<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, 1999
----------------------------------------------
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 51,709,500 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE
$1.00 PER SHARE, OUTSTANDING ON MAY 17, 1999.
<PAGE>
TABLE OF CONTENTS
PAGE
REFERENCE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Statement of
Income for the Three- and Nine-Month Periods
Ended March 31, 1999 and 1998 2
Unaudited Consolidated Statement of Comprehensive
Income for the Three- and Nine-Month Periods
Ended March 31, 1999 and 1998 3
Consolidated Balance Sheet as of
March 31, 1999 (unaudited) and
June 30, 1998 4
Unaudited Consolidated Statement of
Cash Flows for the Nine-Month
Periods Ended March 31, 1999
and 1998 5
Notes to Unaudited Consolidated
Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 14
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES
ON MARKET RISK 23
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. MANAGEMENT CHANGE 25
SEC LETTER 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
<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,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $137,550 $140,376 $397,880 $418,109
Cost of sales 97,669 95,862 285,636 280,794
-------- -------- -------- --------
Gross profit 39,881 44,514 112,244 137,315
Selling and administrative expense 24,575 26,774 73,180 79,110
Research and development expense 10,147 10,796 30,565 28,305
Restructuring charge 4,200 - 16,200 -
-------- -------- -------- --------
Operating profit (loss) 959 6,944 (7,701) 29,900
Other income (expense):
Interest, net (2,855) (1,948) (8,211) (5,508)
Other, net 7,954 (94) 52,301 (395)
-------- -------- -------- --------
Income before income taxes 6,058 4,902 36,389 23,997
Provision for income taxes 2,054 1,618 12,557 7,919
-------- -------- -------- --------
Net income $ 4,004 $ 3,284 $ 23,832 $ 16,078
-------- -------- -------- --------
-------- -------- -------- --------
Net income per common share
Basic $ 0.08 0.06 $ 0.46 0.31
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 0.08 $ 0.06 $ 0.46 $ 0.31
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares and potentially
dilutive securities outstanding
Basic 51,681 51,319 51,576 51,219
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 51,802 51,570 51,671 51,731
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 4,004 $ 3,284 $ 23,832 $ 16,078
Other comprehensive income (loss):
Foreign currency translation
adjustments (1,698) (547) 279 (1,977)
-------- -------- -------- --------
Comprehensive income $ 2,306 $ 2,737 $ 24,111 $ 14,101
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
MARCH 31,
1999 JUNE 30,
(UNAUDITED) 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 62,235 $ 32,294
Short-term investments 8,900 13,232
Trade accounts receivable, net 124,293 129,738
Inventories 108,684 130,653
Deferred income taxes 7,380 8,080
Prepaid expenses and other receivables 14,014 3,253
-------- --------
Total current assets 325,506 317,250
Property, plant and equipment, net 405,185 390,892
Other assets 18,656 27,685
-------- --------
Total assets $749,347 $735,827
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 14,668 $ 28,153
Long-term debt, due within one year 41,121 37,226
Accounts payable 51,826 46,637
Accrued salaries, wages and commissions 14,694 15,875
Other accrued expenses 40,637 26,042
-------- --------
Total current liabilities 162,946 153,933
Long-term debt, less current maturities 136,074 141,528
Other long-term liabilities 13,245 29,352
Deferred income taxes 10,852 11,364
Stockholders' equity:
Common stock 51,705 51,351
Capital contributed in excess of par value 257,311 255,195
Retained earnings 122,477 98,646
Accumulated other comprehensive loss (5,263) (5,542)
-------- --------
Total stockholders' equity 426,230 399,650
-------- --------
Total liabilities and stockholders' equity $749,347 $735,827
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 23,832 $ 16,078
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,818 28,958
Deferred income (450) (450)
Deferred income taxes 244 13,362
Deferred compensation (6,777) (218)
Restructuring charge 18,700 --
Change in current assets & liabilities 26,093 (14,154)
-------- ---------
Net cash provided by operating activities 97,460 43,576
-------- ---------
Cash flow from investing activities:
Additions to property, plant and equipment (55,541) (68,054)
Purchase of short-term investments (12,900) (39,800)
Proceeds from sale of short-term investments 17,232 41,150
Change in other noncurrent assets 7,587 (1,924)
-------- ---------
Net cash used in investing activities (43,622) (68,628)
-------- ---------
Cash flow from financing activities:
Net proceeds from (repayments of)
short-term bank debt (13,622) 12,043
Proceeds from issuance of long-term debt 39,580 25,031
Payments on long-term debt and obligations
under capital leases (51,491) (12,896)
Net proceeds from issuance of common stock 2,470 2,881
Other (1,391) 862
-------- ---------
Net cash provided by (used in) financing activities (24,454) 27,921
-------- ---------
Effect of exchange rate changes on cash and
cash equivalents 557 (166)
-------- --------
Net increase in cash and cash equivalents 29,941 2,703
Cash and cash equivalents, beginning of period 32,294 36,564
-------- --------
Cash and cash equivalents, end of period $ 62,235 $ 39,267
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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, 1999 and
the consolidated results of operations and cash flows for the three-
and nine-month periods ended March 31, 1999 and 1998. 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 three- and nine-month periods ended March 31, 1999
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, 1998.
