<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, 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 51,330,923 shares of the registrant's common stock, par value
$1.00 per share, outstanding on February 17, 1998.
<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, 1997 and 1996 2
Consolidated Balance Sheet as of
December 31, 1997 (unaudited) and
June 30, 1997 3
Unaudited Consolidated Statement of
Cash Flows for the Six Month
Periods Ended December 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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
<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,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 144,622 $ 118,007 $ 277,733 $ 233,200
Cost of sales 96,772 77,672 184,932 154,053
---------- ----------- ---------- ----------
Gross profit 47,850 40,335 92,801 79,147
Selling and administrative expense 26,988 26,331 52,336 52,520
Research and development expense 8,778 8,635 17,509 16,659
---------- ----------- ---------- ----------
Operating profit 12,084 5,369 22,956 9,968
Other income (expense):
Interest, net (1,933) (788) (3,560) (1,132)
Other, net (153) 352 (301) 528
---------- ----------- ---------- ----------
Income before income taxes 9,998 4,933 19,095 9,364
Provision for income taxes 3,299 1,529 6,301 2,903
---------- ----------- ---------- ----------
Net income $ 6,699 $ 3,404 $ 12,794 $ 6,461
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Net income per share
Basic $ 0.13 $ 0.07 $ 0.25 $ 0.13
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Diluted $ 0.13 $ 0.07 $ 0.25 $ 0.13
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Average common and common
equivalent shares outstanding
Basic 51,191 50,936 51,171 50,923
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
Diluted 51,616 51,327 51,814 51,376
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</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>
DECEMBER 31,
1997 JUNE 30,
(UNAUDITED) 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 36,906 $ 36,564
Short-term investments 15,000 16,850
Trade accounts receivable, net 133,745 125,481
Inventories 119,853 115,754
Deferred income taxes 13,593 18,800
Prepaid expenses 2,630 3,032
---------- ----------
Total current assets 321,727 316,481
Property, plant and equipment, net 360,397 333,559
Other assets 29,986 29,713
---------- ----------
Total assets $ 712,110 $ 679,753
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 21,837 $ 12,710
Long-term debt, due within one year 25,388 19,110
Accounts payable 46,506 40,332
Accrued salaries, wages and commissions 12,940 14,517
Other accrued expenses 32,032 26,596
---------- ----------
Total current liabilities 138,703 113,265
Long-term debt, less current maturities 136,822 143,164
Other long-term liabilities 24,904 28,982
Deferred income taxes 17,010 12,627
Stockholders' equity:
Common stock 51,195 51,052
Capital contributed in excess of par value 253,648 252,199
Retained earnings 94,965 82,171
Cumulative translation adjustments (5,137) (3,707)
---------- ----------
Total stockholders' equity 394,671 381,715
---------- ----------
Total liabilities and stockholders' equity $ 712,110 $ 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>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 12,794 $ 6,461
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 19,257 19,368
Deferred income (300) (374)
Deferred income taxes 9,590 3,646
Deferred compensation (213) 2,118
Change in working capital (5,588) (38,367)
--------- --------
Net cash provided by (used in) operating activities 35,540 (7,148)
--------- --------
Cash flow from investing activities:
Additions to property, plant and equipment (46,036) (51,871)
Purchase of short-term investments (33,000) (33,000)
Proceeds from sale of short-term investments 34,850 33,000
Investment in other noncurrent assets (1,529) (1,322)
--------- --------
Net cash used in investing activities (45,715) (53,193)
--------- --------
Cash flow from financing activities:
Proceeds from issuance of short-term
bank debt, net 10,192 5,604
Proceeds from issuance of long-term debt 9,017 84,464
Payments on long-term debt and obligations
under capital leases (8,595) (6,851)
Net proceeds from issuance of common stock 1,592 1,450
Decrease in other long-term liabilities to be
financed with long-term debt (3,236) (23,557)
Other 1,745 (2,768)
--------- --------
Net cash provided by financing activities 10,715 58,342
--------- --------
Effect of exchange rate changes on cash and
cash equivalents (198) 28
--------- --------
Net increase (decrease) in cash and cash equivalents 342 (1,971)
Cash and cash equivalents beginning of period 36,564 35,760
--------- --------
Cash and cash equivalents end of period $ 36,906 $ 33,789
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1997 and the consolidated results
of operations and cash flows for the six month periods ended December 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 six month period ended December 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,
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 current
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 425,200 and 643,000 for the three and six month periods
