federal securities laws. The complaints generally allege that
the Company and the other defendants made materially false statements or omitted
to state material facts in connection with the public offering of the Company's
common stock completed in April 1991 and the redemption and conversion in June
1991 of the Company's 9% Convertible Subordinated Debentures Due 2010. They also
allege that the Company's projections for growth in fiscal 1992 were materially
misleading. Two of these suits also named the Company's underwriters, Kidder,
Peabody & Co. Incorporated and Montgomery Securities as defendants.
The Court on March 31, 1997 rendered its decision on a motion for summary
judgment brought by the Company and certain of its directors and officers. The
Court issued the following orders: (a) the motion for summary judgment was
granted as to claims brought under Sections 11 and 12(2) of the Securities Act
of 1933; (b) the motion was denied as to claims brought under Section 10(b) of
the Securities Exchange Act of 1934 and the Securities and Exchange Commission
Rule 10b-5; and (c) the motion was granted as to the common law claims for fraud
and negligent misrepresentation to the extent said claims are based on
representations contained in the offering prospectus and was denied as to other
such claims. The Court also granted the summary judgment motion brought by the
underwriters.
9
<PAGE>
Although the Company believes that the remaining claims alleged in the suits
are without merit, the ultimate outcome cannot be presently determined. A
substantial judgment or settlement, if any, could have a material adverse effect
on the Company's financial condition and results of operations. Trial of this
action against the Company is scheduled for January 1998.
No provision for any liability that may result upon adjudication of these
matters has been made in the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Not applicable.
ADDITIONAL ITEM. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company serve at the discretion of the Board
of Directors. Mr. Eric Lidow's employment with the Company is subject to the
provisions of an executive employment agreement with the Company dated May 15,
1991. For further information, see "Notes to Consolidated Financial Statements
- -- Note 12. Executive Agreement."
The executive officers and directors of IR are:
<TABLE>
<S> <C> <C>
Eric Lidow 84 Chairman of the Board
Alexander Lidow 42 Chief Executive Officer; Director
Derek B. Lidow 44 Chief Executive Officer; Director
Robert J. Mueller 68 Executive Vice President -- External Affairs
and Business Development; Director
Michael P. McGee 38 Vice President -- Chief Financial Officer
L. Michael Russell 50 Vice President, Secretary and General Counsel
George Krsek 76 Director
Jack O. Vance 72 Director
Rochus E. Vogt 67 Director
Donald S. Burns 72 Director
James D. Plummer 52 Director
Minoru Matsuda 60 Director
</TABLE>
Eric Lidow is a founder of the Company, has been a director of the Company
since its inception in 1947 and was Chief Executive Officer until March 6, 1995.
Mr. Lidow continues as Chairman of the Board and also serves as Chairman of the
Company's Executive Committee.
Alexander Lidow, Ph.D., has been employed by the Company since 1977. He
served as the Semiconductor Division's Vice President -- Research and
Development since July 1979, was promoted to Semiconductor Division Executive
Vice President -- Manufacturing and Technology in March 1985, and became the
President of the Electronic Products Division in July 1989. In August 1992, Dr.
Lidow was elected Executive Vice President of Operations. He was elected a
director in September 1994 and Chief Executive Officer in March 1995. Dr. Lidow
is a son of Eric Lidow.
Derek B. Lidow, Ph.D., has been employed by the Company since 1976. He
served as the Semiconductor Division's Vice President -- Operations since March
1980, was promoted to Semiconductor Division Executive Vice President --
Marketing and Administration in March 1985, and became President of the Power
Products Division in July 1989. In August 1992, Dr. Lidow was elected Executive
Vice President and in July 1993 assumed responsibilities for worldwide sales and
marketing. He was elected a director in September 1994 and Chief Executive
Officer in March 1995. Dr. Lidow is a son of Eric Lidow.
10
<PAGE>
Robert J. Mueller has been employed by the Company since November 1961. He
served as Vice President of Marketing for the U.S. Semiconductor Division from
1963 until October 1969 when he was promoted to Corporate Vice President --
Foreign Operations. Mr. Mueller became Executive Vice President -- World
Marketing and Foreign Operations in April 1978, Corporate Executive Vice
President -- External Affairs and Worldwide Sales in July 1989, and in July 1993
became Executive Vice President -- External Affairs and Business Development. He
was elected a director in 1990.
Michael P. McGee has been employed by the Company since 1990. He joined the
Company in July 1990 as Director of Corporate Accounting and was promoted to
Corporate Controller in December 1990. Mr. McGee became Vice President,
Controller and Principal Accounting Officer in 1991, and in 1993, became Vice
President -- Chief Financial Officer. From 1985 to the time he joined the
Company, Mr. McGee was a senior manager and audit manager at Ernst and Young.
L. Michael Russell has been employed by the Company since January 1997. He
joined the Company as Vice President and General Counsel and became Secretary in
February 1997. Prior to joining the Company, Mr. Russell was General Counsel,
Consumer & Industrial Segment, and Chief International Counsel of Teledyne,
Inc., where he was employed in the Corporate Legal Department for more than the
past five years.
George Krsek, Ph.D., was President of Houba, Inc. a pharmaceutical firm from
1975 to July 1994, and is currently Managing Member of Konec L.L.C., a
management consulting company. He has been a director of the Company since 1979,
and serves as Chairman of the Company's Audit Committee.
Jack O. Vance became the Managing Director of Management Research, a
management consulting firm, in November 1990. From 1960 through 1989 he was a
director of McKinsey & Co., Inc., a management consulting firm. During the years
1973 through 1989 he was also the Managing Director of the firm's Los Angeles
office. He has been a director of the Company since 1988 and also serves as
Chairman of the Company's Compensation and Stock Option Committee. He is also a
director of Atol Holdings, Inc., The Olson Company, Flowline, Inc., University
Restaurant Group, FCG, Enterprises, Inc., Semtech Corporation and National
Veterinarian Associates, Inc.
Rochus E. Vogt, Ph.D., is the R. Stanton Avery Distinguished Service
Professor and a Professor of Physics, California Institute of Technology, and
acted as Provost from 1983 through 1987. He has been a director of the Company
since 1984.
Donald S. Burns has been Chairman, President and Chief Executive Officer of
Prestige Holdings, Ltd., a property management and business consulting firm,
since 1978. Mr. Burns was elected a director of the Company in 1993. He is also
a director of Atol Holdings, Inc.
James D. Plummer, Ph.D., has been the John M. Fluke Professor of Electrical
Engineering, Stanford University, since 1988 and Director of Stanford's
Nanofabrication Laboratory since 1984. He is currently the Chairman of the
Electrical Engineering Department at Stanford University. Dr. Plummer was
elected a director of the Company in September 1994.
Minoru Matsuda was employed by Hitachi, Ltd. and its American subsidiary,
Hitachi American, Ltd., from 1960 through March 1997. Management positions
included General Manager of operations in Indonesia; Manager of the Planning
Department for International Operations; and Senior Counsel, Intellectual
Property Office. In April 1997, Mr. Matsuda became a Professor at Kanazawa
Institute of Technology, Japan's largest institution of higher education
specializing in engineering and technology. A member of the New York State Bar,
Mr. Matsuda was elected a director of the Company in September 1997.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
PRICE RANGE OF COMMON STOCK
(IN DOLLARS)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------ ------------------ ------------------ ------------------ STOCKHOLDERS AT
FISCAL YEAR HIGH LOW HIGH LOW HIGH LOW HIGH LOW YEAR END
- -------------------- ------- ------- ------- ------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997................ 20 5/8 12 1/4 16 1/4 12 1/4 16 7/8 12 18 1/4 11 1/8 1,946
1996................ 22 16 1/8 25 3/4 19 1/16 24 1/4 16 3/4 26 16 1/8 1,742
</TABLE>
The Company's Common Stock is traded on the New York Stock Exchange and the
Pacific Exchange under the symbol "IRF."
No dividends have been recently declared or paid. The Company does not
intend to pay cash dividends in the foreseeable future as all funds will be used
to expand operations. Furthermore, under certain credit agreements, the Company
is not permitted to pay any cash dividends.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of June 30, 1997 and 1996 and
for the fiscal years ended June 30, 1997, 1996, and 1995 are derived from the
audited consolidated financial statements of the Company and should be read in
conjunction with the audited consolidated financial statements and notes with
respect thereto included herein. The selected consolidated financial data as of
June 30, 1995, 1994, and 1993, and for the fiscal years ended June 30, 1994 and
1993 are derived from audited consolidated financial statements of the Company
which are not included herein.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
Revenues........................................ $ 486,127 $ 576,849 $ 429,026 $ 328,882 $ 281,732
Cost of sales................................... 323,067 351,046 278,202 219,944 202,684
----------- ----------- ----------- ----------- -----------
Gross profit.................................... 163,060 225,803 150,824 108,938 79,048
Selling and administrative expense.............. 105,954 102,129 82,328 69,008 62,637
Research and development expense................ 35,495 26,967 20,108 16,381 14,083
Impairment of assets and restructuring charge... 71,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating profit (loss)......................... (49,389) 96,707 48,388 23,549 2,328
Interest expense, net........................... (4,015) (394) (377) (3,625) (2,250)
Other income (expense), net..................... 714 (383) (544) (1,050) (2,675)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes............... (52,690) 95,930 47,467 18,874 (2,597)
Provision (benefit) for income taxes............ (9,484) 29,451 8,069 3,160 436
----------- ----------- ----------- ----------- -----------
Net income (loss)............................... $ (43,206) $ 66,479 $ 39,398 $ 15,714 $ (3,033)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share (1)................. $ (0.84) $ 1.29 $ 0.84 $ 0.38 $ (0.08)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Average common and common equivalent shares
outstanding (1)................................ 51,307 51,384 47,020 40,856 40,174
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS)(2)
Working capital................................. $ 203,216 $ 178,072 $ 127,751 $ 67,165 $ 58,116
Total assets.................................... 679,753 629,079 496,184 330,574 278,448
Short-term debt................................. 31,820 23,570 25,235 33,310 27,539
Long-term debt, less current maturities......... 143,164 47,994 23,881 26,817 11,810
Stockholders' equity............................ 381,715 421,213 345,181 202,943 186,074
</TABLE>
- ------------------------
(1) Adjusted to reflect the two-for-one stock split declared on November 20,
1995.
(2) Certain reclassifications have been made to previously reported amounts to
conform with current year presentation.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items included in selected financial
data as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues......................................................... 100.0% 100.0% 100.0%
Cost of sales.................................................... 66.5 60.9 64.8
--------- --------- ---------
Gross profit..................................................... 33.5 39.1 35.2
Selling and administrative expense............................... 21.8 17.7 19.2
Research and development expense................................. 7.3 4.7 4.7
Impairment of assets and restructuring charge.................... 14.6 -- --
--------- --------- ---------
Operating profit (loss).......................................... (10.2) 16.7 11.3
Interest expense, net............................................ (0.8) (0.1) (0.1)
Other income (expense), net...................................... 0.1 (0.1) (0.1)
--------- --------- ---------
Income (loss) before income taxes................................ (10.9) 16.5 11.1
Provision (benefit) for income taxes............................. (2.0) 5.0 1.9
--------- --------- ---------
Net income (loss)................................................ (8.9)% 11.5% 9.2%
--------- --------- ---------
--------- --------- ---------
</TABLE>
1997 COMPARED WITH 1996
Revenues for fiscal 1997 decreased 15.7% to $486.1 million from $576.8
million in the prior year. This reflected an approximate 20% price reduction on
roughly 50% of the Company's products and aggressive efforts, principally by
distributors, to reduce inventory levels, partially offset by increases in
revenue attributed to new products. Changes in foreign exchange rates negatively
impacted revenues by $9.3 million. Revenues for fiscal 1997 included $20.3
million of net patent royalties compared to $16.3 million in the prior year,
reflecting royalties associated with the issuance of new Japanese patents under
the Company's power MOSFET technology.
In fiscal 1997 gross profit was $163.1 million (33.5% of revenues) versus
$225.8 million (39.1% of revenues) in fiscal 1996. Current year gross profit
margins reflected lower dollar volumes, an approximate 20% price reduction on
roughly 50% of the Company's products, and fixed overhead expense scaled to
anticipated higher revenue levels.
Selling and administrative expense was $106.0 million (21.8% of revenues) in
fiscal 1997 versus $102.1 million (17.7% of revenues) in fiscal 1996. The
Company's current-year spending ratio reflected lower-than-expected revenues.
In fiscal 1997, the Company's research and development expenditures
increased $8.5 million to $35.5 million (7.3% of revenues) from $27.0 million
(4.7% of revenues) in fiscal 1996. Revenue from new products increased 33% over
the prior year level, and new products accounted for 33% of fiscal 1997 revenue
compared to 21% of fiscal 1996 revenue.
In fiscal 1997, net interest expense increased $3.6 million from the prior
year. The increase was due to increased interest expense incurred on higher
average debt balances over the prior year, partially offset by small increases
in interest capitalized on construction in progress and interest income on
investments.
Changes in foreign currency exchange rates negatively impacted net income by
$1.1 million in fiscal 1997 but had no significant impact on net income in
fiscal 1996.
14
<PAGE>
1996 COMPARED WITH 1995
Revenues for fiscal 1996 increased 34.5% to $576.8 million from $429.0
million in the prior year. The Company's revenue increase reflected continued
growing demand for the Company's power MOSFET and related devices which resulted
in a 39% increase in revenues from these products. Revenues from the thyristor
and rectifier product lines increased 6% from the prior period. Changes in
foreign exchange rates negatively impacted revenues by approximately $3.8
million. Revenues for fiscal 1996 also included $16.3 million of net patent
royalties compared to $9.7 million in the prior period.
