<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(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, 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
----------------------------------------------------------------
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 51,707,700 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $1.00
PER SHARE, OUTSTANDING ON FEBRUARY 16, 1999.
<PAGE>
SEC AMENDMENT - FORM 10Q/A
EXPLANATORY NOTE
This amendment no. 1 to the Company's report on Form 10-Q for its quarter
ended December 31, 1998, is being filed to include additional disclosures for
Items 1 and 2. Both items have been amended to include additional disclosure
of the Impairment of Assets and Restructuring Charges sections.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Statement of
Income for the Three- and Six-Month Periods
Ended December 31, 1998 and 1997 2
Unaudited Consolidated Statement of Comprehensive
Income for the Three- and Six-Month Periods
Ended December 31, 1998 and 1997 3
Consolidated Balance Sheet as of
December 31, 1998 (unaudited) and
June 30, 1998 4
Unaudited Consolidated Statement of
Cash Flows for the Six-Month
Periods Ended December 31, 1998
and 1997 5
Notes to Unaudited Consolidated
Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 13
PART II. OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 21
</TABLE>
<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,
----------------------------- -----------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 132,837 $ 144,622 $ 260,330 $ 277,733
Cost of sales 96,684 96,772 187,967 184,932
----------- ----------- ----------- -----------
Gross profit 36,153 47,850 72,363 92,801
Selling and administrative expense 24,398 26,988 48,605 52,336
Research and development expense 10,397 8,778 20,418 17,509
Restructuring charge 12,000 - 12,000 -
----------- ----------- ----------- -----------
Operating profit (loss) (10,642) 12,084 (8,660) 22,956
Other income (expense):
Interest, net (2,905) (1,933) (5,356) (3,560)
Other, net 43,829 (153) 44,347 (301)
----------- ----------- ----------- -----------
Income before income taxes 30,282 9,998 30,331 19,095
Provision for income taxes 10,488 3,299 10,503 6,301
----------- ----------- ----------- -----------
Net income $ 19,794 $ 6,699 $ 19,828 $ 12,794
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per common share
Basic $ 0.38 $ 0.13 $ 0.38 $ 0.25
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted $ 0.38 $ 0.13 $ 0.38 $ 0.25
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average common shares and potentially
dilutive securities outstanding
Basic 51,532 51,191 51,523 51,171
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted 51,691 51,616 51,605 51,814
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</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 SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1998 1997 1998 1997
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 19,794 $ 6,699 $ 19,828 $ 12,794
Other comprehensive income (loss):
Foreign currency translation
adjustments (53) 474 1,977 (1,430)
---------- ----------- ----------- -----------
Comprehensive income $ 19,741 $ 7,173 $ 21,805 $ 11,364
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</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>
DECEMBER 31,
1998 JUNE 30,
(UNAUDITED) 1998
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,858 $ 32,294
Short-term investments 4,000 13,232
Trade accounts receivable, net 115,756 129,738
Inventories 114,466 130,653
Deferred income taxes 7,380 8,080
Prepaid expenses and other receivables 47,924 3,253
-------- --------
Total current assets 312,384 317,250
Property, plant and equipment, net 409,290 390,892
Other assets 26,089 27,685
-------- --------
Total assets $747,763 $735,827
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans $ 16,493 $ 28,153
Long-term debt, due within one year 37,635 37,226
Accounts payable 43,255 46,637
Accrued salaries, wages and commissions 13,660 15,875
Other accrued expenses 39,572 26,042
-------- --------
Total current liabilities 150,615 153,933
Long-term debt, less current maturities 140,978 141,528
Other long-term liabilities 20,383 29,352
Deferred income taxes 13,116 11,364
Stockholders' equity:
Common stock 51,532 51,351
Capital contributed in excess of par value 256,230 255,195
Retained earnings 118,474 98,646
Accumulated other comprehensive loss (3,565) (5,542)
-------- --------
Total stockholders' equity 422,671 399,650
-------- --------
Total liabilities and stockholders' equity $747,763 $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>
SIX MONTHS ENDED
DECEMBER 31,
---------------------------
1998 1997
------------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 19,828 $ 12,794
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,285 19,257
Deferred income (300) (300)
Deferred income taxes 2,444 9,590
Deferred compensation (6,193) (213)
Restructuring charge 14,500 -
Change in working capital (13,978) (5,588)
-------- --------
Net cash provided by operating activities 39,586 35,540
-------- --------
Cash flow from investing activities:
Additions to property, plant and equipment (38,468) (46,036)
Purchase of short-term investments (4,000) (33,000)
Proceeds from sale of short-term investments 13,232 34,850
Change in other noncurrent assets 336 (1,529)
-------- --------
Net cash used in investing activities (28,900) (45,715)
-------- --------
Cash flow from financing activities:
Proceeds from issuance of (payments on)
short-term bank debt, net (12,964) 10,192
Proceeds from issuance of long-term debt 42,443 9,017
Payments on long-term debt and obligations
under capital leases (43,352) (8,595)
Net proceeds from issuance of common stock 1,216 1,592
