<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 DECEMBER 31, 1996
------------------------------------------------
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 51,042,707 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$1.00 PER SHARE, OUTSTANDING ON FEBRUARY 10, 1997.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
REFERENCE
---------
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
Unaudited Consolidated Statement of
Income for the Three and Six Month Periods
Ended December 31, 1996 and 1995 2
Consolidated Balance Sheet as of
December 31, 1996 (unaudited) and
June 30, 1996 3
Unaudited Consolidated Statement of
Cash Flows for the Six Month
Periods Ended December 31, 1996
and 1995 4
Notes to Unaudited Consolidated
Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS
----------------------------------
OF OPERATIONS 7
-------------
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
-----------------------------------
SECURITY HOLDERS 10
----------------
ITEM 6. OTHER 10
-----
<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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $118,007 $141,026 $233,200 $267,123
Cost of sales 77,672 87,137 154,053 165,923
-------- -------- -------- --------
Gross profit 40,335 53,889 79,147 101,200
Selling and administrative expense 26,331 25,187 52,520 48,346
Research and development expense 8,635 6,325 16,659 12,012
-------- -------- -------- --------
Operating profit 5,369 22,377 9,968 40,842
Other income (expense):
Interest, net (788) (169) (1,132) 281
Other, net 352 (248) 528 (650)
-------- -------- -------- --------
Income before income taxes 4,933 21,960 9,364 40,473
Provision for income taxes 1,529 6,741 2,903 12,425
-------- -------- -------- --------
Net income $ 3,404 $ 15,219 $ 6,461 $28,048
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $0.07 $0.30 $0.13 $0.55
-------- -------- -------- --------
-------- -------- -------- --------
Average common and common
equivalent shares outstanding 51,327 51,403 51,376 51,308
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
2
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
DECEMBER 31,
1996 JUNE 30,
(UNAUDITED) 1996
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 33,789 $ 35,760
Short-term investments 18,000 18,000
Trade accounts receivable, net 123,346 126,341
Inventories 127,451 82,852
Deferred income taxes 10,516 9,801
Prepaid expenses 3,355 3,772
------------ -------------
Total current assets 316,457 276,526
Property, plant and equipment, net 363,704 327,978
Other assets 24,837 24,575
------------ -------------
Total assets $ 704,998 $ 629,079
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 18,691 $ 13,302
Long-term debt, due within one year 14,250 10,268
Accounts payable 41,564 41,645
Accrued salaries, wages and commissions 14,170 13,953
Other accrued expenses 19,236 19,286
------------ -------------
Total current liabilities 107,911 98,454
Long-term debt, less current maturities 122,512 47,994
Other long-term liabilities 20,542 42,262
Deferred income taxes 23,674 19,156
Stockholders' equity:
Common stock 50,939 50,821
Capital contributed in excess of par value 250,720 249,388
Retained earnings 131,838 125,377
Cumulative translation adjustments (3,138) (4,373)
------------ -------------
Total stockholders' equity 430,359 421,213
------------ -------------
Total liabilities and stockholders'
equity $ 704,998 $ 629,079
------------ -------------
------------ -------------
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)
SIX MONTHS ENDED
DECEMBER 31,
-------------------------
1996 1995
--------- ----------
Cash flow from operating activities:
Net income $ 6,461 $ 28,048
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,368 13,965
Deferred income (374) (286)
Deferred income taxes 3,646 5,030
Deferred compensation 2,118 1,548
Change in working capital (38,367) (29,498)
--------- ----------
Net cash provided by (used in) operating activities (7,148) 18,807
--------- ----------
Cash flow from investing activities:
Additions to property, plant and equipment (51,871) (40,313)
Purchase of short-term investments (33,000) (34,071)
Proceeds from sale of short-term investments 33,000 18,995
Investment in other noncurrent assets (1,322) (2,237)
--------- ----------
Net cash used in investing activities (53,193) (57,626)
--------- ----------
Cash flow from financing activities:
Proceeds from issuance of (payments on)
short-term bank debt, net 5,604 (2,476)
Proceeds from issuance of long-term debt 84,464 32,495
Payments on long-term debt and obligations
under capital leases (6,851) (3,505)
Net proceeds from issuance of common stock 1,450 1,086
Decrease in other long-term liabilities to be
financed with long-term debt (23,557) (1,602)
Other (2,768) (473)
--------- ----------
Net cash provided by financing activities 58,342 25,525
--------- ----------
Effect of exchange rate changes on cash and
cash equivalents 28 (593)
--------- ----------
Net decrease in cash and cash equivalents (1,971) (13,887)
Cash and cash equivalents beginning of period 35,760 50,820
--------- ----------
Cash and cash equivalents end of period $33,789 $36,933
--------- ----------
--------- ----------
The accompanying notes are an integral part of this statement.