The Company operates on a fiscal year calendar under which the nine
months ended March 31, 1999 consisted of 39 weeks compared to 40
weeks in the nine months ended March 31, 1998.
2. NET INCOME PER COMMON SHARE
Net income per common share - Basic is computed by dividing net income
available to common shareholders (the numerator) by the weighted
average number of common shares outstanding (the denominator) during
the period. The computation of Net income per common share - Diluted
is similar to the computation of Net income per common share - Basic
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
The following table provides a reconciliation of the numerator and
denominator of the Basic and Diluted per-share computations for the
three- and nine-month periods ended March 31, 1999 and 1998 (in
thousands except per share amounts):
6
<PAGE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Three Months ended March 31, 1999
Net income per common share -
Basic... $ 4,004 51,681 $0.08
Effect of dilutive securities:
Stock options 121
......................................
----------- ------------- ---------
Net income per common share -
Diluted.... $ 4,004 51,802 $0.08
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Three Months ended March 31, 1998
Net income per common share - $ 3,284 51,319 $0.06
Basic...
Effect of dilutive securities:
Stock options 251
......................................
----------- ------------- ---------
Net income per common share - $ 3,284 51,570 $0.06
Diluted.... ----------- ------------- ---------
----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Nine Months ended March 31, 1999
Net income per common share - $ 23,832 51,576 $0.46
Basic...
Effect of dilutive securities:
Stock options 95
......................................
----------- ------------- ---------
Net income per common share -
Diluted.... $ 23,832 51,671 $0.46
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Nine Months ended March 31, 1998
Net income per common share - $ 16,078 51,219 $0.31
Basic...
Effect of dilutive securities:
Stock options 512
......................................
----------- ------------- ---------
Net income per common share -
Diluted.... $ 16,078 51,731 $0.31
----------- ------------- ---------
----------- ------------- ---------
</TABLE>
7
<PAGE>
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at March 31, 1999 (unaudited) and
June 30, 1998 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
Raw materials $ 15,042 $ 21,101
Work-in-process 49,314 56,224
Finished goods 44,328 53,328
-------- --------
$108,684 $130,653
-------- --------
-------- --------
</TABLE>
4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's debt and other loans at March 31, 1999 is
as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Revolving credit facilities consisting of various overdraft, draft
import and export facilities in Europe and Asia $ 14,668
Capitalized lease obligations payable in varying monthly installments
primarily at rates from 5.5% to 8.1%, due
in 1999 through 2004 7,122
Domestic bank loans collateralized by equipment, payable in varying
monthly installments at rates from 6.1% to 8.7%, due
in 1999 through 2004 36,547
Domestic unsecured bank loans payable in varying monthly installments at
rates from 5.6% to 5.9%, due in 2000 through
2003 92,648
Foreign bank loans collateralized by property and/or equipment, payable
in varying monthly installments at rates from 6.0% to
10.8%, due in 1999 through 2000 229
Foreign unsecured bank loans payable in varying monthly installments at
rates from 4.3% to 8.4%, due in 2000
through 2006 40,649
----------
191,863
Less short-term bank loans (14,668)
Less current portion of long-term debt (41,121)
----------
Total long-term debt $ 136,074
----------
----------
</TABLE>
8
<PAGE>
5. IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES
In reaction to a continuous decline in selling prices for its MOSFET
and IGBT products, 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 cost
structure. Specifically, the restructuring activities included
shifting production from older manufacturing facilities to newer, more
efficient facilities, changing business processes by consolidating
order entry, customer support, inventory management, information
systems and finance activities at fewer locations and accelerating the
deployment of the Company's new product development center. The
restructuring activities are expected to reduce the cost of the
Company's business processes and lower product costs and result in
increased flow of new products, which are less price sensitive. The
charge was composed of $61 million for the write-down of assets, $4
million for the write-down of inventory, and $10 million for
termination benefits to be paid in connection with the severed
employees. The restructuring activities were expected to occur over an
approximate eighteen month transition period through December 31, 1998.
The asset write-down of property and equipment of $61 million was
determined by comparing the expected future undiscounted cash flows to
the respective asset carrying value and/or evaluating other factors,
such as changes in technology or business strategy. If an asset was
deemed to be impaired, the carrying value was adjusted to its expected
future discounted cash flows, or when discounted cash flows were not
readily available, to an amount deemed by management as recoverable
after considering all relevant factors. The net book value of the
applicable property and equipment prior to the $61 million write-down
was $79 million. The write-downs were related to scrapped and idle
wafer fabrication equipment located in El Segundo, California,
impairment reductions to English assembly and packaging equipment, and
abandoned information systems applications resulting from lack of
vendor support. No such property or equipment is currently held for
disposal. The wafer fabrication lines were moved to new locations with
new technology in El Segundo, California and Italy. Certain niche
products continue to be serviced with the English assembly and
packaging equipment, at partial capacity, in order to fulfill certain
customer specific needs.