Decrease in other long-term liabilities to be
financed with long-term debt (7,511) (3,236)
Other (694) 1,745
-------- --------
Net cash provided by (used in) financing activities (20,862) 10,715
-------- --------
Effect of exchange rate changes on cash and
cash equivalents 740 (198)
-------- --------
Net increase (decrease) in cash and cash equivalents (9,436) 342
Cash and cash equivalents beginning of period 32,294 36,564
-------- --------
Cash and cash equivalents end of period $ 22,858 $ 36,906
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 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 December 31, 1998 and the consolidated results
of operations and cash flows for the six-month periods ended December 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 six-month period ended
December 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, 1998.
The Company operates on a fiscal calendar under which the six months
ended December 31, 1998 consisted of 26 weeks compared to 27 weeks in the
six months ended December 31, 1997.
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 six-month periods ended December 31, 1998 and 1997 (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 December 31, 1998
Net income per common share - Basic... $ 19,794 51,532 $ 0.38
Effect of dilutive securities:
Stock options..................... 159
------------------------------------------------------
Net income per common share - Diluted.... $ 19,794 51,691 $ 0.38
------------------------------------------------------
------------------------------------------------------
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Three Months ended December 31, 1997
Net income per common share - Basic... $ 6,699 51,191 $ 0.13
Effect of dilutive securities:
Stock options..................... 425
------------------------------------------------------
Net income per common share - Diluted.... $ 6,699 51,616 $ 0.13
------------------------------------------------------
------------------------------------------------------
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Six Months ended December 31, 1998
Net income per common share - Basic... $ 19,828 51,523 $ 0.38
Effect of dilutive securities:
Stock options..................... 82
------------------------------------------------------
Net income per common share - Diluted.... $ 19,828 51,605 $ 0.38
------------------------------------------------------
------------------------------------------------------
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
<S> <C> <C> <C>
Six Months ended December 31, 1997
Net income per common share - Basic... $ 12,794 51,171 $ 0.25
Effect of dilutive securities:
Stock options..................... 643
------------------------------------------------------
Net income per common share - Diluted.... $ 12,794 51,814 $ 0.25
------------------------------------------------------
------------------------------------------------------
</TABLE>
3. INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at December 31, 1998 and
June 30, 1998 (audited) were comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
Raw materials $ 16,736 $ 21,101
Work-in-process 51,685 56,224
Finished goods 46,045 53,328
-------- --------
7
<PAGE>
$114,466 $130,653
-------- --------
-------- --------
</TABLE>
4. LONG-TERM DEBT AND OTHER LOANS
A summary of the Company's long-term debt and other loans at December 31,
1998 is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Capitalized lease obligations payable in varying monthly
installments primarily at rates from 7.5% to 10.7% $ 103
Domestic bank loans collateralized by equipment, payable in varying
monthly installments at rates from 5.8% to 8.7%, due
in 1999 through 2004 43,953
Domestic unsecured bank loans payable in varying monthly installments at
rates from 5.7% to 6.0%, due in 2000 through 2003 92,608
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 333
Foreign unsecured bank loans payable in varying monthly installments at
rates from 4.3% to 8.4%, due in 2000 through 2006 41,616
--------
178,613
Less current portion of long-term debt (37,635)
--------
$140,978
--------
--------
</TABLE>
5. IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES
Due 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 were
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, primarily wafers, to net realizable value and $10 million
for termination benefits to be paid in connection with the severed
employees. The restructuring activities occurred over an
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. If an asset was deemed to be
impaired, the carrying value was adjusted to its expected future
discounted cash flows. The net book value of the applicable property
and equipment prior to the $61 million write-down was $79 million. The
write-downs related to the following:
1) Wafer fabrication equipment located in El Segundo, California with
a carrying value of $21 million, was adjusted to its fair value of $2
million. One wafer fabrication line, dedicated primarily to research
and product development, was abandoned and replaced by a new product
development facility in August 1998. The other wafer fabrication line,
which manufactured product using equipment that processed 4-inch
wafers, was abandoned and replaced with a more advanced line located
in Italy, which processes 5-inch wafers, in August 1998. Using 5-inch
wafers results in significant manufacturing savings. The current
status of the wafer fabrication impaired equipment falls into three
categories: a) it was scrapped as of June 1997, b) it is idle with no
viable plans for usage, or c) it is being used on a sporadic basis in
research and development. There is no viable external market for this
equipment.
