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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý Annual report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended June 30, 2003

or

o Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934

For the transition period from                         to                         
Commission file number 1-7935

INTERNATIONAL RECTIFIER CORPORATION
(Exact name of registrant as specified in its charter)

233 Kansas Street
El Segundo, CA 90245
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (310) 726-8000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

        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

        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.            

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes    X    No

        The aggregate market value of the registrant's voting Common Stock held by non-affiliates as of the last day of the registrant's most recently completed second fiscal quarter was $1,211,374,657 (computed using the closing price of a share of Common Stock on December 27, 2002 reported by New York Stock Exchange).

        There were 64,589,534 shares of the registrant's Common Stock, par value $1.00 per share, outstanding on September 26, 2003.

        Portions of the registrant's definitive proxy statement for the annual meeting of stockholders scheduled to be held on November 24, 2003, which proxy statement will be filed no later than 120 days after the close of the registrant's fiscal year ended June 30, 2003, are incorporated by reference in Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

        This Annual Report on Form 10-K contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include comments regarding the intent, belief or current expectations of the company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results."

PART I

Item 1. Business

Introduction

        We are a leading designer, manufacturer and marketer of power management products and the leading worldwide supplier of a type of power semiconductor called a MOSFET (a metal oxide semiconductor field effect transistor). Power semiconductors process 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 information technology, automotive, consumer electronics, aerospace/defense and industrial.

        International Rectifier Corporation ("IR®") uses its technology, comprehensive experience in 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 management products. Our products are divided among three broad product categories:

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Analog Integrated Circuits and Advanced Circuit Devices. Our Analog Integrated Circuits, or Analog ICs, are semiconductors that integrate 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 generally address power management requirements in demanding applications. These products are value-added or are provided under reduced competition due to their technological content or our customer relationship. Our Analog ICs and Advanced Circuit Devices provide application-specific power management solutions for computers, servers and routers, consumer electronics, automotive systems, home appliances and other motor-control appliances, aircraft and satellites, defense electronic systems, video game consoles, and wireless and wireline communication devices.



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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 supply Power Systems for automotive electronics, including electric fan control, electric power steering and integrated starter/alternator motors, other motor control applications, including home appliances and industrial refrigeration and air conditioning, and commercial and military aircraft.



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Power Components. Power Components are discrete devices used in general power management applications. These include some power MOSFETs and insulated gate bipolar transistors (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 our end markets.

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Industry Overview

        Power semiconductors convert power from an electrical outlet, a battery or an alternator running off an internal combustion engine into more efficient and useful 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 need for power semiconductor technology rises with the increasing complexity of electronic products and the proliferation of electronic features in information technology, automotive, consumer electronics, defense/aerospace and industrial products. Within the power semiconductor market, MOSFETs and IGBTs are important components in power management. Based on statistics published by the Semiconductor Industry Association, industry-wide revenues from sales of power MOSFETs and IGBTs were $3.8 billion in calendar 2002 and are forecasted to total approximately $4.4 billion in calendar 2003. The semiconductor industry is attempting to recover from a significant downturn over the past couple of years. Although overall economic conditions continue to be somewhat uncertain and difficult to predict, we have seen market conditions in the semiconductor industry gradually improve from a year ago.

        Historically, demand for power semiconductors has displayed cyclical characteristics. Current demand is driven largely by the following:

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Increased Speed and Functionality in Information Technology ("IT").  Product development roadmaps for the IT industry call for continued increases in speed and functionality and improvements in computers, servers, consumer electronics and a variety of leading-edge electronic devices and equipment. The need for greater processing power drives up current levels and operating frequencies, and each new generation of IT relies more heavily on, and places a higher value on, efficient, precise power management technology.



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Applications in Automotive Electronics and Motor Controls.  In the automotive market, the proliferation of power features and high-end electronics for entertainment, communications, navigation and diagnostics increases the load on the engine, reduces fuel efficiency and strains the capacity of 12V electrical systems. The need to meet conflicting demands for more features and less gas consumption is prompting a fundamental re-design of automotive electrical systems. That re-design is shaped in part by advancements in power management technology.



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Demand for Energy-Efficient Motor Controls.  Worldwide demand for household appliances and industrial motors continues to rise. Whether the end product will be sold to customers in a developing nation with a modest energy budget or an industrialized nation with stringent environmental standards, advanced power management technology provides products to fulfill the need for energy-efficient motor control.



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Defense/Aerospace Demand for Advanced Power Management Technology.  In the defense/aerospace industry, power management technology is critical to meeting the rigorous space, weight and reliability requirements of highly-demanding applications. A renewed commitment to security drives demand in this sector for advanced power management technology. In addition, aircraft designs are converting from hydraulic control systems to electronic control systems. Aerospace systems designers are constantly striving for higher efficiency power conversion solutions.

