<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, 1998
--------------------------------------
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
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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 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
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THERE WERE 51,335,123 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$1.00 PER SHARE, OUTSTANDING ON MAY 18, 1998.
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
ITEM 1. FINANCIAL STATEMENTS REFERENCE
-------------------- ---------
<S> <C> <C>
Unaudited Consolidated Statement of
Income for the Three and Nine Month Periods
Ended March 31, 1998 and 1997 2
Consolidated Balance Sheet as of
March 31, 1998 (unaudited) and June 30, 1997 3
Unaudited Consolidated Statement of Cash Flows
for the Nine Month Periods Ended March 31, 1998
and 1997 4
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
</TABLE>
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,
------------------------ -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 140,376 $ 122,750 $ 418,109 $ 355,950
Cost of sales 95,862 80,428 280,794 234,481
--------- --------- --------- ---------
Gross profit 44,514 42,322 137,315 121,469
Selling and administrative expense 26,774 26,098 79,110 78,618
Research and development expense 10,796 9,144 28,305 25,803
--------- --------- --------- ---------
Operating profit 6,944 7,080 29,900 17,048
Other income (expense):
Interest, net (1,948) (1,515) (5,508) (2,647)
Other, net (94) 50 (395) 578
--------- --------- --------- ---------
Income before income taxes 4,902 5,615 23,997 14,979
Provision for income taxes 1,618 1,741 7,919 4,644
--------- --------- --------- ---------
Net income $ 3,284 $ 3,874 $ 16,078 $ 10,335
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share
Basic $ 0.06 $ 0.08 $ 0.31 $ 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ 0.06 $ 0.08 $ 0.31 $ 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
Average common and common
equivalent shares outstanding
Basic 51,319 51,027 51,219 50,958
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted 51,570 51,430 51,731 51,394
--------- --------- --------- ---------
--------- --------- --------- ---------
</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,
1998 JUNE 30,
(UNAUDITED) 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,267 $ 36,564
Short-term investments 15,500 16,850
Trade accounts receivable, net 129,915 125,481
Inventories 126,836 115,754
Deferred income taxes 15,356 18,800
Prepaid expenses 5,062 3,032
------------ -----------
Total current assets 331,936 316,481
Property, plant and equipment, net 372,630 333,559
Other assets 29,828 29,713
------------ -----------
Total assets $734,394 $679,753
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 23,205 $ 12,710
Long-term debt, due within one year 19,190 19,110
Accounts payable 48,013 40,332
Accrued salaries, wages and commissions 14,929 14,517
Other accrued expenses 25,530 26,596
------------ -----------
Total current liabilities 130,867 113,265
Long-term debt, less current maturities 154,010 143,164
Other long-term liabilities 28,257 28,982
Deferred income taxes 22,562 12,627
Stockholders' equity:
Common stock 51,331 51,052
Capital contributed in excess of par value 254,802 252,199
Retained earnings 98,249 82,171
Cumulative translation adjustments (5,684) (3,707)
------------ -----------
Total stockholders' equity 398,698 381,715
------------ -----------
Total liabilities and stockholders' equity $734,394 $679,753
------------ -----------
------------ -----------
</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,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 16,078 $ 10,335
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 28,958 27,984
Deferred income (450) (508)
Deferred income taxes 13,362 7,569
Deferred compensation (218) 2,988
Change in working capital (14,154) (53,333)
-------- --------
Net cash provided by (used in) operating activities 43,576 (4,965)
-------- --------
Cash flow from investing activities:
Additions to property, plant and equipment (68,054) (68,940)
Purchase of short-term investments (39,800) (50,150)
Proceeds from sale of short-term investments 41,150 51,000
Investment in other noncurrent assets (1,924) (4,254)
-------- --------
Net cash used in investing activities (68,628) (72,344)
-------- --------
Cash flow from financing activities:
Proceeds from issuance of
short-term bank debt, net 12,043 3,536
Proceeds from issuance of long-term debt 24,507 102,784
Payments on long-term debt and obligations
under capital leases (12,896) (10,354)
Net proceeds from issuance of common stock 2,881 2,834
Decrease in other long-term liabilities to be
financed with long-term debt 524 (24,035)
Other 862 (777)
-------- --------
Net cash provided by financing activities 27,921 73,988
-------- --------
Effect of exchange rate changes on cash and
cash equivalents (166) (157)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,703 (3,478)
Cash and cash equivalents beginning of period 36,564 35,760
-------- --------
Cash and cash equivalents end of period $ 39,267 $ 32,282
-------- --------
-------- --------
</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, 1998
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, 1998 and the consolidated results of
operations and cash flows for the nine month periods ended March 31, 1998
and 1997. 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, 1998
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,
1997.
2. EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement No. 128 "Earnings
per Share" which modifies the calculation of earnings per share ("EPS") and
its disclosure requirements. Upon adoption of this standard for the interim
period ended December 31, 1997, the Company is disclosing basic and diluted
EPS for Fiscal 1998 and has restated all prior period EPS data presented.
Basic earnings per share is computed by dividing earnings by the weighted
average number of common stock outstanding. Diluted 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 utilized in the computation of earnings per
share were 250,600 and 512,200 for the three and nine month periods ended
March 31, 1998 with 403,100 and 436,000 utilized in the respective prior
year periods.
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market.
5
<PAGE>
Inventories at March 31, 1998 (unaudited) and June 30, 1997 were comprised
of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998 JUNE 30, 1997
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<S> <C> <C>
Raw materials $ 23,528 $ 25,002
Work-in-process 57,340 56,749
Finished goods 45,968 34,003
-------- --------
$126,836 $115,754
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-------- --------
</TABLE>
4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's long-term debt and other loans at March 31, 1998
is as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
-------------
<S> <C>
Capitalized lease obligations payable in varying monthly
installments primarily at rates from 6.0% to 10.7% $ 1,954
Domestic bank loans collateralized by equipment, payable in
varying monthly installments at rates from 5.5% to 8.7%, due
in 1999 through 2003 47,263
Domestic unsecured bank loans payable in varying monthly
installments at rates from 6.2% to 6.6%, due in 2000 through
2003 98,465
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 2,283
Foreign unsecured bank loans payable in varying monthly
installments at rates from 2.6% to 8.4%, due in 1998
through 2006 23,235
-------------
173,200
Less current portion of long-term debt (19,190)
-------------
$154,010
-------------
-------------
</TABLE>
5. IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGE
During the fourth quarter of fiscal 1997, the Company recorded a $75
million pretax charge related to a restructuring program designed to
improve the Company's competitive position and further accelerate growth
and earnings by streamlining operations and administration. The charge was
composed of $65 million for the write-down of assets and $10 million for
termination benefits to be paid in connection with the elimination of
approximately 150 positions.
As of March 31, 1998, the Company had recorded approximately $68.7 million
in cumulative costs against its $75 million restructuring reserve, of which
approximately
6
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$65 million related to non-cash effects of asset write-offs
and about $3.7 million represented cash expenditures for termination
benefits paid to over 100 employees.
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, 1998
COMPARED WITH THE THREE AND NINE MONTH PERIODS ENDED MARCH 31, 1997
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)
--------------------- ---------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 68.3 65.5 67.2 65.9
------ ------ ------ ------
Gross profit 31.7 34.5 32.8 34.1
Selling and administrative expense 19.1 21.3 18.9 22.1
Research and development expense 7.7 7.4 6.8 7.2
------ ------ ------ ------
Operating profit 4.9 5.8 7.1 4.8
Interest expense, net (1.4) (1.2) (1.3) (0.7)
Other income (expense), net (0.1) 0.0 (0.1) 0.1
------ ------ ------ ------
Income before income taxes 3.4 4.6 5.7 4.2
Provision for income taxes 1.1 1.4 1.9 1.3
------ ------ ------ ------
Net income 2.3% 3.2% 3.8% 2.9%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Revenues for the three and nine month periods ended March 31, 1998 increased
14.4% and 17.5%, respectively, to $140.4 million and $418.1 million from
$122.8 million and $356.0 million in the respective prior year periods.