Gross profit was 39.1% of revenues ($225.8 million) in fiscal 1996 versus
35.2% of revenues ($150.8 million) in fiscal 1995. The increased margin
reflected greater manufacturing volume and efficiencies and a greater
contribution from new higher margin products.
In fiscal 1996, selling and administrative expense was 17.7% of revenues
($102.1 million) versus 19.2% of revenues ($82.3 million) in fiscal 1995. The
planned increase in absolute dollars was made to support the Company's 34.5%
revenue growth and consisted mainly of costs related to additional staffing,
higher commission expense, and increased advertising expense.
In fiscal 1996, the Company's research and development expenditures
increased $6.9 million to $27.0 million (4.7% of revenues) from $20.1 million
(4.7% of revenues) in the prior period. Research and development activities were
focused on the advancement and diversification of the HEXFET product line and
expansion of the related IGBT products, the development of high voltage control
integrated circuits and complementary components that work in combination with
HEXFETs and IGBTs to improve system performance.
Net interest expense and net other expense were essentially unchanged in
fiscal 1996 from fiscal 1995.
SEASONALITY
The Company has experienced moderate seasonality in its business in recent
years. On average over the past three years, the Company has reported
approximately 47% of annual revenues in the first half and 53% in the second
half of its fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company maintained cash and cash equivalent balances
of $36.6 million and $16.9 million of short-term investments. Cash in excess of
operating requirements is maintained in the United States. In addition, the
Company had established $71.1 million of domestic and foreign revolving lines of
credit, against which $27.7 million had been borrowed. Based on covenant and
collateral limitations, the Company had $37.9 million available for borrowing
against these lines at June 30, 1997. Based on cash and cash equivalents on
hand, short-term investments, and available financing, at June 30, 1997, the
Company's liquidity was $91.4 million. At June 30, 1997, the Company had made
purchase commitments for capital equipment of approximately $33.8 million.
During fiscal 1998, the Company plans to spend approximately $120 million on
capital expenditures for the continuing expansion of its global wafer
fabrication and assembly capacity. The Company intends to fund these capital
expenditures and working capital requirements through cash and cash equivalents
on hand, anticipated cash flow from operations, and as needed, from funds
available from revolving credit, term loan and equipment financing facilities.
The Company may also consider the use of funds from other external sources
including, but not limited to, public or private offerings of debt or equity.
The Company believes that its existing manufacturing capacity and planned
capital expenditures of $120 million in fiscal 1998 are consistent with the
Company's view of market needs over the next few years.
Although the Company believes that the class action lawsuits brought against
the Company and its Board of Directors (see "Legal Proceedings") are without
merit, the ultimate outcome thereof
15
<PAGE>
cannot be presently determined. Accordingly, the Company has not made any
provision for any liability, if any, that may result upon adjudication of these
matters. For the possible effects of environmental matters on liquidity, see
"Business -- Environmental Matters."
FOREIGN CURRENCY TRANSACTIONS
Due to the global nature of its operations, the Company is subject to the
effect of international currency fluctuations. In fiscal year 1997, over 50% of
the Company's revenues were derived from sales in foreign markets. In the years
ended June 30, 1997, 1996, and 1995, the Company recognized net foreign currency
transaction gains of $902,000, $126,000, and $347,000, respectively.
The Company manages potential foreign currency exposure by entering into
forward contracts and currency options. These contracts are not speculative in
nature, as the resulting gains or losses will offset any losses or gains on the
underlying hedged transactions.
INCOME TAXES
The Company's effective tax benefit in fiscal 1997 was approximately 18.0%
due primarily to the higher statutory tax rates in certain foreign jurisdictions
and foreign jurisdiction losses without foreign tax benefit. The difference
between the U.S. federal statutory tax rate of 35% and the Company's effective
tax rates of approximately 30.7% and 17.0% in fiscal years 1996 and 1995,
respectively, was attributable mainly to foreign sales corporation benefits,
state credits, and other credits for 1996 and change in valuation allowance and
research and development credits for 1995.
IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGE
After an extensive review of its business model, the Company announced a
restructuring program in May 1997 to strengthen its competitive position and
accelerate growth by streamlining operations and administration. In connection
with this program, the Company recognized a $75 million pretax charge in the
fourth quarter of fiscal 1997. After tax, the charge was $58.6 million ($1.14
per share). Three key developments underlay the changes: 1) the successful
transition to new production facilities allowed acceleration of the shift of
production from older manufacturing lines and facilities to newer ones, 2) the
new global order management and business process allowed the Company to
consolidate order entry, customer support, inventory management, information
systems, and finance activities, and 3) the new Development Center in El Segundo
was essentially complete and ready for the transfer of research and development
activity.
About 150 positions were targeted for elimination in an initiative that will
reduce payroll by over five percent and result in termination benefit payments
of approximately $10 million. Certain assets were also devalued by $61 million,
including older production facilities and information systems, and $4 million in
inventories (principally raw materials) were written off to "Cost of sales."
The restructuring program is expected to produce annual savings of about $20
million that fall directly through to operating profit. Savings are estimated to
be approximately $5 million in the first half of fiscal 1998 and $10 million in
the second half. The cost savings are expected to be divided evenly between cost
of sales and selling and administrative expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." This statement will be effective for the Company's fiscal quarter ending
December 31, 1997. SFAS 128 will change the computation, presentation and
disclosure requirements for earnings per share. SFAS 128 requires presentation
of "basic" and "diluted" earnings per share, as defined, on the face of the
income statement for all entities whose capital structure include convertible
securities and options. Management does not believe that this pronouncement will
have a material impact on its earnings per share amounts when adopted in fiscal
1998.
16
<PAGE>
On June 30, 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income generally represents all changes in shareholders' equity except those
resulting from investments by or distributions to shareholders. SFAS 130 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. Management is currently evaluating the
impact, if any, of SFAS 130.
Also on June 30, 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographic areas of operation, and major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and requires restatement of earlier periods presented. Management is
currently evaluating the impact, if any, of SFAS 131.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-K Report contains statements that are not historical facts but
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995 and that can be identified by the use of
forward-looking terminology such as "anticipate," "believe," "estimate,"
"expect," "may," "should," "view," or "will" or the negative or other variations
thereof. Such forward-looking statements are subject to risks and uncertainties
which could cause actual results to differ materially from those projected.
Financial results are to a large extent dependent on the power MOSFET segment of
the power semiconductor industry. If market demand does not continue to grow,
revenue growth may be impacted, capacity installed might be under-utilized,
capital spending may be slowed, and Company performance may be negatively
impacted. Other risks and uncertainties that could negatively impact Company
results include: risk of nonpayment of accounts receivable; risk of inventory
obsolescence due to shifts in market demand; an increased rate of customer
inventory adjustment; deferral of delivery dates, cancellations and returns;
development and acceptance of new products and price pressures; availability and
pricing of competitors' products; lower manufacturing yields; risks associated
with foreign operations and foreign currency fluctuations; adverse results in
litigation involving intellectual property; environmental claims; shareholder
lawsuits; the successful implementation of the Company's announced restructuring
program; the availability of cost effective sources of financing; and business
and general economic conditions in the Company's markets around the world.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Accountants......................................... 18
Financial Statements
Consolidated Statement of Operations for the Fiscal Years Ended June 30,
1997, 1996, and 1995................................................... 19
Consolidated Balance Sheet as of June 30, 1997 and 1996................. 20
Consolidated Statement of Stockholders' Equity for the Fiscal Years
Ended June 30, 1997, 1996, and 1995.................................... 21
Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30,
1997, 1996, and 1995................................................... 22
Notes to Consolidated Financial Statements.............................. 23
Supporting Financial Statement Schedule:
SCHEDULE NO. PAGE
- ------------ ----
II Valuation and Qualifying Accounts and Reserves for the
Fiscal Years Ended June 30, 1997, 1996, and 1995........... F-1
Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the consolidated financial statements or related notes.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
International Rectifier Corporation
We have audited the accompanying consolidated financial statements and the
financial statement schedule of International Rectifier Corporation and
Subsidiaries as of June 30, 1997 and 1996, and for the fiscal years ended June
30, 1997, 1996, and 1995 as listed on the index on page 17 of this Form 10-K.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of International
Rectifier Corporation and Subsidiaries at June 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the fiscal
years ended June 30, 1997, 1996, and 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
July 17, 1997
18
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................................... $ 486,127 $ 576,849 $ 429,026
Cost of sales.............................................................. 323,067 351,046 278,202
----------- ----------- -----------
Gross profit............................................................. 163,060 225,803 150,824
Selling and administrative expense......................................... 105,954 102,129 82,328
Research and development expense........................................... 35,495 26,967 20,108
Impairment of assets and restructuring charge (Note 4)..................... 71,000 -- --
----------- ----------- -----------
Operating profit (loss).................................................. (49,389) 96,707 48,388
Other income (expense):
Interest, net............................................................ (4,015) (394) (377)
Other, net............................................................... 714 (383) (544)
----------- ----------- -----------
Income (loss) before income taxes.......................................... (52,690) 95,930 47,467
Provision (benefit) for income taxes (Note 6).............................. (9,484) 29,451 8,069
----------- ----------- -----------
Net income (loss).......................................................... $ (43,206) $ 66,479 $ 39,398
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share (Note 1)....................................... $ (0.84) $ 1.29 $ 0.84
----------- ----------- -----------
----------- ----------- -----------
Average common and common equivalent shares outstanding (Note 1)........... 51,307 51,384 47,020
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
19
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN 000'S EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................... $ 36,564 $ 35,760
Short-term investments................................................................ 16,850 18,000
Trade accounts receivable, less allowance for doubtful accounts ($1,043 in 1997 and
$1,014 in 1996)...................................................................... 125,481 126,341
Inventories........................................................................... 115,754 82,852
Deferred income taxes (Note 6)........................................................ 18,800 9,801
Prepaid expenses...................................................................... 3,032 3,772
----------- -----------
Total current assets................................................................ 316,481 276,526
Property, plant, and equipment, at cost, less accumulated depreciation ($144,852 in 1997
and $160,167 in 1996).................................................................. 333,559 327,978
Other assets............................................................................ 29,713 24,575
----------- -----------
Total assets........................................................................ $ 679,753 $ 629,079
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans (Note 2)................................................................... $ 12,710 $ 13,302
Long-term debt, due within one year (Note 2).......................................... 19,110 10,268
Accounts payable...................................................................... 40,332 41,645
Accrued salaries, wages, and commissions.............................................. 14,517 13,953
Other accrued expenses................................................................ 26,596 19,286
----------- -----------
Total current liabilities........................................................... 113,265 98,454
Long-term debt, less current maturities (Note 2)........................................ 143,164 47,994
Other long-term liabilities............................................................. 28,982 42,262
Deferred income taxes (Note 6).......................................................... 12,627 19,156
Commitments and contingencies (Notes 8, 9, 10, 11, and 12)
Stockholders' equity (Notes 1 and 3):
Common shares, $1 par value, authorized: 150,000,000; issued and outstanding:
51,051,907 shares in 1997 and 50,821,277 shares in 1996.............................. 51,052 50,821
Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in
1997 and 1996........................................................................ -- --
Capital contributed in excess of par value of shares.................................. 252,199 249,388
Retained earnings..................................................................... 82,171 125,377
Cumulative translation adjustments.................................................... (3,707) (4,373)
----------- -----------
Total stockholders' equity.......................................................... 381,715 421,213
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 679,753 $ 629,079
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
20
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN 000'S EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
CONTRIBUTED
IN EXCESS
OF
COMMON PAR VALUE CUMULATIVE
SHARES OF SHARES RETAINED TRANSLATION
(NOTE 1) (NOTE 1) EARNINGS ADJUSTMENTS TOTAL
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994........................... $ 40,705 $ 147,725 $ 19,500 $ (4,987) $ 202,943
Issuance of common shares:
417,400 -- exercise of stock options........... 417 1,351 -- -- 1,768
148,064 -- stock purchase plan................. 148 767 -- -- 915
9,090,000 -- stock offering.................... 9,090 88,008 -- -- 97,098
Tax benefits from exercise of stock options and
stock purchase plan............................. -- 2,295 -- -- 2,295
Net income for the year ended June 30, 1995...... -- -- 39,398 -- 39,398
Cumulative translation adjustments............... -- -- -- 764 764
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1995........................... 50,360 240,146 58,898 (4,223) 345,181
Issuance of common shares:
339,090 -- exercise of stock options........... 339 3,073 -- -- 3,412
122,169 -- stock purchase plan................. 122 1,339 -- -- 1,461
Tax benefits from exercise of stock options and
stock purchase plan............................. -- 1,305 -- -- 1,305
Tax benefits from exercise of warrants (Note
3).............................................. -- 3,525 -- -- 3,525
Net income for the year ended June 30, 1996...... -- -- 66,479 -- 66,479
Cumulative translation adjustments............... -- -- -- (150) (150)
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996........................... 50,821 249,388 125,377 (4,373) 421,213
Issuance of common shares:
48,440 -- exercise of stock options............ 49 342 -- -- 391
182,190 -- stock purchase plan................. 182 2,306 -- -- 2,488
Tax benefits from exercise of stock options and
stock purchase plan............................. -- 163 -- -- 163
Net loss for the year ended June 30, 1997........ -- -- (43,206) -- (43,206)
Cumulative translation adjustments............... -- -- -- 666 666
--------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997........................... $ 51,052 $ 252,199 $ 82,171 $ (3,707) $ 381,715
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)..................................................... $ (43,206) $ 66,479 $ 39,398
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization....................................... 37,103 30,144 23,444
Deferred income..................................................... (718) 1,594 (524)
Deferred income taxes............................................... (15,500) 14,725 (1,178)
Deferred compensation............................................... 3,170 3,015 1,471
Impairment of assets and restructuring charge....................... 75,000 -- --
Change in working capital (Note 1).................................... (34,455) (47,373) 3,707
------------ ------------ ------------
Net cash provided by operating activities............................... 21,394 68,584 66,318
------------ ------------ ------------
Cash flow from investing activities:
Additions to property, plant, and equipment........................... (99,762) (112,275) (106,902)
Purchase of short-term investments.................................... (67,000) (68,821) (57,581)
Proceeds from sale of short-term investments.......................... 68,150 53,821 54,581
Investment in other noncurrent assets................................. (9,117) (8,741) (3,615)
------------ ------------ ------------
Net cash used in investing activities................................... (107,729) (136,016) (113,517)
------------ ------------ ------------
Cash flow from financing activities:
Proceeds from issuance of (payments on) short-term bank debt, net..... 518 (2,904) (11,542)
Proceeds from issuance of long-term debt.............................. 119,329 36,495 9,435
Payments on long-term debt and obligations under capital leases....... (15,511) (9,010) (11,302)
Net proceeds from issuance of common stock............................ 2,879 4,873 99,781
Increase (decrease) in other long-term liabilities to be financed with
long-term debt....................................................... (19,142) 20,295 --
Other................................................................. (970) 3,523 (1,979)
------------ ------------ ------------
Net cash provided by financing activities............................... 87,103 53,272 84,393
------------ ------------ ------------
Effect of exchange rate changes on cash and cash
equivalents............................................................ 36 (900) 575
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents.................... 804 (15,060) 37,769
Cash and cash equivalents beginning of year............................. 35,760 50,820 13,051
------------ ------------ ------------
Cash and cash equivalents end of year................................... $ 36,564 $ 35,760 $ 50,820
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of this statement.