As of March 31, 1999, the Company had incurred approximately $65
million in non-cash asset write-offs and paid approximately $9 million
for termination benefits related to the cost reduction program. The
remaining unutilized restructuring accrual of approximately $1 million
relates to severance payments to previously notified employees for
positions that have been eliminated during fiscal year 1999.
During December 1998, the Company recorded a $14.5 million
restructuring charge associated with plans to relocate high-volume
assembly lines from its facility in England to its facility in Mexico
to take advantage of labor rate savings, and to centralize more of its
European customer service and administrative activities resulting in
reductions in personnel. The Company expects to complete this
operational transition over the next fifteen months. The charge
consisted of $5.9 million for estimated severance costs
9
<PAGE>
associated with the elimination of approximately 350 positions,
primarily consisting of operators and technicians, $6.1 million for
the write-off of assets to be abandoned, and $2.5 million for the
write-down of inventory related to specialty product lines. None of
the assets written down, which consist primarily of building
improvements relating to the high volume assembly production lines,
and production information systems, will remain in use and all of them
will be abandoned after the production lines are relocated. In the
third quarter of fiscal 1999, the Company recorded a final charge of
$4.2 million relating to additional severance costs, after appropriate
notification was given to 43 remaining affected employees in the
sales, customer service and administrative areas. Therefore, the
Company estimates that, ultimately, charges associated with all of
these actions will total approximately $18.7 million.
As of March 31, 1999, the Company had paid $0.5 million for
termination benefits related to this program. The remaining unutilized
restructuring accrual of $9.6 million, $6.6 million of which is
classified as current and $3.0 million of which is classified as
long-term, relates to severance payments to previously notified
employees for positions that are scheduled to be eliminated during the
next fifteen months.
6. YEAR 2000 READINESS
See "Year 2000 Readiness" in Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
7. 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 manufacturing processes.
The Company does not believe that compliance with such laws and
regulations will have a material adverse effect on the Company's
results of operations, financial position or cash flows.
In addition, under some of these laws and regulations, the Company
could be held financially responsible for remedial measures if
properties are contaminated, or if waste is sent to a landfill or
recycling facility that becomes contaminated. Also, the Company may be
subject to common law claims if it releases substances that damage or
harm third parties. The Company cannot make assurances that changes in
environmental rules and regulations will not require additional
investments in capital equipment and the implementation of additional
compliance programs in the future. Any failure to comply with
environmental laws and regulations could subject the Company to
serious liabilities and could have a material adverse effect on the
Company's operating results and financial condition.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), a former
subsidiary of the Company which discontinued operations in 1986, were
each named a potentially responsible party ("PRP") in connection with
the United States Environmental Protection Agency's ("EPA")
investigation of the disposal of allegedly hazardous
10
<PAGE>
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 the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"). The Company has
settled all outstanding claims which have arisen out of the OII Site.
The Company also received a letter dated July 25, 1995 from the U.S.
Department of Justice, directed to Rachelle, offering to settle claims
against Rachelle relating to the first elements of clean-up work at
the site for $4,953,148 (the final remedy assessment has not yet been
made). The offer stated that the settlement would not cover the cost
of any additional remedial actions required to finish the clean-up.
This settlement offer expired by its terms on September 1, 1995. On
August 7, 1995, the Company received a Supplemental Information
Request from the EPA directed to Rachelle, to which Rachelle responded
with information regarding waste shipped to the OII Site. The Company
has received no further communications in connection with the
Supplemental Information Request. Counsel for Rachelle received a
letter from the EPA dated September 30, 1997, requesting that Rachelle
participate in the final remedial actions at the site, and counsel
replied on October 21, 1997. The Company has taken the position that
none of the wastes generated by Rachelle was hazardous.
The Company cannot determine with accuracy the amount of the potential
demand to Rachelle for the cost of the final remedy. Based upon
information received to date, the Company believes that any demand, if
made, while likely to be significant, should nonetheless be
substantially below the demand amount for earlier phases of the OII
Site clean-up. The Company's insurer has not accepted liability
although it has made payments for defense costs for the lawsuit
against the Company.
The Company also received a letter dated September 9, 1994, from the
State of California Department of Toxic Substances Control stating
that it may be a PRP for the deposit of hazardous substances at a
facility in Whittier, California. In June 1995, the Company 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 $20
million and $25 million, although the actual cost could be much
higher. The Company estimated that it sent approximately 0.1% of the
waste, by weight, sent by all PRPs contributing to the clean-up of the
site, and the Company believes the cost of the clean-up will be
roughly allocated among PRPs by the amount of waste contributed. On
January 18, 1999, the group proposed to settle a portion of the
Company's clean-up obligations for $34,000 to $67,800, though the
Company would remain liable for certain future costs after the
settlement. The Company did not accept the offer, and it cannot
predict if or when it will settle the claims.
8. INTELLECTUAL PROPERTY RIGHTS
Certain of the Company's fundamental power MOSFET patents have been,
and continue to be, subjected to reexamination in the United States
Patent and Trademark Office ("PTO"). The PTO has concluded its
reexamination of the Company's U.S.