2) Assembly equipment in England of $26 million was adjusted to its
fair value of $4 million. Specifically, three product assembly and
packaging lines in England were operating at a gross margin loss. The
Company has continued to utilize these lines periodically for market
development activities, and these lines remain unprofitable.
3) Information systems applications with a carrying value of $32
million were written down to $12 million as a result of lack of
vendor support. The Company's software vendor changed business
strategies and informed the Company of its intention to stop
supporting and developing the software technology that certain of the
Company's information systems applications were based upon. It was
determined in June 1997, that no viable alternatives could be
identified. As a result of this decision, the Company ceased
development and implementation of certain forecasting, planning and
order management programs and determined the assets related to these
specific activities were impaired (i.e., no future use and were
abandoned). These assets consisted of costs related to external
consulting fees and expenses. The remaining book value relates to
modules that have not been abandoned.
As of December 31, 1998, the Company had eliminated approximately 221
employees related to the June 1997 restructuring. The majority of the
positions eliminated were operators and technicians at the Company's
North American operations. The Company also eliminated production and
assembly positions in its manufacturing operations in Italy due to the
outsourcing of certain production and assembly activities. In addition,
administrative and sales positions in France, England, Germany, Japan
and North America, related to the regional consolidation of certain
administrative functions, were eliminated.
As of December 31, 1998, the Company had incurred $65 million in
non-cash asset writeoffs and paid $9 million for termination benefits.
The remaining unutilized restructuring accrual of $1.0 million relates
to severance payments to previously notified employees for positions
that were scheduled to be eliminated during the remainder of fiscal
year 1999. The majority of these remaining positions were eliminated
in the last week of January and the first week of February 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 eighteen 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. The
Company estimates that, ultimately, charges associated with these
actions will total approximately $19.5 million, and the Company
expects to recognize the final charge of approximately $5.0 million,
relating to additional severance costs, in the third quarter of fiscal
1999, after proper notification to these additional affected
employees. None of the assets written down, consisting primarily of
building improvements relating to the high volume assembly production
lines, and production information systems, will remain in use and will
be abandoned after the production lines are relocated.
8
<PAGE>
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. 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 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 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 lawsuit against the Company, relating to the first and
second consent decrees, was settled in August 1993 for the sum of
$40,000, to avoid protracted and expensive litigation. The Company
recently settled the EPA's claims against the Company for the clean-up
of the OII Site for a payment of $173,580, less a credit of $40,000 for
the prior settlement payment, for a net payment of $133,580.
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
9
<PAGE>
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. 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. 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
In January 1998, the Company filed suit against Samsung Semiconductor,
Inc. and Samsung Electronics Co., Ltd., alleging infringement of certain
of the Company's U.S. patents. In December 1998, the Company filed a
second suit against the Samsung
10
<PAGE>
entities alleging infringement of additional U.S. patents of the
Company. On December 31, 1998, the Company entered into an agreement
with the Samsung entities settling all past infringement claims and
providing the Samsung entities with a short-term license under the
Company's MOSFET and IGBT patents.
In August 1998, the Company filed suit against Fuji Electric Co., Ltd.
("Fuji") and Collmer Semiconductor, Inc. ("Collmer"), alleging
infringement of certain of the Company's U.S. patents. The Company
entered into a worldwide, royalty-bearing license agreement dated as
of December 16, 1998 with Fuji under the Company's power MOSFET/IGBT
patents thereby settling the litigation against both Fuji and Collmer.
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 provision for any
liability that may result upon adjudication of these matters has been
made in the consolidated financial statements.