ended December 31, 1997 with 391,000 and 452,500 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 December 31, 1997 (unaudited) and June 30, 1997 were
comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1997
---------------- -------------
<S> <C> <C>
Raw materials $ 24,843 $ 25,002
Work-in-process 58,130 56,749
Finished goods 36,880 34,003
--------- ---------
$ 119,853 $ 115,754
--------- ---------
--------- ---------
</TABLE>
4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's long-term debt and other loans at December 31,
1997 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Capitalized lease obligations payable in varying monthly
installments primarily at rates from 6.0% to 10.7% $ 2,597
Domestic bank loans collateralized by equipment, payable in
varying monthly installments at rates from 6.4% to 8.7%,
due in 1999 through 2003 43,881
Domestic unsecured bank loans payable in varying monthly
installments at rates from 6.3% to 6.7%, due in 2000 through
2003 99,700
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 2,581
Foreign unsecured bank loans payable in varying monthly
installments at rates from 2.6% to 8.4%, due in 1998
through 2006 13,451
----------
162,210
Less current portion of long-term debt (25,388)
----------
$ 136,822
----------
----------
</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 December 31, 1997, the Company had recorded approximately $67.5
million in cumulative costs against its $75 million restructuring reserve,
of which approximately
6
<PAGE>
$65 million related to non-cash effects of asset write-offs and about $2.5
million represented cash expenditures for termination benefits paid to over
100 employees.
6. LITIGATION
On January 16, 1998, the Company filed suit in Federal District Court in
Los Angeles, California against Samsung Semiconductor, Inc. and Samsung
Electronics Co., Ltd., alleging infringement of the Company's U.S. patents
4,959,699 and 4,705,759. The suit seeks customary relief in such matters.
In the class action lawsuits alleging violation of federal securities laws
by the Company, its directors and certain officers, the Federal District
Court in California on January 28, 1998 issued several rulings. The court
decertified the class pursuing common law claims for fraud and negligent
misrepresentation, and granted the defendants' motion to narrow the
shareholder class period to June 19, 1991 through October 21, 1991. The
court also rescheduled trial of this action to November 10, 1998.
7. YEAR 2000 READINESS
Many currently-installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result,
computer systems and/or software used by many companies may need to be
adapted to meet these requirements.
International Rectifier has initiated a company-wide task force to assess
and act on Year 2000 requirements relating to our internal computer systems
and automated factory equipment. The Company expects to incur internal
staff costs, as well as consulting and other expenses related to the Year
2000 adaptation.
The Company's task force is also working with our vendors and customers to
ensure the integrity of our interface with their systems. There can be no
assurance that the adaptation of other companies' systems will be timely
and successful.
Failure to fully meet Year 2000 systems requirements could have a
significant adverse impact on our operations.
7
<PAGE>
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,
1997 COMPARED WITH THE THREE AND SIX MONTH PERIODS ENDED DECEMBER 31, 1996
The following table sets forth certain items as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED)
--------------------- --------------------
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 66.9 65.8 66.6 66.1
------ ------ ------ -------
Gross profit 33.1 34.2 33.4 33.9
Selling and administrative expense 18.7 22.3 18.8 22.5
Research and development expense 6.1 7.3 6.3 7.1
------ ------ ------ -------
Operating profit 8.3 4.6 8.3 4.3
Interest expense, net (1.3) (0.7) (1.3) (0.5)
Other income (expense), net (0.1) 0.3 (0.1) 0.2
------ ------ ------ -------
Income before income taxes 6.9 4.2 6.9 4.0
Provision for income taxes 2.3 1.3 2.3 1.2
------ ------ ------ -------
Net income 4.6% 2.9% 4.6% 2.8%
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
Revenues for the three and six month periods ended December 31, 1997 increased
22.6% and 19.1% respectively to $144.6 million and $277.7 million from $118.0
million and $233.2 million in the respective prior year periods. Growth in
sales reflected stable demand in North America and increasing sales in Europe
and Japan, offset by difficult market conditions elsewhere in Asia. This
quarter, revenues reflected stronger industrial demand led by motor drives and
to an increase in automotive business. While sales to computer customers
softened, government and space shipments returned to expected levels and other
business sectors were largely unchanged. Changes in foreign exchange rates
impacted revenues negatively by $2.3 million and favorably by $0.4 million for
the three and six month periods ended December 31, 1997, versus a favorable
impact of $2.1 million and negative impact of $0.3 million in the respective
prior year periods. Revenues in the current quarter included $4.4 million of
net patent royalties, versus $5.1 million in the prior year period.
