<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15 (d) of the securities
exchange act of 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] Transition report pursuant to section 13 or 15 (d) of the securities
exchange act of 1934
FOR THE TRANSITION PERIOD FROM TO
-------------- ------------------
COMMISSION FILE No. 1-7935
-----------
International Rectifier Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-1528961
- -------------------------------- -----------------------------------
(State or other jurisdiction of (IRS employer identification
incorporation or organization) number)
233 Kansas Street
El Segundo, California 90245
- -------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 726-8000
NO CHANGE
- --------------------------------------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
--- ---
THERE WERE 51,045,507 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $1.00
PER SHARE, OUTSTANDING ON MAY 13, 1997.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
REFERENCE
-------------
ITEM 1. Financial Statements
Unaudited Consolidated Statement of Income
for the Three and Nine Month Periods Ended
March 31, 1997 and 1996.................................. 2
Consolidated Balance Sheet as of March 31,
1997 (unaudited) and June 30, 1996....................... 3
Unaudited Consolidated Statement of Cash
Flows for the Nine Month Periods Ended
March 31, 1997 and 1996.................................. 4
Notes to Unaudited Consolidated Financial
Statements............................................... 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 8
PART II. OTHER INFORMATION
NONE
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(In thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------- ----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues......................................................... $ 122,750 $ 154,070 $ 355,950 $ 421,193
Cost of sales.................................................... 80,428 93,976 234,481 259,899
---------- ---------- ---------- ----------
Gross profit.................................................. 42,322 60,094 121,469 161,294
Selling and administrative expense............................... 26,098 26,634 78,618 74,980
Research and development expense................................. 9,144 7,185 25,803 19,197
---------- ---------- ---------- ----------
Operating profit.............................................. 7,080 26,275 17,048 67,117
Other income (expense):
Interest, net................................................. (1,515) (560) (2,647) (279)
Other, net.................................................... 50 283 578 (367)
---------- ---------- ---------- ----------
Income before income taxes....................................... 5,615 25,998 14,979 66,471
Provision for income taxes....................................... 1,741 7,987 4,644 20,412
---------- ---------- ---------- ----------
Net income....................................................... $ 3,874 $ 18,011 $ 10,335 $ 46,059
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share............................................. $ 0.08 $ 0.35 $ 0.20 $ 0.90
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average common and common equivalent shares outstanding.......... 51,430 51,363 51,394 51,326
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
MARCH 31,
1997 JUNE 30,
(UNAUDITED) 1996
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 32,282 $ 35,760
Short-term investments........................................... 17,150 18,000
Trade accounts receivable, net................................... 125,225 126,341
Inventories...................................................... 123,293 82,852
Deferred income taxes............................................ 8,804 9,801
Prepaid expenses................................................. 4,520 3,772
----------- ----------
Total current assets.......................................... 311,274 276,526
Property, plant and equipment, net................................... 369,849 327,978
Other assets......................................................... 27,178 24,575
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Total assets.................................................. $ 708,301 $ 629,079
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans....................................................... $ 15,205 $ 13,302
Long-term debt, due within one year.............................. 15,192 10,268
Accounts payable................................................. 36,800 41,645
Accrued salaries, wages and commissions.......................... 10,831 13,953
Other accrued expenses........................................... 17,637 19,286
----------- ----------
Total current liabilities..................................... 95,665 98,454
Long-term debt, less current maturities.............................. 135,311 47,994
Other long-term liabilities.......................................... 17,847 42,262
Deferred income taxes................................................ 25,821 19,156
Stockholders' equity:
Common stock..................................................... 51,045 50,821
Capital contributed in excess of par value....................... 251,998 249,388
Retained earnings................................................ 135,712 125,377
Cumulative translation adjustments............................... (5,098) (4,373)
----------- ----------
Total stockholders' equity................................... 433,657 421,213
----------- ----------
Total liabilities and stockholders' equity................... $ 708,301 $ 629,079
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flow from operating activities:
Net income.......................................................... $ 10,335 $ 46,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................... 27,984 21,715
Deferred income................................................. (508) 1,871
Deferred income taxes........................................... 7,569 4,207
Deferred compensation........................................... 2,988 2,271
Change in working capital........................................... (53,333) (28,949)
--------- ---------
Net cash provided by (used in) operating activities..................... (4,965) 47,174
--------- ---------
Cash flow from investing activities:
Additions to property, plant and equipment.......................... (68,940) (66,336)
Purchase of short-term investments.................................. (50,150) (50,821)
Proceeds from sale of short-term investments........................ 51,000 32,141
Investment in other noncurrent assets............................... (4,254) (6,698)
--------- ---------
Net cash used in investing activities................................... (72,344) (91,714)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of (payments on)
short-term bank debt, net.......................................... 3,536 (3,809)
Proceeds from issuance of long-term debt............................ 102,784 32,495
Payments on long-term debt and obligations under capital leases..... (10,354) (6,484)
Net proceeds from issuance of common stock.......................... 2,834 3,416
Increase (decrease) in other long-term liabilities
to be financed with long-term debt................................. (24,035) 2,004
Other............................................................... (777) 3,610
--------- ---------
Net cash provided by financing activities............................... 73,988 31,232
--------- ---------
Effect of exchange rate changes on cash and cash equivalents............ (157) (755)
--------- ---------
Net decrease in cash and cash equivalents............................... (3,478) (14,063)
Cash and cash equivalents beginning of period........................... 35,760 50,820
--------- ---------
Cash and cash equivalents end of period................................. $ 32,282 $ 36,757
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
1. BASIS OF PRESENTATION
The consolidated financial statements included herein are unaudited,
however, they contain all normal recurring accruals which, in the opinion of
management, are necessary to present fairly the consolidated financial position
of the Company at March 31, 1997 and the consolidated results of operations and
cash flows for the nine month periods ended March 31, 1997 and 1996. It should
be understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the nine month period ended March 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
The accompanying consolidated financial statements do not include
footnotes and certain financial presentations normally required under
generally accepted accounting principles and, therefore, should be read in
conjunction with the Annual Report on Form 10-K for the year ended June 30,
1996.
Certain reclassifications have been made to previously reported amounts
to conform with the current year presentation.
2. EARNINGS PER SHARE
Earnings per share is computed by dividing earnings by the weighted average
number of common stock and common stock equivalents outstanding. Stock options
outstanding under stock option plans are considered common stock equivalents.
Common stock equivalents for stock options of 403,100 and 757,400 shares were
utilized in the computation of earnings per share for the three month periods
ended March 31, 1997 and 1996, respectively.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at March 31, 1997 (unaudited) and June 30,
1996 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997 JUNE 30, 1996
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<S> <C> <C>
Raw materials.................................................. $ 28,161 $ 20,203
Work-in-process................................................ 60,220 40,895
Finished goods................................................. 34,912 21,754
-------------- -------------
$ 123,293 $ 82,852
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-------------- -------------
</TABLE>
5
<PAGE>
4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's long-term debt and other loans at March 31,
1997 is as follows (in thousands):
March 31,
1997
------------
Capitalized lease obligations payable in varying monthly
installments primarily at rates from 6.0% to 12.0% $ 6,249
Domestic bank loans collateralized by equipment, payable in
varying monthly installments at rates from 6.4% to 8.7%, due
in 1998 through 2002 41,956
Domestic unsecured bank loans payable in varying monthly
installments at rates from 6.1% to 6.5%, due in 2001 through
2003 84,700
Foreign bank loans collateralized by property and/or equipment,
payable in varying monthly installments at rates from 8.0% to
10.8%, due in 1997 through 2000 3,704
Foreign unsecured bank loans payable in varying monthly
installments at rates from 2.6% to 8.4%, due in 1998
through 2006 13,894
--------
150,503
Less current portion of long-term debt (15,192)
--------
$ 135,311
========
5. LITIGATION
In connection with the three class action lawsuits filed in Federal
District Court in Los Angeles against the Company, its Directors and certain
officers relating to the public offering of securities by the Company in
1991, the Court on March 31, 1997 rendered its decision on a motion for
summary judgment brought by these defendants. 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 denied in all other. The trial of
this action has been rescheduled to January 1998.