11
<PAGE>
10. OTHER INCOME
In December 1998, the Company entered into licensing agreements with two
competitors, Samsung Semiconductor, Inc. and Samsung Electronics Co.,
Ltd. (together "Samsung") and Fuji Electric Co., Ltd. ("Fuji"), with
respect to the Company's power MOSFET/IGBT patents. The respective
agreements provide for payments of royalties for prior periods. The
agreement with Samsung also provides for a paid-up license that will
expire no later than May 1, 1999. The agreement with Fuji provides for
ongoing royalties on worldwide sales covered by the Company's licensed
patents.
As a result of these agreements, the Company reported approximately
$43.5 million as other income in the quarter ended December 31, 1998. The
income reported was based upon the gross proceeds net of advanced and
deferred royalty payments, patent defense costs and royalties due
Unitrode Corporation, which previously held an exclusive license under
the Company's MOSFET patents. As a result of patent litigation
settlements, the Company will receive $48.4 million in cash over the
next fourteen months.
12
<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,
1998 COMPARED WITH THE THREE- AND SIX-MONTH PERIODS ENDED DECEMBER 31, 1997
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)
---------------------- ----------------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales 72.8 66.9 72.2 66.6
------ ----- ------ ------
Gross profit 27.2 33.1 27.8 33.4
Selling and administrative expense 18.4 18.7 18.7 18.8
Research and development expense 7.8 6.1 7.8 6.3
Restructuring charge 9.0 -- 4.6 --
------ ----- ------ ------
Operating profit (loss) (8.0) 8.3 (3.3) 8.3
Interest expense, net (2.2) (1.3) (2.1) (1.3)
Other income (expense), net 33.0 (0.1) 17.0 (0.1)
------ ----- ------ ------
Income before income taxes 22.8 6.9 11.6 6.9
Provision for income taxes 7.9 2.3 4.0 2.3
------ ----- ------ ------
Net income 14.9% 4.6% 7.6% 4.6%
------ ----- ------ ------
------ ----- ------ ------
</TABLE>
Revenues for the three-month period ended December 31, 1998 decreased 8.1% to
$132.8 million from $144.6 million in the year-ago period. Revenues for the
six-month periods ended December 31, 1998 and 1997 decreased 6.3% to $260.3
million from $277.7 million, respectively. These revenues were negatively
impacted by average sales price reductions of approximately 12%, reflecting the
Asian economic crisis, excess industry-wide manufacturing capacity, and sluggish
global economic growth. Year to year, revenues were down approximately 19% in
North America, reflecting reduced shipments to distributors, and down
approximately 26% in Japan, reflecting a further decline in general economic
conditions. Revenues in Asia Pacific were up approximately 25%, reflecting
strength in the computer sector. Unit shipments increased by 24% year-to-year
and in the quarter ended December 31, 1998 set a record high, reflecting strong
growth in applications for the Company's products. Revenues in this six-month
period included $11.1 million of net patent royalties, versus $8.9 million in
the comparable prior-year period. Increased royalties primarily reflect the
addition of licensees.
December-quarter gross profit decreased to $36.2 million (27.2% of revenues)
from $47.9 million (33.1% of revenues) in the comparable year-ago quarter. Gross
profit for the six-month period ended December 31, 1998 decreased to $72.4
million (27.8% of revenues) from $92.8 million (33.4% of revenues) in the
year-ago period. Gross profit decreased
13
<PAGE>
because of reduced prices and lower absorption of overhead as a result of a
planned production decrease, which reduced inventory levels by $12.1 million.
The effect of reduced prices and lower overhead absorption was partially
offset by reductions in manufacturing costs and increases in royalties. In
addition, during December 1998, $2.5 million was charged to the cost of goods
sold due to the write-down of inventory as a result of the planned relocation
of assembly lines from the Company's facility in England to its facility in
Mexico. Excluding the inventory charge, gross profit for the six-month period
ended December 31, 1998 was 28.8% of revenue. See "Notes to Unaudited
Consolidated Financial Statements - Note 5. Impairment of Assets and
Restructuring Charges".
In the three- and six-month periods ended December 31, 1998, selling and
administrative expense was $24.4 million and $48.6 million (18.4% and 18.7% of
revenues), respectively, versus $27.0 million and $52.3 million (18.7% and 18.8%
of revenues) in the comparable year-ago periods. Reductions in selling and
administrative expenses reflect management's continued efforts to control
spending and to administer its activities more efficiently.