22
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
International Rectifier Corporation ("IR" or "Company") designs,
manufactures, and markets power semiconductors which switch or condition
electricity at relatively high voltage and current levels. The Company's
products are used in major market sectors including automobiles, computer/
peripherals, office equipment, consumer electronics, lighting, communications,
and industrial.
IR was founded as a California corporation in 1947 and reincorporated in
Delaware in 1979.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all its majority-owned subsidiaries which are located in Europe, Mexico, the
Far East, and South East Asia. All material intercompany transactions have been
eliminated.
FISCAL YEAR
Fiscal years 1997, 1996, and 1995 consist of 52 weeks ending June 29, June
30, and July 2, respectively. For convenience, all references herein to fiscal
years are to fiscal years ended June 30.
REVENUE RECOGNITION
The Company recognizes revenues from product sales to all customers,
including distributors, at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using the local currency as the functional currency.
Foreign assets and liabilities in the consolidated balance sheet have been
translated at the rate of exchange on the balance sheet date. Revenues and
expenses are translated at the average exchange rate for the year. Unrealized
translation adjustments do not affect the results of operations and are reported
as a separate component of stockholders' equity. In fiscal 1997, 1996, and 1995,
the Company recognized foreign currency transaction gains of $902,000, $126,000,
and $347,000, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING
The Company reports the costs of all advertising as expenses in the periods
in which those costs are incurred. The Company shares portions of certain
distributors' advertising expenses through cooperative advertising arrangements.
In fiscal 1997, 1996, and 1995, the Company spent approximately $4,078,000,
$1,667,000, and $1,174,000, respectively, on advertising.
INCOME TAXES
Deferred income taxes are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted rates
in effect during the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
U.S. income taxes have not been provided on approximately $26,035,000 of
undistributed earnings of foreign subsidiaries since management considers these
earnings to be invested indefinitely or substantially offset by foreign tax
credits.
23
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK SPLIT
On November 20, 1995, the Board of Directors declared a two-for-one split of
the Company's common stock. Shares were distributed on December 22, 1995 to
stockholders of record on December 1, 1995. Stockholders' equity has been
retroactively restated for all periods presented by reclassifying from Capital
Contributed in Excess of Par Value of Shares to Common Shares, the par value of
the additional shares arising from the split. In addition, all references in the
financial statements to number of shares, per share amounts, stock option data,
and market prices of the Company's common stock have been restated to reflect
the split.
EARNINGS PER SHARE
Earnings per share is computed by dividing earnings by the weighted average
number of common and common stock equivalents outstanding. Stock options
outstanding under stock option plans are considered common stock equivalents.
Common stock equivalents for stock options of 807,679 and 486,112 were utilized
in the computation of earnings per share in 1996 and 1995, respectively. No
common stock equivalents for stock options were used in 1997 as the impact would
have been anti-dilutive.
STATEMENT OF CASH FLOWS
The Company invests excess cash from operations in investment grade money
market instruments. The Company considers all highly liquid debt instruments
with a purchased maturity of three months or less to be cash equivalents.
Components in the change in working capital for the fiscal years ended June 30,
1997, 1996, and 1995 were comprised of the following (000's):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Trade accounts receivable, net.......... $ (929) $ (35,760) $ (23,938)
Inventories............................. (35,643) (9,890) 613
Prepaid expenses........................ 764 (1,713) 737
Accounts payable........................ (847) (6,457) 16,787
Accrued salaries, wages, and
commissions............................ 791 2,288 1,277
Other accrued expenses.................. 1,409 4,159 8,231
---------- ---------- ----------
$ (34,455) $ (47,373) $ 3,707
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Supplemental disclosures of cash flow information (000's):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................. $ 8,633 $ 4,489 $ 4,578
Income taxes.......................... 3,096 15,760 3,879
Interest capitalized.................... 1,870 1,371 2,164
Non cash financing activity:
Assets acquired through capital
leases............................... -- -- 792
</TABLE>
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of investment grade money
market instruments. All of the Company's investments have original maturities of
less than one year. In accordance with the criteria established by Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," all investments have been classified
24
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as "available-for-sale." The Company utilizes the specific identification method
for determining the cost of the investments. At June 30, 1997 and 1996 the cost
of the investments approximates the market value.
INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at June 30, 1997 and 1996 were comprised of
the following (000's):
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Raw materials........................... $ 25,002 $ 20,203
Work-in-process......................... 56,749 40,895
Finished goods.......................... 34,003 21,754
----------- ---------
$ 115,754 $ 82,852
----------- ---------
----------- ---------
</TABLE>
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Upon retirement or other
disposal, the asset cost and related accumulated depreciation are removed from
the accounts and any gain or loss on disposition is included in income.
Depreciation is provided on the straight-line method, based on the estimated
useful lives of the assets, or the units of production method based upon the
estimated output of the equipment. Depreciation expense for the fiscal years
ended June 30, 1997, 1996, and 1995 was $34,916,000, $28,958,000, and
$21,819,000, respectively. Property, plant, and equipment at June 30, 1997 and
1996 were comprised of the following (000's):
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Buildings and improvements.............. $ 103,235 $ 75,863
Equipment............................... 297,960 331,712
Construction in progress................ 68,395 72,595
Less accumulated depreciation........... (144,852) (160,167)
------------ ------------
324,738 320,003
Land.................................... 8,821 7,975
------------ ------------
$ 333,559 $ 327,978
------------ ------------
------------ ------------
</TABLE>
Property, plant, and equipment at June 30, 1997 has been adjusted to reflect
the $61,000,000 asset impairment taken in connection with the Company's
restructuring program (see Note 4. Impairment of Assets and Restructuring
Charge).
Depreciation of improvements to leased premises is provided on the
straight-line method over the shorter of the remaining term of the lease or
estimated useful lives of the improvements. Capital leases included in property,
plant, and equipment at June 30, 1997 and 1996 were as follows (000's):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equipment............................... $ 48,513 $ 59,458
Less accumulated depreciation........... (33,504) (40,744)
---------- ----------
$ 15,009 $ 18,714
---------- ----------
---------- ----------
</TABLE>
Repairs and maintenance costs are charged to expense. In the fiscal years
ended June 30, 1997, 1996, and 1995, repairs and maintenance costs were
$16,016,000, $16,620,000, and $11,977,000, respectively.
25
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Patent and related costs are amortized using the straight-line method over
the life of the related patent portfolio.
CONCENTRATION OF RISK
The Company places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of insured
limits.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables on average are
due in 60 days. Credit losses have consistently been within management's
expectations.
FINANCIAL INSTRUMENTS
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. The Company enters into forward
contracts and currency options to hedge certain foreign currency denominated
receivables and payables from its foreign subsidiaries. The related gains and
losses on these contracts are included in "Other income (expense)." The Company
does not hold or issue financial instruments for trading purposes.
Forward contracts outstanding at June 30, 1997 had maturities of less than
three months and were denominated in the British Pound Sterling, French Franc,
Italian Lira, and Japanese Yen. Counterparties to the transactions were large
financial institutions. At June 30, 1997, the Company had $24,800,000
outstanding in forward contracts and had no outstanding currency options.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record stock-based employee compensation plans at fair value. The Company has
elected to continue accounting for stock-based compensation in accordance with
APB No. 25 and is providing the required disclosures under SFAS No. 123 in the
notes to consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings Per Share." This statement will be effective for the
Company's fiscal quarter ending December 31, 1997. SFAS 128 will change the
computation, presentation and disclosure requirements for earnings per share.
SFAS 128 requires presentation of "basic" and "diluted" earnings per share, as
defined, on the face of the income statement for all entities whose capital
structure include convertible securities and options. Management does not
believe that this pronouncement will have a material impact on its earnings per
share amounts when adopted in fiscal 1998.
26
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On June 30, 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in financial statements. Comprehensive
income generally represents all changes in shareholders' equity except those
resulting from investments by or distributions to shareholders. SFAS 130 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented. Management is currently evaluating the
impact, if any, of SFAS 130.
Also on June 30, 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires
publicly-held companies to report financial and descriptive information about
its operating segments in financial statements issued to shareholders for
interim and annual periods. The statement also requires additional disclosures
with respect to products and services, geographic areas of operation, and major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and requires restatement of earlier periods presented. Management is
currently evaluating the impact, if any, of SFAS 131.
RECLASSIFICATION
Certain reclassifications have been made to previously reported amounts to
conform with the current year presentation.
2. BANK LOANS AND LONG-TERM DEBT
In June 1997, the Company renewed its $10,000,000 unsecured credit facility
with Nationsbank of Texas, N.A. The expiration of this facility was extended to
June 4, 1998. Including existing facilities of $30,000,000 with two other banks,
the Company had a total of $40,000,000 in domestic unsecured credit facilities.
At June 30, 1997, there was $15,000,000 in outstanding borrowings under these
facilities at a weighted average interest rate of 6.75%. Based on the repayment
terms under these facilities, the outstanding borrowings were classified as
"Long-term bank debt" in the balance sheet. The Company also had established
$84,700,000 in four unsecured term loan facilities with three separate banks. At
June 30, 1997, $84,700,000 was outstanding under these facilities. The Company's
domestic unsecured credit facilities and term loan facilities all contain the
same financial covenants and ratios which affect the availability of funds and
prohibit the Company from paying cash dividends.
The Company had an additional $31,100,000 of revolving credit facilities at
foreign locations. The interest rates on borrowings from these facilities range
from 1.35% to 10.0% at June 30, 1997. Under the terms of the agreements, the
availability of funds is affected by various financial covenants and collateral
requirements. At June 30, 1997, $12,700,000 was outstanding under these foreign
facilities at a weighted average interest rate of 4.6%.
Based on covenant and collateral limitations under the above revolving
credit facilities, the Company had an additional $37,900,000 available for
borrowing at June 30, 1997.
27
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BANK LOANS AND LONG-TERM DEBT (CONTINUED)
The following is a summary of the Company's long-term debt and other loans
at June 30, 1997 and 1996 (000's):
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Capitalized lease obligations payable in varying monthly installments primarily at rates
from 6.0% to 10.7%...................................................................... $ 5,273 $ 9,285
Domestic bank loans collateralized by equipment, payable in varying monthly installments
at rates from 6.4% to 8.7%,
due in 1998 through 2002................................................................ 39,836 17,199
Domestic unsecured bank loans payable in varying monthly installments at rates from 6.3%
to 6.8%, due in 1998 through 2002....................................................... 99,700 19,700
Foreign bank loans collateralized by property and/or equipment, payable in varying
monthly installments at rates from 8.0% to 10.8%, due in 1998 through 2000.............. 3,459 4,743
Foreign unsecured bank loans payable in varying monthly installments at rates from 2.6%
to 8.4%, due in 1998 through 2006....................................................... 14,006 7,335
----------- ---------
162,274 58,262
Less current portion of long-term debt................................................... (19,110) (10,268)
----------- ---------
$ 143,164 $ 47,994
----------- ---------
----------- ---------
</TABLE>
The increase in long-term debt in fiscal 1997 was primarily due to the
financing of capital expenditures for the continuing expansion of the Company's
global wafer fabrication and assembly capacity.
Principal payments on long-term debt are as follows: 1998 $19,110,000; 1999
$40,883,000; 2000 $37,728,000; 2001 $48,634,000; 2002 $12,344,000; and
$3,575,000 thereafter.