4
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 December 31, 1996 and the consolidated results
of operations and cash flows for the six month periods ended December 31,
1996 and 1995. 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 six month period ended December 31,
1996 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 for 391,000 and
931,400 shares were utilized in the computation of earnings per share for
the three month periods ended December 31, 1996 and 1995, respectively.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-
out) or market. Inventories at December 31, 1996 (unaudited) and June 30,
1996 were comprised of the following (in thousands):
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
Raw materials $ 29,973 $20,203
Work-in-process 63,193 40,895
Finished goods 34,285 21,754
----------------- -------------
$127,451 $82,852
----------------- -------------
----------------- -------------
5
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4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's long-term debt and other loans at December 31,
1996 is as follows (in thousands):
DECEMBER 31,
1996
----------
Capitalized lease obligations payable in varying monthly
installments primarily at rates from 6.0% to 12.0% $ 7,418
Domestic bank loans collateralized by equipment, payable in
varying monthly installments at rates from 6.5% to 8.7%, due
in 1998 through 2001 36,093
Domestic unsecured bank loans payable in varying monthly
installments at rates from 6.2% to 6.4%, due in 2001 76,700
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 4,143
Foreign unsecured bank loans payable in varying monthly
installments at rates from 2.6% to 8.4%, due in 1998
through 2006 12,408
----------
136,762
Less current portion of long-term debt (14,250)
----------
$ 122,512
----------
----------
5. LITIGATION
On January 21,1997 the U.S. District Court for the Central District of
California granted the Company's motion for summary judgment that the Company's
IGBT products do not infringe SGS-Thompson Microelectronics' U.S. patent
4,495,513.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31,
1996 COMPARED WITH THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1995
The following table sets forth certain items as a percentage of revenues.
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED)
------------------ ----------------
1996 1995 1996 1995
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.8 61.8 66.1 62.1
------ ------ ------ ------
Gross profit 34.2 38.2 33.9 37.9
Selling and administrative expense 22.3 17.9 22.5 18.1
Research and development expense 7.3 4.5 7.1 4.5
------ ------ ------ ------
Operating profit 4.6 15.8 4.3 15.3
Interest income (expense), net (0.7) (0.1) (0.5) 0.1
Other income (expense), net 0.3 (0.2) 0.2 (0.2)
------ ------ ------ ------
Income before income taxes 4.2 15.5 4.0 15.2
Provision for income taxes 1.3 4.7 1.2 4.7
------ ------ ------ ------
Net income 2.9% 10.8% 2.8% 10.5%
------ ------ ------ ------
------ ------ ------ ------
Revenues for the three and six month periods ended December 31, 1996
decreased 16.3% and 12.7% to $118.0 million and $233.2 million, from $141.0
million and $267.1 million in the respective prior year periods. The
Company's revenue decrease reflected weak industry conditions and aggressive
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 $2.1 million
and negatively by $0.3 million for the three and six month periods ended
December 31, 1996, versus a favorable impact of $0.8 million and $3.2 million
in the respective prior year periods. Revenues in the current quarter
included $5.1 million of net patent royalties, versus $3.5 million in the
prior year period.
December-quarter gross profit fell to $40.3 million (34.2% of revenues)
versus $53.9 million (38.2% of revenues) in the comparable year-ago quarter.
Gross profit for the six month period ended December 31, 1996 fell to $79.1
million (33.9% of revenues) versus $101.2 million (37.9% 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 six month periods ended December 31, 1996, selling and
administrative expense was $26.3 million and $52.5 million (22.3% and 22.5%
of revenues), respectively, versus $25.2 million and $48.3 million (17.9% and
18.1% of revenues) in the comparable
7
<PAGE>
year-ago periods. The Company's current-year spending ratio reflected
lower-than-expected revenues.
In the three and six month periods ended December 31, 1996, the Company's
research and development expenditures increased to $8.6 million and $16.7
million (7.3% and 7.1% of revenues), respectively, compared to $6.3 million and
$12.0 million (4.5% and 4.5% of revenues) in the comparable prior year periods.
The Company's research and development program actively focuses on the
advancement and diversification of HEXFET and IGBT product lines and the
development of high voltage control integrated circuits and power products that
work in combination with HEXFETs and IGBTs. IR's program places increasing
emphasis on the development of chipsets, hybrids and board-level products that
tune and combine components to optimize overall system performance and cost and
enable customers to accelerate market introduction of their products.
Net interest expense increased $0.6 million and $1.4 million in the three and
six month periods ended December 31, 1996, 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 in both the three and six month periods ended December 31,1996 and
positively impacted net income by $0.1 million and negatively impacted net
income by $0.1 million in the comparable prior year periods.
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 December 31, 1996, the Company maintained cash and cash equivalent
balances of $33.8 million and short-term investments of $18.0 million. In
addition, the Company had established $74.0 million of domestic and foreign
revolving lines of credit, against which $18.7 million had been borrowed.