Trial of the action brought by the Company against SGS-Thomson
Microelectronics, Inc. charging infringement of its U.S. patent 5,545,955 is
scheduled for July 1997.
6
<PAGE>
ITEM 6. SUBSEQUENT EVENT
On May 9, 1997, the Company's Board of Directors approved a
restructuring plan that will result in a fourth quarter non-recurring pretax
charge of approximately $75 million. The charge will be taken to cover the
one time costs of transferring certain manufacturing operations to more
advanced facilities, moving research and development activity into a new
facility, and writing down the assets of older production facilities and
information systems. Included in the charge are severance costs associated
with a planned reduction of the Company's payroll by approximately 5% to 7%.
It is estimated that the annual savings from the restructuring plan will be
approximately $15 million in fiscal 1998 and about $20 million per year
thereafter.
The foregoing comments include some forward-looking statements.
International Rectifier cautions that such statements are subject to a number
of uncertainties, and actual results may differ materially. Factors that
could affect the Company's achievement of pretax savings include
manufacturing yields, delays in constructing and equipping new facilities or
in transferring operations, the rate at which current payroll is reduced,
currency exchange rates, general economic conditions in the Company's markets
around the world, and other uncertainties disclosed in the Company's filings
with the Securities and Exchange Commission.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations for the Three and Nine Month Periods Ended March 31,
1997 Compared with the Three and Nine Month Periods Ended March 31, 1996
The following table sets forth certain items as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
(UNAUDITED) (UNAUDITED)
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 65.5 61.0 65.9 61.7
--------- --------- --------- ---------
Gross profit.......................... 34.5 39.0 34.1 38.3
Selling and administrative expense.... 21.3 17.3 22.1 17.8
Research and development expense...... 7.4 4.7 7.2 4.6
--------- --------- --------- ---------
Operating profit...................... 5.8 17.0 4.8 15.9
Interest income (expense), net........ (1.2) (0.4) (0.7) (0.1)
Other income (expense), net........... 0.0 0.2 0.1 (0.1)
--------- --------- --------- ---------
Income before income taxes........... 4.6 16.8 4.2 15.7
Provision for income taxes........... 1.4 5.1 1.3 4.8
--------- --------- --------- ---------
Net income........................... 3.2% 11.7% 2.9% 10.9%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Revenues for the three and nine month periods ended March 31, 1997
decreased 20.3% and 15.5% to $122.8 million and $356.0 million, from $154.1
million and $421.2 million in the respective prior year periods. The
Company's revenue decrease reflected continued efforts, principally by
distributors, to reduce inventory levels. Distributors accounted for
approximately 30% of fiscal 1996 annual revenues. Changes in foreign exchange
rates impacted revenues favorably by $0.2 million and negatively by $3.3
million for the three and nine month periods ended March 31, 1997, versus a
negative impact of $0.6 million and a favorable impact of $2.6 million in the
respective prior year periods. Revenues in the current quarter included $5.1
million of net patent royalties, versus $4.3 million in the prior year period.
March-quarter gross profit was $42.3 million (34.5% of revenues) versus
$60.1 million (39.0% of revenues) in the comparable year-ago quarter. For the
nine months ended March 31, 1997, gross profit was $121.5 million (34.1% of
revenues) versus $161.3 million (38.3% of revenues) in the year-ago period.
Current year gross profit margins reflected lower dollar volumes, the effect of
meeting competitive price moves, the impact of price reductions on International
Rectifier products held in inventory, principally by distributors, and higher
fixed overhead expense.
In the three and nine month periods ended March 31, 1997, selling and
administrative expense was $26.1 million and $78.6 million (21.3% and 22.1% of
revenues), respectively, versus $26.6 million and $75.0 million (17.3% and 17.8%
8
<PAGE>
of revenues) in the comparable year-ago periods. The Company's current-year
spending ratio reflected lower-than-expected revenues.