During fiscal years 1997, 1996, and 1995, the Company incurred interest
expense of $9,227,000, $4,851,000, and $5,098,000, respectively.
In accordance with SFAS No. 107 "Disclosures About Fair Value of Financial
Instruments," the fair values of the Company's long-term debt has been estimated
based on current rates offered to the Company for debt of the same remaining
maturities. The carrying amounts of the Company's loans approximate their fair
values.
3. CAPITAL STOCK
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan ("ESPP"). Under this plan
employees are allowed to designate between two and ten percent of their base
compensation to purchase shares of the Company's common stock at 85 percent of
fair market value. During fiscal 1997 and 1996, 182,190 and 122,169 shares were
purchased at weighted average exercise prices of $13.66 and $11.96,
respectively. During fiscal 1995, 148,064 shares were purchased at an aggregate
purchase price of $915,000. Shares authorized under this plan that remained
unissued were 1,657,541, 1,839,731, and 1,961,942 at June 30, 1997, 1996, and
1995, respectively. The weighted average fair value of ESPP options granted in
1997 and 1996 were $5.54 and $4.46 per share, respectively.
STOCK OPTION PLANS
The Company has two stock option plans, the 1984 and 1992 plans, as amended.
Under these plans, options to purchase shares of the Company's common stock are
issued to key employees as well as members of the Company's Board of Directors.
Options are issued at 100% of the fair value of the
28
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
Company's common stock at the date of grant and become exercisable in annual
installments of 20%, beginning on the first anniversary date. The 1984 plan has
expired. Exercisable options outstanding under the 1984 plan expire between
August 1997 and June 1999. The 1992 plan provides for an increase in shares
available for grant under the plan by 1.5% of total common stock outstanding on
January 1 of each year. On January 1, 1997, 1996, and 1995, 764,078, 757,165,
and 748,422 shares, respectively, were added to the plan. During fiscal years
1997, 1996, and 1995, 2,400, 400, and 8,150 shares, respectively, expired under
the 1984 plan.
On November 25, 1996, the stockholders of the Company approved an amendment
to the stock option plan of 1992. The Amended and Restated Stock Incentive Plan
of 1992 (the "Plan") broadens the types of stock-based awards that may be
granted (under the 1992 Plan only non-qualified options could be granted),
extends the term of the 1992 Plan for three years to December 31, 2002, retains
the provision for the annual increase in shares of the Company's common stock
available for grant of 1.5% of outstanding shares, increases the maximum number
of shares that may be granted to non-employee directors from 100,000 to 120,000
(including an annual grant of 5,000 shares to each such director), reduces the
holding period for full vesting of certain non-employee director options from
one year to six months, and generally provides the committee of the Board of
Directors that administers the Plan with substantial powers and discretion.
During fiscal 1997, only non-qualified options were issued under the Plan.
A summary of the status of options under the 1992 and 1984 plans is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION
EXERCISE WEIGHTED AVERAGE
PRICE PER GRANT DATE FAIR
SHARES SHARE VALUE PER SHARE
----------- ----------- -----------------
<S> <C> <C> <C>
Outstanding, June 30, 1994.............. 1,362,400 $ 6.98 --
Options granted....................... 676,200 12.00
Options exercised..................... (417,400) 4.24 --
Options expired or canceled........... (16,800) 6.28 --
-----------
Outstanding, June 30, 1995.............. 1,604,400 9.82 --
Options granted....................... 581,825 19.25 9.86
Options exercised..................... (339,090) 10.06 --
Options expired or canceled........... (7,200) 13.60 --
-----------
Outstanding, June 30, 1996.............. 1,839,935 12.75 --
Options granted....................... 1,018,000 17.49 7.99
Options exercised..................... (48,440) 8.08 --
Options expired or canceled........... (11,310) 14.69 --
-----------
Outstanding, June 30, 1997.............. 2,798,185 $ 14.55 --
-----------
-----------
</TABLE>
29
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
The following table summarizes significant option groups outstanding at June
30, 1997 and related weighted average price and life information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ----------------------------
WEIGHTED WEIGHTED NUMBER WEIGHTED
NUMBER AVERAGE AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING AT REMAINING EXERCISE AT EXERCISE
EXERCISE PRICE JUNE 30, 1997 LIFE (YEARS) PRICE JUNE 30, 1997 PRICE
- -------------------- -------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ 4.50 to $ 6.94 130,760 5.4 $ 6.03 89,720 $ 6.01
7.00 to 10.31 548,200 7.0 8.05 218,400 8.06
11.19 to 16.75 958,175 8.3 13.46 226,805 13.00
17.44 to 23.81 1,161,050 9.1 19.47 93,360 19.82
-------------- -------------
$ 4.50 to $23.81 2,798,185 8.2 $ 14.55 628,285 $ 11.30
-------------- -------------
-------------- -------------
</TABLE>
Additional information relating to the 1992 and 1984 plans at June 30, 1997,
1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Options exercisable..................... 628,285 379,230 379,280
Options available for grant............. 710,278 955,290 773,150
Total reserved common stock shares for
stock option plans..................... 3,508,463 2,795,225 2,377,550
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Expected life (years)................... 5 5
Interest rate........................... 6.43% 6.19%
Volatility.............................. 49.95% 49.95%
Dividend yield.......................... 0% 0%
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation programs. Had the Company recorded
compensation expense using the accounting method recommended by SFAS No. 123,
net income (loss) and net income (loss) per share would approximate the
following (000's except per share data):
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Net income (loss)
As reported........................... $ (43,206) $66,479
Pro forma............................. (45,273) 65,851
Net income (loss) per share
As reported........................... $ (0.84) $1.29
Pro forma............................. (0.88) 1.28
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996. The Company anticipates grants of additional awards in future years.
WARRANTS
In connection with an April 24, 1991 public offering of the Company's common
stock, 700,000 warrants previously issued by the Company were exercised and sold
as part of the total shares offered. The difference between the exercise price
of the warrants and the public offering price of the stock was
30
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
treated as expense to the Company for federal and state income tax purposes. In
fiscal year 1996, the income tax benefit of approximately $3,525,000 relating to
the exercise of the warrants was credited to "Capital Contributed in Excess of
Par Value."
4. IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGE
Operating loss for fiscal 1997 included total charges of $75,000,000,
comprised of $10,000,000 related to a restructuring program designed to improve
the Company's competitive position and further accelerate growth and earnings,
$61,000,000 for the write-down of long-lived assets, and a $4,000,000 write-down
of inventory included in "Cost of Sales."
The key components of the restructuring program include transferring
manufacturing operations into more advanced facilities, moving research and
development activity into a new state-of-the-art facility, consolidating
administrative and service functions, and reducing current payroll by more than
five percent. As a result of this program, the Company expects to eliminate
approximately 150 positions by the end of 1998 and pay an estimated $10,000,000
in termination benefits.
The asset impairment loss of $61,000,000 consists principally of the
write-down of older production facilities and information systems, and results
from the evaluation of the Company's ability to recover asset costs after an
extensive review of its business model. The $4,000,000 inventory write-down
consists mainly of raw materials associated with the impaired production
facilities.
The asset impairment loss was determined by comparing the estimated future
cash flows associated with each long-lived asset or group thereof, as
appropriate, to the carrying amount of such asset or group of assets. An
impairment loss was recognized when the sum of such estimated future cash flows
was less than the carrying amount of such assets or groups of assets. The amount
of the impairment loss was the excess of the carrying amount of the impaired
asset over the fair value of the asset. Generally, fair value represents the
Company's expected future cash flows from the use of the asset or group of
assets, discounted at a rate commensurate with the risks involved.
31
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS
The Company operates in one business segment. Transfers between geographic
areas are made at prices reflecting market conditions. Revenues from
unaffiliated customers is based on the location of the customer. Geographic
segment information, including sales and transfers between geographic areas, for
the fiscal years ended June 30, 1997, 1996, and 1995 is presented below (000's):
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
United States......................................................... $ 219,717 $ 250,252 $ 186,777
Europe................................................................ 118,098 158,853 122,391
Asia.................................................................. 127,984 151,482 110,115
Unallocated royalties................................................. 20,328 16,262 9,743
------------ ------------ ------------
Total............................................................... $ 486,127 $ 576,849 $ 429,026
------------ ------------ ------------
------------ ------------ ------------
Transfers between Geographic Areas
United States......................................................... $ 73,637 $ 60,694 $ 47,196
Europe................................................................ 112,434 134,395 82,439
Asia.................................................................. 91,097 97,238 69,418
------------ ------------ ------------
Total............................................................... $ 277,168 $ 292,327 $ 199,053
------------ ------------ ------------
------------ ------------ ------------
Total Revenues
United States......................................................... $ 293,354 $ 310,946 $ 233,973
Europe................................................................ 230,532 293,248 204,830
Asia.................................................................. 219,081 248,720 179,533
Intersegment eliminations............................................. (277,168) (292,327) (199,053)
Unallocated royalties................................................. 20,328 16,262 9,743
------------ ------------ ------------
Total............................................................... $ 486,127 $ 576,849 $ 429,026
------------ ------------ ------------
------------ ------------ ------------
Operating Profit (Loss)
United States......................................................... $ (58,707) $ 82,276 $ 38,924
Europe................................................................ 2,578 6,704 7,428
Asia.................................................................. 6,740 7,727 2,036
------------ ------------ ------------
Total............................................................... $ (49,389) $ 96,707 $ 48,388
------------ ------------ ------------
------------ ------------ ------------
Identifiable Assets
United States (1)..................................................... $ 433,684 $ 362,497 $ 269,737
Europe................................................................ 121,311 123,994 93,517
Asia.................................................................. 66,405 43,327 35,765
------------ ------------ ------------
Total............................................................... $ 621,400 $ 529,818 $ 399,019
------------ ------------ ------------
------------ ------------ ------------
U.S. Export Sales to Unaffiliated Customers by Destination of Sale
Europe................................................................ $ 3,339 $ 19,863 $ 9,231
Asia.................................................................. 14,611 24,762 18,026
Other................................................................. 5,785 2,830 3,345
------------ ------------ ------------
Total............................................................... $ 23,735 $ 47,455 $ 30,602
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
- ------------------------
(1) Excluding general corporate assets.
32
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. INCOME TAXES
Income (loss) before income taxes for the fiscal years ended June 30, 1997,
1996, and 1995 is as follows (000's):
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Operations:
Domestic.............................. $ (59,536) $ 86,231 $ 39,719
Foreign............................... 6,846 9,699 7,748
---------- --------- ----------
$ (52,690) $ 95,930 $ 47,467
---------- --------- ----------
---------- --------- ----------
</TABLE>
The provision (benefit) for income taxes for the fiscal years ended June 30,
1997, 1996, and 1995 consists of (000's):
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Current income taxes:
Domestic................................................ $ (2,666) $ 16,948 $ 6,356
Foreign................................................. 8,710 2,593 2,874
---------- --------- ---------
6,044 19,541 9,230
---------- --------- ---------
Deferred income taxes:
Domestic................................................ (16,312) 8,695 (1,458)
Foreign................................................. 784 1,215 297
---------- --------- ---------
(15,528) 9,910 (1,161)
---------- --------- ---------
Total provision (benefit)................................. $ (9,484) $ 29,451 $ 8,069
---------- --------- ---------
---------- --------- ---------
</TABLE>
Deferred taxes result primarily from temporary differences relating to
depreciation, financial statement reserves, and state taxes.
The Company's effective tax rate (benefit) on pretax income (loss) differs
from the U.S. Federal Statutory tax rate for the fiscal years ended June 30,
1997, 1996, and 1995 as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Statutory tax rate (benefit)................................ (35.0)% 35.0% 35.0%
Change in valuation allowance............................... -- -- (21.7)
Foreign tax differential.................................... 14.4 1.4 1.8
Foreign tax credit benefit.................................. (1.7) (2.0) (1.8)
Foreign sales corporation benefit........................... -- (0.8) --
State taxes, net of federal tax benefit..................... (0.6) (1.2) 1.0
Other tax credits........................................... (0.4) -- (1.2)
Accrual without tax effect.................................. 5.0 -- --
Other, net.................................................. 0.3 (1.7) 3.9
----- ----- -----
(18.0)% 30.7% 17.0%
----- ----- -----
----- ----- -----
</TABLE>
33
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The major components of the net deferred tax asset (liability) as of June
30, 1997 and 1996 are as follows (000's):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation....................................................... $ (33,460) $ (22,638)
Effect of state taxes.............................................. (1,917) (1,415)
Other.............................................................. (1,473) (435)
---------- ----------
Total deferred tax liabilities..................................... (36,850) (24,488)
---------- ----------
Deferred tax assets:
Reserves for books, not deducted................................... 9,166 10,334
Credit carryovers.................................................. 13,569 3,844
Impairment of assets and restructuring charge...................... 20,769 --
Inventory adjustment............................................... 2,991 808
Other.............................................................. 1,398 147
---------- ----------
Total deferred tax assets.......................................... 47,893 15,133
State valuation allowance.......................................... (4,870) --
---------- ----------
Net deferred tax asset (liability)................................... $ 6,173 $ (9,355)
---------- ----------
---------- ----------
</TABLE>
During fiscal 1997, the Company has an estimated federal net operating loss
("NOL") of $33,600,000, which will be a carryback to prior years and result in a
refund of approximately $6,700,000. After the NOL carryback, the Company has
approximately $4,500,000 and $900,000, respectively, of research and development
and foreign tax credit carryforwards available to reduce income taxes otherwise
payable, which expire from 2000 to 2011. In addition, the Company has
approximately $1,100,000 of alternative minimum tax credits, which can be
carried over indefinitely to offset regular tax liabilities to the extent of the
alternative minimum tax, and a $7,000,000 state tax credit, before valuation
allowance, which expires from 2004 to 2005.