11
<PAGE>
patents 4,642,666 and 4,959,699 and has issued reexamination
certificates confirming the patentability of claims of those patents.
The Company's 5,008,725 and 5,130,767 patents are currently undergoing
reexamination in the PTO.
9. LITIGATION
The Company, along with 87 other companies, was sued in Phoenix,
Arizona federal court on February 26, 1999, by the Lemelson Foundation
for alleged infringement of various Lemelson "machine-vision" and
"auto ID" patents. The Company has requested its patent counsel to
investigate questions of patent validity and infringement. The
Lemelson Foundation has offered to grant licenses under these patents;
the Company is evaluating the offer. At this early point, the Company
has drawn no conclusions as to its potential liability or damages.
The Company and certain of its directors and officers have been named
as defendants in three class action lawsuits filed in Federal District
Court for the Central District of California in 1991. These suits seek
unspecified but substantial compensatory and punitive damages for
alleged intentional and negligent misrepresentations and violations of
the federal securities laws 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.
On March 31, 1997, the Court, on the Company's motion for summary
judgment, 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. The plaintiffs' motion for
reconsideration or certification of an interlocutory appeal of these
orders was denied.
On January 28, 1998, 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. Plaintiff's motion for reconsideration
or certification of an interlocutory appeal of these rulings was
denied.
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 is scheduled for August 1999. No
12
<PAGE>
provision for any liability that may result upon adjudication of these
matters has been made in the consolidated financial statements.
13
<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, 1999 COMPARED WITH THE THREE- AND NINE-MONTH PERIODS ENDED
MARCH 31, 1998
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)
----------------------- -----------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 71.0 68.3 71.8 67.2
------ ------ ------ ------
Gross profit 29.0 31.7 28.2 32.8
Selling and administrative expense 17.9 19.1 18.4 18.9
Research and development expense 7.4 7.7 7.7 6.8
Restructuring charge 3.1 .- 4.1 .-
------ ------ ------ ------
Operating profit (loss) 0.6 4.9 (2.0) 7.1
Interest expense, net (2.1) (1.4) (2.1) (1.3)
Other income (expense), net 5.8 (0.1) 13.1 (0.1)
------ ------ ------ ------
Income before income taxes 4.3 3.4 9.0 5.7
Provision for income taxes 1.4 1.1 3.0 1.9
------ ------ ------ ------
Net income 2.9% 2.3% 6.0% 3.8%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Revenues for the three- and nine-month periods ended March 31, 1999 decreased
2.0% and 4.8%, respectively, to $137.6 million and $397.9 million from $140.4
million and $418.1 million in the respective prior-year periods. Revenues in
the current quarter included $7.4 million of net royalties from patent
licenses versus $4.3 million in the prior-year period. Increased royalties
primarily reflect royalties paid by new licensees.
During the three-month period, global pricing averaged a 2 to 3 % decline
sequentially, compared to a 3% drop in the prior-year period.
Year to year, revenue in Japan increased by 14% and in Asia Pacific by 42%,
reflecting a partial economic recovery and the Company's penetration into new
market segments in the Asian Market. Europe is down nearly 22% year-to-year,
with weakness in most market segments. Revenue in the Americas dropped about
15% year-to-year but rebounded 8% sequentially, driven by strong distributor
demand.
Units shipments are up nearly 25% year-to-year and sequentially. A lesser
rate of revenue growth reflects price pressure and a mix shift to smaller,
lower-priced products, particularly in Asian markets.
March-quarter gross profit decreased to $39.9 million (29.0% of revenues)
versus $44.5 million (31.7% of revenues) in the comparable year-ago quarter.
Gross profit for the nine-
14
<PAGE>
month period ended March 31, 1999 decreased to $112.2 million (28.2% of
revenues) versus $137.3 million (32.8% of revenues) in the year-ago period.
For the nine months ended March, the year-to-year gross margin comparison
reflects price declines of approximately 10%, far greater than the long-term
industry average of about 6 % per year, as well as $2.5 million of
restructuring expense associated with moving assembly lines from Great
Britain to the Company's existing assembly plant in Mexico. March-quarter
price declines averaged about 2 to 3% sequentially, compared to 3% price
declines in the year-ago quarter.
The Company has substantially reduced costs in an effort to offset price
pressure. Excluding reductions in operating expense, it has cut costs by $32
million in the nine months ended March.
In the three- and nine-month periods ended March 31, 1999, selling and
administrative expense was $24.6 million and $73.1 million (17.9% and 18.4%
of revenues), respectively, versus $26.8 million and $79.1 million (19.1% and
18.9% of revenues) in the comparable year-ago periods. The improvement, both
in absolute dollars and as a percent of sales, reflects the Company's
initiatives, including its restructuring programs, to increase the
productivity of its selling and administrative activities.