Growth in sales reflected stable demand in North America and increasing sales
in Europe, tempered by difficult market conditions principally in Asia. In
the quarter, continued strength in industrial demand and an increase in
automotive business largely offset weakness in computer-related and consumer
electronics sectors. Changes in foreign exchange rates impacted revenues
negatively by $3.0 million and $10.5 million for the three and nine month
periods ended March 31, 1998, versus negative impacts of $3.3 million and
$7.1 million in the respective prior year periods. Revenues in the current
quarter included $4.3 million of net royalties from patent licenses versus
$5.1 million in the prior year period.
March-quarter gross profit increased to $44.5 million (31.7% of revenues) versus
$42.3 million (34.5% of revenues) in the comparable year-ago quarter. Gross
profit for the nine month period ended March 31, 1998 increased to $137.3
million (32.8% of revenues) versus $121.5 million (34.1% of revenues) in the
year-ago period, reflecting increased volume impacted by continued pressure on
prices.
In the three and nine month periods ended March 31, 1998, selling and
administrative expense was $26.8 million and $79.1 million (19.1% and 18.9% of
revenues), respectively, versus $26.1 million and $78.6 million (21.3% and 22.1%
of revenues) in the comparable year-ago periods. The Company's current-year
spending ratio reflected the benefit of greater sales volume and the
restructuring of operations announced in May 1997.
8
<PAGE>
In the three and nine month periods ended March 31, 1998, the Company's research
and development expenditures increased to $10.8 million and $28.3 million (7.7%
and 6.8% of revenues), respectively, compared to $9.1 million and $25.8 million
(7.4% and 7.2% of revenues) in the comparable prior year periods. The Company's
research and development program focuses on the advancement and diversification
of HEXFET-Registered Trademark- power MOSFET 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 value-added chipsets, hybrids and
board-level products that tune and combine components to optimize overall system
performance and reduce customers' cost and development time. A new Development
Center in El Segundo began production in the second quarter of fiscal 1998,
providing greater capacity and submicron development capability.
Net interest expense increased $0.4 million and $2.9 million in the three and
nine month periods ended March 31, 1998, compared to the respective prior year
periods, reflecting increased interest expense incurred on higher average debt
balances.
Foreign currency gains and losses affected net income negatively by
$0.4 million and $0.1 million for the three and nine month periods ended
March 31, 1998 compared to a negative impact of $0.3 million and a positive
impact of $0.6 million in the respective 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 47% of annual revenues in the first half and 53% in the second
half of its fiscal year. Historical averages are not necessarily indicative of
future results.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company maintained cash and cash equivalent balances of
$39.3 million and short-term investments of $15.5 million. In addition, the
Company had established $76.7 million of domestic and foreign revolving lines of
credit, against which $38.2 million had been borrowed. Based on covenant and
collateral limitations, the Company had $34.2 million available for borrowing at
March 31, 1998. Additionally, the Company had at its disposal $30.8 million of
unused capital equipment credit lines. At March 31, 1998, the Company had made
purchase commitments for capital equipment of approximately $26.1 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 consider the use of funds from other external sources
including, but not limited to, public or private offerings of debt or equity.
9
<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 19, 1998 MICHAEL P. MCGEE
---------------------------------
Michael P. McGee
Vice President,
Chief Financial Officer and
Principal Accounting Officer
10
<PAGE>
PART II. OTHER INFORMATION
None
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 39,267
<SECURITIES> 15,500
<RECEIVABLES> 131,371
<ALLOWANCES> 1,456
<INVENTORY> 126,836
<CURRENT-ASSETS> 331,936
<PP&E> 573,104<F1>
<DEPRECIATION> 200,474
<TOTAL-ASSETS> 734,394
<CURRENT-LIABILITIES> 130,867
<BONDS> 0
0
0
<COMMON> 51,331
<OTHER-SE> 347,367
<TOTAL-LIABILITY-AND-EQUITY> 734,394
<SALES> 418,109
<TOTAL-REVENUES> 418,109
<CGS> 280,794
<TOTAL-COSTS> 280,794
<OTHER-EXPENSES> 107,415
<LOSS-PROVISION> 211
<INTEREST-EXPENSE> 5,508
<INCOME-PRETAX> 23,997
<INCOME-TAX> 7,919
<INCOME-CONTINUING> 16,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,078
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<FN>
<F1> BALANCE INCLUSIVE OF CIP
</FN>
</TABLE>