In the three- and six-month periods ended December 31, 1998, the Company's
research and development expenditures increased to $10.4 million and $20.4
million (7.8% and 7.8% of revenues), respectively, compared to $8.8 million and
$17.5 million (6.1% and 6.3% of revenues) in the comparable prior-year periods.
Higher research and development expenses reflect higher overhead costs
associated with a new research and development facility and the Company's
increased development of new products.
A total restructuring charge of $14.5 million taken in the six months ended
December 31, 1998 is 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
$12.0 million restructuring charge consisting of $5.9 million in estimated
severance costs and $6.1 million for the write-down of related assets. 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 $44.3 million in the first half of fiscal 1999 versus other
expense of $0.3 million in the comparable prior-year period, as a result of a
$43.5 million pretax benefit related to the settlement of patent litigation
during the second quarter of fiscal 1999. The income reported from these
settlements in the quarter ended December 31, 1998 is net of advanced and
deferred royalty payments, patent defense costs, and the share of the
Company's royalty proceeds payable to Unitrode Corporation. In addition to
amounts already received, the Company will receive $48.4 million in cash over
the next fourteen months.
Net interest expense increased $1.0 million and $1.8 million in the three- and
six-month periods ended December 31, 1998, compared to the respective prior-year
periods, reflecting increased interest expense incurred on higher average debt
balances and a decrease in interest income.
Net foreign currency gains and losses were less than $0.5 million in each
six-month period.
14
<PAGE>
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 six-month period ended December 31, 1998, cash and cash
equivalents decreased by $9.4 million to $22.9 million. Operating activities
provided $39.6 million in cash. The Company reduced accounts receivable by
$14.0 million. The reduction was a result of focused collection efforts to
reduce the Company's days of sales outstanding. The Company reduced
inventories by $13.7 million, excluding restructuring charges of $2.5
million, as the result of planned lower production rates. As a result of
patent litigation settlements, the Company will receive $48.4 million in cash
over the next fourteen months.
Investing activities consumed $28.9 million, primarily due to capital
expenditures of $38.5 million. At December 31, 1998, the Company had made
purchase commitments for capital equipment of approximately $5.6 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 obtaining the use
of funds from public or private offerings of debt. The Company may also consider
using funds from other external sources including, but not limited to, public or
private offerings of equity.
Cash used in financing activities was $20.9 million, primarily the result of the
paydown of short-term bank debt ($13.0 million) and a pension payout. The
Company had established $61.5 million of domestic and foreign revolving lines of
credit, against which $26.5 million had been borrowed. The Company had unused
capital equipment credit lines of $48.0 million. However, due to covenant
limitations, the total amount the Company had available for borrowing at
December 31, 1998 was $58.0 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 made provision for any liability, if any, 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").
15
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
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. Management does not believe that this
pronouncement will have a material 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 is currently evaluating the
impact, if any, of SFAS 133.
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. Although the Company is not currently able to quantify an
amount, adoption may have a material impact on its financial statements.
IMPAIRMENT OF ASSETS AND RESTRUCTURING CHARGES
Due 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 were 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, primarily wafers, to net realizable
value and $10 million for termination benefits to be paid in connection with
the severed employees. The restructuring activities occurred 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. If an asset was deemed to be impaired, the carrying
value was adjusted to its expected future discounted cash flows. The net book
value of the applicable property and equipment prior to the $61 million
write-down was $79 million. The write-downs related to the following:
1) Wafer fabrication equipment located in El Segundo, California with a
carrying value of $21 million, was adjusted to its fair value of $2 million.
One wafer fabrication line, dedicated primarily to research and product
development, was abandoned and replaced by a new product development facility
in August 1998. The other wafer fabrication line, which manufactured product
using equipment that processed 4-inch wafers, was abandoned and replaced with
a more advanced line located in Italy, which processes 5-inch wafers, in
August 1998. Using 5-inch wafers results in significant manufacturing
savings. The current status of the wafer fabrication impaired equipment falls
into three categories: a) it was scrapped as of June 1997. b) it is idle with
no viable plans for usage or c) it is being used on a sporadic basis in
research and development. There is no viable external market for this
equipment.
2) Assembly equipment in England of $26 million was adjusted to its fair
value of $4 million. Specifically, three product assembly and packaging lines
in England were operating at a gross margin loss. The Company has continued
to utilize these lines periodically for market development activities, and
these lines remain unprofitable.