In the three- and nine-month periods ended March 31, 1999, the Company's
research and development expenditures were $10.1 million and $30.6 million
(7.4% and 7.7% of revenues), respectively, compared to $10.8 million and
$28.3 million (7.7% and 6.8% of revenues) in the comparable prior-year
periods. Higher research and development expenses for the nine-month period
reflect the Company's increased development of new products and higher
overhead costs associated with a new research and development facility.
In the second and third fiscal quarters of 1999, a total restructuring charge
of $18.7 million was a result of actions designed to cut costs by relocating
high-volume assembly lines from the Company's operation in England to its
facility in Mexico and by streamlining worldwide sales and administration.
This total charge consisted of an inventory write-down of $2.5 million and a
$16.2 million restructuring charge consisting of $10.1 million in estimated
severance costs and $6.1 million for the write-down of related assets. Out of
the total charge of $18.7 million, the Company recorded $14.5 million in the
six months ended December 31, 1998 and $4.2 million in the quarter ended
March 31, 1999. The Company expects the savings resulting from these
activities to reduce product cost and selling and administrative expense as a
percentage of sales. See "Notes to Unaudited Consolidated Financial
Statements - Note 5. Impairment of Assets and Restructuring Charges".
Other income was $8.0 million in the three months ended March 31, 1999,
versus other expense of $0.1 million in the comparable prior-year period.
Other income in the current period reflected proceeds from a new license
agreement (net of legal costs and the share of the Company's royalty proceeds
payable to Unitrode Corporation).
Net interest expense increased by $0.9 million and $2.7 million in the
three- and nine-month periods ended March 31, 1999, compared to the respective
prior-year periods, reflecting increased interest expense incurred on higher
average debt balances and a decrease in interest income.
15
<PAGE>
Net foreign currency gains and losses were less than $500 thousand in each
nine-month period.
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 48% of annual revenues in the first half and 52% in the second
half of its fiscal year. Historical averages are not necessarily indicative
of future results.
LIQUIDITY AND CAPITAL RESOURCES
During the nine-month period ended March 31, 1999, cash and cash equivalents
increased by $29.9 million to $62.2 million. Operating activities provided
$97.5 million in cash including amounts received for royalty settlements. The
Company reduced accounts receivable by $5.4 million as the result of focused
efforts to reduce the Company's days of sales outstanding. The Company
reduced inventories by $19.5 million, excluding restructuring charges of $2.5
million, as the result of planned lower production rates.
Investing activities consumed $43.6 million, primarily due to capital
expenditures of $55.5 million. At March 31, 1999, the Company had made
purchase commitments for capital equipment of approximately $8.6 million.
During fiscal 1999, the Company plans on capital expenditures of
approximately $70 million to expand fabrication and assembly capacity. The
Company intends to fund capital expenditures and working capital requirements
through cash, cash equivalents on hand, short-term investments, anticipated
cash flow from operations, and as needed from funds available from revolving
credit, term loan and equipment financing facilities. The Company is
considering raising funds through public or private offerings of debt. The
Company may also consider obtaining funds from other external sources
including, but not limited to, public or private offerings of equity.
Cash used in financing activities was $24.5 million, primarily the result of
the paydown of short-term bank debt and long-term debt. The Company had
established $61.7 million of domestic and foreign revolving lines of credit,
against which $29.7 million had been borrowed. The Company had unused capital
equipment credit lines of $45.3 million. However, due to covenant
limitations, the total amount the Company had available for borrowing at
March 31, 1999 was $58.2 million.
In 1991, three class action lawsuits were brought against the Company and its
Board of Directors. Although the Company believes that these suits are
without merit (see "Notes to Unaudited Consolidated Financial Statements -
Note 9. Litigation") the ultimate outcome thereof cannot presently be
determined. Accordingly, the Company has not recorded a provision for any
liability that may result upon adjudication of these matters. For the
possible effects of environmental matters on liquidity (see "Notes to
Unaudited Consolidated Financial Statements - Note 7. Environmental Matters").
16
<PAGE>
IMPACT OF THE INTRODUCTION OF THE EURODOLLAR
On January 1, 1999, eleven member states of the European Union established
fixed conversion rates between their existing national currency and a common
currency, the "euro." Until January 1, 2002, either the euro or the
participating country's present currency will be accepted as legal currency.
On January 1, 2002, euro-denominated bills and coins will be issued and the
participating country's present currency will no longer be accepted as legal
and will be withdrawn from circulation.
The Company has initiated an internal analysis to determine the effects of
the January 1, 1999 conversion. The current assessment includes the potential
impact of the technical challenges to adapt information technology and other
systems to accommodate euro-denominated transactions, the impact on currency
exchange rate risk and currency exchange costs, and the impact on existing
contracts.
Based on currently available information, management does not believe that
the euro conversion will have a material adverse impact on the Company's
business or financial condition. The Company will continue to evaluate the
impact of the euro conversion.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-5 "Reporting on the Costs
of Start-up Activities." SOP 98-5 requires certain start-up costs to be
expensed as incurred. This SOP is effective for financial statements for
fiscal years beginning after December 15, 1998. Management is currently
evaluating the impact of SOP 98-5 and plans to implement early adoption in
June 1999. Although the Company is not currently able to quantify an amount,
adoption may have a material impact on its financial statements.