Realization of deferred tax assets associated with state tax credits and
temporary differences is dependent upon generating sufficient taxable income.
Management believes that there is a risk that certain of these credits may
expire unused and certain future deductible items may result in no benefit and,
accordingly, has established a valuation allowance of $4,900,000 against them.
Although realization is not assured for the remaining deferred tax assets,
management believes it is more likely than not that they will be realized
through future taxable earnings or alternative tax strategies.
7. PROFIT SHARING AND RETIREMENT PLANS
The Company has established defined contribution plans for all eligible
employees. The Profit Sharing and Retirement Plan provided for contributions by
the Company in such amounts as the Board of Directors determined annually.
Effective November 1, 1996, the Company elected to terminate its Profit Sharing
and Retirement Plan in order to focus on improvements in its voluntary
Retirement Savings Plan (401K). Employees and former employees not fully vested
at time of the plan termination became 100% vested and were given various
distribution options as defined by ERISA. Under the established Retirement
Savings Plan (401K), the Company made an annual contribution for each
participating employee of up to $1,200 in fiscal years 1997 and 1996 and up to
$600 in fiscal year 1995. Combined plan contributions by the Company totaled
$1,365,000, $1,021,000, and $1,027,000 for fiscal years 1997, 1996, and 1995,
respectively.
34
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations impose various restrictions
and controls on the discharge of certain materials, chemicals, and gases used in
semiconductor processing. The Company does not believe that compliance with such
laws and regulations will have a material adverse effect on its financial
position.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), its former
pharmaceutical subsidiary which discontinued operations in 1986, have been named
among several hundred entities as potentially responsible parties ("PRPs") under
the provisions of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), in connection with the United States
Environmental Protection Agency's ("EPA") investigation of the disposal of
allegedly hazardous substances at a major superfund site in Monterey Park,
California ("OII Site"). Certain PRPs who settled certain claims with the EPA
under consent decrees filed suit in Federal Court in May 1992 against a number
of other PRPs, including the Company, for cost recovery and contribution under
CERCLA. The lawsuit against the Company, relating to the first and second
consent decrees, was settled in August 1993 for the sum of $40,000 to avoid
protracted and expensive litigation. In June 1995, the Company was named among
others as a party defendant in Federal Court apparently in connection with a
third consent decree with respect to the OII Site. The Company received a letter
(dated July 25, 1995) from the U.S. Department of Justice offering to settle
claims against Rachelle relating to the first three elements of clean-up work at
the OII Site for the sum of $4,953,148 (the final remedy assessment has not yet
been made). This settlement offer expired by its terms on September 1, 1995. The
Company also received a separate letter from the EPA dated July 25, 1995, with
respect to International Rectifier only, notifying the Company that it may
qualify for a settlement with de minimis generators under CERCLA Section 122(g).
The Company has received no further communications in this regard.
On August 7, 1995, the Company received a Supplemental Information Request
from the EPA, directed to Rachelle. In its response, dated October 20, 1995, the
Company explained that none of the wastes generated by Rachelle were hazardous.
The Company has received no further communications in connection with the
Supplemental Information Request.
Claims have been made with the Company's insurers with respect to the OII
site matter, which the insurers have not accepted. There can be no assurance
that the insurance coverage attaches to these claims. The Company does not
believe that either it or Rachelle is responsible for the disposal at the OII
site of any material constituting hazardous substances under CERCLA. Although
the ultimate resolution of this matter is unknown, the Company believes that it
will not have a material adverse impact on its financial position.
In May 1993, the Company purchased property from its Employee Profit Sharing
and Retirement Plan. It was determined that the property required clean-up of
seepage from a storage tank. The Company commenced the clean-up in fiscal year
1994 and completed it in fiscal year 1997. The total cost thereof ($585,000) has
been capitalized as additional costs of the property.
On July 18, 1994, the Company received a letter from the State of Washington
Department of Ecology ("Department") notifying the Company of a proposed finding
that the Company is a potentially liable person ("PLP") for alleged PCE
contamination (also known as perchloroethylene, tetrachloroethylene, and other
names) of real property and groundwater in Yakima County, Washington. The letter
alleged that the Company arranged for disposal or treatment of the PCE or
arranged with a transporter for the disposal or treatment of the PCE in Yakima
County. The Company replied by a letter dated August 11, 1994, stating that it
has not contributed to PCE or other solvent contamination at the Yakima County
site (resulting from sending carbon canisters for regeneration to a facility in
the county) and that it should not be designated a PLP. On October 11, 1994, the
Company
35
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. ENVIRONMENTAL MATTERS (CONTINUED)
received a letter from the Department notifying the Company of its finding that
the Company is a PLP in the above matter. The Company settled this matter with
the Department by the payment of $51,906 in July 1997. No further costs are
expected to be incurred in connection with the alleged PCE contamination.
The Company received a letter dated September 9, 1994, from the State of
California Department of Toxic Substances Control stating that the Company may
be a PRP for the deposit of hazardous substances at a facility in Whittier,
California. The Company, in June 1995, joined a group of other PRPs to remove
contamination from the site. The group currently estimates the total cost of the
clean-up to be between $3,100,000 and $4,000,000, of which between $12,000 and
$15,000 is presently expected to be allocated to the Company. However, the
ultimate cost borne by the Company will depend on the extent of the clean-up
undertaken by the group and the actual clean-up costs and the final allocation
scheme agreed upon by the group.
9. COMMITMENTS
The future minimum lease commitments under non-cancelable capital and
operating leases of equipment and real property at June 30, 1997 are as follows
(000's):
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
FISCAL YEARS LEASES LEASES COMMITMENTS
- --------------------------------------------------------- --------- --------- -------------
<S> <C> <C> <C>
1998..................................................... $ 4,326 $ 4,258 $ 8,584
1999..................................................... 1,256 2,814 4,070
2000..................................................... 21 1,905 1,926
2001..................................................... -- 1,638 1,638
2002..................................................... -- 1,034 1,034
Later years.............................................. -- 2,543 2,543
Less imputed interest.................................... (330) -- (330)
--------- --------- -------------
Total minimum lease payment.............................. $ 5,273 $ 14,192 $ 19,465
--------- --------- -------------
--------- --------- -------------
</TABLE>
Total rental expense on all operating leases charged to income was
$8,552,000, $8,193,000, and $7,965,000 in fiscal years 1997, 1996, and 1995,
respectively.
10. INTELLECTUAL PROPERTY RIGHTS
Certain of the Company's fundamental power MOSFET patents have been
subjected, and continue to be subjected, to reexamination in the United States
Patent and Trademark Office ("PTO"). The patents subject to reexamination are
fundamental to the Company's MOS transistors and their loss would allow
competitors to use currently patented features of the Company's MOS transistor
technology without liability for infringement of those patents. The following
patents of the Company are currently undergoing reexamination in the PTO:
4,642,666; 4,959,699; 5,008,725; 5,130,767; and 4,593,302.
11. LITIGATION
On May 22, 1997, the Company entered into an agreement with SGS-Thomson
Microelectronics, Inc. ("SGS") settling all outstanding litigation in the United
States and Great Britain between the Company and SGS and its affiliated
companies relating to MOSFET, IGBT, and IC patents on the basis of world-wide
cross licenses. The agreement superseded the former agreement between the
Company and SGS, which was limited to the United States. The new agreement
provides for continued payment of royalties by SGS on certain sales in the
United States and provides for the payment of royalties by SGS on certain sales
in Japan.
36
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LITIGATION (CONTINUED)
The Company and certain of its directors and officers have been named as
defendants in three class action lawsuits filed in Federal District Court in
California. These suits seek unspecified but substantial compensatory and
punitive damages for alleged intentional and negligent misrepresentations and
violations of the federal securities laws. The complaints generally allege that
the Company and the other defendants made materially false statements or omitted
to state material facts in connection with the public offering of the Company's
common stock completed in April 1991 and the redemption and conversion in June
1991 of the Company's 9% Convertible Subordinated Debentures Due 2010. They also
allege that the Company's projections for growth in fiscal 1992 were materially
misleading. Two of these suits also named the Company's underwriters, Kidder,
Peabody & Co. Incorporated and Montgomery Securities as defendants.
The Court on March 31, 1997 rendered its decision on a motion for summary
judgment brought by the Company and certain of its directors and officers. The
Court issued the following orders: (a) the motion for summary judgment was
granted as to claims brought under Sections 11 and 12(2) of the Securities Act
of 1933; (b) the motion was denied as to claims brought under Section 10(b) of
the Securities Exchange Act of 1934 and the Securities and Exchange Commission
Rule 10b-5; and (c) the motion was granted as to the common law claims for fraud
and negligent misrepresentation to the extent said claims are based on
representations contained in the offering prospectus and was denied as to other
such claims. The Court also granted the summary judgment motion brought by the
underwriters.
Although the Company believes that the remaining claims alleged in the suits
are without merit, the ultimate outcome cannot be presently determined. A
substantial judgment or settlement, if any, could have a material adverse effect
on the Company's financial condition and results of operations. Trial of this
action against the Company is scheduled for January 1998.
No provision for any liability that may result upon adjudication of these
matters has been made in the consolidated financial statements.
The Company is currently involved in other litigation arising in the normal
course of business. Management does not believe that the ultimate resolution of
such litigation will have a material adverse impact on the financial position of
the Company (also see Notes 8 and 10).
12. EXECUTIVE AGREEMENT
The Company entered into an executive agreement with Eric Lidow dated May
15, 1991, which provided for his continued employment with the Company as Chief
Executive Officer and President or in such other position as the Board of
Directors may determine. After six years, either party may terminate the
agreement upon ninety days written notice. Mr. Lidow's salary at fiscal year end
under this agreement was $632,500. Upon Mr. Lidow's retirement from the Company
(or a change in control) he will receive annual payments (Founder's Pension) of
90% of his then current salary. The agreement was amended on April 12, 1995 to
provide that upon retirement Mr. Lidow's pension would be based, in addition to
his salary, on the average of the prior three years' cash bonuses, if any. The
pension would further be adjusted annually to account for any increase in the
Consumer Price Index. Upon Mr. Lidow's death, payments will be continued to his
wife, if she survives him, in an amount equal to two-thirds of his retirement
benefits for the remainder of her life. Under the terms of the Founder's
Pension, $2,849,000, $2,348,000, and $1,068,000 have been expensed in fiscal
years 1997, 1996, and 1995, respectively.
On October 24, 1995 (amended on February 22, 1996), the Company established
an irrevocable grantor trust (the "Trust") for payment of retirement benefits to
Eric Lidow and his wife. The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of
37
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EXECUTIVE AGREEMENT (CONTINUED)
the Company and shall be used exclusively for the uses and purposes of providing
the retirement benefits described in the executive agreement (and for payments
to general creditors if the Company is unable to pay its debts as they become
due or is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code). Under the Trust agreement, the Company funds the pro-rata
liability accrual 30 days following the end of each calendar quarter. At June
30, 1997, the balance in the Trust was $7,335,000 and was included in "Other
assets."
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (000's except per share
data):
<TABLE>
<CAPTION>
NET INCOME
GROSS NET INCOME (LOSS) PER
REVENUES PROFIT (LOSS) SHARE
----------- --------- ---------- -------------
<S> <C> <C> <C> <C>
1997
1st Quarter.................................................. $ 115,193 $ 38,812 $ 3,057 $ 0.06
2nd Quarter.................................................. 118,007 40,335 3,404 0.07
3rd Quarter.................................................. 122,750 42,322 3,874 0.08
4th Quarter.................................................. 130,177 41,591 (53,541) (1.04)
1996
1st Quarter.................................................. $ 126,097 $ 47,311 $ 12,829 $ 0.25
2nd Quarter.................................................. 141,026 53,889 15,219 0.30
3rd Quarter.................................................. 154,070 60,094 18,011 0.35
4th Quarter.................................................. 155,656 64,509 20,420 0.40
</TABLE>
- ------------------------
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
For information called for by Items 10, 11, 12, and 13, reference is made to
the Registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held November 24, 1997, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 1997, and
which is incorporated herein by reference. Certain information concerning the
Directors and Executive Officers of the Company is included in Part I. See
"Additional Item" page 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Financial Statements and Financial Statement Schedule being filed as part
of this report are listed in the index on page 17.
b. Exhibits filed as part of this report are listed on the Exhibit Index on
page 39.
c. No reports on Form 8-K were filed during the quarter ended June 30, 1997.
