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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-7935
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INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 95-1528961
(State or other jurisdiction (IRS Employer
of
incorporation or organization) Identification No.)
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233 KANSAS STREET
EL SEGUNDO, CA 90245
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (310) 726-8000
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Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $1 New York Stock Exchange
Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes_X_ No ____
The aggregate market value of the registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $3,151,696,500 (computed
using the closing price of a share of Common Stock on September 22, 2000
reported by New York Stock Exchange).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
There were 61,949,105 shares of the registrant's Common Stock, par value
$1.00 per share, outstanding on September 22, 2000.
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on November 20, 2000, which Proxy
Statement will be filed no later than 120 days after the close of the
registrant's fiscal year ended June 30, 2000, are incorporated by reference in
Part III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 12
3. Legal Proceedings........................................... 12
4. Submission of Matters to a Vote of the Security Holders..... 13
Additional Item. Executive Officers of the Registrant....... 14
PART II
5. Market for the Registrants' Common Equity and Related
Stockholders' Matters..................................... 15
6. Selected Financial Data..................................... 16
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
7a. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 25
8. Financial Statements and Supplementary Data................. 26
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 54
PART III
10. Executive Officers of the Registrant........................ 54
11. Executive Compensation...................................... 54
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 54
13. Certain Relationships and Related Transactions.............. 54
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 54
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PART I
ITEM 1. BUSINESS
INTRODUCTION
We are a leading designer, manufacturer and marketer of power semiconductors
and the leading worldwide supplier of a type of power semiconductor called a
MOSFET, a metal oxide semiconductor field effect transistor. Power
semiconductors perform a power management function by converting electricity
into a form more usable by electrical products. The technology advancements of
power semiconductors increase system efficiency, allow more compact end
products, improve features and functionality and extend battery life. Our
products are used in a range of end-markets, including communications, consumer
electronics, information technology, automotive, industrial and
government/space.
We use our proprietary technology, comprehensive knowledge of power
management, and low cost manufacturing platforms to offer what we believe is one
of the industry's most advanced and competitive lines of power semiconductors.
Our products are broadly divided among three product categories:
- POWER INTEGRATED CIRCUITS AND ADVANCED CIRCUIT DEVICES. A Power Integrated
Circuit, or Power IC, is a semiconductor that integrates logic and power
management functions on the same chip to optimize system performance.
Advanced Circuit Devices are chipsets, multichip modules and advanced
performance discrete devices that address power management requirements in
more demanding applications. Our Power ICs and Advanced Circuit Devices
allow manufacturers to reduce the size, extend the battery life and
enhance the functionality of electronic devices. These products provide
application specific power management solutions for wireless and wireline
communication devices, Internet infrastructure equipment and appliances,
video game stations, portable electronics, including personal digital
assistants and notebook computers, as well as automotive systems and motor
control devices.
- POWER SYSTEMS. Power Systems combine power semiconductors with other power
management components in modules that improve power efficiency, provide a
cost-effective alternative to custom analog designs and enable customers
to introduce new products more quickly. We are focusing on Power Systems
for automotive electronics, including electric power steering and
integrated starter/alternator motors, as well as motor control
applications, including refrigeration and air conditioning.
- POWER COMPONENTS. Power Components are discrete devices used in general
power management applications. These include power MOSFETs, insulated gate
bipolar transistors, referred to as IGBTs, rectifiers, diodes and
thyristors. Power MOSFETs and IGBTs rapidly and efficiently switch
electricity on and off in order to supply power in a form that can be
formatted to the specific requirements of a circuit. Our power components
are used in virtually all of our end markets.
INDUSTRY OVERVIEW
Power semiconductors convert power input from a source into usable power for
a wide range of electrical and electronic systems and equipment. The more
sophisticated the end product, the greater its need for specially-formatted,
finely-regulated power. The adoption of power semiconductor technology is rising
with the increasing complexity of electronic products and the rapid
proliferation of electronic features in communications, consumer electronics,
information technology, automotive and industrial products. Within the power
semiconductor market, MOSFETs and IGBTs are critical to power management. Based
on statistics published by the Semiconductor Industry Association, industry-wide
revenues from sales of power MOSFETs and IGBTs were $3.13 billion in calendar
1999 and are forecasted to total approximately $4.0 billion in calendar 2000.
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Demand for power semiconductors is being driven by the following:
- GROWTH OF COMMUNICATIONS AND INTERNET INFRASTRUCTURE. Rapid growth in
communications, enterprise computing and the Internet is accelerating
demand for advanced power semiconductors. Internet infrastructure
equipment, such as routers, servers, hubs and switches, rely on
advancements in power management efficiency in order to operate at higher
speeds and to process more information with the desired degree of
reliability.
- INCREASE IN DEMAND FOR PORTABLE ELECTRONICS. Worldwide demand for mobility
and convenience is creating significant growth opportunities in portable
electronics that depend on efficient power conversion to extend battery
life and enhance product performance. The latest-generation personal
computers rely on advances in power management technology to operate
efficiently at ever-lower voltages. In addition, high-efficiency power
semiconductors enable makers of new cellular phones and notebook computers
to offer more compact products that have greater operating speed and
performance.
- INCREASING APPLICATIONS IN AUTOMOTIVE ELECTRONICS AND MOTOR CONTROLS. The
proliferation of power features in automobiles and tougher standards for
safety, fuel economy, and emissions are driving the adoption of more
complex power electronics. Electric motors consume approximately half of
the world's electricity. Because of cost and complexity, controls that
permit variable-speed operation have been predominantly used in very
high-end motor applications. Recent advancements in power management make
possible cost-effective, variable-speed motor controls that increase
energy efficiency and improve performance in a wide range of industrial,
commercial, and household applications.
- RECOVERY AND EXPANSION OF ASIA PACIFIC ECONOMIES. The Asia Pacific region
has begun to recover from its recent financial crisis and many Asia
Pacific countries have returned to rapid growth. As disposable income
increases in the region, we expect demand for consumer products, such as
cellular phones, Internet devices, computers, televisions and other
electric appliances, to expand the market for our products.
STRATEGY
We concentrate our resources on opportunities to add value and leverage our
competitive advantages through the following strategic initiatives:
FOCUS ON ADDING VALUE IN HIGH GROWTH MARKETS. We are leveraging our
leadership position in power semiconductors to offer proprietary products that
have higher average selling prices and gross margins in targeted applications.
Unlike most of our competitors, we focus all of our efforts in power
semiconductors. We believe that this focus has resulted in developing the most
advanced products for these markets. For example, our Power ICs are used in
power management for Intel's Pentium III processors, Advanced Micro Devices'
Athlon processors, Motorola's cellular phones, and next generation video game
stations. In Power Systems, we are working with major automotive suppliers in
designing advanced systems to replace traditional hydraulic and belt-driven
applications with more cost-effective electronic systems that improve
performance and fuel efficiency. We are also targeting a wide range of
applications that have not historically utilized Power Systems, including
refrigerators, washing machines, air conditioners and other appliances.
EXTEND LEADERSHIP IN POWER COMPONENTS. The research firm Dataquest ranks us
as the world's leader in sales of MOSFETs. We pioneered the fundamental
technology that set the industry standard for power MOSFETs and estimate that
approximately 70% of the world's power MOSFETs are produced by IR or use our
patented technology. Over the last two years, we have invested aggressively to
advance trench and planar process technologies. These investments have produced
what we believe are the most efficient power MOSFET components in the
marketplace. Our leadership position in Power Components provides us with a
platform for continued expansion in value-added growth markets.
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CAPITALIZE ON LEADING CUSTOMER RELATIONSHIPS. As a result of our leadership
and strength in power semiconductors, industry leaders look to us for products
and programs that address their most challenging power management needs. These
relationships put us at the forefront of developing products for new trends in
the marketplace. We offer high quality customer service with comprehensive sales
and engineering support, including Internet service applications, electronic
order entry and just-in-time delivery. Our leading customers include Alcatel,
American Power Conversion, Compaq, Delphi, IBM, Lockheed-Martin, Lucent, Maxtor,
Motorola, Philips and Sony. Our design wins have accelerated into the
applications of these customers, as well as Advanced Micro Devices, Bosch, Cisco
Systems, Dell, Intel, Qualcomm and Groupe Schneider.
LEVERAGE OUR LEADING TECHNOLOGY POSITION. Our leading technology enables us
to set performance and architecture standards for power electronics in targeted
applications. Our research and development program focuses on Power ICs,
Advanced Circuit Devices and Power Systems and the advancement and
diversification of our HEXFET-Registered Trademark- power MOSFET and IGBT
product lines. Over the three years ended June 30, 2000, we spent approximately
$127 million on research and development. In the first quarter of fiscal 1998,
we opened a new research and development facility that provides submicron
process capability and capacity for rapid development. Our long-term investment
in research and development has resulted in a broad worldwide patent portfolio,
consisting of 342 issued patents and 445 patents pending. In fiscal 1999 and
2000, licenses under our patents generated approximately $26.5 million and
$36.4 million, respectively, in royalties. We believe our technology leadership
and product innovation will continue to be a source of growth in the fastest
growing segments of the power semiconductor industry.
CAPITALIZE ON LOW COST MANUFACTURING. Unlike many of our competitors, we
fabricate most of our chips in facilities designed to address the specific
requirements of power semiconductors. We believe that our wafer fabrication
costs are among the lowest in the industry. We have wafer fabrication and /or
assembly production facilities in California, Massachusetts, England, Italy,
Mexico, Wales, India and China. We also use third-party foundries and assemblers
to supplement our internal manufacturing.
PRODUCTS AND APPLICATIONS
Our products process electrical power into a form that is usable by electric
products. We believe that our full complement of power management technology
represents a competitive advantage, enabling us to provide customers with
integrated solutions for their power management needs. Our products are broadly
divided among three product categories: Power ICs and Advanced Circuit Devices,
Power Systems and Power Components.
POWER ICS AND ADVANCED CIRCUIT DEVICES
A Power IC is a semiconductor that integrates logic and power management
functions on the same chip. These devices optimize the performance of circuits
that often include power MOSFETs and IGBTs and allow our customers to simplify
circuit design and assembly, improve reliability, and reduce overall system size
and cost. The ability of a Power IC to sense and respond to circuit conditions
makes its performance superior to discrete components. Our Power ICs often use
our proprietary power MOSFET technology. We have obtained extensive patent
protection for our Power ICs and have additional patent applications pending.
Advanced Circuit Devices are chipsets, multichip modules and advanced
performance discrete devices that address power management requirements in more
demanding applications.
Increased complexity in routers, servers and high-end enterprise computers
and other devices require increased levels of power and more effective heat
dissipation, making power management one of the most critical tasks. Notebook
computers and other portable devices are trending to lower voltages and higher
current levels, which require greater efficiency and more complex power
management to meet speed and performance demands and to extend battery life.
Over the last two years, we invested heavily in key trench and planar process
technologies. These investments have resulted in what we believe are the most
efficient
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power MOSFET devices in the marketplace. We believe this new generation of power
MOSFETs sets a new standard for price/performance in high-volume consumer
electronics applications. We have achieved multiple design wins for our new
trench and planar low voltage products in Power ICs and Advanced Circuit Devices
for latest generation digital cell phones, high-end portable PCs and other
products.
POWER SYSTEMS
Power Systems combine power semiconductors with other power management
components in specialized modules that improve power efficiency and simplify
circuit design. We are currently focusing our Power Systems on automotive
electronics and motor control. Our products provide a cost-effective alternative
to custom analog designs.
The proliferation of power features in automobiles and tougher standards for
safety, fuel economy, and emissions are driving the adoption of more complex
power electronics. An engineering group representing Mercedes-Benz, General
Motors, Ford and MIT has forecasted that the electrical load per vehicle could
triple from 800 to 2,400 watts by the year 2005, significantly reducing fuel
efficiency at a time when regulations require improved gas mileage. Our Power
Systems can help offset this impact by replacing traditional hydraulic and
belt-driven applications with electronic systems. For example, electric power
steering systems can increase fuel efficiency by more than one-and-one-half
miles per gallon. In addition, electrically operated automotive systems improve
reliability and maintenance. Power Systems are also designed into automotive
electronics, including integrated starter/alternator motors, fuel and water
pumps and fan controls.
Motors consume approximately half of the world's electricity. New
variable-speed motors equipped with Power Systems increase energy efficiency and
performance in a wide range of industrial, commercial and household
applications. For example, most refrigerator motors can only run at full speed,
but a variable-speed motor can run at the lowest speed needed to maintain the
required refrigerator temperature. Our Power Systems designed for variable-speed
motors reduce electricity consumption, simplify product design, shorten
time-to-market, improve product performance, and reduce overall costs. We have
recently achieved design wins from leading worldwide manufacturers in high-end
refrigerators, washers and home appliances.
POWER COMPONENTS
SWITCHING PRODUCTS. Power MOSFETs and IGBTs rapidly and efficiently switch
electricity on and off in order to supply power in a form that can be formatted
to the specific requirements of a circuit. Our HEXFET-Registered Trademark-
power MOSFET and IGBT component products comprised approximately two-thirds of
our fiscal 1999 sales and approximately 64% of our sales for fiscal 2000.
Through our HEXFET-Registered Trademark- product line, we believe that we
are the market leader in power MOSFETs. Our emphasis on quality control and
reliability has helped us maintain market acceptance and brand recognition of
our HEXFET-Registered Trademark-line of products. We pioneered the fundamental
technology that set the industry standard for power MOSFETs.
MOSFETs are critical in a wide variety of electric products. Communications
applications include cellular phones, telephone networks and modems. Computer
and peripheral applications include power supplies, disk drives and printers.
Office equipment applications include copiers and facsimile machines. Consumer
electronics applications include home entertainment, video cameras, household
appliances, and power tools. Automobile applications include anti-lock braking
systems, fuel injection systems, power accessories and air bags. Industrial
applications include automated production equipment, instrumentation and test
equipment. Government/space applications include communications satellites and
command-and-control systems.
IGBTs typically perform the switch function in industrial applications that
require higher current and voltage than power MOSFETs can handle efficiently.
The performance and ruggedness of these devices enable them to replace bipolar
transistors and thyristors in many high-voltage, high-current motor control
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and power conditioning applications. Energy-efficient, variable-speed motor
controls are an emerging application, and we believe electric and hybrid
vehicles may require large quantities of IGBTs for each vehicle. Our IGBT
technology is closely related to our power MOSFET technology. We believe that
our patents on fundamental power MOSFET technology also apply to IGBTs.
RECTIFIERS, DIODES AND THYRISTORS. We manufacture a broad line of
rectifiers, diodes and thyristors. These products, which also condition
electrical power to make it more efficient and usable, are used principally in
industrial end products that require power-handling capability from one amp to
5,000 amps and from 20 volts to 5,000 volts. Applications include motor and
lighting controls, welding equipment, fork lifts, machine tools, induction
heating, locomotives, motor-driven production lines, smelting equipment and
power supplies.
Our Schottky diodes and fast-recovery diodes serve the output rectification
function of power conversion. A diode is a discrete device that conducts current
in one direction. A Schottky diode is an ultra-fast diode used in
high-frequency, low-voltage circuits. A fast-recovery diode is a diode suited to
applications above 200 volts where high switching speed is desirable. Schottky
diodes are used with power MOSFETs in high-frequency applications such as
computers and peripherals. Our HEXFRED-Registered Trademark- fast-recovery
diodes are used with IGBTs in higher-current, lower-frequency applications such
as motor controls.
MANUFACTURING
Semiconductor manufacturing involves two phases of production: wafer
fabrication and assembly. Wafer fabrication requires a sequence of process steps
that expose silicon wafers to chemicals that change their electrical properties.
The chemicals are applied in patterns that define cells or circuits within
numerous individual devices, termed "die" or "chips", on each wafer. Assembly is
the sequence of production steps that divide the wafer into individual chips and
enclose the chips in structures, termed "packages," that make them usable in a
circuit. Power semiconductors generally use process technology and equipment
already proven in the manufacturing of integrated circuits.