On June 30, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 supersedes the
disclosure requirements for SFAS No. 87 "Employers' Accounting for Pensions,"
SFAS No. 88 "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans," and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other than Pensions." This Statement is effective for
fiscal years beginning after December 15, 1997. This Statement revises
employer's disclosures about pension and postretirement benefit plans. The
Company's
17
<PAGE>
pension liability is immaterial and therefore not disclosed separately.
Accordingly this pronouncement will not have an impact on the notes to the
financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes standards for the
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities.
This Statement generally requires recognition of gains and losses on hedging
instruments, based on changes in fair value or the earnings effect of a
forecasted transaction. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Management does not believe that
SFAS 133 will have a material impact on the financial statements.
IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES
In reaction to a continuous decline in selling prices for its MOSFET and IGBT
products, 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 cost structure. Specifically, the restructuring
activities included shifting production from older manufacturing facilities
to newer, more efficient facilities, changing business processes by
consolidating order entry, customer support, inventory management,
information systems and finance activities at fewer locations and
accelerating the deployment of the Company's new product development center.
The restructuring activities are expected to reduce the cost of the Company's
business processes and lower product costs and result in increased flow of
new products, which are less price sensitive. The charge was composed of $61
million for the write-down of assets, $4 million for the write-down of
inventory, and $10 million for termination benefits to be paid in connection
with the severed employees. The restructuring activities were expected to
occur over an approximate eighteen month transition period through December
31, 1998.
The asset write-down of property and equipment of $61 million was determined
by comparing the expected future undiscounted cash flows to the respective
asset carrying value and/or evaluating other factors, such as changes in
technology or business strategy. If an asset was deemed to be impaired, the
carrying value was adjusted to its expected future discounted cash flows, or
when discounted cash flows were not readily available, to an amount deemed by
management as recoverable after considering all relevant factors. The net
book value of the applicable property and equipment prior to the $61 million
write-down was $79 million. The write-downs were related to scrapped and idle
wafer fabrication equipment located in El Segundo, California, impairment
reductions to English assembly and packaging equipment, and abandoned
information systems applications resulting from lack of vendor support. No
such property or equipment is currently held for disposal. The wafer
fabrication lines were moved to new locations with new technology in El
Segundo, California and Italy. Certain niche products continue to be serviced
with the English assembly and packaging equipment, at partial capacity, in
order to fulfill certain customer specific needs.
As of March 31, 1999, the Company had incurred approximately $65 million in
non-cash asset write-offs and paid approximately $9 million for termination
benefits related to the restructuring program. The remaining unutilized
restructuring accrual of approximately $1 million relates
18
<PAGE>
to future severance payments to previously notified employees for positions
that have been eliminated during fiscal year 1999.
The Company anticipated this restructuring to result in annual savings of
approximately $20 million annually. The Company cut annual depreciation and
annual selling and administrative costs by $10 million each. The benefits of
these cost reductions were partially offset by price pressure, which impacted
gross margin, and by higher unit sales, which increased total selling and
administrative expense.
During December 1998, the Company recorded a $14.5 million restructuring
charge associated with plans to relocate high-volume assembly lines from its
facility in England to its facility in Mexico to take advantage of labor rate
savings, and to centralize more of its European customer service and
administrative activities resulting in reductions in personnel. The Company
expects to complete this operational transition over the next fifteen months.
The charge consisted of $5.9 million for estimated severance costs associated
with the elimination of approximately 350 positions, primarily consisting of
operators and technicians, $6.1 million for the write-off of assets to be
abandoned, and $2.5 million for the write-down of inventory related to
specialty product lines. None of the assets written down, which consist
primarily of building improvements relating to the high volume assembly
production lines, and production information systems, will remain in use and
all of them will be abandoned after the production lines are relocated. In
the third quarter of fiscal 1999, the Company recorded a final charge of $4.2
million relating to additional severance costs, after appropriate
notification was given to 43 remaining affected employees in the sales,
customer service and administrative areas. Therefore, the Company estimates
that, ultimately, charges associated with all of these actions will total
approximately $18.7 million.
The anticipated cost saving activities from the second and third fiscal 1999
quarter restructuring are expected to result in estimated annual savings of
approximately $5 million in fiscal year 2000 and $13 million annually
thereafter. The $13 million in estimated annual savings consists of lower
direct labor costs, lower factory overhead (including lower depreciation
expense), lower materials costs and lower selling and administrative costs.
As of March 31, 1999, the Company had paid $0.5 million for termination
benefits related to this program. The remaining unutilized restructuring
accrual of $9.6 million, $6.6 million of which is classified as current and
$3.0 million of which is classified as long-term, relates to severance
payments to previously notified employees for positions that are scheduled to
be eliminated during the next fifteen months.
YEAR 2000 READINESS
The Year 2000 issue is the result of many existing computer programs and
embedded microprocessors using only two digits to refer to the year.
Beginning in the year 2000, these systems will need to be upgraded or
replaced to distinguish 21st century dates from 20th century dates.