Based on covenant and collateral limitations, the amount available for
borrowing against these lines at December 31, 1996 was $50.4 million.
Additionally, the Company had at its disposal $8.0 million of unused bank
term-loan facilities and $10.0 million of unused capital equipment credit
lines.
At December 31, 1996, the Company had made purchase commitments for capital
equipment of approximately $22.4 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. However, the Company may also seek financing from other external
sources including, but not limited to, public or private offerings of debt or
equity.
8
<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
February 11, 1997 MICHAEL P. MCGEE
----------------------------------
Michael P. McGee
Vice President,
Chief Financial Officer and
Principal Accounting Officer
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of the stockholders of the
Company at the Company's Annual Meeting of Stockholders held on November 25,
1996, with the following results:
Authority
Description of matter For Withheld
--- ---------
1. Election of Directors
Alexander Lidow 38,755,534 254,984
Robert J. Mueller 38,764,707 245,811
Rochus E. Vogt 38,799,882 210,636
For Against Abstentions
--- ------- -----------
2. Amendment to and Restatement
of the Company's Stock Option
Plan of 1992 (Amended) 20,029,298 11,654,273 345,463
3. Ratification of Coopers & Lybrand
as Independent Auditors 38,789,412 103,632 117,474
Broker Non-Vote on Proposal 2 11,243,414
ITEM 6. EXHIBITS
10(a) Amendment to Security Agreement between International Rectifier
Corporation and NationsBanc Leasing Corporation of North Carolina dated as of
December 19, 1996.
10
<PAGE>
SECURITY AGREEMENT
AMENDMENT NO. 6
THIS SECURITY AGREEMENT AMENDMENT NO. 6, dated as of December 19, 1996,
(the "Security Agreement Amendment No. 6") is by and between
INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation with its
principal place of business located in El Segundo, California (the "Debtor");
and
NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina
corporation with its principal place of business located in Charlotte, North
Carolina (the "Secured Party").
RECITALS
A. The Debtor and Secured Party entered into a Security Agreement dated
as of July 1, 1994, as amended (the "Security Agreement").
B. The Debtor and Secured Party desire to amend certain provisions of
the Security Agreement as more specifically set forth hereinafter.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. The last two sentences of Section 1.2 of the Security Agreement are
amended to read in their entirety as follows:
"No Term Loan shall exceed the Cost of Equipment securing such Term
Loan and the aggregate Term Loans plus the outstanding Progress Payment Loans
shall not exceed $50,000,000 (the "Total Commitment"), of which no more than
$3,000,000 shall be computer equipment. No Term Loan Commencement Date shall
occur after June 30, 1997 (the "Financial Commencement Date")."
2. Section 8.4 of the Security Agreement is hereby amended to read in
its entirety as follows:
"8.4 Each item of Equipment shall be kept primarily at the location
specified in the Security Agreement Schedule applicable thereto and shall not
be moved from such location without Secured Party's prior written consent,
which shall not be unreasonably withheld. Equipment may be located at
Debtor's facility in Mexico; PROVIDED that the total Cost of Equipment
located in Mexico shall at no time exceed $10,000,000 and all such Equipment
shall be subject to Term Loans having no longer than five year terms. Debtor
shall not surrender possession of the Equipment to anyone other than Secured
Party."
3. Except as expressly amended hereby, the Security Agreement shall
continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, as of the day and year above
written, have caused this Security Agreement Amendment No. 6 to be executed
in their respective corporate names by their duly authorized officials.
Debtor:
INTERNATIONAL RECTIFIER CORPORATION
By: /s/ Michael P. McGee
--------------------------------------------
Title: Vice President - Chief Financial Officer
-----------------------------------------
Secured Party:
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA
By: /s/ M. Randall Ross
--------------------------------------------
Title: SENIOR VICE PRESIDENT
-----------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-30-1996
<CASH> 33,789
<SECURITIES> 18,000
<RECEIVABLES> 124,316
<ALLOWANCES> 970
<INVENTORY> 127,451
<CURRENT-ASSETS> 316,457
<PP&E> 541,773
<DEPRECIATION> 178,069
<TOTAL-ASSETS> 704,998
<CURRENT-LIABILITIES> 107,911
<BONDS> 0
0
0
<COMMON> 50,939
<OTHER-SE> 379,420
<TOTAL-LIABILITY-AND-EQUITY> 704,998
<SALES> 233,200
<TOTAL-REVENUES> 233,200
<CGS> 154,053
<TOTAL-COSTS> 154,053
<OTHER-EXPENSES> 69,179
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 1,132
<INCOME-PRETAX> 9,364
<INCOME-TAX> 2,903
<INCOME-CONTINUING> 6,461
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 6,461
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