We have production facilities in California, Massachusetts, England, Italy,
Mexico, Wales, India and China. In addition, we have equipment at, or
manufacturing supply agreements with, subcontractors located in the Philippines,
Japan, Taiwan, Malaysia, the Czech Republic, Wales and the United States.
We fabricate the majority of our power MOSFET and IGBT wafers at our HEXFET
America facility in Temecula, California. Our most advanced wafer fabrication
facility, located in El Segundo, California, expands our manufacturing
resources, as well as our development capability. A wafer fabrication facility
for high-voltage Power ICs and other Advanced Circuit Devices, as well as
assembly operations for components used in government/space applications, is
located in El Segundo, California. Another assembly operation for components
used in government/space applications is located in Leominster, Massachusetts.
We manufacture substantially all of our Schottky diodes, high-power rectifiers
and thyristors at our Turin, Italy facility. Plants that assemble power MOSFETs
and other products are located overseas in facilities we own or in subcontracted
facilities. Our high-volume assembly lines for power MOSFETs, IGBTs and diodes
are located in our facility in Mexico. We have installed a production facility
in Penllergaer, Wales, to assemble Power Systems. We also have arrangements with
third parties for product assembly in the Philippines, Malaysia, Taiwan, Japan,
the Czech Republic and Mexico. In a duty-free zone in India, we have an assembly
facility for rectifiers and thyristors.
MARKETING, SALES AND DISTRIBUTION
We market our products through sales staff, representatives and
distributors. We believe the depth of our power management product line enhances
our competitive position in the overall power semiconductor market.
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In fiscal 2000, our product sales by region, based on the location of the
customer, were approximately 36% from North America, 24% from Europe and 40%
from Asia, which includes Japan and Asia Pacific. Our domestic direct sales
force is organized into four regional sales zones. In Europe, our products are
sold through our own sales force as well as through independent sales agents and
distributors. Our European sales and representative offices are in England,
Italy, Sweden, France, Germany, Finland, Denmark, Switzerland, Russia, the Czech
Republic and Hungary. In Asia, we have sales, representative or liaison offices
in India, Japan, Singapore, China, Hong Kong, South Korea, Taiwan, the
Philippines, Australia and New Zealand.
For financial information about the results for our geographic areas for
each of the last three fiscal years, refer to "Notes to the Consolidated
Financial Statements Note 5. Geographic Segments and Foreign Operations."
Because many applications require products from several product groups, we
have organized our marketing efforts by application, rather than product type.
These groups focus on several key commercial sectors and on government/space
business. In addition, our staff of application engineers provides customers
with technical advice and support regarding the use of our products.
CUSTOMERS
Our devices are incorporated in subsystems and end-products manufactured by
other companies. Approximately 42% of our revenue in fiscal 2000 came from sales
of our products to distributors. We have historically found it more difficult to
determine distributor demand than demand from our other customers. Sales to one
distributor, Arrow Electronics, accounted for 12% of our revenues in fiscal
2000. The following table lists our major customers by end-market for fiscal
2000:
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Communications......................... Alcatel, Motorola, Nortel Networks,
Qualcomm and Samsung
Information Technology................. American Power Conversion, Artesyn,
Compaq, IBM, Lucent and Maxtor
Consumer Electronics................... Fuji, Hitachi, Philips, Siemens and
Sony
Automotive............................. Bosch, BOSE, Delphi, Ford and TRW
Industrial............................. Groupe Schneider, Grundfos, ITW, Lights
of America and Lincoln
Government/Space....................... Bosch, Hughes, Lockheed-Martin and
Marconi
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Our major distributors and contract manufacturers, based on revenues for
fiscal 2000 are:Distributors Arrow Electronics, Future Electronics and Zenitron
Contract Manufacturers Celestica, Natsteel, SCI and Solectron
BACKLOG
As of June 30, 2000, our backlog of orders was $326.7 million compared to
$146.9 million as of June 30, 1999. Backlog is comprised of purchase orders and
customer forecast commitments scheduled to be shipped within the following
twelve months. Increasingly, major customers are operating their businesses with
shorter lead-times and are placing their orders at shorter intervals, which tend
to reduce backlog relative to future revenue. The increase in backlog at
June 30, 2000 is largely attributable to an industry rebound, our market share
gains, and the addition of a backlog of $20.2 million from our acquisition of
Zing Technologies, Inc. at June 30, 2000. Given adequate notice, we usually
allow customers to cancel purchase orders without penalty. Backlog is not
necessarily indicative of sales for any future period.
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RESEARCH AND DEVELOPMENT
We conduct research and development activities to improve the
price/performance ratio of our product offerings across a wide range of end-use
applications. Our research and development program focuses on Power ICs,
Advanced Circuit Devices and Power Systems and the advancement and
diversification of our HEXFET-Registered Trademark- power MOSFET and IGBT
product lines. We also direct our research and development towards reducing the
cost of customers' existing products and products in development. Our program
places increasing emphasis on the development of chipsets and system-level
solutions that improve overall system performance and cost and help customers to
accelerate market introduction of their products.
In fiscal 2000, 1999, and 1998, we spent approximately $47.1 million,
$40.5 million, and $39.1 million, respectively, on research and development
activities.
Our research and development center in El Segundo provides increased
capacity and submicron capability for development, pilot production and
production of advanced power MOSFETs and IGBTs. The 55,000 square foot facility
incorporates a 12,000 square-foot clean-room and is designed to support greater
levels of development activity.
During fiscal 2000, our product introductions accelerated, and we achieved
cost reductions and performance enhancements across most of our product line.
Our new benchmark products for target applications introduced in fiscal 1999 and
fiscal 2000 included:
- multiple design wins for new trench and planar low-voltage MOSFETs that
increase our penetration in advanced digital cell phones and high-end
portable PCs;
- new high-voltage power MOSFETs that combine process technologies to
achieve benchmark performance in power supplies for servers and routers
needed to carry Internet traffic;
- high-performance intelligent power switches, proprietary Power ICs and
proprietary modules that won designs in electric power steering, fan
controls and diesel fuel injection applications;
- proprietary high-voltage Power ICs and IGBTs that have been designed into
high-end refrigerators and washing machines by major U.S., European and
Asian brand-name OEM's;
- Power ICs for dimmable electronic lighting; and
- a new chipset, built around a unique 1200 Power IC, which adds
functionality and sharply increases our product content in industrial
motor drives.
INTELLECTUAL PROPERTY
We have made significant investments in developing and protecting our
intellectual property. Through successful enforcement of our patents, we have
entered into more than 20 license agreements, generated royalty income, and
received substantial payments in settlement of litigation. We have 175 issued
U.S. patents and have 185 U.S. patents pending. Our power MOSFET patents expire
between 2000 and 2010, with the broadest remaining in effect until 2007 and
2008. In addition, IR has 167 issued foreign patents and 260 foreign patents
pending in a number of countries. We are also licensed to use certain patents
owned by others. We have several registered trademarks in the United States and
abroad, including the trademark HEXFET-Registered Trademark-. We believe that
our intellectual property contributes to our competitive advantage.
We are committed to enforcing our patent rights, including through
litigation, if necessary. Consistent with this policy, on June 22, 2000 we filed
suit against IXYS Corporation charging infringement of several of our MOSFET
patents. In April 2000, we entered into a worldwide royalty-bearing license
agreement with Semiconductor Components Industries, LLC, dba ON Semiconductor,
effective as of January 1, 2000, in settlement of pending litigation between us
and ON Semiconductor. We currently have license agreements with the majority of
power MOSFET manufacturers in the United States and abroad. In fiscal
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1999 and 2000, we derived $26.5 million and $36.4 million of royalty revenues,
respectively, from license agreements. In addition, other patent-related income
of $53.5 million in fiscal 1999 was derived, from license agreements for prior
periods and settlements of litigation for past infringement, net of legal costs
and the share of our royalty proceeds payable to Unitrode Corporation. Under the
terms of an agreement with Unitrode Corporation, we paid Unitrode approximately
12% of our net patent royalty income from our power MOSFET patents. We do not
believe that the expiration of four of our power MOSFET patents in calendar year
2000 will have a material adverse effect on licensing revenues, as our broadest
MOSFET patents expire in 2007 and 2008. Most of our broadest power MOSFET
patents were subject to, and have successfully emerged from, reexamination by
the United States Patent and Trademark Office.
COMPETITION
We encounter differing degrees of competition for our various products,
depending upon the nature of the product and the particular market served.
Generally, the semiconductor industry is highly competitive and subject to rapid
price changes, and several of our competitors are larger companies with greater
financial resources. We believe that we are distinguished from our competitors
by our comprehensive line of power management products and ability to combine
these products into compact, cost-effective packages and system-level solutions.
Our products compete with products manufactured by others on the basis of
breadth of product line, quality, price, reliability, overall performance of the
products, delivery time to the customer, and service (including technical advice
and support). Our major competitors include: Fairchild Semiconductor
Corporation, Infineon Technologies AG (formerly Siemens AG), Intersil
Corporation (formerly part of Harris Corporation), NEC Corporation, ON
Semiconductor (formerly a division of Motorola, Inc.), Phillips International
B.V., ST Microelectronics (formerly called SGS-Thomson Microelectronics),
Toshiba Corporation, and Vishay-Siliconix Incorporated.
ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations impose various restrictions
and controls on the storage, use and discharge of certain materials, chemicals,
and gases used in semiconductor manufacturing processes. We do not believe that
compliance with such laws and regulations as now in effect will have a material
adverse effect on our results of operations, financial position or cash flows.
However, under some of these laws and regulations, we 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, we may be subject to common law claims if we release substances that
damage or harm third parties. We cannot make assurances that changes in
environmental laws and regulations will not require additional investments in
capital equipment and the implementation of additional compliance programs in
the future which could have a material adverse effect on our results of
operations, financial position or cash flows, as could any failure by us to
comply with environmental laws and regulations.
We and Rachelle Laboratories, Inc. ("Rachelle"), a former operating
subsidiary that discontinued operations in 1986, were each named a potentially
responsible party ("PRP") in connection with the investigation by the United
States Environmental Protection Agency ("EPA") of the disposal of allegedly
hazardous substances at a major superfund site in Monterey Park, California,
known as the OII site. Other potentially responsible parties who settled certain
claims with the EPA under consent decrees filed suit in Federal Court in
May 1992 against a number of other such parties, including us, for cost recovery
and contribution under the provisions of the Comprehensive Environmental
Response, Compensation and Liability Act, commonly known as CERCLA. We have
settled all outstanding claims that have arisen out of the OII Site. No claims
against Rachelle have been settled.
We 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
10
<PAGE>
OII Site for $4,953,148, but 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, we received a Supplemental
Information Request from the EPA directed to Rachelle, to which counsel for
Rachelle responded with information regarding waste shipped to the site. 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. We have taken the position that none of the wastes
generated by Rachelle were hazardous. Counsel for Rachelle received a request
from the EPA in June 2000 to update the name of the contact party for Rachelle
designated to receive information on future proposed settlements. The request
appears to have been sent to all PRPs and indicated that the EPA intends to
formulate a final settlement offer in the near future.
We 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, we believe that any demand for the cost of the final remedy, if made,
would likely be significant, although it should be substantially below the
demand amount for earlier phases of the site clean-up. Any demands related to
the costs for the final remedy would be in addition to the amount demanded for
earlier phases of the OII Site clean-up. Our insurer has not accepted liability,
although it has made payments for defense costs we have incurred in connection
with the lawsuit.
We also received a letter dated September 9, 1994, from the State of
California Department of Toxic Substances Control stating that we may be a
potentially responsible party for the deposit of hazardous substances at a
facility in Whittier, California. In June 1995, we joined a group of other
potentially responsible parties 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. We estimated that we
sent approximately 0.1% of the waste, by weight, sent by all parties
contributing to the clean-up of the site, and we believe the cost of the
clean-up will be roughly allocated among the parties by the amount of waste
contributed. On July 31, 1999, the group proposed two settlement offers to us:
one for $34,165 and the second for $68,330. The first settlement offer covers
investigation and remediation of the site itself and a small area extending
beyond the site. The second settlement offer covers this area plus all
additional down gradient contamination. On September 14, 1999, we accepted the
$68,330 settlement offer, which requires EPA acceptance, and made the required
payment on September 28, 1999. There can be no assurance, however, that the EPA
will accept the settlement offers or what the ultimate outcome of this matter
will be. We believe that, whatever the outcome, it will not have a material
adverse effect on our financial condition, results of operations or cash flows.
EMPLOYEES
As of June 30, 2000, we employed approximately 5,098 people, of whom
approximately 4,093 were employed in North America, 846 in Western Europe and
159 in Asia. The only collective bargaining agreements to which we are subject
are with respect to our employees in Italy. We have approximately 509 employees
in Italy. We consider our relations with our employees to be good.
ITEM 2. PROPERTIES
Our operations occupy a total of approximately one million square feet, of
which approximately 600,000 square feet are located within the United States. Of
the worldwide total, approximately 182,000 square feet are leased and the
balance is owned by us.
11
<PAGE>
Our leases expire between 2000 and 2010. If we are unable to renew these
leases upon expiration, we believe that we could find other suitable premises
without any material adverse impact on our operations. Our major facilities are
in the following locations:
<TABLE>
<CAPTION>
TOTAL SQUARE FEET
-------------------
FACILITY OWNED LEASED EXPIRATION OF LEASE
-------- -------- -------- ------------------------------------
<S> <C> <C> <C>
Temecula, California................ 331,000 --
El Segundo, California.............. 113,000 158,000 May 31, 2001 to July 31, 2004
Leominister, Massachusetts.......... 44,000 --
Tijuana, Mexico..................... 129,000 --
Oxted (1)/Whyteleaf, England........ 40,000 24,000 October 13, 2004 to June 24, 2010
Turin, Italy........................ 110,000 --
Leominster, Massachusetts........... 43,243 --
Penllergaer, Wales.................. 80,000 --
</TABLE>
------------------------
(1) We intend to sell this facility and move to leased facilities
We believe that these facilities are adequate for our current and
anticipated near-term operating needs. We estimate that we currently utilize
approximately 83% of our worldwide manufacturing capacity.
We have sales or technical support offices located throughout the United
States and in Canada, France, Denmark, Germany, Switzerland, Finland,
Scandinavia, Russia, the Czech Republic, Hungary, Hong Kong, Japan, China,
Korea, Taiwan, the Philippines, Singapore and India which operate in leased
facilities.
ITEM 3. LEGAL PROCEEDINGS
We, along with 87 other companies, were 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. In July 1999, we
entered into an agreement with the Lemelson Foundation that settled all
outstanding claims and grants us a license to use the Lemelson patents asserted
against us.
We and certain of our 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 our common stock completed in April 1991 and the
redemption and conversion in June 1991 of our 9% Convertible Subordinated
Debentures due 2010. They also allege that our projections for growth in fiscal
1992 were materially misleading. Two of these suits also named our underwriters,
Kidder, Peabody & Co. Incorporated and Montgomery Securities, as defendants.
The Court has granted summary judgment in favor of our underwriters and has
dismissed the claims brought under Section 11 and 12(2) of the Securities Act of
1933, as amended, and the claims based on common law fraud and negligent
misrepresentation in the prospectuses. Accordingly, the remaining claims are
under Section 10(b) of the Securities Exchange Act of 1934, as amended, and
Rule 10b-5 thereunder.
The Court decertified the class pursuing common law claims for fraud and
negligent misrepresentation and granted the defendants' motion to narrow the
stockholder class period to June 19, 1991 through October 21, 1991. The trial is
currently scheduled for October 3, 2000.
Although we believe that the remaining claims alleged in the suits are
without merit, we cannot presently determine the ultimate outcome. A substantial
judgment or settlement, if any, could have a material adverse effect on our
results of operations, financial position or cash flows. No provision for any
12
<PAGE>
liability that may result upon adjudication of these matters has been made in
the Consolidated Financial Statements.
On December 6, 1999, we filed suit in Federal District Court in Los Angeles,
California against Semiconductor Components Industries, LLC, dba ON
Semiconductor, alleging infringement of certain of our U.S. patents. The suit
sought damages and customary relief in such matters. On April 6, 2000, we
entered into a worldwide royalty-bearing license agreement with ON Semiconductor
covering certain patents. The license agreement is effective as of January 1,
2000 and settled all pending litigation.