The Company has adopted the definition of Year 2000 conformity published by
the British Standards Institute ("BSI") as DISC PD2000-1. Currently, none of
the Company's products
19
<PAGE>
contain date processing logic. The Company therefore believes that its
products are Year 2000 compliant pursuant to the BSI DISC PD2000-1 definition.
The Company has established a Global Year 2000 Team as well as local site
teams. The Global Year 2000 Team was formed to manage and coordinate
company-wide Year 2000 initiatives, while local site teams address research
and remediation for site-specific equipment, facilities and suppliers.
Worldwide, the Company currently employs approximately 70 employees that are
addressing the Year 2000 issue, 20 of whom are engaged in this effort on a
full-time basis. The Company is currently estimating $7.0 million for the
cost of investigation and remediation for the period August 1997 to March
2000. The estimate includes staff salaries and remediation expenses. Through
March 31, 1999 the Company has expensed $4.5 million of this estimate.
The Company prioritized efforts to prepare its information systems for Year
2000 based on the importance of each system to the Company's operations and
the potential impact of non-compliance. The Company is remediating its
information systems in phases, by first establishing an inventory and then
assessing, correcting, testing, and certifying compliance. Correction of
critical information systems is scheduled to be completed by May 31, 1999. At
this time each of these critical systems is performing in its remediated form
in at least one site in the world. In addition, the Company has inventoried
all potentially affected facilities, equipment and other infrastructure and
has identified solutions for each one of critical importance that is not
presently compliant.
The Company expects to complete its remediation efforts for critical items by
May 31, 1999. Non-critical items are scheduled to be corrected on or before
November 30, 1999. Furthermore, the Company has established programs to
ensure that current and future purchases of equipment and software are Year
2000 compliant pursuant to the BSI DISC PD2000-1 definition.
The Company is currently surveying its suppliers and business partners,
including financial institutions with whom it has material relationships, to
determine whether they are Year 2000 compliant. The Company continues its
site visits to its key suppliers. Accordingly, the Company is currently
unable to evaluate the extent to which such entities may be Year 2000
compliant and the effect that their non-compliance may have on the Company.
Worldwide project auditing and Year 2000 certification is ongoing and to date
indicates that the Company is on schedule to meet its May milestone for
critical remediation.
The Company is developing contingency plans in the event the Company or its
material customers, suppliers or vendors are not Year 2000 compliant by
January 1, 2000. There can be no assurance that the Company's compliance
efforts and contingency plans will adequately address every issue that may
arise in the year 2000. Embedded microprocessors that regulate the basic
infrastructure in various Company facilities may fail. The software that
controls manufacturing processes may fail and shut down fabrication, assembly
or packaging. The computers used in business and office operations may fail
at the desktop or network level. On a broader scale, communication and power
distribution may be disrupted, financial institutions may experience
difficulties that prevent access to or the transfer of funds, and the
transportation network, water supply and food distribution may be affected,
negatively impacting employees as well as industry and commerce generally.
20
<PAGE>
The costs of the Company's Year 2000 remediation and the dates on which the
Company believes that it will be completed are based on the Company's best
estimates, which were based on assumptions of future events, including the
continued availability of certain resources, third-party compliance and other
factors. There can be no assurance that these estimates will be achieved, and
actual results could differ materially from those anticipated.
Based on currently available information, management does not believe that
the Year 2000 matters discussed above will have a material adverse impact on
the Company's financial condition, liquidity, or results of operations. The
Company is not aware of any material vendor or suppliers who appear unable to
be ready for Year 2000. Currently utilities are the area of greatest concern.
However, to date interviews and research of the Company's power and water
suppliers do not indicate that these areas will result in any reasonably
likely worst case scenarios.
The disclosures contained herein are Year 2000 statements and constitute a
Year 2000 Readiness Disclosure under Public Law No. 105-271.
SEC COMMENTS
The Company received a letter from the Securities and Exchange Commission
("SEC") staff, dated February 26, 1999, requesting additional disclosures and
supplemental information regarding the Company's Form 10-K for the fiscal
year 1998 and the Company's Form 10-Q for the quarter ended December 31,
1998. This request consisted of accounting comments, including comments
relating to the Company's fiscal 1997 restructuring charges and charges in
the quarter ended December 31, 1998 for the relocation of assembly lines from
England to Mexico and for reductions in personnel. The Company is in
discussion with the SEC regarding the issues raised. In response to the SEC's
comments, the Company is preparing additional disclosure to be included in
the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the notes to the consolidated financial statements in
those two filings. The SEC might require the Company to restate certain items
in its financial statements in those two filings. The Company is unable to
predict the outcome or ultimate impact of the SEC's review. However, based
upon the most recent comments it has received from the SEC, the Company does
not expect that any additional disclosure or restatement required by the SEC
will have a material impact on its financial results for either fiscal 1998
or the second quarter of fiscal 1999.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-Q Report contains some 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. These statements 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 that 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,
manufacturing capacity 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: delays in
or higher-than-
21
<PAGE>
anticipated expenses associated with implementing planned cost
reductions; the effectiveness of cost controls; the impact of changes in
accounting methods; the impact of export controls; delays in transferring and
ramping production lines or completing customer qualifications; the accuracy
of customers' forecasts; the rate of customer inventory adjustments; push-out
of delivery dates; product returns; changes in customers' order patterns; the
Company's mix of product shipments; market and sector conditions that affect
our customers and licensees; pricing pressures; acceptance of competitors'
products; introduction, acceptance, and availability of new products; impact
on the Company's business due to internal systems or systems of suppliers and
other third parties adversely affected by Year 2000 problems; risks
associated with foreign operations and foreign currency fluctuations; adverse
results in litigation involving intellectual property, environmental claims,
and/or shareholder lawsuits; the availability of cost effective sources of
financing; and business and general economic conditions in the Company's
markets around the world.