38
<PAGE>
EXHIBIT INDEX
Incorporated By Reference:
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
3(a) Certificate of Incorporation Report on Form 10-Q for the quarterly
of the Company, as amended to period ended December 31, 1990, as
date amended by Form 8 dated March 6 and
March 12, 1991 as filed with the
Securities and Exchange Commission, File
No. 1-7935 (Exhibit 3(a))
3(b) Amended and restated By-Laws Form 10-Q -- for the quarterly period
of the Company ended March 31, 1995 as filed with the
Securities and Exchange Commission, File
No. 1-7935
10(a) Technical Assistance Registration Statement on Form S-2 as
Agreement dated March 30, filed with the Securities and Exchange
1983 between the Company and Commission, Registration No. 2-89410
Unitrode Corporation (Exhibit 10.8)
10(b) Amended and Restated Form 10-K -- Annual Report Pursuant to
Settlement Agreement between Section 13 or 15(d) of the Securities
International Rectifier Exchange Act of 1934 for Fiscal Year
Corporation and Siliconix Ended June 30, 1990, Commission File No.
incorporated dated July 27, 1-7935
1990
10(c) Amendment to Technical Report on Form 10-Q for the quarterly
Assistance Agreement, period ended December 31, 1990 as
effective as of August 27, amended by Form 8 dated April 15, 1991,
1987, by and between the Commission File No. 1-7935 (Exhibit
Company and Unitrode 10(l))
Corporation
10(d) International Rectifier Registration Statement on Form S-8 as
Corporation Stock Option Plan filed with the Securities and Exchange
of 1984 (Second Amendment) Commission, Registration No. 33-40208
10(e) Amendment to International Registration Statement on Form S-8 as
Rectifier Corporation 1984 filed with the Securities and Exchange
Stock Participation Plan Commission, Registration No. 33-53589
(Exhibit 4.1)
10(f) International Rectifier Registration Statement on Form S-8 as
Corporation Stock Option Plan filed with the Securities and Exchange
of 1992 Commission, Registration No. 33-63958
(Exhibit 8)
10(g) Executive Employment Form 10-K -- Annual Report Pursuant to
Agreement dated May 15, 1991 Section 13 or 15(d) of the Securities
between International Exchange Act of 1934 for Fiscal Years
Rectifier Corporation and Ended June 30, 1991 and 1995, Commission
Eric Lidow and amended as of File No. 1-7935
April 12, 1995
10(h) International Rectifier Form 10-K -- Annual Report Pursuant to
Corporation Grantor Trust for Section 13 or 15(d) of the Securities
Retirement Benefits for Eric Exchange Act of 1934 for Fiscal Year
Lidow dated October 24, 1995 Ended June 30, 1996, Commission File No.
and amended as of February 1-7935
22, 1996
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
10(i) Line of Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Years
Sanwa Bank California dated Ended June 30, 1993, 1994, 1995, and
as of June 30, 1993 and 1996, and Form 10-Q for the quarterly
amended as of August 24, period ended March 31, 1996, Commission
1993, November 22, 1993, July File No. 1-7935
1, 1994, December 30, 1994,
February 28, 1995, February
29, 1996, and June 28, 1996
10(j) Security Agreement between Form 10-K -- Annual Report Pursuant to
International Rectifier Section 13 or 15(d) of the Securities
Corporation and Nationsbanc Exchange Act of 1934 for Fiscal Years
Leasing Corporation of North Ended June 30, 1994, 1995, and 1996, and
Carolina dated as of July 1, Form 10-Q for the quarterly period ended
1994 and amended as of August December 31, 1996, Commission File No.
15, 1994, November 3, 1994, 1-7935
March 8, 1995, December 29,
1995, July 30, 1996, and
December 19, 1996
10(k) Revolving Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Years
Wells Fargo Bank, N.A. dated Ended June 30, 1994, 1995, and 1996,
as of July 1, 1994 and Commission File No. 1-7935
amended as of December 30,
1994, March 31, 1995, and May
15, 1996
10(l) Loan and Security Agreement Form 10-K -- Annual Report Pursuant to
between Sanwa General Section 13 or 15(d) of the Securities
Equipment Leasing, a Division Exchange Act of 1934 for Fiscal Year
of Sanwa Business Credit Ended June 30, 1994, Commission File No.
Corporation and International 1-7935
Rectifier Corporation dated
as of July 1, 1994
10(m) Term Loan Agreement between Form 10-K -- Annual Report Pursuant to
International Rectifier Section 13 or 15(d) of the Securities
Corporation and Sanwa Bank Exchange Act of 1934 for Fiscal Year
California dated February 28, Ended June 30, 1996, Commission File No.
1995 and amended as of 1-7935
December 29, 1995, February
29, 1995, and June 28, 1996
10(n) Revolving Credit Agreement Form 10-K -- Annual Report Pursuant to
between International Section 13 or 15(d) of the Securities
Rectifier Corporation and Exchange Act of 1934 for Fiscal Years
Nationsbank of Texas, N.A. Ended June 30, 1995 and 1996, Commission
dated as of June 15, 1995 and File No. 1-7935
amended as of June 6, 1996
10(o) Term Loan Agreement between Form 10-Q for the quarterly period ended
International Rectifier March 31, 1996, Commission File No.
Corporation and Sanwa Bank 1-7935
California (Sanwa Term
Facility #2) dated March 26,
1996
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
10(p) Term Loan Agreement between Form 10-K -- Annual Report Pursuant to
International Rectifier Section 13 or 15(d) of the Securities
Corporation and Sumitomo Exchange Act of 1934 for Fiscal Year
Trust & Banking Co., LTD., Ended June 30, 1996, Commission File No.
Los Angeles Agency dated June 1-7935
12, 1996
10(q) Term Loan Agreement between Form 10-K -- Annual Report Pursuant to
International Rectifier Section 13 or 15(d) of the Securities
Corporation and Banque Exchange Act of 1934 for Fiscal Year
Nationale de Paris, Los Ended June 30, 1996, Commission File No.
Angeles Branch dated June 25, 1-7935
1996
</TABLE>
41
<PAGE>
SUBMITTED HEREWITH:
See page 17 for an index of Financial Statements and Financial Statement
Schedule being filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NO. ITEM DOCUMENT
- ------- ----------------------------- ----------------------------------------
<C> <S> <C>
3(a) Certificate of Amendment of
Certificate of Incorporation
dated as of November 29, 1995
10(r) Amendment to Term Loan
Agreement between
International Rectifier
Corporation and Banque
Nationale de Paris, Los
Angeles Branch dated as of
May 9, 1997
10(s) Amendments to Revolving
Credit Agreement between
International Rectifier
Corporation and Nationsbank
of Texas, N.A. dated as of
May 9, 1997 and June 5, 1997
10(t) Amendment to Term Loan
Agreement between
International Rectifier
Corporation and Sumitomo
Trust & Banking Co., LTD.,
Los Angeles Agency dated as
of May 9, 1997
10(u) Amendment to Revolving Credit
Agreement between
International Rectifier
Corporation and Wells Fargo
Bank, N.A. dated as of May 9,
1997
10(v) Amendment to Line of Credit
Agreement between
International Rectifier
Corporation and Sanwa Bank
California dated as of May
22, 1997
10(w) Amendment to Term Loan
Agreement between
International Rectifier
Corporation and Sanwa Bank
California dated as of May
22, 1997
10(x) Amendment to Term Loan
Agreement between
International Rectifier
Corporation and Sanwa Bank
California (Sanwa Term
Facility #2) dated as of May
22, 1997
21 List of Subsidiaries
23 Consent of Independent
Accountants
27 Financial Data Schedule
</TABLE>
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL RECTIFIER CORPORATION
(Registrant)
By MICHAEL P. MCGEE Date: September 25, 1997
-------------------------------- --------------------------------
Michael P. McGee
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER
Each person whose signature appears below hereby authorizes Michael P.
McGee, as attorney-in-fact and agent, with full powers of substitution, to sign
on his behalf, individually and in the capacities stated below, and to file any
and all amendments to this Form 10-K, and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorney-in-fact and agent full power and authority to perform any other act on
behalf of the undersigned required to be done in the premises.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- ------------------
ERIC LIDOW Chairman of the Board September 25, 1997
- ------------------------------
Eric Lidow
ALEXANDER LIDOW Director, Chief Executive September 25, 1997
- ------------------------------ Officer
Alexander Lidow
DEREK B. LIDOW Director, Chief Executive September 25, 1997
- ------------------------------ Officer
Derek B. Lidow
MICHAEL P. MCGEE Vice President, Chief September 25, 1997
- ------------------------------ Financial Officer, and
Michael P. McGee Principal Accounting
Officer
ROBERT J. MUELLER Director, Executive Vice September 25, 1997
- ------------------------------ President
Robert J. Mueller
GEORGE KRSEK Director September 25, 1997
- ------------------------------
George Krsek
JACK O. VANCE Director September 25, 1997
- ------------------------------
Jack O. Vance
ROCHUS E. VOGT Director September 25, 1997
- ------------------------------
Rochus E. Vogt
DONALD S. BURNS Director September 25, 1997
- ------------------------------
Donald S. Burns
JAMES D. PLUMMER Director September 25, 1997
- ------------------------------
James D. Plummer
MINORU MATSUDA Director September 25, 1997
- ------------------------------
Minoru Matsuda
43
<PAGE>
SCHEDULE II
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 1997, 1996, AND 1995
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO END
DESCRIPTION PERIOD EXPENSES OTHER DEDUCTIONS (1) OF PERIOD
- ------------------------------------------- ------------ ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts............ $ 1,014 $ 428 $ -- $ (399) $ 1,043
Deferred tax valuation allowance........... $ -- $ 4,870 $ -- $ -- $ 4,870
Inventory valuation reserve................ $ 6,084 $ (2,327) $ -- $ (177) $ 3,580
1996
Allowance for doubtful accounts............ $ 901 $ 421 $ -- $ (308) $ 1,014
Deferred tax valuation allowance........... $ -- $ -- $ -- $ -- $ --
Inventory valuation reserve................ $ 5,029 $ 6,503 $ -- $ (5,448) $ 6,084
1995
Allowance for doubtful accounts............ $ 677 $ 703 $ -- $ (479) $ 901
Deferred tax valuation allowance........... $ 10,596 $ (10,596) $ -- $ -- $ --
Inventory valuation reserve................ $ 2,798 $ 4,420 $ -- $ (2,189) $ 5,029
</TABLE>
- ------------------------
(1) Deductions include the write-off of uncollectible amounts with respect to
trade accounts receivable, obsolete and scrap inventory, and the effects of
Statement of Financial Accounting Standards No. 52.
F-1
<PAGE>
exhibit 3(a)
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "INTERNATIONAL RECTIFIER CORPORATION", FILED IN THIS OFFICE ON
THE FOURTH DAY OF DECEMBER, A.D. 1995, AT 4:30 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[cad 157]seal[cad 179] /s/ Edward J. Freel
--------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
7735111
DATE:
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
INTERNATIONAL RECTIFIER CORPORATION, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of International
Rectifier Corporation, held on August 28, 1995, resolutions were duly adopted
to amend the Certificate of Incorporation of said corporation to increase the
number of authorized shares of Common Stock from 30,000,000 shares to
150,000,000 shares, declaring said amendment to be advisable and setting
aside the matter for consideration at the Annual Meeting of Stockholders on
November 20, 1995.
SECOND: Article 4 of the Certificate of Incorporation, as submitted to
the stockholders of the Corporation in the Proxy Statement dated September
28, 1995, was amended to read in its entirety:
The total number of shares of stock which the corporation shall have
authority to issue is 150,000,000 shares of Common Stock and 1,000,000
preferred shares. The par value of each of the common and preferred shares
is One Dollar ($1.00) each.
THIRD: That thereafter, pursuant to a resolution of its Board of
Directors, the Annual Meeting of Stockholders of said corporation was duly
called and held on November 20, 1995, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute were voted in favor of
the amendment.
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, said International Rectifier Corporation has caused
this Certificate to be signed by Eric Lidow, its Chairman of the Board, and
attested by Gerald A. Koris, its Secretary, this 29th day of November, 1995.
By: /s/ Eric Lidow
----------------
Eric Lidow, Chairman of the Board
Attest:
By: /s/ Gerald A. Koris
---------------------------
Gerald A. Koris, Secretary
<PAGE>
EXHIBIT 10(r)
AMENDMENT TO THE TERM LOAN AGREEMENT
- --------------------------------------------------------------------------------
THIS FIRST AMENDMENT dated as of May 9, 1997 to the Agreement dated as
of June 25, 1996 (collectively, the "Agreement") between INTERNATIONAL
RECTIFIER CORPORATION (the "Borrower") and BANQUE NATIONALE DE PARIS ("BNP")
WITNESS the following:
WHEREAS the Borrower has requested that BNP amend the Agreement to modify
certain covenants and restrictions for a temporary period; and
WHEREAS BNP is willing to approve such modifications of these covenants
and restrictions for a temporary period;
NOW, THEREFORE, BNP and the Borrower agree as follows:
1. FINANCIAL CONDITION. BNP and the Borrower agree that the ratio of
"consolidated Debt to consolidated Effective Tangible Net Worth" contained in
Section 5.14 (b) shall be amended. To that end, Section 5.14 (b) is hereby
modified to delete the ratio of .90 to 1, and to insert in its place the
following:
1.00 to 1 for the three months ended 6/30/97
1.00 to 1 for the six months ended 12/31/97
.95 to 1 for the six months ended 6/30/98
.90 to 1 for the remainder of the Agreement.
2. FINANCIAL CONDITION. BNP and the Borrower agree that the definition
of "Consolidated Operating Loss" contained in Section 5.16 shall be amended.
To that end, the following language is added to Section 5.16:
For purposes of this covenant, the definition of
"Consolidated Operating Loss", as defined under GAAP,
shall be modified to exclude a one-time charge of up to
$80 million for restructuring and asset impairment
charges contemplated by the Borrower in its Fiscal Year
ended June 30, 1997. Such charges shall include
associated inventory write-downs of up to $5 million.