On June 22, 2000, we filed suit in Federal District Court in Los Angeles,
California against IXYS Corporation alleging infringement of certain of our U.S.
patents. The suit seeks damages and other relief customary in such matters. On
August 17, 2000, IXYS filed an answer and counterclaim denying infringement and
alleging patent invalidity and unenforceability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
Not applicable.
13
<PAGE>
ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers serve at the discretion of the Board of Directors.
Mr. Eric Lidow's employment with IR is subject to the provisions of an executive
employment agreement with IR dated May 15, 1991, and subsequently amended on
April 12, 1995, June 22, 1998 and August 5, 1998. For further information, see
Note 14 of the Notes to the Consolidated Financial Statements.
The executive officers of IR are:
<TABLE>
<CAPTION>
<S> <C> <C>
Eric Lidow......................... 87 Chairman of the Board
Alexander Lidow.................... 45 Chief Executive Officer
Robert J. Mueller.................. 71 Executive Vice President--External
Affairs and Business Development
Michael P. McGee................... 41 Executive Vice President and Chief
Financial Officer
Nabeel Gareeb...................... 35 Chief Operating Officer
Robert M. Grant.................... 37 Executive Vice President, Marketing
Communications and eCommerce
L. Michael Russell................. 53 Executive Vice President, Secretary
and General Counsel
</TABLE>
Eric Lidow, one of our founders, has been a director since our inception in
1947 and was Chief Executive Officer until March 1995. Mr. Lidow continues as
Chairman of the Board and also serves as Chairman of our Executive Committee.
Alexander Lidow, Ph.D., has been employed by us since 1977. He was elected a
director in September 1994 and Chief Executive Officer in March 1995. Dr. Lidow
serves on the Board of Overseers of RAND Corporation and on the Board of
Trustees of the California Institute of Technology. Dr. Lidow is a son of Eric
Lidow and a brother of Derek B. Lidow, who formerly shared the responsibility of
Chief Executive Officer with Dr. Alexander Lidow and is one of our directors.
Robert J. Mueller has been employed by us since 1961. He has been Executive
Vice President--External Affairs and Business Development since July 1993. He
was first elected a director in 1990.
Michael P. McGee joined us in July 1990. He became Vice President and Chief
Financial Officer in 1993. In November 1998, Mr. McGee was elected Executive
Vice President.
Nabeel Gareeb joined us in August 1992. In July 1999, he became Senior Vice
President, Components Group. In November 1999, Mr. Gareeb was elected Executive
Vice President, Components Group, and in July 2000, he was elected Chief
Operating Officer.
Robert M. Grant joined us in February 1992. In October 1998, he became
Senior Vice President, Customer Service and Sales Systems, and in October 1999
became Senior Vice President, Marketing Communications and eCommerce. In
July 2000, Mr. Grant was elected Executive Vice President, Marketing
Communications and eCommerce.
L. Michael Russell joined us in January 1997 as Vice President and General
Counsel and became Secretary in February 1997. In November 1998, he was elected
Executive Vice President. Mr. Russell was General Counsel, Consumer & Industrial
Segment, and Chief International Counsel of Teledyne, Inc., where he was
employed in the Corporate Legal Department for more than five years.
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
PRICE RANGE OF COMMON STOCK
(CLOSING PRICES IN DOLLARS)
<TABLE>
<CAPTION>
STOCKHOLDERS AT
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER YEAR END
FISCAL ------------------- ------------------- ------------------- ------------------- ---------------
YEAR HIGH LOW HIGH LOW HIGH LOW HIGH LOW (000'S)
------ -------- -------- -------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2000 17 7/16 12 1/4 26 15 3/4 46 23 3/4 57 9/16 31 11/16 1,546
1999 8 9/16 4 1/4 10 13/16 4 1/4 11 7/8 6 3/8 13 1/2 7 3/16 1,839
1998 23 3/4 18 23 3/8 11 9/16 14 9/16 10 9/16 12 1/2 8 3/16 1,837
</TABLE>
Our Common Stock is traded on The New York Stock Exchange and the Pacific
Exchange under the symbol "IRF." No dividends have been recently declared or
paid.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data as of June 30, 2000 and 1999 and
for the fiscal years ended June 30, 2000, 1999 and 1998 are derived from our
audited consolidated financial statements and should be read in conjunction with
our audited consolidated financial statements and notes beginning on page 33.
The selected consolidated financial data as of June 30, 1998, 1997 and 1996, and
for the fiscal years ended June 30, 1997 and 1996 are derived from our audited
consolidated financial statements which are not included in this document.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
Revenues......................................... $753,327 $545,371 $551,891 $486,127 $576,849
Cost of sales.................................... 485,240 393,379 375,727 323,067 351,046
-------- -------- -------- -------- --------
Gross profit..................................... 268,087 151,992 176,164 163,060 225,803
Selling and administrative expense............... 114,664 98,193 104,661 105,954 102,129
Research and development expense................. 47,180 40,512 39,132 35,495 26,967
Impairment of assets, restructuring and severance
charges........................................ -- 24,520 -- 71,000 --
-------- -------- -------- -------- --------
Operating profit (loss).......................... 106,243 (11,233) 32,371 (49,389) 96,707
Interest expense, net............................ (6,012) (11,120) (7,288) (4,015) (394)
Other income (expense), net...................... 1,309 53,509 (494) 714 (383)
-------- -------- -------- -------- --------
Income (loss) before income taxes, extraordinary
charge and cumulative effect of accounting
change......................................... 101,540 31,156 24,589 (52,690) 95,930
Provision (benefit) for income taxes............. 28,431 10,780 8,114 (9,484) 29,451
-------- -------- -------- -------- --------
Income (loss) before extraordinary charge and
cumulative effect of accounting change......... 73,109 20,376 16,475 (43,206) 66,479
Cumulative effect of accounting change, net of
income tax benefit of $5,431................... -- (26,154) -- -- --
Extraordinary charge on early repayment of debt,
net of income tax benefit of $1,856............ (4,772) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)................................ $ 68,337 $ (5,778) $ 16,475 $(43,206) $ 66,479
======== ======== ======== ======== ========
Net income (loss) per common share:
Basic:
Income (loss) before extraordinary charge and
cumulative effect of accounting change:...... $ 1.33 $ 0.39 $ 0.32 $ (0.84) $ 1.31
Extraordinary charge and cumulative effect of
accounting change............................ (0.08) (0.50) -- -- --
-------- -------- -------- -------- --------
Net income (loss) per common share--Basic...... $ 1.25 $ (0.11) $ 0.32 $ (0.84) $ 1.31
======== ======== ======== ======== ========
Diluted:
Income (loss) before extraordinary charge and
cumulative effect of accounting change....... $ 1.27 $ 0.39 $ 0.32 $ (0.84) $ 1.29
Extraordinary charge and cumulative effect of
accounting change............................ (0.08) (0.50) -- -- --
-------- -------- -------- -------- --------
Net income (loss) per common share--Diluted.... $ 1.19 $ (0.11) $ 0.32 $ (0.84) $ 1.29
======== ======== ======== ======== ========
Average common shares outstanding--Basic......... 54,803 51,612 51,248 51,307 50,577
Average common shares and potentially dilutive
securities outstanding--Diluted................ 57,662 51,788 51,674 51,307 51,384
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------------------
2000 1999 1998 1997 1996
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (IN THOUSANDS)(1)
Working capital (2)............................. $ 441,463 $165,642 $163,317 $203,216 $178,072
Working capital--Adjusted (3)................... 201,200 148,288 183,170 181,622 147,882
Total assets.................................... 1,025,970 709,085 735,827 679,753 629,079
Short-term debt................................. 14,073 23,043 65,379 31,820 23,570
Long-term debt, less current maturities......... 4,589 158,418 141,528 143,164 47,994
Stockholders' equity............................ 844,066 396,274 399,650 381,715 421,213
</TABLE>
------------------------
(1) Certain reclassifications have been made to previously reported amounts to
conform to current-year presentation.
(2) Working capital defined as current assets less current liabilities.
(3) Working capital (excluding cash and debt) defined as current assets
(excluding cash and short-term investments) less current liabilities
(excluding debt).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain items included in selected financial
data as a percentage of revenues.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JUNE 30,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 64.4 72.1 68.1
----- ----- -----
Gross profit................................................ 35.6 27.9 31.9
Selling and administrative expense.......................... 15.2 18.0 19.0
Research and development expense............................ 6.3 7.4 7.1
Impairment of assets, restructuring and severance charges... -- 4.5 --
----- ----- -----
Operating profit (loss)..................................... 14.1 (2.0) 5.8
Interest expense, net....................................... (0.8) (2.0) (1.3)
Other income (expense), net................................. 0.2 9.8 (0.1)
----- ----- -----
Income before income taxes, extraordinary charge and
cumulative effect of accounting change.................... 13.5 5.8 4.4
Provision for income taxes.................................. 3.8 2.1 1.4
----- ----- -----
Income before extraordinary charge and cumulative effect of
accounting change......................................... 9.7 3.7 3.0
Extraordinary charge and cumulative effect of accounting
change.................................................... (0.6) (4.8) --
----- ----- -----
Net income (loss)........................................... 9.1% (1.1)% 3.0%
===== ===== =====
</TABLE>
2000 COMPARED WITH 1999
Revenues for fiscal 2000 were $753.3 million, 38.1% higher than fiscal 1999
revenue of $545.3 million. This includes $9.4 million of revenue from our
acquisition of Zing Technologies, Inc. ("Zing") and its wholly-owned subsidiary
Omnirel LLC ("Omnirel"). Revenues for our new proprietary products (Power
Integrated Circuits, Advanced Circuit Devices, and Power Systems) grew 66% to
23% of revenue in fiscal 2000 compared to 19% of revenue in fiscal 1999. Net
patent royalties contributed $36.4 million to revenue,
17
<PAGE>
compared to $26.5 million in fiscal 1999, reflecting a number of new license
agreements and market growth.
Based on the location of the customer, revenues per region (excluding the
contribution of Zing) were approximately 36% from North America, 24% from
Europe, and 40% from Japan and Asia Pacific in fiscal 2000. This compares to
42%, 24%, and 34% for these regions, respectively, in fiscal 1999. Year-to-year,
revenue increased by 62% in Asia Pacific and 62% in Japan, reflecting the
continued movement of American and European manufacturing activities to this
region as well as strong demand in all sectors. European revenue increased 38%
year-to-year, due to continuing strength in the automotive and cellular phone
industries. Revenue in North America increased 18% year-to-year, due to strength
in the computer industry.
Gross profit was $268.1 million (35.6% of revenues) in fiscal 2000, versus
$152.0 million (27.9% of revenues) in fiscal 1999. The gross margin increase
reflected a higher proportion of revenue from our proprietary products,
increased royalty income and firm pricing. During fiscal 1999, $2.5 million was
charged to cost of goods sold due to the write-down of inventory as a result of
the planned relocation of assembly lines from our facility in England to our
facility in Mexico. Excluding the inventory charge, gross profit for fiscal 1999
was 28.3% of revenue. See "Notes to Consolidated Financial Statements, Note 4.
Impairment of Assets, Restructuring and Severance Charges."
In fiscal 2000, selling and administrative expense was $114.7 million (15.2%
of revenues), versus $98.2 million (18.0% of revenues) in the comparable
year-ago period. A reduction in the ratio of selling and administrative expense
to revenues reflects the results of ongoing initiatives to increase the
productivity of selling and administrative activities and the benefit of
restructuring programs. Selling and administrative expenses as a percentage of
revenues are expected to further decrease over the near term.
In fiscal 2000, our research and development expenditures increased to
$47.2 million (6.3% of revenues) compared to $40.5 million (7.4% of revenues) in
the comparable prior-year period. The $6.7 million increase reflects, among
other things, our initiatives to accelerate the development of new products.
With respect to current year activity related to restructuring and severance
charges taken in prior periods, refer to the "Notes to Consolidated Financial
Statements, Note 4. Impairment of Assets, Restructuring and Severance Charges."
Other income was $1.3 million in fiscal 2000 versus other income of
$53.5 million in the comparable prior-year period. In fiscal 1999, other income
consisted of proceeds related to the settlements of patent litigation. The
income reported from these settlements was net of advanced and deferred royalty
payments, patent defense costs, and the share of our royalty proceeds payable to
Unitrode Corporation.
Net interest expense decreased by $5.1 million in fiscal 2000 versus the
prior year. This decrease reflected higher interest income in fiscal 2000 as a
result of the cash generated from our common stock offering in March 2000.
Net foreign currency gains and losses were less than $1.0 million in each
fiscal year.
Our effective tax rate in fiscal 2000 was approximately 28.0%, which differs
from the U.S. federal statutory tax rate of 35%, due primarily to the decrease
in valuation allowance, the benefit of foreign tax and research and development
credits, partially offset by higher statutory tax rates in certain foreign
jurisdictions and foreign jurisdiction losses without foreign tax benefit.
The difference between the U.S. federal statutory tax rate of 35.0% and our
effective tax rate of approximately 34.6% and 33.0% in fiscal 1999 and 1998,
respectively, was attributable mainly to the benefits of foreign tax credits,
research and development credits and state tax credits partially offset by an
increase in valuation allowance, higher statutory rates in certain foreign
jurisdictions and foreign jurisdiction losses without foreign tax benefit, and
an increase due to deferred compensation in 1999.
18
<PAGE>
In the quarter ended March 31, 2000, we recorded an extraordinary charge of
$6.6 million ($4.8 million net of tax benefit) on the early extinguishment of
debt as a result of the early payoff of our outstanding loans, accrued interest
and prepayment penalties (aggregating $192.3 million) under our syndicated
Credit Agreement with Banque Nationale de Paris.
In fiscal 1999, we reported a non-cash, after-tax charge of $26.2 million
associated with the early adoption of Statement of Position ("SOP") 98-5, a
mandated change in accounting practices for certain start-up and preoperating
costs. This cumulative effect of accounting change was recorded retroactively to
the first quarter of fiscal 1999 as a one-time charge. We had previously
deferred and amortized such costs.
19
<PAGE>
1999 COMPARED WITH 1998
Fiscal 1999 was a 52-week year compared to a 53-week year in fiscal 1998.
Revenues for fiscal 1999 were $545.4 million, slightly lower than fiscal 1998
revenue of $551.9 million. Net patent royalties contributed $26.5 million to
revenue, compared to $17.2 million in the prior period. During fiscal 1999, our
global pricing averaged a 8% decline compared to a 14% drop in the prior period.
In fiscal 1999, product sales by region (based on the location of the
customer) were approximately 42% from North America, 24% from Europe and 34%
from Asia, which includes Japan and Asia Pacific, compared to 47%, 26% and 27%,
respectively, in fiscal 1998. Year-to-year, revenue in Japan decreased by 8.5%
but increased in Asia Pacific by 35.4%, reflecting a partial economic recovery
and our penetration into new market segments in the Asian market. Europe was
down 10.1% year-to-year, with weakness in most market segments. Revenue in North
America decreased 12.4% year-to-year, reflecting distributors' efforts to reduce
their inventories and the shift of some U.S. based customers' assembly
operations to locations in Asia.
Unit shipments increased 28 percent year-to-year. The revenue comparison
over the same period reflects price pressure and a shift to smaller,
lower-priced products, particularly in Asian markets.
Gross profit was $152.0 million (27.9% of revenues) in fiscal 1999, versus
$176.2 million (31.9% of revenues) in fiscal 1998. The year-to-year gross profit
comparison reflected intense industry-wide price declines, unfavorable
fluctuations in product mix, and certain other expenses: a $2.5 million
inventory write-down associated with the transfer of manufacturing lines as part
of a restructuring program, and $2.7 million related to the adoption of
Statement of Position ("SOP") 98-5, ("Reporting on the Costs of Start-up
Activities"). Total cost of sales reflected the substantial increase in unit
shipments to meet rising demand.
In an effort to offset price pressure, we substantially reduced unit costs
and achieved approximately $53 million in manufacturing cost reductions in
fiscal 1999. Cost reduction measures included re-negotiation of prices paid for
materials and subcontract manufacturing services and process changes that
benefited manufacturing yields, as well as increased utilization of our
production capacity.