22
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various risks including changes in interest rates
affecting the repayment of debt and return on investments and foreign
currency rate fluctuations. The Company does not hold or purchase any foreign
currency or interest rate contracts for trading purposes. The Company's
objective in managing the exposure to foreign currency changes is to reduce
the risk to earnings and cash flow associated with forward exchange contracts
to reduce risks associated with the value of its existing foreign currency
assets, liabilities, firm commitments and anticipated foreign revenues and
costs. The gains and losses on these contracts are intended to offset changes
in the related exposures. The Company does not hedge its foreign currency
exposure in a manner that would entirely eliminate the effects of changes in
foreign exchange rates on the Company's consolidated net income. In the
normal course of business, the Company also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include country risk,
credit risk and legal risk and are not discussed or quantified in the
following analyses.
INTEREST RATE RISK:
The financial assets of the Company are not subject to significant interest
rate risk due to their short duration. The financial liabilities of the
Company that are subject to interest rate risk are its long-term debt
obligations (see Note 4 of the Notes to the Unaudited Consolidated Financial
Statements). The Company does not use any derivatives or similar instruments
to manage its interest rate risk. A 90 basis-point increase in interest rates
(approximately 10% of the Company's weighted average interest rate on debt)
affecting the Company's financial instruments would have an immaterial effect
on the Company's results of operations, financial position and cash flows.
FOREIGN CURRENCY RISK:
The Company conducts business in various parts of the world and in various
foreign currencies. The Company manages potential foreign currency exposure
by entering into forward foreign contracts or other non-speculative risk
management instruments to hedge foreign currency denominated receivables and
payables at certain of its international subsidiaries. The Company evaluates
the effect that near-term changes in foreign exchange rates will have on the
fair value of the Company's combined foreign currency position, related to
its outstanding foreign currency forward exchange contracts. The Company
assumed an adverse change of 10% in foreign exchange rates, noting that the
potential decrease in the Company's foreign currency position would have an
immaterial effect on the Company's results of operations, financial position
and cash flows.
23
<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 18, 1999 MICHAEL P. MCGEE
------------------------------------
Michael P. McGee
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. MANAGEMENT CHANGE
On May 10, 1999, the Company announced that it would change its management
structure by designating Dr. Alexander Lidow as its sole chief executive
officer. He previously shared the responsibilities of chief executive officer
with Dr. Derek Lidow, who will remain on the Company's Board of Directors but
will leave its employ effective June 15 to pursue other interests. The
Company believes that this new structure will help achieve its long-range
objectives by, among other things, streamlining decision making, more tightly
linking the Company's activities, and allowing further operating efficiencies.
ITEM 5. SEC LETTER
The Company received a letter from the Securities and Exchange Commission
("SEC") staff, dated February 26, 1999, requesting additional disclosures and
supplemental information regarding the Company's Form 10-K for the fiscal
year 1998 and the Company's Form 10-Q for the quarter ended December 31,
1998. This request consisted of accounting comments, including comments
relating to the Company's fiscal 1997 restructuring charges and charges in
the quarter ended December 31, 1998 for the relocation of assembly lines from
England to Mexico and for reductions in personnel. The Company is in
discussion with the SEC regarding the issues raised. In response to the SEC's
comments, the Company is preparing additional disclosure to be included in
the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the notes to the consolidated financial statements in
those two filings. The SEC might require the Company to restate certain items
in its financial statements in those two filings. The Company is unable to
predict the outcome or ultimate impact of the SEC's review. However, based
upon the most recent comments it has received from the SEC, the Company does
not expect that any additional disclosure or restatement required by the SEC
will have a material impact on its financial results for either fiscal 1998
or the second quarter of fiscal 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K relating to "Other Events" on February
22, 1999.
25
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-04-1999
<PERIOD-START> JUL-06-1998
<PERIOD-END> APR-04-1999
<CASH> 62,235
<SECURITIES> 8,900
<RECEIVABLES> 125,887
<ALLOWANCES> 1,594
<INVENTORY> 108,684
<CURRENT-ASSETS> 325,506
<PP&E> 645,228
<DEPRECIATION> 240,043
<TOTAL-ASSETS> 749,347
<CURRENT-LIABILITIES> 162,946
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0
0
<COMMON> 51,705
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<SALES> 397,880
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