December-quarter gross profit increased to $47.9 million (33.1% of revenues)
versus $40.3 million (34.2% of revenues) in the comparable year-ago quarter.
Gross profit for the six month period ended December 31, 1997 increased to
$92.8 million (33.4% of revenues) versus $79.1 million (33.9% of revenues) in
the year-ago period, reflecting increased volume impacted by pressure on
prices.
In the three and six month periods ended December 31, 1997, selling and
administrative expense was $27.0 million and $52.3 million (18.7% and 18.8% of
revenues), respectively, versus $26.3 million and $52.5 million (22.3% and
22.5% of revenues) in the comparable
8
<PAGE>
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.
In the three and six month periods ended December 31, 1997, the Company's
research and development expenditures increased to $8.8 million and $17.5
million (6.1% and 6.3% of revenues), respectively, compared to $8.6 million
and $16.7 million (7.3% and 7.1% of revenues) in the comparable prior year
periods. The Company's research and development program actively 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 HEXFETs
power MOSFET 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.
Net interest expense increased $1.1 million and $2.4 million in the three and
six month periods ended December 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 impacted net income negatively by
$0.1 million and positively by $0.2 million in the three and six month periods
ended December 31,1997 compared to a negative impact of $.01 million in both
the three and six month periods ended December 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 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 December 31, 1997, the Company maintained cash and cash equivalent
balances of $36.9 million and short-term investments of $15.0 million. In
addition, the Company had established $78.1 million of domestic and foreign
revolving lines of credit, against which $36.8 million had been borrowed.
Based on covenant and collateral limitations, the Company had $37.7 million
available for borrowing at December 31, 1997. Additionally, the Company had
at its disposal $6.2 million of unused capital equipment credit lines. At
December 31, 1997, the Company had made purchase commitments for capital
equipment of approximately $23.7 million.
In January 1998, the Company established an additional $10 million foreign term
loan facility.
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
9
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consider the use of funds from other external sources including, but not
limited to, public or private offerings of debt or equity.
10
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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 17, 1998 MICHAEL P. MCGEE
-----------------------------
Michael P. McGee
Vice President,
Chief Financial Officer and
Principal Accounting Officer
11
<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 24,
1997, with the following results:
<TABLE>
<CAPTION>
Authority
Description of matter For Withheld
--- ---------
<S> <C> <C>
1. Election of Directors
Eric Lidow 45,642,889 948,539
Donald S. Burns 45,672,224 919,204
James D. Plummer 46,196,071 395,357
<CAPTION>
For Against Abstentions
--- ------- -----------
<S> <C> <C> <C>
2. Ratification of Coopers & Lybrand
as Independent Auditors for fiscal 1998 46,398,052 117,196 76,180
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 36,906
<SECURITIES> 15,000
<RECEIVABLES> 134,889
<ALLOWANCES> 1,144
<INVENTORY> 119,853
<CURRENT-ASSETS> 321,727
<PP&E> 523,016
<DEPRECIATION> 162,619
<TOTAL-ASSETS> 712,110
<CURRENT-LIABILITIES> 138,703
<BONDS> 0
0
0
<COMMON> 51,195
<OTHER-SE> 343,476
<TOTAL-LIABILITY-AND-EQUITY> 712,110
<SALES> 277,733
<TOTAL-REVENUES> 277,733
<CGS> 184,932
<TOTAL-COSTS> 184,932
<OTHER-EXPENSES> 69,845
<LOSS-PROVISION> 123
<INTEREST-EXPENSE> 3,560
<INCOME-PRETAX> 19,095
<INCOME-TAX> 6,301
<INCOME-CONTINUING> 12,794
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,794
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