Selling and administrative expense was $98.2 million (18.0% of revenues) in
fiscal 1999 versus $104.7 million (19.0% of revenues) in fiscal 1998. The
improvement in absolute dollars and as a percent of sales reflects initiatives
to increase the productivity of selling and administrative activities as well as
the benefit of restructuring programs.
In fiscal 1999, research and development expenditures increased
$1.4 million to $40.5 million (7.4% of revenues) from $39.1 million (7.1% of
revenues) in the prior period. Higher research and development expenses for
fiscal 1999 reflect accelerated development of new products, as well as higher
overhead costs associated with a new research and development facility. We
expect this increased development activity to yield significant new products.
In the second and third quarters of fiscal 1999, we took restructuring
charges totaling $18.7 million. The charges are associated with streamlining
worldwide sales and administration and with the transfer of high-volume assembly
lines from our operation in England to our facility in Mexico. 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. We expect to generate
savings of $5 million in fiscal 2000 and savings of approximately $13 million
annually thereafter when these restructuring activities are fully implemented.
We expect the savings resulting from these activities to reduce product cost and
selling and administrative expense as a percentage of sales.
During June 1999, we recorded an $8.3 million charge related to employee
severance associated with the elimination of approximately 39 positions. This
severance consisted of costs due to the resignation of
20
<PAGE>
Dr. Derek B. Lidow, who shared the responsibility of Chief Executive Officer,
and a reduction in sales and administrative management and staff levels.
Other income was $53.5 million in fiscal 1999, compared to other expense of
$0.5 million in fiscal 1998. Other income primarily consisted of proceeds from
license agreements for prior periods and amounts in settlement of litigation for
past patent infringement (net of legal costs and the share of our royalty
proceeds payable to Unitrode Corporation).
In fiscal 1999, net interest expense increased $3.8 million from the prior
year. The increase was due to higher interest expense incurred on higher average
debt balances over the prior year, which was partially offset by increases in
interest income on investments.
We reported a non-cash, after-tax charge of $26.2 million associated with
the early adoption of SOP 98-5, an AICPA-mandated change in accounting practices
for certain start-up and preoperating costs. We had previously deferred and
amortized these costs.
Net realized and unrealized foreign currency gains and losses were less than
$1 million in each year.
SEASONALITY
We have experienced moderate seasonality in our business in recent years. On
average over the past three years, we have reported approximately 46% of annual
revenues in the first half and 54% in the second half of our fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we maintained cash, cash equivalents and short-term
investments of $254.3 million compared to $40.4 million at June 30, 1999. The
increase was primarily the result of cash generated from operating activities
and our common stock offering in March 2000. During the twelve-month period
ended June 30, 2000, operating activities generated cash flow of $96.4 million.
Net investing activities consumed $145.8 million, primarily due to capital
expenditures of $64.6 million and purchases of short-term investments of
$49.0 million. At June 30, 2000, we had made purchase commitments for capital
expenditures of approximately $15.2 million. Assuming existing market
conditions, we plan fiscal 2001 capital investments of approximately
$125 million, principally for fabrication and assembly capacity to meet market
demand. We intend to fund capital expenditures and working capital requirements
through cash and cash equivalents on hand, anticipated cash flow from
operations, and, as needed, from funds available from equipment financing
facilities. On July 17, 2000, subsequent to the end of fiscal 2000, we sold
$550 million of 4.25% convertible subordinated notes. We received proceeds of
approximately $533 million (net of underwriting commissions). The notes mature
in seven years. The notes may be converted into common stock at a conversion
price of $73.935 per share. We may redeem the notes on or after July 18, 2003.
For more information on the notes, see "Notes to Consolidated Financial
Statements Note 17. Subsequent Events." Although we believe that funding will be
sufficient, we may also consider the use of funds from other external sources
including, but not limited to, public or private offerings of debt or equity.
In fiscal 2000, cash provided by financing activities amounted to
$214.3 million. In March 2000, we completed an offering of 9,250,000 shares of
common stock (of which 8,850,000 shares were sold by IR and the remaining
400,000 shares were sold by a stockholder) that generated net proceeds of
$360.7 million for us (net of $2.7 million of transaction costs and
$17.9 million of underwriting commissions). We used a portion of the proceeds to
pay off the outstanding loans, accrued interest and prepayment penalties
(aggregating $192.3 million) under our syndicated Credit Agreement with Banque
Nationale de Paris. The remaining proceeds will be used for general corporate
purposes, including capital expenditures and possible acquisitions. As of
June 30, 2000, we also had $19.3 million in foreign revolving lines of credit,
against which $12.1 million had been borrowed. In addition, we had foreign term
loan facilities of
21
<PAGE>
$2.2 million and domestic equipment financing facilities of $4.4 million, which
were both fully utilized. As of June 30, 2000, we had credit facilities of
$26.0 million, against which $18.6 million had been borrowed. Based on cash,
cash equivalents on hand, short-term investments and unused credit facilities at
June 30, 2000, our liquidity was $261.6 million.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various risks including changes in interest rates
affecting the repayment of debt and return on investments and foreign currency
rate fluctuations. We do not hold or purchase any foreign currency or interest
rate contracts for trading purposes. Our objective in managing the exposure to
foreign currency changes is to reduce the risk to earnings and cash flow by
entering into forward exchange contracts which are intended to reduce risks
associated with the value of our 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. We do not hedge our foreign currency exposure in a manner that would
entirely eliminate the effects of changes in foreign exchange rates on our
consolidated net income.
In the normal course of business, we also face 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
Our financial assets and liabilities that are subject to interest rate risk
are our short-term investments. As of June 30, 2000, a 10% change in interest
rates would not have had a material effect on our results of operations,
financial position and cash flows.
Foreign Currency Risk
We conduct business in various parts of the world and in various foreign
currencies. We manage potential foreign currency exposure by entering into
forward foreign exchange contracts or other non-speculative risk management
instruments to hedge foreign currency denominated receivables and payables at
certain of our international subsidiaries. At June 30, 2000, we evaluated the
effect that near-term changes in foreign exchange rates would have had on the
fair value of our combined foreign currency position, related to our outstanding
foreign currency forward exchange contracts. If we experienced an adverse change
in foreign exchange rates of as much as 10%, the potential change in our foreign
currency position would have had an immaterial effect on the results of our
operations, financial position and cash flows.
In fiscal 2000, we derived a large portion of our revenues from sales in
foreign markets. The notional value of our foreign currency forward contracts
was $37.4 million at June 30, 2000 compared to $44.5 million at June 30, 1999.
This decrease is due primarily to the sale of certain foreign currency forward
contracts. The fair market value of our foreign currency forward contracts was
$0.5 million at June 30, 2000 and $0.7 million at June 30, 1999. Net realized
and unrealized foreign currency gains and losses were less than $1 million in
the twelve months ended June 30, 1999 and 2000.
IMPACT OF THE INTRODUCTION OF THE EURO
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 in non-cash
transactions. On January 1, 2002, euro-denominated bills and coins will be
issued and the participating country's present currency will be gradually
withdrawn during a short period of dual circulation of no more than three
months.
22
<PAGE>
We have initiated an internal analysis to determine the effects of the
January 1, 2002 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, we do not believe that the euro
conversion will have a material adverse impact on our business or financial
condition. We will continue to evaluate the impact of the euro conversion.
IMPAIRMENT OF ASSETS, RESTRUCTURING AND SEVERANCE CHARGES
During December 1998, we recorded a $14.5 million restructuring charge
associated with plans to relocate high-volume assembly lines from our facility
in England to our facility in Mexico to take advantage of labor rate savings,
and to centralize more of our European customer service and administrative
activities, resulting in reductions in personnel. We essentially completed this
operational transition as of June 30, 2000. The charge consisted of
$5.9 million, substantially 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, remain in use and all of them have been
abandoned. In the third quarter of fiscal 1999, we 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. The severance per person is larger for the
March 1999 restructuring versus the December 1998 restructuring as the 43
positions included in the March 1999 restructuring were primarily highly-paid
employees in sales and administrative management. The approximately 350
positions in the December 1998 restructuring were primarily operators and
technicians who have a much lower salary level.
The cost savings from the fiscal 1999 restructuring activities resulted in
annual savings of approximately $5 million in fiscal 2000 and is expected to
result in approximately $13 million annually thereafter. These estimated savings
consist of lower direct labor costs, lower factory overhead (including lower
depreciation expense), lower materials costs and lower selling and
administrative costs.
As of June 30, 2000, we had eliminated 336 positions, paid $9.5 million for
termination benefits related to this program and recorded asset impairments
totaling $8.5 million. The remaining unutilized restructuring accrual of
$0.7 million, which is classified as current, relates to severance payments to
certain notified employees, who were notified prior to June 30, 2000 of the
elimination of their positions. We estimate that, ultimately, charges associated
with all of these actions will total approximately $18.7 million.
During June 1999, we recorded an $8.3 million charge related to employee
severance associated with the elimination of approximately 39 positions. This
includes a reduction in sales and administrative management staff levels and the
resignation of Dr. Derek B. Lidow, who shared the responsibility of Chief
Executive Officer. As of June 30, 2000, we had eliminated 36 positions and paid
$6.3 million in termination benefits. The remaining unutilized severance accrual
of $2.0 million at June 30, 2000, which is classified as current, relates to
severance payments to certain employees who were notified prior to June 30, 2000
of the elimination of their positions.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation", an interpretation of APB Opinion No. 25. Interpretation No. 44
clarifies the application of Opinion 25 for the definition of an employee for
purposes of applying Opinion 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequence of various
modifications to the terms of a previously
23
<PAGE>
fixed stock option or award and the accounting for an exchange of stock
compensation awards in a business combination. The interpretation is effective
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998 or January 12, 2000. We believe that this
interpretation will not have a material impact on our consolidated financial
statements.
Effective the first day of fiscal 2000, we adopted SOP 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," issued
by the American Institute of Certified Public Accountants ("AICPA"). SOP 98-1
provides standards on accounting for the costs of computer software developed or
obtained for internal use. The new standards do not significantly differ from
our previous accounting treatment for software developed or obtained for
internal use and did not have a significant impact on our Consolidated Financial
Statements.
During fiscal 1999, we elected early adoption of Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." This accounting standard,
issued in April 1998 by the AICPA, requires most entities to expense all
start-up and preoperating costs as they are incurred. We previously deferred
such costs and amortized them over the life of the related asset following the
start-up of each new process. The early adoption of SOP 98-5 was required to be
made retroactive to the beginning of the first quarter of fiscal 1999. The
cumulative effect of this change in accounting principle, net of income tax
benefit of $5.4 million, was $26.2 million or $0.50 per basic and diluted share
and was recorded retroactively to the first quarter of 1999 as a one-time
charge. Currently, all start-up and preoperating costs are expensed as incurred.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarized certain areas of the Staff's views in applying
generally accepted accounting principles to revenue in financial statements. SAB
101, as amended by SAB 101A, "Amendment: Revenue Recognition in Financial
Statements" and SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements" is effective for us commencing in the fourth quarter of fiscal 2001.
We do not believe that SAB 101, as amended by SAB 101A and SAB 101B, will have a
material impact on our consolidated financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which was later amended by SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement
No. 133." SFAS No. 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 No. 133, as
amended by SFAS No. 137, and is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. We do not believe that SFAS No. 133, as
amended by SFAS No. 137, will have a material impact on our consolidated
financial statements.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Form 10-K 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 might be slowed, and Company performance
might be negatively impacted. Other risks and uncertainties that could
negatively impact our results include: delays in or higher-than-anticipated
expenses associated with
24
<PAGE>
implementing planned cost reductions; the effectiveness of cost controls; the
impact of changes in accounting methods; the impact of trade and export
regulations and policies; the actual results of outstanding litigation; changes
in environmental laws and regulations; delays in transferring and ramping
production lines or completing customer qualifications; the accuracy of
customers' forecasts; the ability of current manufacturing facilities to meet
future operating needs; product returns; changes in customers' order patterns;
our mix of product shipments; the actual growth of the portable electronics
industry; the continued rapid growth of demand for more efficient semiconductor
components and power conversion solutions; market and sector conditions that
affect our customers, licensees, and suppliers; pricing pressures; acceptance of
competitors' products; introduction, acceptance, and availability of new
products; inability to fund capital expenditures from existing credit facilities
or other external sources; the failure of suppliers and subcontractors to meet
their delivery commitments to us; unanticipated impacts on our business or
financial condition due to the euro conversion; unfavorable changes in industry
and competitive conditions; and general economic conditions in our markets
around the world.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Quantitative and Qualitative Disclosures about Market Risk" in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... 27
Financial Statements
Consolidated Statement of Operations for the Fiscal Years
Ended June 30, 2000, 1999 and 1998...................... 28
Consolidated Statement of Comprehensive Income for the
Fiscal Years Ended June 30, 2000, 1999 and 1998......... 29
Consolidated Balance Sheet as of June 30, 2000 and 1999... 30
Consolidated Statement of Stockholders' Equity for the
Fiscal Years Ended June 30, 2000, 1999 and 1998......... 31
Consolidated Statement of Cash Flows for the Fiscal Years
Ended June 30, 2000, 1999 and 1998...................... 32
Notes to Consolidated Financial Statements................ 33
Supporting Financial Statement Schedule:
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE NO. PAGE
------------ --------
<S> <C>
II Valuation and Qualifying Accounts and Reserves for
the Fiscal Years Ended June 30, 2000, 1999 and 1998.... 60
</TABLE>
Schedules other than those listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the Consolidated Financial Statements or related Notes.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
International Rectifier Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows present fairly, in all material respects, the financial
position of International Rectifier Corporation and its subsidiaries at
June 30, 2000 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 2000, in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and the financial statement
schedule are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Los Angeles, California
July 20, 2000
27
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $753,327 $545,371 $551,891
Cost of sales............................................... 485,240 393,379 375,727
-------- -------- --------
Gross profit............................................ 268,087 151,992 176,164
Selling and administrative expense.......................... 114,664 98,193 104,661
Research and development expense............................ 47,180 40,512 39,132
Impairment of assets, restructuring and severance charges
(Note 4).................................................. -- 24,520 --
-------- -------- --------
Operating profit (loss)................................. 106,243 (11,233) 32,371
Other income (expense):
Interest, net............................................. (6,012) (11,120) (7,288)
Other, net.................................................. 1,309 53,509 (494)
-------- -------- --------
Income before income taxes, extraordinary charge and
cumulative effect of accounting change................ 101,540 31,156 24,589
Provision for income taxes (Note 6)......................... 28,431 10,780 8,114
-------- -------- --------
Income before extraordinary charge and cumulative effect
of accounting change.................................. 73,109 20,376 16,475
Cumulative effect of accounting change, net of income tax
benefit of $5,431......................................... -- (26,154) --
Extraordinary charge on early repayment of debt, net of
income tax
benefit of $1,856......................................... (4,772) -- --
-------- -------- --------
Net income (loss)....................................... $ 68,337 $ (5,778) $ 16,475
======== ======== ========
Net income (loss) per common share:
Basic:
Income before extraordinary charge and cumulative effect
of accounting change.................................... $ 1.33 $ 0.39 $ 0.32
Extraordinary charge and cumulative effect of accounting
change.................................................. (0.08) (0.50) --
-------- -------- --------
Net income (loss) per common share--Basic (Note 7)........ $ 1.25 $ (0.11) $ 0.32
======== ======== ========
Diluted:
Income before extraordinary charge and cumulative effect
of accounting change.................................... $ 1.27 $ 0.39 $ 0.32
Extraordinary charge and cumulative effect of accounting
change.................................................. (0.08) (0.50) --
-------- -------- --------
Net income (loss) per common share--Diluted (Note 7)...... $ 1.19 $ (0.11) $ 0.32
======== ======== ========
Average common shares outstanding--Basic (Note 7)........... 54,803 51,612 51,248
======== ======== ========
Average common shares and potentially dilutive securities
outstanding--Diluted (Note 7)............................. 57,662 51,788 51,674
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
28
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)........................................... $68,337 $(5,778) $16,475
------- ------- -------
Other comprehensive income (loss), net of tax effect of
$(105), $305 and $904, respectively:
Foreign currency translation adjustments.................. (1,670) (579) (1,835)
Unrealized gains on securities:
Unrealized holding gains arising during period.......... 1,940 -- --
------- ------- -------
Other comprehensive income................................ 270 (579) (1,835)
------- ------- -------
Comprehensive income (loss)........................... $68,607 $(6,357) $14,640
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
29
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN 000'S EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 196,406 $ 31,497
Short-term investments.................................... 57,930 8,900
Trade accounts receivable, less allowance for doubtful
accounts ($1,280 in 2000 and $1,886 in 1999)............ 180,349 121,659
Inventories............................................... 117,974 108,463
Deferred income taxes (Note 6)............................ 21,953 16,078
Prepaid expenses and other receivables.................... 17,011 19,677
---------- --------
Total current assets.................................. 591,623 306,274
Property, plant and equipment, at cost, less accumulated
depreciation ($304,644 in 2000 and $252,707 in 1999).... 390,787 380,504
Other assets.............................................. 43,560 22,307
---------- --------
Total assets.......................................... $1,025,970 $709,085
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank loans (Note 2)....................................... $ 12,089 $ 14,996
Long-term debt, due within one year (Note 2).............. 1,984 8,047
Accounts payable.......................................... 85,580 64,809
Accrued salaries, wages and commissions................... 17,757 19,546
Other accrued expenses.................................... 32,750 33,234
---------- --------
Total current liabilities............................. 150,160 140,632
Long-term debt, less current maturities..................... 4,589 158,418
Other long-term liabilities................................. 8,486 7,142
Deferred income taxes (Note 6).............................. 18,669 6,619
Commitments and contingencies (Notes 9, 10, 11, 13, 14 and
15)
Stockholders' equity (Notes 1 and 3):
Common shares, $1 par value, authorized: 150,000,000;
issued and outstanding: 61,594,181 shares in 2000 and
51,780,700 shares in 1999............................... 61,594 51,781
Preferred shares, $1 par value, authorized: 1,000,000;
issued and outstanding: none in 2000 and 1999........... -- --
Capital contributed in excess of par value of shares...... 627,118 257,746
Retained earnings......................................... 161,205 92,868
Accumulated other comprehensive loss...................... (5,851) (6,121)
---------- --------
Total stockholders' equity............................ 844,066 396,274
---------- --------
Total liabilities and stockholders' equity............ $1,025,970 $709,085
========== ========
</TABLE>
The accompanying notes are an integral part of this statement.