3. FINANCIAL CONDITION. BNP and the Borrower agree that the definition
of "net income" contained in Section 5.14 (d) shall be amended. To that end,
the following language is added to Section 5.14 (d):
For purposes of this covenant, the definition of net
<PAGE>
income, as defined under GAAP, shall be modified
to exclude a one-time charge of up to $60 million for
non-cash restructuring and asset impairment charges
contemplated by the Borrower in its Fiscal Year ended
June 30, 1997.
4. REPRESENTATIONS AND WARRANTIES. In order to induce to enter into
this First Amendment and to modify the Agreement in the manner provided in
this First Amendment, the Borrower hereby warrants that (i) the
representation and warranties contained in Section 4 of the Agreement are
true and correct on the date of this First Amendment, and (ii) no Event of
Default, as specified in Section 6 of the Agreement and, except as disclosed
by the Borrower to its domestic banks on May 2, 1997, no event which with
notice of lapse of time or both would become such an Event of Default, has
occurred and is continuing on the date of the Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this
First Amendment, the Agreement shall continue to be and shall remain in full
force and effect.
IN WITNESS WHEREOF, BNP and the Borrower by their respective duly
authorized officers or representatives have caused this Amendment to be duly
executed as of the day and year first written above.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ MICHAEL P. MCGEE
------------------------------------
Title: V.P. + CHIEF FINANCIAL OFFICER
------------------------------------
BANQUE NATIONALE DE PARIS
By: /s/ C. BETTLES
------------------------------------
Title: SVP.
------------------------------------
By: /s/ TJALLING TERPSTRA
------------------------------------
Title: V.P.
------------------------------------
<PAGE>
EXHIBIT 10(s)
AMENDMENT TO THE REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT dated as of May 9, 1997 to the Revolving Credit
Agreement dated June 15, 1995 (collectively, the "Agreement") between
INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") and NationsBank of
Texas, N.A. ("NationsBank") WITNESS the following:
WHEREAS the Borrower has requested that NationsBank amend the Agreement to
modify certain covenants and restrictions for a temporary period; and
WHEREAS, upon the terms and conditions contained herein, NationsBank is
willing to approve such modifications of these covenants and restrictions
for a temporary period;
NOW, THEREFORE, NationsBank and the Borrower agree as follows:
1. FINANCIAL CONDITION. NationsBank and the Borrower agree that the
ratio of "Consolidated Debt to Effective Tangible Net Worth" contained
in Section 6.18 (b) shall be amended. To that end, Section 6.18 (b)
is hereby modified to delete the ratio of .90 to 1, and to insert in
its place the following:
1.00 to 1 for the three months ended 6/30/97
1.00 to 1 for the six months ended 12/31/97
.95 to 1 for the six months ended 6/30/98
.90 to 1 for the remainder of the Agreement.
2. FINANCIAL CONDITION. NationsBank and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 6.19
shall be amended. To that end, the following language is added to
Section 6.19:
For purposes of this covenant, the definition of
"Consolidated Operating Loss", as defined under
GAAP, shall be modified to exclude a one-time
charge of up to $80 million for restructuring and
asset impairment charges contemplated by the
Borrower in its Fiscal Year ended June 30, 1997.
Such charges shall include associated inventory
write-downs of up to $5 million.
3. FINANCIAL CONDITION. NationsBank and the Borrower agree that the
definition of "Net Income" contained in Section 6.18 (d) shall be
amended. To that end, the following language is added to Section
6.18 (d):
<PAGE>
For purposes of this covenant, the definition of
net income, as defined under GAAP, shall be
modified to exclude a one-time charge of up to $60
million for non-cash restructuring and asset
impairment charges contemplated by the Borrower in
its Fiscal Year ended June 30, 1997.
4. REPRESENTATIONS AND WARRANTIES. In order to induce NationsBank to
enter this Second Amendment and to modify the Agreement in the manner
provided in this Second Amendment, the Borrower hereby warrants that
(i) the representations and warranties contained in Section 5 of the
Agreement are true and correct on the date of this Second Amendment,
and (ii) no Event of Default, as specified in Section 7 of the
Agreement and, except as disclosed by the Borrower to its domestic
banks on May 2, 1997, no event which with notice or lapse of time or
both would become such and Event of Default, has occurred and is
continuing on the date of the Second Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this
Second Amendment, the Agreement shall continue to be and shall remain
in full force and effect.
IN WITNESS WHEREOF, NationsBank and the Borrower by their respective
duly authorized officers or representatives have caused this Second Amendment
to be duly executed as of the day and year first written above.
INTERNATIONAL RECTIFIER CORPORATION
/s/ Michael P. McGee
---------------------------------------
By:
-----------------------------------
Title: V.P. + CHIEF FINANCIAL OFFICER
--------------------------------
NATIONSBANK OF TEXAS, N.A.
---------------------------------------
By: /s/ Yousuf Omar
-----------------------------------
Title: Senior Vice President
--------------------------------
<PAGE>
THIRD AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
THIS THIRD AMENDMENT TO REVOLVING CREDIT AGREEMENT (this "Third
Amendment"), is made and entered into as of June 5, 1997, by and between
NATIONSBANK OF TEXAS, N.A. ("NationsBank") and INTERNATIONAL RECTIFIER
CORPORATION (the "Borrower").
WITTNESSETH:
WHEREAS, the parties hereto made and entered into as of June 15, 1995 a
certain Revolving Credit Agreement as amended by the First Amendment to
Revolving Credit Agreement dated as of June 6, 1996, and the Second Amendment
to Revolving Credit Agreement dated as of May 9, 1997 (the "Agreement"); and
WHEREAS, the parties hereto desire to amend the Agreement in the
particulars hereinafter set forth;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. DEFINITIONS. Unless otherwise specifically defined herein, all
defined terms used herein shall have their respective meanings set forth in the
Agreement.
2. AMENDMENT. Section 1.01(cc) of the Agreement is hereby amended by
deleting in its entirety the definition of "Maturity Date" and substituting in
lieu thereof the following definition:
"(cc)`Maturity' Date shall mean June 4, 1998 or the date of
termination of the Commitment pursuant to Section 7 of this
Agreement, whichever shall occur first."
3. REPRESENTATIONS AND WARRANTIES. By the execution of this Third
Amendment, the Borrower represents and warrants that (i) after giving effect to
this Third Amendment, the representations and warranties stated in the
Agreement are true and correct as of the date hereof; and (ii) after giving
effect to this Third Amendment, neither an Event of Default, as defined in the
Agreement, nor any event which with the lapse of time or notice or both could
become an Event of Default, has occurred as of the date hereof.
<PAGE>
4. EFFECTIVENESS.
(a) Except to the extent specifically waived, amended and
supplemented hereby, all of the terms, conditions and provisions of the
Agreement shall remain unmodified, and the Agreement, as amended and
supplemented by this Third Amendment, is confirmed as being in full
force and effect.
(b) All references to the Agreement herein or in any other
document or instrument between the parties hereto shall hereafter be
construed to be references to the Agreement as modified by this Third
Amendment.
(c) This Third Amendment shall be effective upon receipt by
NationsBank of a counterpart of this Third Amendment executed by the
Borrower.
5. COUNTERPARTS. This Third Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
6. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
7. NOTICE OF FINAL AGREEMENT. THIS THIRD AMENDMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as of the date and year first above written.
NATIONSBANK OF TEXAS, N.A. INTERNATIONAL RECTIFIER
CORPORATION
By: /s/ Yousuf Omar By: /s/ M. McGee
----------------------- ------------------------
Name: Yousuf Omar Name: M. McGee
--------------------- ----------------------
Title: SVP Title: V.P. + CHIEF FINANCIAL OFFICER
-------------------- ---------------------------------
-2-
<PAGE>
EXHIBIT 10(t)
AMENDMENT TO THE TERM LOAN AGREEMENT
THIS FIRST AMENDMENT dated as of May 9, 1997 to the Term Loan
Agreement dated as of June 12, 1996 (collectively, the "Agreement") between
INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") and The Sumitomo Trust &
Banking Co., Ltd., Los Angeles Agency (the "Bank") WITNESS the following:
WHEREAS the Borrower has requested to amend the Agreement to modify
certain covenants and restrictions for a temporary period: and
WHEREAS the Bank is willing to approve such modifications of these
covenants and restrictions for a temporary period:
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. FINANCIAL CONDITION, the Bank and the Borrower agree that the
ratio "consolidated Debt to consolidated Effective Tangible Net Worth"
contained in Section 5.15(b) shall be amended. To that end, Section 5.15(b)
is hereby modified to delete the ratio of .90 to 1, and to insert in its
place the following:
1.00 to 1 for the three months ended 6/30/97
1.00 to 1 for the six months ended 12/31/97
0.95 to 1 for the six months ended 6/30/98
0.90 to 1 for the remainder of the Agreement.
2. FINANCIAL CONDITION, the Bank and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 1.01(c)
shall be amended. To that end, the following language is added to Section
1.01(c):
PROVIDED, HOWEVER, for the purpose of the covenant
set forth in Section 5.17 hereof and with respect
to the two fiscal quarters immediately subsequent
to the Borrower's Fiscal Year ended June 30, 1997,
the definition of "Consolidated Operating Loss", as
defined under GAAP, shall be modified to exclude a
one-time charge of up to $80 million for restructuring
and asset impairment charges contemplated by the
Borrower in its Fiscal Year ended June 30, 1997.
Such charges shall include associated inventory
write-downs of up to $5 million.
<PAGE>
3. FINANCIAL CONDITION, the Bank and the Borrower agree that the
definition of "net income" contained in Section 5.15(d) shall be amended. To
that end, the following language is added to Section 5.15(d):
PROVIDED, HOWEVER, for the purposes of this Section
5.15(d), and with respect to the four fiscal quarters
immediately subsequent to the Borrower's Fiscal Year
ended June 30, 1997, the definition of net income, as
defined under GAAP, shall be modified to exclude a
one-time charge of up to $60 million for non-cash
restructuring and asset impairment charges contemplated
by the Borrower in its Fiscal Year ended June 30, 1997.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this First Amendment and to modify the Agreement in the manner
provided in this First Amendment, the Borrower hereby warrants that (i) all
the representations and warranties contained in the Agreement are true and
correct on the date of this First Amendment, and (ii) no Event of Default, as
specified in Section 6 of the Agreement and, except as disclosed by the
Borrower to its domestic banks on May 2, 1997, no event which with notice or
laps of time or both would become such an Event of Default, has occurred and
is continuing on the date of the First Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by
this First Amendment, the Agreement shall continue to be and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Bank and the Borrower by their respective
duly authorized officers or representatives have caused this First Amendment
to be duly executed as of the day and year first written above.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
-----------------------------------
Title:
--------------------------------
THE SUMMITOMO TRUST & BANKING CO., LTD.
LOS ANGELES AGENCY
/s/ Ninoos Y. Benjamin
---------------------------------------
Ninoos Y. Benjamin
Vice President and Manager
<PAGE>
EXHIBIT 10(u)
FOURTH AMENDMENT TO REVOLVING CREDIT AGREEMENT
THIS FOURTH AMENDMENT dated as of May 9, 1997 to the Revolving Credit
Agreement dated as of July 1, 1994, as amended by the First Amendment to
Revolving Credit Agreement dated as of December 30, 1994, the Second
Amendment to Revolving Credit Agreement dated as of March 31, 1995 and the
Third Amendment to Revolving Credit Agreement dated as of May 15, 1996
(collectively, the "Agreement") between INTERNATIONAL RECTIFIER CORPORATION
(the "Borrower") and WELLS FARGO BANK, N.A. ("Wells Fargo") WITNESS the
following:
WHEREAS the Borrower has requested that Wells Fargo amend the Agreement
to modify certain covenants and restrictions for a temporary period; and
WHEREAS Wells Fargo is willing to approve such modifications of these
covenants and restrictions for a temporary period;
NOW, THEREFORE, Wells Fargo and the Borrower agree as follows:
1. FINANCIAL CONDITION. Wells Fargo and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 1.01(f)
shall be amended. To that end, the following language is added at the end of
the definition of "Consolidated Operating Loss" in Section 1.01 (f):
"For purposes of this definition, the definition of
"Consolidated Operating Loss", as defined under GAAP, shall be
modified to exclude a one-time charge of up to $80 million for
restructuring and asset impairment charges contemplated by
the Borrower in its Fiscal Year ended June 30, 1997. Such
charges shall include associated inventory write-downs of up to
$5 million."
2. FINANCIAL CONDITION. Wells Fargo and the Borrower agree that the
ratio of "consolidated Debt to consolidated Effective Tangible Net Worth"
contained in Section 6.18(b) shall be amended. To that end, Section 6.18(b)
is hereby modified to delete the ratio of .90 to 1, and to insert in its
place the following:
"1.00 to 1 for the three months ended 6/30/97
1.00 to 1 for the six months ended 12/31/97
.95 to 1 for the six months ended 6/30/98
.90 to 1 for the remainder of the Agreement."
3. FINANCIAL CONDITION. Wells Fargo and the Borrower agree that the
following language is added to Section 6.18(d):
"For purposes of this covenant, the definition of net income,
as defined under GAAP, shall be modified to exclude a one-
<PAGE>
time charge of up to $60 million for non-cash restructuring
and asset impairment charges contemplated by the Borrower in
its Fiscal Year ended June 30, 1997."