In the three and nine month periods ended March 31, 1997, the Company's
research and development expenditures were $9.1 million and $25.8 million
(7.4% and 7.2% of revenues), respectively, compared to $7.2 million and $19.2
million (4.7% and 4.6% of revenues) in the comparable prior year periods. The
Company's research and development program actively focuses on the
advancement and diversification of its HEXFET-Registered Trademark- 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, hybrids and board-level devices that tune and combine components to
optimize overall system performance and cost. These devices will also enable
customers to accelerate market introduction of their products.
Net interest expense increased $1.0 million and $2.4 million in the three
and nine month periods ended March 31, 1997, compared to the respective prior
year periods, reflecting increased interest expense incurred on higher average
debt balances.
Changes in foreign currency exchange rates negatively impacted net income
by $0.1 million and $0.2 million in the three and nine month periods ended
March 31,1997. Changes in foreign currency exchange rates had no impact on
net income in the three months ended March 31, 1996 and negatively impacted
net income by $0.1 million in the nine month period ended March 31, 1996.
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 46% of annual revenues in the first half and 54% in the second
half of its fiscal year. Historical averages are not necessarily indicative of
future results.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company maintained cash and cash equivalent balances
of $32.3 million and short-term investments of $17.2 million. In addition, the
Company had established $75.3 million of domestic and foreign revolving lines of
credit, against which $15.2 million had been borrowed. Based on covenant and
collateral limitations, the amount available for borrowing against these lines
at March 31, 1997 was $53.6 million. Additionally, the Company had at its
disposal $2.2 million of unused capital equipment credit lines.
At March 31, 1997, the Company had made purchase commitments for capital
equipment of approximately $32.7 million.
The Company intends to fund operations and planned capital expenditures
through cash and cash equivalents on hand, short-term investments,
anticipated cash flow from operations, and funds from existing credit
facilities. The Company may also seek financing from other external sources
including, but not limited to, public or private offerings of debt or equity,
although no assurance can be given that cost effective funds will be available.
9
<PAGE>
RESTRUCTURING PLAN
On May 9, 1997, the Company's Board of Directors approved a
restructuring plan that will result in a fourth quarter non-recurring pretax
charge of approximately $75 million. The charge will be taken to cover the
one time costs of transferring certain manufacturing operations to more
advanced facilities, moving research and development activity into a new
facility, and writing down the assets of older production facilities and
information systems. Included in the charge are severance costs associated
with a planned reduction of the Company's payroll by approximately 5% to 7%.
It is estimated that the annual savings from the restructuring plan will be
approximately $15 million in fiscal 1998 and about $20 million per year
thereafter.
The foregoing comments include some forward-looking statements.
International Rectifier cautions that such statements are subject to a number
of uncertainties, and actual results may differ materially. Factors that
could affect the Company's achievement of pretax savings include
manufacturing yields, delays in constructing and equipping new facilities or
in transferring operations, the rate at which current payroll is reduced,
currency exchange rates, general economic conditions in the Company's markets
around the world, and other uncertainties disclosed in the Company's filings
with the Securities and Exchange Commission.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL RECTIFIER CORPORATION
-----------------------------------
Registrant
May 13, 1997 MICHAEL P. MCGEE
----------------------
Michael P. McGee
Vice President,
Chief Financial Officer and
Principal Accounting Officer
11
<PAGE>
PART II. OTHER INFORMATION
NONE
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 32,282
<SECURITIES> 17,150
<RECEIVABLES> 126,294
<ALLOWANCES> 1,069
<INVENTORY> 123,293
<CURRENT-ASSETS> 311,274
<PP&E> 553,488
<DEPRECIATION> 183,639
<TOTAL-ASSETS> 708,301
<CURRENT-LIABILITIES> 95,665
<BONDS> 0
0
0
<COMMON> 51,045
<OTHER-SE> 382,612
<TOTAL-LIABILITY-AND-EQUITY> 708,301
<SALES> 355,950
<TOTAL-REVENUES> 355,950
<CGS> 234,481
<TOTAL-COSTS> 234,481
<OTHER-EXPENSES> 104,421
<LOSS-PROVISION> 282
<INTEREST-EXPENSE> 2,647
<INCOME-PRETAX> 14,979
<INCOME-TAX> 4,644
<INCOME-CONTINUING> 10,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,335
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