30
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN 000'S EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
CONTRIBUTED ACCUMULATED
IN EXCESS OF OTHER
COMMON PAR VALUE RETAINED COMPREHENSIVE
SHARES OF SHARES EARNINGS INCOME (LOSS) TOTAL
--------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997..................... $51,052 $252,199 $ 82,171 $(3,707) $381,715
Issuance of common shares:
82,361--exercise of stock options 82 528 -- -- 610
216,655--stock purchase plan 217 2,181 -- -- 2,398
Tax benefits from exercise of stock options
and stock purchase plan.................. -- 287 -- -- 287
Net income for the year ended June 30,
1998..................................... -- -- 16,475 -- 16,475
Foreign currency translation adjustments... -- -- -- (1,835) (1,835)
------- -------- -------- ------- --------
BALANCE, JUNE 30, 1998..................... 51,351 255,195 98,646 (5,542) 399,650
Issuance of common shares:
85,600--exercise of stock options 86 549 -- -- 635
344,177--stock purchase plan 344 2,040 -- -- 2,384
Adjustment to tax benefits from exercise of
stock options and stock purchase plan.... -- (38) -- -- (38)
Net loss for the year ended June 30,
1999..................................... -- -- (5,778) -- (5,778)
Foreign currency translation adjustments... -- -- -- (579) (579)
------- -------- -------- ------- --------
BALANCE, JUNE 30, 1999..................... 51,781 257,746 92,868 (6,121) 396,274
Issuance of common shares:
8,850,000--issuance of common stock 8,850 351,838 -- -- 360,688
726,271--exercise of stock options 726 9,817 -- -- 10,543
237,210--stock purchase plan 237 2,047 -- -- 2,284
Tax benefits from exercise of stock options
and stock purchase plan.................. -- 5,670 -- -- 5,670
Unrealized gain on available-for-sale
securities, less deferred tax provision
of $1,140................................ -- -- -- 1,940 1,940
Net income for the year ended June 30,
2000..................................... -- -- 68,337 -- 68,337
Foreign currency translation adjustments... -- -- -- (1,670) (1,670)
------- -------- -------- ------- --------
BALANCE, JUNE 30, 2000..................... $61,594 $627,118 $161,205 $(5,851) $844,066
======= ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
31
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN 000'S)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------
2000 1999 1998
--------- --------- --------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)......................................... $ 68,337 $ (5,778) $ 16,475
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 55,937 46,162 38,937
Deferred income......................................... (350) (600) (600)
Deferred income taxes................................... 6,178 (7,231) 9,452
Deferred compensation and other......................... (70) (6,888) (1,892)
Impairment of assets, restructuring and severance
charges............................................... -- 27,020 --
Cumulative effect of accounting change.................. -- 26,154 --
Extraordinary charge.................................... 4,772 -- --
Change in operating assets and liabilities (Note 1)..... (38,439) 18,373 (16,291)
--------- --------- --------
Net cash provided by operating activities................... 96,365 97,212 46,081
--------- --------- --------
Cash flow from investing activities:
Additions to property, plant and equipment................ (64,616) (71,577) (90,280)
Proceeds from sale of property, plant and equipment....... 4,118 -- --
Acquisition of business................................... (28,500) -- --
Purchase of short-term investments........................ (49,030) (12,900) (47,550)
Proceeds from sale of short-term investments.............. -- 17,232 51,168
Change in other noncurrent assets......................... (7,755) 8,862 (5,596)
--------- --------- --------
Net cash used in investing activities....................... (145,783) (58,383) (92,258)
--------- --------- --------
Cash flow from financing activities:
Net proceeds from issuance of (repayments of) short-term
bank debt............................................... (2,712) (12,727) 16,922
Net proceeds from issuance of long-term debt.............. 153 192,669 42,128
Payments on long-term debt and obligations under capital
leases.................................................. (164,134) (217,352) (18,650)
Net proceeds from issuance of common stock................ 379,185 2,981 3,295
Other..................................................... 1,810 (5,647) (1,560)
--------- --------- --------
Net cash provided by (used in) financing activities......... 214,302 (40,076) 42,135
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 25 450 (228)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 164,909 (797) (4,270)
Cash and cash equivalents, beginning of year................ 31,497 32,294 36,564
--------- --------- --------
Cash and cash equivalents, end of year...................... $ 196,406 $ 31,497 $ 32,294
========= ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
32
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
International Rectifier Corporation ("IR or the Company") is a leading
designer, manufacturer and marketer of power semiconductors and the leading
worldwide supplier of a type of power semiconductor called a MOSFET, a metal
oxide semiconductor field effect transistor. Power semiconductors perform a
power management function by converting electricity into a form more usable by
electrical products. The technology advancements of power semiconductors
increase system efficiency, allow more compact end products, improve features
and functionality and extend battery life. The Company's products are used in a
range of end markets, including communications, consumer electronics,
information technology, automotive, industrial and government/space.
IR was founded as a California corporation in 1947 and reincorporated in
Delaware in 1979.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its majority-owned subsidiaries, which are located in Europe, Mexico,
Japan, and Southeast Asia. All material intercompany transactions have been
eliminated.
FISCAL YEAR
The Company operates on a fiscal calendar under which fiscal 2000 consisted
of 52 weeks ending July 2. Fiscal 1999 consisted of 52 weeks ending July 4.
Fiscal 1998 consisted of 53 weeks ending July 5. For convenience, all references
herein to fiscal years are to fiscal years ended June 30.
REVENUE RECOGNITION
The Company recognizes revenues from product sales to all customers,
including distributors, when an agreement of sale exists, product delivery has
occurred, pricing is fixed and determinable, and collection is reasonably
assured.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
ADVERTISING
The Company expenses all advertising costs in the periods in which those
costs are incurred. The Company shares portions of certain distributors'
advertising expenses through cooperative advertising arrangements. In fiscal
2000, 1999, and 1998, the Company incurred approximately $4.2 million,
$3.9 million, and $3.6 million, respectively, of advertising costs.
ENVIRONMENTAL COSTS
Costs incurred to investigate and remediate contaminated sites are expensed.
INCOME TAXES
Deferred income taxes are determined based on the difference between the
financial reporting and tax bases of assets and liabilities using enacted rates
in effect during the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable for the period and the change during the period in deferred tax assets
and liabilities.
33
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
U.S. income taxes have not been provided on approximately $53.3 million of
undistributed earnings of foreign subsidiaries since management considers these
earnings to be invested indefinitely or substantially offset by foreign tax
credits. It is not practicable to estimate the amount of unrecognized deferred
U.S. taxes on these undistributed earnings.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share-Basic is computed by dividing net income
(loss) available to common stockholders (the numerator) by the weighted average
number of common shares outstanding (the denominator) during the period. The
computation of net income (loss) per common share-Diluted is similar to the
computation of net income (loss) per common share-Basic except that the
denominator is increased to include the number of potential common shares, such
as options, that would have been outstanding. The Treasury Stock Method is used
to calculate the dilutive shares, which reduces the gross number of dilutive
shares by the number of shares purchasable from the proceeds of the options
assumed to be exercised.
STATEMENT OF CASH FLOWS
The Company invests excess cash from operations in investment grade money
market instruments. The Company considers all highly liquid debt instruments
with a purchased maturity of three months or less to be cash equivalents.
Components in the change of operating assets and liabilities for the fiscal
years ended June 30, 2000, 1999, and 1998 were comprised of the following
(000's):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Trade accounts receivable, net................. $(49,090) $ (1,107) $ (8,381)
Inventories.................................... (5,295) 15,494 (16,104)
Prepaid expenses and other receivables......... (52) (6,704) (279)
Accounts payable............................... 19,871 18,525 7,106
Accrued salaries, wages and commissions........ (2,527) 3,893 1,660
Other accrued expenses......................... (1,346) (11,728) (293)
-------- -------- --------
$(38,439) $ 18,373 $(16,291)
======== ======== ========
</TABLE>
Supplemental disclosures of cash flow information (000's):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest........................................ $12,205 $ 6,497 $7,423
Income taxes.................................... 7,005 18,274 2,050
Interest capitalized............................ 788 1,142 2,434
</TABLE>
SHORT-TERM INVESTMENTS
The Company's short-term investments consist of investment-grade money
market instruments. All of the Company's investments have original maturities of
less than one year. In accordance with the criteria established by Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the Company's investments are
classified as "available-for-sale." In accordance with SFAS 115, these
investments are carried at market value, and unrealized gains and losses, net of
tax, are reported in shareholders' equity as a component of accumulated other
34
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
comprehensive income and loss. At June 30, 1999 the cost of the investments
approximates the market value. Unrealized holding gains of $1.9 million are
included in other comprehensive income for fiscal 2000. Unrealized gains and
losses were immaterial for fiscal 1999 and 1998.
INVENTORIES
Inventories are stated at the lower of cost (principally first-in,
first-out) or market. Inventories at June 30, 2000 and 1999 were comprised of
the following (000's):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Raw materials........................................... $ 18,296 $ 15,277
Work-in-process......................................... 59,654 52,124
Finished goods.......................................... 40,024 41,062
-------- --------
$117,974 $108,463
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Upon retirement or other
disposal, the asset cost and related accumulated depreciation are removed from
the accounts and any gain or loss on disposition is included in other income.
Depreciation is provided on the straight-line method, based on the estimated
useful lives of the assets, ranging from 3 to 30 years, or the units of
production method based upon the estimated output of the equipment. Depreciation
and amortization expense for the fiscal years ended June 30, 2000, 1999 and 1998
was $55.9 million, $46.2 million and $38.9 million, respectively. Property,
plant and equipment at June 30, 2000 and 1999 were comprised of the following
(000's):
<TABLE>
<CAPTION>
RANGE OF
2000 1999 USEFUL LIFE
--------- --------- -----------
<S> <C> <C> <C>
Buildings and improvements.................. $ 146,627 $ 120,872 3-30
Equipment................................... 481,145 425,194 3-15
Construction-in-progress.................... 56,993 76,841
Less accumulated depreciation............... (304,644) (252,707)
--------- ---------
380,121 370,200
Land........................................ 10,666 10,304
--------- ---------
$ 390,787 $ 380,504
========= =========
</TABLE>
Depreciation of improvements to leased premises is provided on the
straight-line method over the shorter of the remaining term of the lease or
estimated useful lives of the improvements. Capital leases included in property,
plant and equipment at June 30, 2000 and 1999 were as follows (000's):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Equipment................................................ $ 2,208 $ 13,607
Less accumulated depreciation............................ (1,459) (10,882)
------- --------
$ 749 $ 2,725
======= ========
</TABLE>
Repairs and maintenance costs are charged to expense. In the fiscal years
ended June 30, 2000, 1999, and 1998, repairs and maintenance costs were
$23.5 million, $16.7 million, and $18.8 million, respectively.
35
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historically, preoperating and start-up costs incurred in connection with
construction of major new production facilities were capitalized until such
facilities become operational. These costs were then amortized over the lives of
such facilities. Effective fiscal 1999, preoperating and start-up costs are
expensed as incurred in accordance with SOP 98-5, as described more fully in the
Recent Accounting Pronouncements section of Note 1 of the Consolidated Financial
Statements.
LONG-LIVED ASSETS
The Company defines long-lived assets as property, plant, and equipment less
accumulated depreciation, and other intangible assets.
The Company identifies and records impairment losses on long-lived assets
when events and circumstances indicate that such assets might be impaired. The
Company periodically evaluates the recoverability of its long-lived assets based
on expected undiscounted cash flows and recognizes impairments, if any, based on
the fair value of the assets.
INTANGIBLE ASSETS
Patent and related costs are amortized using the straight-line method over
the life of the related patent portfolio. On March 16, 2000, the Company
completed its acquisition by merger between the Company's acquisition subsidiary
and Zing Technologies, Inc. ("Zing"), and its wholly-owned subsidiary, Omnirel
LLC ("Omnirel"). Total consideration exceeded fair market value of the net
tangible assets acquired by $14.2 million, of which $1.5 million has been
recorded as goodwill and $12.7 million has been allocated to other intangibles
consisting of assembled workforce, trade name, completed technology and customer
base. The goodwill and the other intangibles are being amortized on a
straight-line basis over periods up to 15 years.
CONCENTRATION OF RISK
The Company places its cash in investment-grade vehicles with high credit
quality financial institutions.
The Company performs periodic credit evaluations of its customers' financial
conditions and generally does not require collateral. Credit losses have
consistently been within management's expectations.
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS
In general, the functional currency of a foreign operation is deemed to be
the local country's currency. Assets and liabilities of operations outside the
United States are translated into U.S. dollars using current exchange rates.
Income and expense are translated at average exchange rates prevailing during
the period. The effects of foreign currency translation adjustments are included
as a component of stockholders' equity. At June 30, 2000 and 1999, accumulated
foreign currency translation losses were $5.8 million and $6.1 million,
respectively.
The Company hedges certain portions of its exposure to foreign currency
fluctuations of foreign currency denominated receivables and payables at certain
of its international subsidiaries through forward foreign exchange contracts. At
June 30, 2000 and 1999, the Company had approximately $37.4 million and
$44.5 million in notional value of forward foreign exchange contracts
outstanding with fair values of $0.5 million and $0.7 million, respectively. The
fair value of foreign currency contracts is estimated based on the spot rate of
the various hedged currencies as of the end of the period. Net realized and
unrealized gains or losses on forward contracts for the years ending June 30,
2000 and 1999 were less than
36
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$1.0 million, and were included in "Other Income (Expense)." The Company does
not hold or issue forward contracts for trading purposes.
At June 30, 2000 and 1999, the majority of the maturities of the Company's
forward foreign exchange contracts were three months or less in term.