3) Information systems applications with a carrying value of $32 million
were written down to $12 million as result of lack of vendor support. The
Company's software vendor changed business strategies and informed the
Company of its intention to stop supporting and developing the software
technology that certain of the Company's information systems applications
were based upon. It was determined in June 1997, that no viable alternative
could be identified. As a result of this decision, the Company ceased
development and implementation of certain forecasting, planning and order
management programs and determined the assets related to these specific
activities were impaired (i.e. no future use and were abandoned). These
assets consisted of costs related to external consulting fees and expenses.
The remaining book value relates to modules that have not been abandoned.
As of December 31, 1998, the Company had eliminated approximately 221
employees related to the June 1997 restructuring. The majority of the
positions eliminated were operators and technicians at the Company's North
American operations. The Company also eliminated production and assembly
positions in its manufacturing operations in Italy due to the outsourcing of
certain production and assembly activities. In addition, administrative and
sales positions in France, England, Germany, Japan and North America, related
to the regional consolidation of certain administrative functions, were
eliminated.
As of December 31, 1998, the Company had incurred $65 million in non-cash
asset writeoffs and paid $9 million for termination benefits. The remaining
unutilized restructuring accrual of $1.0 million relates to severance
payments to previously notified employees for positions that were scheduled
to be eliminated during the remainder of fiscal year 1999. The majority of
these remaining positions were eliminated in the last week of January and the
first week of February 1999.
The Company anticipated this restructuring to result in annual savings of
approximately $20 million, which would be fully achieved on an annual basis
beginning in December 1998. The company reduced annual depreciation and
annual selling and administrative cost by approximately $10 million each. The
Company believes that it has achieved these savings, but they have been
offset by continued selling price reductions, 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 eighteen
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. The Company estimates that, ultimately,
charges associated with these actions will total approximately $19.5 million,
and the Company expects to recognize the final charge of approximately $5.0
million, relating to additional severance costs, in the third quarter of
fiscal 1999, after proper notification to these additional affected
employees. None of the assets written down, consisting primarily of building
improvements relating to the high volume assembly production lines, and
production information systems, will remain in use and will be abandoned
after the production lines are relocated.
In total, these cost saving activities, upon completion, are expected to
result in estimated annual savings of approximately $13 million, of which
$750,000 relates to amortization and depreciation savings. The estimated
savings consist of lower direct labor costs, lower factory overhead
(including lower depreciation expense), lower materials costs and lower
selling and administrative costs.
16
<PAGE>
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 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
has currently budgeted $5.0 million for the cost of investigation and
remediation for the period August 1997 to March 2000. The budget includes staff
salaries and remediation expenses. Through December 31, 1998 the Company has
spent $3.0 million of this budget.
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 plans to remediate its
information systems in phases, first
17
<PAGE>
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 has also begun 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.
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.
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.
18
<PAGE>
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: risk of nonpayment of accounts receivable; risk
of inventory obsolescence due to shifts in market demand; an increased rate of
customer inventory adjustment; deferral of delivery dates, cancellations and
returns; development and acceptance of new products and price pressures;
availability and pricing of competitors' products; lower manufacturing yields;
risks associated with foreign operations and foreign currency fluctuations;
adverse results in litigation involving intellectual property; environmental
claims; shareholder lawsuits; the successful implementation of the Company's
announced restructuring program; the availability of cost effective sources of
financing; and business and general economic conditions in the Company's markets
around the world.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL RECTIFIER CORPORATION
-----------------------------------
REGISTRANT
February 17, 1999 MICHAEL P. MCGEE
-------------------------------------
Michael P. McGee
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
See Notes 7, 8, 9 and 10 to the accompanying consolidated financial statements.
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 23,
1998, with the following results:
<TABLE>
<CAPTION>
Authority
Description of matter For Withheld
--- ---------
<S> <C> <C>
1. Election of Directors
George Krsek 46,369,637 573,770
Jack O. Vance 46,388,172 555,235
Derek B. Lidow 46,435,525 507,882
<CAPTION>
For Against Abstentions
--- ------- -----------
<S> <C> <C> <C>
2. Ratification of PricewaterhouseCoopers LLP
as Independent Auditors for fiscal 1999 46,635,298 199,516 108,593
</TABLE>
21