4. REPRESENTATIONS AND WARRANTIES. In order to induce Wells Fargo to
enter into this Fourth Amendment and to modify the Agreement in the manner
provided in this Fourth Amendment, the Borrower hereby warrants that (i) the
representations and warranties contained in Section 5 of the Agreement are
true and correct on the date of this Fourth Amendment, and (ii) no Event of
Default, as specified in Section 7 of the Agreement and, except as disclosed
by the Borrower to its domestic banks on May 2, 1997, no event which with
notice or lapse of time or both would become such an Event of Default, has
occurred and is continuing on the date of the Fourth Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by
this Fourth Amendment, the Agreement shall continue to be and shall remain in
full force and effect.
IN WITNESS WHEREOF, Wells Fargo and the Borrower by their respective duly
authorized officers or representatives have caused this Fourth Amendment to
be duly executed as of the day and year first written above.
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
--------------------------------
Title:
-----------------------------
WELLS FARGO BANK, N.A.
By: /s/ Edith R. Lim
--------------------------------
Edith R. Lim
Title: Vice President
-----------------------------
By: /s/ David B. Hollingsworth
--------------------------------
David B. Hollingsworth
Title: Vice President
-----------------------------
2
<PAGE>
EXHIBIT 10(v)
[LETTERHEAD]
AMENDMENT TO LINE OF CREDIT AGREEMENT
THIS EIGHTH AMENDMENT dated as of May 22, 1997, to the Line of Credit
Agreement dated as of June 30, 1993, (collectively, the "Agreement") between
SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION
(the "Borrower").
WITNESS THE FOLLOWING:
WHEREAS the Borrower has requested that Bank amend the Agreement to
modify certain covenants and restrictions for a temporary period; and
WHEREAS the Bank is willing to approve such modifications of these
covenants and restrictions for a temporary period;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. FINANCIAL CONDITION. The Bank and the Borrower agree that the ratio
of "consolidated Debt to consolidated Effective to Tangible Net Worth"
contained in Section 7.14(b) shall be amended. To that end, Section 7.14(b)
is hereby modified to delete the ratio of 0.90 to 1, and to insert in its
place the following:
"1.00 to 1 for the three months ended June 30, 1997
1.00 to 1 for the six months ended December 31, 1997
.95 to 1 for the six months ended June 30, 1998
.90 to 1 for the remainder of the Agreement."
2. FINANCIAL CONDITION. The Bank and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 1.01(d)
shall be amended. To that end, the following language is added to Section
1.01(d):
"For purposes of this covenant, the definition of
"Consolidated Operating Loss", as defined under
GAAP, shall be modified to exclude a one-time
charge of up to $80 million for restructuring and asset
impairment charges contemplated by the Borrower in
its Fiscal Year ended June 30, 1997. Such charges
shall include associated inventory write-downs of up
to $5 million."
3. FINANCIAL CONDITION. The Bank and the Borrower agree that "net
income" contained in Section 7.14(d) shall be amended. To that end, the
following language is added to Section 7.14(d):
"For purposes of this covenant, the definition of net
income, as defined under GAAP, shall be modified to
exclude a one-time charge of up to $60 million for
non-cash restructuring and asset impairment charges
<PAGE>
contemplated by the Borrower in its Fiscal Year
ended June 30, 1997"
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Eighth Amendment and to modify the Agreement in the manner provided
in this Eighth Amendment, the Borrower hereby warrants that (i) the
representations and warranties contained in Section 6 of the Agreement are
true and correct on the date of this Eighth Amendment, and (ii) no Event of
Default, as specified in Section 8 of the Agreement and, except as disclosed
by the Borrower to its domestic banks on May 2, 1997, no event which with
notice or lapse of time or both would become such an Event of Default, has
occurred and is continuing on the date of the Eighth Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this
Fourth Amendment, the Agreement shall continue to be and shall remain in full
force and effect.
IN WITNESS WHEREOF, the Bank and the Borrower by their respective duly
authorized officers or representatives have caused this Fourth Amendment to
be duly executed as of the day and year first written above.
BORROWER:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
------------------------------------
V.P. + CHIEF FINANCIAL OFFICER
------------------------------------
(Name/Title)
BANK:
SANWA BANK OF CALIFORNIA
By: /s/ David B. Carr
------------------------------------
David B. Carr, Vice President
------------------------------------
(Name/Title)
<PAGE>
EXHIBIT 10(w)
[LETTERHEAD]
AMENDMENT TO TERM LOAN AGREEMENT
THIS FOURTH AMENDMENT dated as of May 22, 1997, to the Term Loan
Agreement dated as of February 28, 1995 (collectively, the "Agreement")
between SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER
CORPORATION (the "Borrower").
WITNESS THE FOLLOWING:
WHEREAS the Borrower has requested that Bank amend the Agreement to
modify certain covenants and restrictions for a temporary period; and
WHEREAS the Bank is willing to approve such modifications of these
covenants and restrictions for a temporary period;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. FINANCIAL CONDITION. The Bank and the Borrower agree that the ratio
of "consolidated Debt to consolidated Effective to Tangible Net Worth"
contained in Section 5.14(b) shall be amended. To that end, Section 5.14(b)
is hereby modified to delete the ratio of 0.90 to 1, and to insert in its
place the following:
"1.00 to 1 for the three months ended June 30, 1997
1.00 to 1 for the six months ended December 31, 1997
.95 to 1 for the six months ended June 30, 1998
.90 to 1 for the remainder of the Agreement."
2. FINANCIAL CONDITION. The Bank and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 1.01(b)
shall be amended. To that end, the following language is added to Section
1.01(b):
"For purposes of this covenant, the definition of
"Consolidated Operating Loss", as defined under GAAP,
shall be modified to exclude a one-time charge of up
to $80 million for restructuring and asset impairment
charges contemplated by the Borrower in its Fiscal Year
ended June 30, 1997. Such charges shall include associated
inventory write-downs of up to $5 million."
3. FINANCIAL CONDITION. The Bank and the Borrower agree that "net
income" contained in Section 5.14(d) shall be amended. To that end, the
following language is added to Section 5.14(d):
"For purposes of this covenant, the definition of
net income, as defined under GAAP, shall be modified
to exclude a one-time charge of up to $60 million for
non-cash restructuring and asset impairment charges
<PAGE>
contemplated by the Borrower in its Fiscal Year ended
June 30, 1997."
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Fourth Amendment and to modify the Agreement in the manner provided
in this Fourth Amendment, the Borrower hereby warrants that (i) the
representations and warranties contained in Section 4 of the Agreement are
true and correct on the date of this Fourth Amendment, and (ii) no Event of
Default, as specified in Section 6 of the Agreement and, except as disclosed
by the Borrower to its domestic banks on May 2, 1997, no event which with
notice or lapse of time or both would become such an Event of Default, has
occurred and is continuing on the date of the Fourth Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this
Fourth Amendment, the Agreement shall continue to be and shall remain in full
force and effect.
IN WITNESS WHEREOF, the Bank and the Borrower by their respective duly
authorized officers or representatives have caused this Fourth Amendment to
be duly executed as of the day and year first written above.
BORROWER:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
-----------------------------------
V.P. + CHIEF FINANCIAL OFFICER
--------------------------------------
(Name/Title)
BANK:
SANWA BANK CALIFORNIA
By: /s/ David B. Carr
-----------------------------------
David B. Carr, Vice President
--------------------------------------
(Name/Title)
<PAGE>
EXHIBIT 10(x)
[LETTERHEAD]
AMENDMENT TO TERM LOAN AGREEMENT
THIS FIRST AMENDMENT dated as of May 22, 1997, to the Term Loan
Agreement dated as of March 26, 1996 (collectively, the "Agreement") between
SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION
(the "Borrower").
WITNESS THE FOLLOWING:
WHEREAS the Borrower has requested that Bank amend the Agreement to
modify certain covenants and restrictions for a temporary period; and
WHEREAS the Bank is willing to approve such modifications of these
covenants and restrictions for a temporary period;
NOW, THEREFORE, the Bank and the Borrower agree as follows:
1. FINANCIAL CONDITION. The Bank and the Borrower agree that the ratio
of "consolidated Debt to consolidated Effective to Tangible Net Worth"
contained in Section 5.14(b) shall be amended. To that end, Section 5.14(b)
is hereby modified to delete the ratio of 0.90 to 1, and to insert in its
place the following:
"1.00 to 1 for the three months ended June 30, 1997
1.00 to 1 for the six months ended December 31,1997
.95 to 1 for the six months ended June 30, 1998
.90 to 1 for the remainder of the Agreement."
2. FINANCIAL CONDITION. The Bank and the Borrower agree that the
definition of "Consolidated Operating Loss" contained in Section 1.01(b)
shall be amended. To that end, the following language is added to Section
1.01(b):
"For purposes of this covenant, the definition of
"Consolidated Operating Loss", as defined under
GAAP, shall be modified to exclude a one-time charge
of up to $80 million for restructuring and asset
impairment charges contemplated by the Borrower in
its Fiscal Year ended June 30, 1997." Such charges
shall include associated inventory write-downs of up
to $5 million."
3. FINANCIAL CONDITION. The Bank and Borrower agree that "net income"
contained in Section 5.14(d) shall be amended. To that end, the following
language is added to Section 5.14(d):
"For purposes of this covenant, the definition
of net income, as defined under GAAP, shall be
modified to exclude a one-time charge of up to $60
million for
<PAGE>
non-cash restructuring and asset impairment charges
contemplated by the Borrower in its Fiscal Year
ended June 30, 1997."
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this First Amendment and to modify the Agreement in the manner
provided in this First Amendment, the Borrower hereby warrants that (i) the
representations and warranties contained in Section 4 of the Agreement are
true and correct on the date of this First Amendment, and (ii) no Event of
Default, as specified in Section 6 of the Agreement and, except as disclosed
by the Borrower to its domestic banks on May 2, 1997, no event which with
notice or lapse of time or both would become such an Event of Default, has
occurred and is continuing on the date of the First Amendment.
5. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by
this First Amendment, the Agreement shall continue to be and shall remain in
full force and effect.
IN WITNESS WHEREOF, the Bank and the Borrower by their respective duly
authorized officers or representatives have caused this First Amendment to
be duly executed as of the day and year first written above.
BORROWER:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ MICHAEL P. MCGEE
----------------------------------
V.P. + CHIEF FINANCIAL OFFICER
-------------------------------------
(Name/Title)
BANK:
SANWA BANK CALIFORNIA
By: /s/ DAVID B. CARR
--------------------------------
David B. Carr, Vice President
-----------------------------------
(Name/Title)
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
As of June 30, 1997
INTERNATIONAL RECTIFIER COMPANY (GREAT BRITAIN) LIMITED
Holland Road
Hurst Green
Oxted, Surrey RH8 9BB, England
INTERNATIONAL RECTIFIER CORPORATION ITALIANA S.P.A.
Via Liguria 49
10071 Borgaro, Torino(To), Italy
INTERNATIONAL RECTIFIER GMBH
Saalburgstrasse 157
D-61350 Bad Homburg, Germany
RECTIFICADORES INTERNACIONALES, S.A.
Prolongacion Ave.
Los Cabos No. 9234
Parque Industrial Pacifico II
C.P. 22709
Tijuana, Baja California, Mexico
INTERNATIONAL RECTIFIER FAR EAST COMPANY, LTD
K&H Building, 3-30-4 Nishi-Ikebukuro
Toshima-ku, Tokyo, 171 Japan
INTERNATIONAL RECTIFIER SOUTHEAST ASIA PRIVATE, LTD
315 Outram Road
#10-02 and #14-03 Tan Boon Liat Building
Singapore 16904
IR INTERNATIONAL HOLDINGS, INC.
233 Kansas Street
El Segundo, California 90245
INTERNATIONAL RECTIFIER HONG KONG, LTD
Paul Y Centre, 22nd Floor, #10, 11 & 12
51 Hung To Road
Kwun Tong, Kowloon, Hong Kong
IR INTERNATIONAL RECTIFIER HOLDINGS CHINA, INC.
202 Zhuque Street
Xian, Shaanxi province, 710061, P.R. China
SHANGHAI INTERNATIONAL RECTIFIER TRADING, LTD
231 Fu Te Road North
Waigaoqiao Free Trade Zone
Pudong, Shanghai, 200131, P.R. China
SEMICONDUCTOR ELECTRONICS LTD.
SDF Unit 23, SEEPZ
Anderi (East)
Bombay 400 096, India
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of International Rectifier Corporation on Form S-8 (File No. 33-40208, File No.
33-63958 and File No. 33-53589) of our report dated July 17, 1997 on our audits
of the consolidated financial statements and financial statement schedule of
International Rectifier Corporation as of June 30, 1997 and 1996, and for the
fiscal years ended June 30, 1997, 1996, and 1995, which report is included in
this Annual Report on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- ---------------------------------
Coopers & Lybrand L.L.P.
Los Angeles, California
September 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 36,564
<SECURITIES> 16,850
<RECEIVABLES> 126,524
<ALLOWANCES> 1,043
<INVENTORY> 115,754
<CURRENT-ASSETS> 316,481
<PP&E> 478,411
<DEPRECIATION> 144,852
<TOTAL-ASSETS> 679,753
<CURRENT-LIABILITIES> 113,265
<BONDS> 0
0
0
<COMMON> 51,052
<OTHER-SE> 330,663
<TOTAL-LIABILITY-AND-EQUITY> 679,753
<SALES> 486,127
<TOTAL-REVENUES> 486,127
<CGS> 323,067
<TOTAL-COSTS> 323,067
<OTHER-EXPENSES> 212,449
<LOSS-PROVISION> 428
<INTEREST-EXPENSE> 4,015
<INCOME-PRETAX> (52,690)
<INCOME-TAX> (9,484)
<INCOME-CONTINUING> (43,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,206)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