INTEREST RATE SWAPS
Under the Company's Credit Agreement entered into on June 30, 1999, the
Company was required to hedge the interest rate for at least half of the
outstanding term loans under the agreement. The Company entered into interest
rate swap agreements to hedge approximately 50% of these outstanding term loans.
In March 2000, the Company paid off all outstanding loans and sold all of its
unexpired interest rate swap agreements, resulting in a nominal gain.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record stock-based employee compensation plans at fair value. The Company has
elected to continue accounting for stock-based compensation in accordance with
APB No. 25 and is providing the required disclosures under SFAS No. 123 in the
Notes to the Consolidated Financial Statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation," an interpretation of APB Opinion No. 25. Interpretation No. 44
clarifies the application of Opinion 25 for the definition of an employee for
purposes of applying Opinion 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award and the
accounting for an exchange of stock compensation awards in a business
combination. The interpretation is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998 or
January 12, 2000. The Company believes that this interpretation will not have a
material impact on its consolidated financial statements.
Effective the first day of fiscal 2000, the Company adopted SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," issued by the American Institute of Certified Public Accountants
("AICPA"). SOP 98-1 provides standards on accounting for the costs of computer
software developed or obtained for internal use. The new standards do not
significantly differ from the Company's previous accounting treatment for
software developed or obtained for internal use and did not have a significant
impact on its Consolidated Financial Statements.
37
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
During fiscal 1999, the Company elected early adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities." This accounting
standard, issued in April 1998 by the AICPA, requires most entities to expense
all start-up and preoperating costs as they are incurred. The Company previously
deferred such costs and amortized them over the life of the related asset
following the start-up of each new process. The early adoption of SOP 98-5 was
required to be made retroactive to the beginning of the first quarter of fiscal
1999. The cumulative effect of this change in accounting principle, net of
income tax benefit of $5.4 million, was $26.2 million or $0.50 per basic and
diluted share and was recorded retroactively to the first quarter of 1999 as a
one-time charge. Currently, all start-up and preoperating costs are expensed as
incurred.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue in financial statements. SAB
101, as amended by SAB 101A, "Amendment: Revenue Recognition in Financial
Statements" and SAB 101B, "Second Amendment: Revenue Recognition in Financial
Statements" is effective for the Company commencing in the fourth quarter of
fiscal 2001. The Company does not believe that SAB 101, as amended by SAB 101A
and SAB 101B, will have a material impact on its consolidated financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
which was later amended by SFAS No. 137 "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement
No. 133." SFAS No. 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 No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not believe that SFAS No. 133,
as amended by SFAS No. 137, will have a material impact on its Consolidated
Financial Statements.
RECLASSIFICATION
Certain reclassifications have been made to previously reported amounts to
conform to the current-year presentation.
38
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BANK LOANS AND LONG-TERM DEBT
In the quarter ended March 31, 2000, the Company successfully completed an
offering of 9,250,000 shares of common stock, of which 8,850,000 shares were
sold by the Company, which generated net proceeds to the Company of
$360.7 million (net of $2.7 million of transaction costs and $17.9 million of
underwriting commissions). The remaining 400,000 shares were sold by a
stockholder. A portion of the Company's proceeds was used to pay off outstanding
loans, accrued interest and prepayment penalties (aggregating $192.3 million)
under the Company's syndicated Credit Agreement with Banque Nationale de Paris.
As a result of the early extinguishment of debt, the Company incurred an
extraordinary charge of $6.6 million ($4.8 million net of tax benefit).
At June 30, 2000, the Company had $19.3 million in foreign revolving lines
of credit, against which $12.1 million had been borrowed. Foreign term loan
facilities of $2.2 million and equipment financing facilities of $4.4 million
were both fully utilized.
The following is a summary of the Company's long-term debt and other loans
at June 30, 2000, and 1999 (in 000's):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Domestic bank loans collateralized by the majority of the
Company's assets, payable in quarterly installments of
principal and interest at variable rates of 8.3% and 8.8%,
due in 2004 and 2005...................................... $ -- $155,213
Capitalized lease obligations payable in varying monthly
installments primarily at variable rates from 6.3% to
12.0%, due in 2002 through 2004........................... 4,406 5,298
Foreign bank loans collateralized by property and/or
equipment, payable in varying monthly installments at
10.8%, due in 2000........................................ 233 216
Foreign unsecured bank loans payable in varying monthly
installments at rates from 4.3% to 8.4%, due in 2001
through 2006.............................................. 1,934 5,738
------- --------
Debt, including current portion of long-term debt ($1,984 in
2000 and $8,047 in 1999).................................. 6,573 166,465
Foreign unsecured revolving bank loans at rates from 1.5% to
8.5%...................................................... 12,089 14,996
------- --------
Total debt.................................................. $18,662 $181,461
======= ========
</TABLE>
As of June 30, 2000, scheduled principal payments on long-term debt are as
follows: fiscal 2001: $2.1 million; fiscal 2002: $1.8 million; fiscal 2003:
$1.4 million; fiscal 2004: $1.1 million; fiscal 2005: $0.1 million and
$0.1 million thereafter.
During fiscal 2000, 1999 and 1998, the Company incurred interest expense,
net of capitalized interest, of $11.2 million, $12.7 million, and
$10.1 million, respectively.
In accordance with SFAS No. 107 "Disclosures About Fair Value of Financial
Instruments," the fair values of the Company's debt has been estimated based on
current rates offered to the Company for debt of the same remaining maturities.
The carrying amounts of the loans to the Company approximate their fair values.
39
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK
EMPLOYEE STOCK PURCHASE PLAN
The Company has a compensatory employee stock purchase plan ("ESPP"). Under
this plan employees are allowed to designate between two and ten percent of
their base compensation to purchase shares of the Company's common stock at
85 percent of fair market value at a designated date. During fiscal 2000, 1999
and 1998, 237,210, 344,177 and 216,655 shares were purchased at weighted average
per share exercise prices of $9.63, $6.93 and $11.07, respectively. Shares
authorized under this plan that remained unissued were 859,499, 1,096,709, and
1,440,886 at June 30, 2000, 1999 and 1998, respectively. The weighted average
per share fair value of ESPP options granted, using the Black-Scholes method, in
2000, 1999 and 1998 was $5.81, $2.84 and $4.31 per share, respectively.
STOCK OPTION PLANS
The Company has four stock option plans, the Stock Option Plan of 1984 (as
amended) ("1984 Plan"), the Amended and Restated Stock Incentive Plan of 1992
("1992 Plan"), the 1997 Employee Stock Incentive Plan ("1997 Plan") and the 2000
Stock Incentive Plan ("2000 Plan"). Under the 1984 Plan and the 1992 Plan,
options to purchase shares of the Company's common stock may be granted to the
Company's employees, including executive officers, and to members of the
Company's Board of Directors. Under the 1997 Plan, options to purchase shares of
the Company's common stock may be granted to the Company's employees and
consultants, but not to executive officers of the Company or members of its
Board of Directors. Under the 2000 Plan, options to purchase shares of the
Company's common stock may be granted to the Company's employees, officers,
directors, and consultants and advisors. Options have been issued with an
exercise price at least equal to the fair value of the Company's common stock at
the date of grant ("at market") and become generally exercisable in annual
installments of 20%, beginning on the first anniversary date.
The 1984 Plan terminated in August, 1994. As of June 1999, there are no
remaining options outstanding under the 1984 Plan. During fiscal 1998 and 1999,
2,800 and 14,000 shares under option, respectively, expired under the 1984 plan.
In November 1996, the stockholders of the Company approved an amendment to
the stock option plan of 1992. The amendment broadened the types of options and
other stock-based awards (e.g., restricted stock, SARs and performance shares)
that may be granted (prior to the amendment, only non-qualified options could be
granted), extended the term of the 1992 Plan for three years to December 31,
2002, retained the provision for the annual increase in shares of the Company's
common stock available for grant of 1.5% of outstanding shares, increased the
maximum number of shares that may be granted to non-employee directors from
100,000 to 120,000 (including an annual grant of 5,000 shares to each such
director), reduced the holding period for full vesting of certain non-employee
director options from one year to six months, and generally provided the
committee of the Board of Directors that administers the 1992 Plan with
substantial powers and discretion with respect to awards. During fiscal 1998,
1999, and 2000, only non-qualified options were issued, at market, under the
1992 Plan. On January 1, 1998, 1999 and 2000, 767,928, 773,019 and 780,922
shares, respectively, were added to the 1992 Plan.
The Board of Directors adopted the 1997 Plan in November 1997. The terms of
the options authorized and granted under the 1997 Plan are substantially similar
to those under the 1992 Plan. As of June 30, 2000, there were 40,750 shares
available for future grants to eligible employees; no awards may be
40
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
granted after December 31, 2002. Executive officers and directors are not
eligible for grants under the 1997 Plan. During fiscal 1998, 1999, and 2000 only
non-qualified options were issued under the 1997 Plan.
In November 1999, the stockholders of the Company approved the 2000 Plan.
The 2000 Plan is effective as of January 1, 2000. No awards may be granted under
the 2000 Plan after December 31, 2009. As of June 30, 2000, there were 2,311,400
shares available for future grants to eligible persons.
A summary of the status of options under the 1984, 1992, 1997 and 2000 Plans
is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED AVERAGE
OPTION EXERCISE GRANT DATE FAIR
SHARES PRICE PER SHARE VALUE PER SHARE
--------- --------------- ----------------
<S> <C> <C> <C>
Outstanding, June 30, 1997........................... 2,798,185 $14.55 $ --
Options granted.................................... 1,666,960 15.22 7.73
Options exercised.................................. (82,361) 7.41 --
Options expired or canceled........................ (88,002) 15.29 --
---------
Outstanding, June 30, 1998........................... 4,294,782 14.93 --
Options granted.................................... 1,388,050 9.20 4.20
Options exercised.................................. (85,600) 7.42 --
Options expired or canceled........................ (207,485) 13.69 --
---------
Outstanding, June 30, 1999........................... 5,389,747 13.62 --
Options granted.................................... 3,850,350 33.52 20.14
Options exercised.................................. (726,271) 14.50 --
Options expired or canceled........................ (257,649) 14.50 --
---------
Outstanding June 30, 2000............................ 8,256,177 $22.79 $ --
=========
</TABLE>
The following table summarizes significant option groups outstanding at
June 30, 2000 and related weighted average price and life information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------- ---------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
RANGE OF EXERCISE OUTSTANDING AT REMAINING LIFE WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
PRICE PER SHARE JUNE 30, 2000 (YEARS) EXERCISE PRICE JUNE 30, 2000 EXERCISE PRICE
----------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$5.50 to $8.50.............. 1,088,300 7.1 $ 7.67 511,850 $ 7.63
$9.31 to $11.88............. 1,237,510 7.0 $10.84 846,470 $11.08
$12.63 to $16.75............ 1,343,239 7.9 $13.68 307,350 $14.66
$17.44 to $20.75............ 1,528,031 7.8 $19.14 514,199 $19.00
$21.25 to $33.88............ 1,143,847 7.0 $26.99 303,742 $21.83
$40.31 to $54.13............ 1,915,250 9.8 $45.91 -- --
--------- ---------
8,256,177 7.9 $22.79 2,483,611 $13.77
========= =========
</TABLE>
41
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
Additional information relating to the 1984, 1992, 1997 and 2000 Plans at
June 30, 2000, 1999 and 1998 is as follows: revenues
<TABLE>
<CAPTION>
2000 1999 1998
---------- --------- ---------
<S> <C> <C> <C>
Options exercisable........................................ 2,483,611 2,388,781 1,178,881
Options available for grant................................ 2,998,123 1,314,902 746,448
Total reserved common stock shares for stock option
plans.................................................... 11,254,300 6,699,649 5,041,230
</TABLE>
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Expected life (years)................................... 5 5 5
Interest rate........................................... 6.38% 5.40% 5.81%
Volatility.............................................. 64.00% 57.03% 49.88%
Dividend yield.......................................... 0% 0% 0%
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation programs. Had the Company recorded
compensation expense using the accounting method recommended by SFAS No. 123,
net income (loss) and net income (loss) per common share--Basic and Diluted
would approximate the following (000's except per share data):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Net income (loss)
As reported........................................... $68,337 $ (5,778) $16,475
Pro forma............................................. 60,202 (10,091) 12,918
Net income (loss) per common share--Basic
As reported........................................... $ 1.25 $ (0.11) $ 0.32
Pro forma............................................. 1.10 (0.20) 0.25
Net income (loss) per common share--Diluted
As reported........................................... $ 1.19 $ (0.11) $ 0.32
Pro forma............................................. 1.04 (0.20) 0.25
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1996. The Company anticipates grants of additional awards in future years.
SHAREHOLDER RIGHTS PLAN
On August 2, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Plan") under which preferred stock purchase rights (the
"Rights") have been and will continue to be granted for each outstanding share
of the Company's common stock held at the close of business on August 14, 1996.
The Plan is intended to ensure fair and equitable treatment for all shareholders
in the event of unsolicited attempts to acquire the Company.
The Rights will become exercisable ten days after a person or group (the
"Acquiror") has acquired beneficial ownership of 20% or more of the Company's
common stock other than pursuant to a qualified offer, or announces or commences
a tender offer or exchange offer that could result in the acquisition of
42
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL STOCK (CONTINUED)
beneficial ownership of 20% or more. Once exercisable, each Right entitles the
holder to purchase one one-thousandth of a share of a new series of preferred
stock at an exercise price of $135, subject to adjustment to prevent dilution.
If the Acquiror acquires 20% or more of the Company's common stock, each Right
(except those held by the Acquiror) entitles the holder to purchase either the
Company's stock or stock in the merged entity at half of market value. The
Rights have no voting power, expire on August 14, 2006, and may be redeemed at a
price of $0.01 per Right up to and including the tenth business day after a
public announcement that 20% or more of the Company's shares have been acquired
by the Acquiror.
The Company amended and restated its Rights Agreement, as of December 15,
1998, to remove the requirement that continuing directors vote in board
approvals of certain corporate transactions.
4. IMPAIRMENT OF ASSETS, RESTRUCTURING AND SEVERANCE CHARGES
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
essentially completed this operational transition by June 30, 2000. 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, remain in use and all of them have been
abandoned. 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. The severance per person is larger for the
March 1999 restructuring versus the December 1998 restructuring as the 43
positions included in the March 1999 restructuring were primarily highly paid
employees in sales and administrative management. The approximately 350
positions in the December 1998 restructuring were primarily operators and
technicians who have a much lower salary level.
As of June 30, 2000, the Company had eliminated 336 positions, paid
$9.5 million for termination benefits related to this program and recorded asset
impairment of $8.5 million. The remaining unutilized restructuring accrual of
$0.7 million, which is classified as current, relates to severance payments to
certain notified employees, who were notified prior to June 30, 2000 of the
elimination of their positions. The Company estimates that, ultimately, charges
associated with all of these actions will total approximately $18.7 million.
During June 1999, the Company recorded an $8.3 million charge related to
employee severance associated with the elimination of approximately 39
positions. This includes a reduction in sales and administrative management
staff levels and the resignation of Dr. Derek B. Lidow who shared the
responsibility of Chief Executive Officer. As of June 30, 2000, the Company had
eliminated 36 positions and paid $6.3 million in termination benefits. The
remaining unutilized severance accrual of $2.0 million at June 30, 2000, which
is classified as current, relates to severance payments to certain employees who
were notified prior to June 30, 2000 of the elimination of their position.
43
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS
The Company operates in one business segment. Revenues from unaffiliated
customers are based on the location in which the sale originated. Geographic
information for the fiscal years ended June 30, 2000, 1999 and 1998 is presented
below (000's):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues from Unaffiliated Customers
Great Britain............................... $106,157 $ 77,457 $ 85,900
Singapore................................... 128,813 79,489 59,840
Other foreign............................... 200,823 125,173 138,635
-------- -------- --------
Subtotal--Foreign......................... 435,793 282,119 284,375
United States............................... 281,121 236,732 250,283
Unallocated royalties....................... 36,413 26,520 17,233
-------- -------- --------
Total................................... $753,327 $545,371 $551,891
======== ======== ========
Long-lived Assets
Great Britain............................... $ 24,674 $ 26,237
Singapore................................... 3,235 4,948
Other foreign............................... 19,930 23,118
-------- --------
Subtotal--Foreign......................... 47,839 54,303
United States............................... 386,508 348,508
-------- --------
Total................................... $434,347 $402,811
======== ========
</TABLE>
One distributor accounted for 12%, 11%, and 10% of the Company's
consolidated net revenues in fiscal 2000, 1999, and 1998 respectively.
6. INCOME TAXES
Income before income taxes, cumulative effect of accounting change and
extraordinary charges for the fiscal years ended June 30, 2000, 1999 and 1998 is
as follows (000's):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Operations:
Domestic...................................... $ 64,311 $29,907 $14,389
Foreign....................................... 37,229 1,249 10,200
-------- ------- -------
$101,540 $31,156 $24,589
======== ======= =======
</TABLE>
44
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes for the fiscal years ended
June 30, 2000, 1999 and 1998 consists of (000's):
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Current income taxes:
Domestic....................................... $ 6,257 $ 680 $(4,940)
Foreign........................................ 15,362 17,413 3,597
------- ------- -------
21,619 18,093 (1,343)
------- ------- -------
Deferred income taxes:
Domestic....................................... 6,814 (3,515) 9,009
Foreign........................................ (2) (3,798) 448
------- ------- -------
6,812 (7,313) 9,457
------- ------- -------
Total provision.................................. $28,431 $10,780 $ 8,114
======= ======= =======
</TABLE>
Deferred taxes result primarily from temporary differences relating to
depreciation, financial statement reserves and state taxes.
The Company's effective tax rate on pretax income differs from the U.S.
Federal Statutory tax rate for the fiscal years ended June 30, 2000, 1999 and
1998 as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate................................... 35.0% 35.0% 35.0%
Change in valuation allowance........................ (7.7) 37.6 1.5
Foreign tax differential............................. 4.8 51.2 3.7
Foreign tax credit benefit........................... (2.1) (48.4) (5.1)
Research tax credit benefit.......................... (3.4) (42.1) (1.0)
State taxes, net of federal tax benefit.............. 0.5 (7.6) (4.8)
Deferred compensation................................ -- 7.0 --
Other, net........................................... 0.9 1.9 3.7
----- ------ -----
28.0% 34.6% 33.0%
===== ====== =====
</TABLE>
45
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The major components of the net deferred tax asset (liability) as of
June 30, 2000 and 1999 are as follows (000's):
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.............................................. $(57,908) $(48,651)
Effect of state taxes..................................... (3,185) (3,185)
Other..................................................... (2,803) (1,370)
-------- --------
Total deferred tax liabilities............................ (63,896) (53,206)
-------- --------
Deferred tax assets:
Financial statement reserves.............................. 4,724 5,348
Credit carryovers......................................... 61,614 67,386
Impairment of assets, restructuring and severance
charges................................................. 6,370 17,941
Inventory adjustment...................................... 296 571
Net operating loss carryovers............................. 6,634 2,582
Other..................................................... 151 649
-------- --------
Total deferred tax assets................................. 79,789 94,477
-------- --------
Valuation allowance......................................... (12,609) (31,812)
-------- --------
Net deferred tax asset...................................... $ 3,284 $ 9,459
======== ========
</TABLE>
At the end of the fiscal year 2000, the Company has federal net operating
loss ("NOL") carry forwards of approximately $2.0 million. In addition, the
Company has approximately $19.7 million, $0.4 million and $30.4 million, of
foreign tax credits, investment tax credits, and research and development tax
credit carryforwards, before valuation allowance, available to reduce income
taxes otherwise payable, which expire from 2001 to 2020. Furthermore, the
Company has approximately $3.5 million of alternative minimum tax credits, which
can be carried over indefinitely to offset regular tax liabilities to the extent
of the alternative minimum tax, and $7.7 million of state investment tax
credits, before valuation allowance, which expire from 2004 to 2008.
Pursuant to Sections 382 and 383 of the Internal Revenue Code, the
utilization of NOL and tax credit carryovers may be subject to substantial
limitations if certain ownership changes occur during a three-year testing
period (as defined). As of June 30, 2000, no ownership change has occurred which
would limit the Company's utilization of its NOL or credit carryovers. However,
in connection with the acquisition of Zing, the Company acquired NOLs of
approximately $2.0 million. The utilization of such NOLs will be subject to the
annual limitations under IRC Section 382.
The Company has NOL carry forwards of approximately $19.8 million, which
were generated from the Company's United Kingdom subsidiaries. The NOLs can
generally be carried forward indefinitely, with certain limitations.
Realization of deferred tax assets is dependent upon generating sufficient
taxable income. Management believes that there is a risk that certain deferred
tax assets may result in no benefit and, accordingly, has established a
valuation allowance of $12.6 million against them. Although realization is not
assured for the remaining deferred tax assets, management believes it is more
likely than not that they will be realized through future taxable earnings or
alternative tax strategies.
The Internal Revenue Service is currently auditing the Company's income tax
returns for fiscal 1995 through 1997. Management believes that resolution of the
audit will not have a material impact on the Company's consolidated financial
position, results of operations or cash flows.
46
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NET INCOME (LOSS) PER COMMON SHARE
The reconciliation of the numerator and denominator of the Net income (loss)
per common share--Basic and Diluted determined in accordance with SFAS No. 128
"Earnings per Share," was as follows for the years ended June 30, 2000, 1999 and
1998 (in 000's except per share amounts):
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Year ended June 30, 1998
Net income per common share--Basic........ $16,475 51,248 $ 0.32
Effect of dilutive securities:
Stock options............................. 426
------- ------ ------
Net income per common share--Diluted...... $16,475 51,674 $ 0.32
======= ====== ======
Year ended June 30, 1999
Net loss per common share--Basic.......... $(5,778) 51,612 $(0.11)
Effect of dilutive securities:
Stock options............................. 176
------- ------ ------
Net loss per common share--Diluted........ $(5,778) 51,788 $(0.11)
======= ====== ======
Year ended June 30, 2000
Net income per common share--Basic........ $68,337 54,803 $ 1.25
Effect of dilutive securities:
Stock options............................. 2,859 (0.06)
------- ------ ------
Net income per common share--Diluted...... $68,337 57,662 $ 1.19
======= ====== ======
</TABLE>
8. PROFIT SHARING AND RETIREMENT PLANS
Under the established Retirement Savings Plan (401K), the Company made an
annual contribution for each participating employee of up to $1,200 in fiscal
2000, 1999 and 1998. Combined plan contributions by the Company totaled
$1.2 million, $1.2 million, and $1.3 million for fiscal 2000, 1999 and 1998,
respectively.
9. ENVIRONMENTAL MATTERS
Federal, state, and local laws and regulations impose various restrictions
and controls on the storage, use and discharge of certain materials, chemicals,
and gases used in semiconductor manufacturing processes. The Company does not
believe that compliance with such laws and regulations as now in effect will
have a material adverse effect on the Company's results of operations, financial
position or cash flows.
However, 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 laws and regulations will not require additional
investments in capital equipment and the implementation of additional compliance
programs in the future which could have a material adverse
47
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ENVIRONMENTAL MATTERS (CONTINUED)
effect on the Company's results of operations, financial position or cash flows,
as could any failure by the Company to comply with environmental laws and
regulations.
The Company and Rachelle Laboratories, Inc. ("Rachelle"), a former operating
subsidiary of the Company that discontinued operations in 1986, were each named
a potentially responsible party ("PRP") in connection with the investigation by
the United States Environmental Protection Agency ("EPA") 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 Company has settled all outstanding claims that
have arisen out of the OII Site. No claims against Rachelle have been settled.
The Company also received a letter directed to Rachelle, dated July 25, 1995
from the U.S. Department of Justice, offering to settle claims against Rachelle
relating to the first elements of clean-up work at the OII 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 counsel for
Rachelle responded with information regarding waste shipped to the OII Site.
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 were hazardous. Counsel for Rachelle
received a request from the EPA in June 2000 to update the name of the contact
party for Rachelle designated to receive information on future proposed
settlements. The request appears to have been sent to all PRPs and indicated
that the EPA intends to formulate a final settlement offer in the near future.
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 for the cost of the final
remedy would, if made, likely be significant, although it should be
substantially below the demand amount for earlier phases of the OII Site
clean-up. Any demands related to the costs for the final remedy would be in
addition to the amount demanded 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 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 July 31, 1999, the group proposed two
settlement offers to the Company: one for $34,165 and the second for $68,330.
The first settlement offer covers investigation and remediation of the site
itself and a small area extending beyond the site. The second settlement offer
covers this area plus all additional downgradient contamination. On
September 14, 1999, the Company accepted the $68,330 settlement offer, which
requires EPA acceptance, and made the required payment on September 28, 1999.
48
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ENVIRONMENTAL MATTERS (CONTINUED)
There can be no assurance, however, that the EPA will accept the settlement
offers or what the ultimate outcome of this matter will be. The Company believes
that, whatever the outcome, it will not have a material adverse effect on the
Company's financial condition, results of operations or cash flows.
10. COMMITMENTS
The future minimum lease commitments under non-cancelable capital and
operating leases of equipment and real property at June 30, 2000 are as follows
(000's):
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
FISCAL YEARS LEASES LEASES COMMITMENTS
------------ -------- --------- -----------
<S> <C> <C> <C>
2001.......................................... $1,192 $1,056 $2,248
2002.......................................... 1,153 548 1,701
2003.......................................... 995 97 1,092
2004.......................................... 1,088 12 1,100
2005 and later................................ -- -- --
Less imputed interest......................... (22) -- (22)
------ ------ ------
Total minimum lease payments.................. $4,406 $1,713 $6,119
====== ====== ======
</TABLE>
Total rental expense on all operating leases charged to income was
$5.4 million, $6.7 million and $7.7 million in fiscal 2000, 1999 and 1998,
respectively. The Company had outstanding purchase commitments for capital
expenditures of approximately $15.2 million at June 30, 2000.
11. INTELLECTUAL PROPERTY RIGHTS
Most of the Company's broadest power MOSFET patents were subject to, and
have successfully emerged from, reexamination by the United States Patent and
Trademark Office ("PTO"). The Company's 5,130,767 patent is currently undergoing
reexamination in the PTO. Recently the PTO issued a decision upholding the
patentability of all the claims of another of the Company's MOSFET patents, its
5,008,725 patent, and issued a Notice of Intent to Issue a Reexamination
Certificate.
12. OTHER INCOME (EXPENSE)
Other income was $1.3 million in fiscal 2000, compared to other income of
$53.5 million in fiscal 1999. Fiscal 1999 other income primarily consisted of
proceeds from license agreements for prior periods and amounts in settlement of
litigation for past patent infringement (net of legal costs and the share of the
Company's royalty proceeds payable to Unitrode Corporation).
13. 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. In
July 1999, the Company entered into an agreement with the Lemelson Foundation
that settled all outstanding claims and grants the Company a license to use the
Lemelson patents asserted against the Company.
49
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. LITIGATION (CONTINUED)
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 and the individual defendants'
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. Plaintiffs' motion for reconsideration or certification of an
interlocutory appeal of these rulings was denied.
On June 14, 1999, the Court approved a notice of the pendency of the class
action and a proof of claim form for dissemination to class members. Such
dissemination took place in June 1999. Trial is currently scheduled for
October 3, 2000.
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 results of operations, financial position or cash flows. No
provision for any liability that may result upon adjudication of these matters
has been made in the Consolidated Financial Statements.
On December 6, 1999, the Company filed suit in Federal District Court in Los
Angeles, California against Semiconductor Components Industries, LLC, dba ON
Semiconductor, alleging infringement of certain of the Company's U.S. patents.
The suit sought damages and customary relief in such matters. On April 6, 2000,
the Company entered into a worldwide royalty-bearing license agreement with ON
Semiconductor covering certain patents. The license agreement is effective as of
January 1, 2000 and settled all pending litigation.
On June 22, 2000, the Company filed suit in Federal District Court in Los
Angeles, California against IXYS Corporation alleging infringement of certain of
the Company's U.S. patents. The suit seeks damages and other relief customary in
such matters. On August 17, 2000, IXYS filed an answer and counterclaim denying
infringement and alleging patent invalidity and unenforceability.
50
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. EXECUTIVE AGREEMENT
The Company entered into an executive agreement with Eric Lidow dated
May 15, 1991. The agreement set Mr. Lidow's annual salary at $500,000, granted
the Board discretion to increase his salary and to pay him bonuses, and
established a pension. Based upon actuarial assumptions established by
PricewaterhouseCoopers LLP, the Company funded a trust to cover its liability
under the pension. Mr. Lidow's salary was increased in May 1992 to $550,000, in
August 1994 to $632,500 and in July 1999 to $670,450. Mr. Lidow was not awarded
a bonus in fiscal 2000. The agreement may be terminated by either party upon
90 days written notice.
In fiscal 1998, the agreement was amended to cancel all of the Company's
obligations with respect to the pension in consideration of the Company
directing that the corpus of the trust of $8,096,663 be distributed to
Mr. Lidow. The distribution was made in several installments, $6,596,663 in
fiscal 1999 and $1,500,000 in fiscal 1998.
15. RELATED PARTIES
In June 1998, after discussing with Eric Lidow his desire to limit his sale
of shares of IR Common Stock to meet commitments, the Board approved two
unsecured loans to him aggregating $1,200,000, with interest at the annual rate
of eight and one-half percent (8.5%). The first loan of $600,000 was made in
June 1998 and the second loan, also for $600,000, was made in July 1998. Both
loans were due December 31, 1998. Mr. Lidow repaid them with accrued interest of
$23,497 on September 23, 1998. Contemporaneously with the approval of the loans,
the Company amended his executive agreement. See "Notes to the Consolidated
Financial Statements Note 14. Executive Agreement."
In May 1999, after considering the recommendation of the Chairman and Chief
Executive Officers, the Board determined that the Company should implement a
single CEO management structure. To effectuate this management change, the
Company entered into an agreement with Dr. Derek B. Lidow on May 10, 1999
("Agreement"), which provided for Dr. Lidow's resignation as Chief Executive
Officer and as an employee of the Company. Under the terms of the Agreement,
Dr. Lidow received a severance payment of $3,200,000 on June 15, 1999, a bonus
of $100,000 for fiscal 1999 performance on August 13, 1999 and a grant of
200,000 stock options on June 14, 1999, which were fully vested, and which
expire on June 13, 2009. The Agreement also provided for the immediate
acceleration of the vesting of all of Dr. Lidow's outstanding unvested stock
options and extended the period during which the options could be exercised.
Under the Agreement, Dr. Lidow will provide consulting services to the Company
for a period of two years for which he will be compensated $100,000 per quarter
plus associated expenses.
In connection with Dr. Derek B. Lidow's exercise of an option on June 23,
1999 to purchase 64,000 shares of IR Common Stock, the Company had an
outstanding receivable from Dr. Lidow for $597,694 at June 30, 1999, which was
paid off on July 7, 1999.
During the fiscal years 2000, 1999 and 1998, the Company paid $62,860,
$310,160, and $0, respectively, to the Law Offices of Janet K. Hart for legal
and negotiation services rendered to the Company. Ms. Hart is the wife of
Dr. Alexander Lidow.
16. ACQUISITION
On January 28, 2000, the Company and Zing announced that the Company agreed
to acquire all the outstanding shares of Zing, and its wholly-owned subsidiary
and sole operating business, Omnirel, for a cash purchase price of $15.36 per
share. Omnirel manufactures and sells high reliability multi-chip power
51
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. ACQUISITION (CONTINUED)
semiconductor products for the military, and for industrial and high-end
commercial markets. The acquisition was accounted for under the purchase method
of accounting, and the consolidated financial results of Zing have been included
in the Company's consolidated financial statements from the date of acquisition.
The purchase price (net of Zing's cash) for the transaction was approximately
$28.5 million. On March 16, 2000, the Company completed its acquisition by
merger between the Company's acquisition subsidiary and Zing. Total
consideration exceeded the fair value of the net tangible assets acquired by
$14.2 million, of which $1.5 million has been recorded as goodwill and
$12.7 million has been allocated to other intangibles consisting of assembled
workforce, trade name, completed technology and customer base. The purchase
price has been preliminarily allocated based on estimated fair values at the
date of acquisition, pending final determination of certain balances. The
goodwill and the other intangibles are being amortized on a straight-line basis
over periods up to 15 years.
Net sales since the acquisition date of Zing for fiscal 2000 were
approximately $9.4 million. Assuming this acquisition had occurred on July 1,
1997, consolidated pro forma net sales, income and earnings per share would not
have been materially different from the reported amounts for the fiscal years
2000, 1999, and 1998.
17. SUBSEQUENT EVENTS
On July 13, 2000, the Company sold $550 million principal amount of 4 1/4%
Convertible Subordinated Notes due 2007. The interest rate is 4 1/4% per annum
on the principal amount, payable semi-annually in arrears in cash on January 15
and July 15 of each year, beginning January 15, 2001. The notes are convertible
into common stock at any time on or before July 15, 2007, at a conversion price
of $73.935 per share, subject to adjustment if certain events affecting the
Company's common stock occur. The notes are subordinated to all of the Company's
existing and future senior indebtedness and to all debt and other liabilities of
the Company's subsidiaries. The Company may redeem any of the notes, in whole or
in part, on or after July 18, 2003, by giving at least 30-days notice at the
following prices expressed as a percentage of the principal amount:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
Beginning on July 18, 2003 and ending on July 14, 2004...... 102.429%
Beginning on July 15, 2004 and ending on July 14, 2005...... 101.821%
Beginning on July 15, 2005 and ending on July 14, 2006...... 101.214%
Beginning on July 15, 2006 and ending on July 14, 2007...... 100.607%
</TABLE>
The Company has agreed to file a shelf registration statement with the SEC,
covering the resale of the notes and the underlying common stock, within
90 days after the closing date of this offering. The Company also agreed to use
reasonable efforts to have the registration statement declared effective within
180 days of the date of filing and to use reasonable efforts to keep the shelf
registration statement effective until either of the following has occurred:
- All securities covered by the registration statement have been sold; or
- The expiration of the holding period applicable with respect to the notes
and the underlying common stock under Rule 144(k) under the Securities
Act, or any successor provision.
52
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENTS (CONTINUED)
The notes and the common stock issuable upon conversion of the notes have
not been registered under the Securities Act and are subject to certain
restrictions on transfer.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows (000's except per share
amounts):
<TABLE>
<CAPTION>
NET
INCOME (LOSS) LOSS PER
PER COMMON COMMON
INCOME SHARE-- SHARE DUE NET
(LOSS) BEFORE BASIC AND CUMULATIVE TO INCOME
CUMULATIVE DILUTED BEFORE EFFECT OF CUMULATIVE (LOSS)
EFFECT OF CUMULATIVE EFFECT ACCOUNTING EFFECT OF PER
ACCOUNTING OF ACCOUNTING CHANGE/ ACCOUNTING COMMON
CHANGE / CHANGE/ EXTRAORDINARY CHANGE/ NET SHARE--
GROSS EXTRAORDINARY EXTRAORDINARY CHARGE, NET EXTRAORDINARY INCOME BASIC AND
REVENUES PROFIT CHARGE CHARGE OF TAX CHARGE (LOSS) DILUTED
-------- -------- ------------- ----------------- ------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000
1st Quarter...... $152,239 $48,219 $ 5,129 $ 0.10 -- -- $ 5,129 $ 0.10
2nd Quarter...... 171,098 58,202 12,384 0.23 -- -- 12,384 0.23
3rd Quarter...... 197,959 72,429 21,695 0.38 $ (4,772) $(0.09) 16,923 0.29
4th Quarter...... 232,031 89,237 33,901 0.52 33,901 0.52
1999
1st Quarter...... $127,493 $36,210 $ 34 $ 0.00 $(26,154) $(0.50) $(26,120) $(0.50)
2nd Quarter...... 132,837 36,153 19,794 0.38 -- -- 19,794 0.38
3rd Quarter...... 137,550 39,881 4,004 0.08 -- -- 4,004 0.08
4th Quarter...... 147,491 39,748 (3,456) (0.07) -- -- (3,456) (0.07)
1998
1st Quarter...... $133,111 $44,951 -- -- -- -- $ 6,095 $ 0.12
2nd Quarter...... 144,622 47,850 -- -- -- -- 6,699 0.13
3rd Quarter...... 140,376 44,514 -- -- -- -- 3,284 0.06
4th Quarter...... 133,782 38,849 -- -- -- -- 397 0.01
</TABLE>
--------------------------
The results, as noted above, for the first quarter in fiscal 1999 differ
from those previously reported on Form 10-Q for that quarter, due to the
adoption of SOP 98-5. No changes were made to the remaining fiscal 1999 quarters
due to immateriality.
53
<PAGE>
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
For information called for by Items 10, 11, 12 and 13, reference is made to
the Registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held November 20, 2000, which will be filed with the
Securities and Exchange Commission within 120 days after June 30, 2000, and
which is incorporated herein by reference. Certain information concerning the
Executive Officers of the Company is included in Part I. See "Additional Item"
on page 14.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a. Financial Statements and Financial Statement Schedule being filed as
part of this report are listed in the index on page 26.
b. Exhibits filed as part of this report are listed on the Exhibit Index on
page 55.
c. The Company filed a report on Form 8-K on July 28, 2000 relating to
"Other Events" regarding the private placement pursuant to Rule 144(A) of
the Securities Act of 1933, as amended, of an aggregate of $550,000,000
in principal amount of its 4 1/4% Convertible Subordinated Notes due
2007.
54
<PAGE>
EXHIBIT INDEX
Incorporated By Reference:
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM DOCUMENT
--------------------- ---- --------
<S> <C> <C>
3(a) Certificate of Incorporation of the Company, as Report on Form 10-Q for the quarterly period
amended to date ended December 31, 1990, as amended by Form 8
dated March 6 and March 12, 1991 as filed with
the Securities and Exchange Commission, File No.
1-7935 (Exhibit 3(a))
3(b) Amended and restated By-Laws of the Company Form 10-Q--for the quarterly period ended March
31, 1995 as filed with the Securities and
Exchange Commission, File No. 1-7935
3(c) Certificate of Amendment of Certificate of Form 10-K--Annual Report Pursuant to Section 13
Incorporation dated as of November 29, 1995 or 15(d) of the Securities Exchange Act of 1934
for Fiscal Year Ended June 30, 1997, Commission
File No. 1-7935
3(d) First Amendment to Amended and restated By-Laws
of the Company, dated August 25, 1997
4(a) Amended and Restated Rights Agreement between
International Rectifier Corporation and Chase
Mellon Shareholder Services, L.L.C., dated as of
December 15, 1998
10(a) Technical Assistance Agreement dated March 30, Registration Statement on Form S-2 as filed with
1983 between the Company and Unitrode the Securities and Exchange Commission,
Corporation Registration No. 2-89410 (Exhibit 10.8)
10(c) Amendment to Technical Assistance Agreement, Report on Form 10-Q for the quarterly period
effective as of August 27, 1987, by and between ended December 31, 1990 as amended by Form 8
the Company and Unitrode Corporation dated April 15, 1991, Commission File No. 1-7935
(Exhibit 10(l))
10(e) Amendment to International Rectifier Corporation Registration Statement on Form S-8 as filed with
1984 Stock Participation Plan the Securities and Exchange Commission,
Registration No. 33-53589 (Exhibit 4.1)
10(g) Executive Employment Agreement dated May 15, 1991 Form 10-K--Annual Report Pursuant to Section 13
between International Rectifier Corporation and or 15(d) of the Securities Exchange Act of 1934
Eric Lidow and amended as of April 12, 1995 for Fiscal Years Ended June 30, 1991 and 1995,
Commission File No. 1-7935
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM DOCUMENT
--------------------- ---- --------
<S> <C> <C>
10(h) International Rectifier Corporation Grantor Trust Form 10-K--Annual Report Pursuant to Section 13
for Retirement Benefits for Eric Lidow dated or 15(d) of the Securities Exchange Act of 1934
October 24, 1995 and amended as of February 22, for Fiscal Year Ended June 30, 1996, Commission
1996 File No. 1-7935
10(i) Line of Credit Agreement between International Form 10-K--Annual Report Pursuant to Section 13
Rectifier Corporation and Sanwa Bank California or 15(d) of the Securities Exchange Act of 1934
dated as of June 30, 1993 and amended as of for Fiscal Years Ended June 30, 1993, 1994,
August 24, 1993, November 22, 1993, July 1, 1995, and 1996, and Form 10-Q for the quarterly
1994, December 30, 1994, February 28, 1995, period ended March 31, 1996, Commission File No.
February 29, 1996, and June 28, 1996 1-7935
10(j) Security Agreement between International Form 10-K--Annual Report Pursuant to Section 13
Rectifier Corporation and Nationsbanc Leasing or 15(d) of the Securities Exchange Act of 1934
Corporation of North Carolina dated as of July for Fiscal Years Ended June 30, 1994, 1995, and
1, 1994 and amended as of August 15, 1994, 1996, and Form 10-Q for the quarterly period
November 3, 1994, March 8, 1995, December 29, ended December 31, 1996, Commission File No.
1995, July 30, 1996, and December 19, 1996 1-7935
10(k) Revolving Credit Agreement between International Form 10-K--Annual Report Pursuant to Section 13
Rectifier Corporation and Wells Fargo Bank, N.A. or 15(d) of the Securities Exchange Act of 1934
dated as of July 1, 1994 and amended as of for Fiscal Years Ended June 30, 1994, 1995, and
December 30, 1994, March 31, 1995, and May 15, 1996, Commission File No. 1-7935
1996
10(y) International Rectifier Corporation 1997 Employee Registration Statement on Form S-8 as filed with
Stock Incentive Plan the Securities and Exchange Commission,
Registration No. 33-46901
10(z) International Rectifier Corporation Amended and Registration Statement on Form S-8 as filed with
Restated Stock Incentive Plan of 1992 the Securities and Exchange Commission,
Registration No. 33-41363
10(aa) International Rectifier Corporation Retirement Registration Statement on Form S-8 as filed with
Savings Plan Securities and Exchange Commission, the Securities and Exchange Commission,
Registration No. 33-57575 Registration No. 33-57575
10(ab) Amendment to Executive Employment Agreement dated Form 10-K--Annual Report Pursuant to Section 13
May 15, 1991 between International Rectifier or 15(d) of the Securities Exchange Act of 1934
Corporation and Eric Lidow amended as of June for Fiscal Year Ended June 30, 1998, Commission
22, 1998 File No. 1-7935
10(ac) Amendment to International Rectifier Corporation Form 10-K--Annual Report Pursuant to Section 13
Grantor Trust for Retirement Benefits for Eric or 15(d) of the Securities Exchange Act of 1934
Lidow, dated October 25, 1995 and amended as of for Fiscal Year Ended June 30, 1998, Commission
February 22, 1996 and June 22, 1998 File No. 1-7935
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM DOCUMENT
--------------------- ---- --------
<S> <C> <C>
10(ad) Amendment to International Rectifier Corporation Form 10-K--Annual Report Pursuant to Section 13
Grantor Trust for Retirement Benefits for Eric or 15(d) of the Securities Exchange Act of 1934
Lidow, dated October 25, 1995 and amended as of for Fiscal Year Ended June 30, 1998, Commission
February 22, 1996, June 22, 1998, and August 5, File No. 1-7935
1998
10(ae) Amendment to Executive Employment Agreement dated Form 10-K--Annual Report Pursuant to Section 13
May 15, 1991 between International Rectifier or 15(d) of the Securities Exchange Act of 1934
Corporation and Eric Lidow amended as of June for Fiscal Year Ended June 30, 1998, Commission
22, 1998 and August 5, 1998 File No. 1-7935
10(af) Consulting, Nondisclosure, Severance and
Resignation Agreement between Derek Lidow and
International Rectifier Corporation, dated as of
May 10, 1999
10(ag) First Amendment dated September 29, 1999, to
Consulting, Nondisclosure, Severance and
Resignation Agreement between Derek Lidow and
International Rectifier Corporation, dated as of
May 10, 1999
10(ah) International Rectifier Corporation 2000 Stock Registration Statement on Form S-8 as filed with
Incentive Plan the Securities and Exchange Commission,
Registration Number 333-37308 (Exhibit 4)
10(ai) International Rectifier Corporation 1977 Stock Registration Statement on Form S-8 as filed with
Incentive Plan the Securities and Exchange Commission,
Registration Number 333-41904
</TABLE>
SUBMITTED HEREWITH:
See page 26 for an index of Financial Statements and Financial Statement
Schedule being filed as part of this report.
<TABLE>
<CAPTION>
EXHIBIT NO. ITEM DOCUMENT
--------------------- ---- --------
<S> <C> <C>
21 List of Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
57
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C> <C>
INTERNATIONAL RECTIFIER CORPORATION
(Registrant)
By: /s/ MICHAEL P. MCGEE
-----------------------------------------
Michael P. McGee
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
</TABLE>
Date: September 30, 2000
Each person whose signature appears below hereby authorizes Michael P.
McGee, as attorney-in-fact and agent, with full powers of substitution, to sign
on his behalf, individually and in the capacities stated below, and to file any
and all amendments to this Form 10-K, and other documents in connection
therewith, with the Securities and Exchange Commission, granting to said
attorney-in-fact and agent full power and authority to perform any other act on
behalf of the undersigned required to be done in the premises.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ERIC LIDOW
------------------------------------ Chairman of the Board September 30, 2000
Eric Lidow
/s/ ALEXANDER LIDOW
------------------------------------ Director, Chief Executive Officer September 30, 2000
Alexander Lidow
/s/ ROBERT J. MUELLER
------------------------------------ Director, Executive Vice President September 30, 2000
Robert J. Mueller
/s/ DEREK B. LIDOW
------------------------------------ Director September 30, 2000
Derek B. Lidow
/s/ GEORGE KRSEK
------------------------------------ Director September 30, 2000
George Krsek
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JACK O. VANCE
------------------------------------ Director September 30, 2000
Jack O. Vance
/s/ ROCHUS E. VOGT
------------------------------------ Director September 30, 2000
Rochus E. Vogt
/s/ DONALD S. BURNS
------------------------------------ Director September 30, 2000
Donald S. Burns
/s/ JAMES D. PLUMMER
------------------------------------ Director September 30, 2000
James D. Plummer
/s/ MINORU MATSUDA
------------------------------------ Director September 30, 2000
Minoru Matsuda
</TABLE>
59
<PAGE>
SCHEDULE II
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE FISCAL YEARS ENDED JUNE 30, 2000, 1999 AND 1998
(IN 000'S)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COST AND CHARGED TO END
DESCRIPTION PERIOD EXPENSES OTHER (2) DEDUCTIONS (1) OF PERIOD
----------- ------------ ---------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
2000
Allowance for doubtful accounts... $ 1,886 $ 469 -- $ (1,075) $ 1,280
Deferred tax valuation
allowance....................... 31,812 3,841 $(4,773) (18,271) 12,609
Inventory valuation reserve....... 3,286 22,085 -- (20,902) 4,469
1999
Allowance for doubtful accounts... $ 1,401 $ 1,280 $ 117 $ (912) $ 1,886
Deferred tax valuation
allowance....................... 4,297 20,669 6,846 -- 31,812
Inventory valuation reserve....... 2,551 6,528 -- (5,793) 3,286
1998
Allowance for doubtful accounts... $ 1,043 $ 851 $ (88) $ (405) $ 1,401
Deferred tax valuation
allowance....................... 4,870 377 -- (950) 4,297
Inventory valuation reserve....... 3,580 3,572 -- (4,601) 2,551
</TABLE>
------------------------
(1) Deductions include the write-off of uncollectible amounts with respect to
trade accounts receivable, obsolete and scrap inventory, revaluation or
write-off of federal and state valuation allowance, and the effects of
Statement of Financial Accounting Standards No. 52.
60