Strategy

        We pioneered a core power management technology. We build on our industry leadership in components to develop certain key products based on our proprietary technology. What we categorize as our proprietary products form an increasing proportion of our business, and we believe improve our growth and profit potentials. Our proprietary products refer to our Analog ICs, Advanced Circuit Devices and Power Systems. We include in our reference to proprietary products those products that

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are value-added or are provided under reduced competition due to their technological content or our customer relationship.

        We focus on market sectors where our advancements can provide enabling technology in targeted applications for better, more competitive products: information technology, automotive, defense/aerospace, energy-efficient appliances and motor-driven equipment. We implement our strategy through the following initiatives:

Focus on Adding Value in High Growth Markets.    We focus all of our efforts on power management products and believe that this focus has helped IR to develop the most advanced products for these markets. For example, our Analog ICs are used in power management for portable electronics, next-generation plasma HDTV displays and Intel's and Advanced Micro Devices' most advanced microprocessors. In Power Systems, we are working with major automotive suppliers in designing next generation 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 management technologies, including refrigerators, washing machines, air conditioners and other appliances from such market leaders as Sanyo, Maytag, GE and Miele.

Leverage Our Leading Edge Technology.    Our leading edge technology enables us to set performance and architecture standards for power electronics in targeted applications. Our research and development program focuses on Analog ICs, Advanced Circuit Devices and Power Systems and the advancement and diversification of our HEXFET® power MOSFET and IGBT product lines. Over the three years ended June 30, 2003, we spent approximately $218.3 million on research and development. Our long-term investment in research and development has resulted in a broad worldwide patent portfolio, consisting of 479 issued patents and 609 patent applications pending, of which approximately 112 are provisional applications (see "Intellectual Property"). We believe our technology leadership and product innovation will be a source of product growth in the fastest growing sectors of the power semiconductor industry. In fiscal 2003, 2002 and 2001, licenses under our patents generated approximately $42.0 million, $47.6 million and $51.1 million, respectively, in royalties. The continuation of such royalties is subject to a number of risks (see "Item 7, Management's Discussion and Analysis of Financial Condition—Factors that May Affect Future Results—Our ongoing protection and reliance on intellectual property assets expose us to material risks").

Capitalize on Relationships with Market Leaders.    Many industry leaders look to IR 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 market leading customers include Bosch, Cisco, DaimlerChrysler, Danfoss, Dell, Emerson, IBM, Intel, Lockheed-Martin, Maytag, Motorola, Nortel, Northrop-Grumman, Philips, Raytheon, Sanyo and Visteon.

Extend Leadership in Power Components.    We pioneered a fundamental technology for power MOSFETs and estimate that the majority 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, planar and other 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.

Capitalize on Low Cost Manufacturing.    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, Mexico, the United Kingdom, Germany, Italy, India and China. We also use

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third-party foundries and assemblers to supplement our internal manufacturing in a manner to provide capacity flexibility and efficiency.

Products and Applications

        Our products process electrical power into a form that is more readily usable by electric products. We believe that our full complement of power management technology represents a competitive advantage, enabling us to provide customers with solutions that shorten their overall product development cycle time. Our products are broadly divided among three product categories: Analog ICs and Advanced Circuit Devices, Power Systems and Power Components.

Analog ICs and Advanced Circuit Devices

        An Analog 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 an Analog IC to sense and respond to circuit conditions makes its performance superior to discrete components. Our ICs often use our proprietary power MOSFET technology. We have obtained substantial patent protection for our 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 demanding applications. These products are value-added or are provided under reduced competition due to their technological content or our customer relationship.

        Increased complexity in computers, routers, servers and other devices require increased levels of power and more effective heat dissipation, making power management one of the most critical tasks. IT applications are trending to lower voltages and higher current levels, which require greater efficiency and more complex power management to meet speed and performance demands. Advanced consumer electronics such as PDP televisions and game consoles also require more efficient and complex power management. We continue to invest aggressively in Analog IC technology and key trench, planar and other process technologies. These investments have resulted in what we believe are the most efficient Analog ICs and Advance Circuit Devices. Among other attributes, we believe these product offerings set the industry standard for performance and cost-efficiency in high-volume consumer electronics applications.

Power Systems

        Power Systems combine power semiconductors with other power management components in specialized modules that improve power efficiency and simplify circuit design. We focus 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. Our Power Systems can help reconcile conflicting demands for more power features and better fuel mileage by replacing traditional hydraulic and belt-driven applications with electronic systems. In addition, electrically operated automotive systems improve reliability and maintenance. Our Power Systems are designed into integrated starter/alternator motors, electronic power steering systems, 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 household, commercial and industrial applications. For example, most refrigerator motors can operate only at full speed, but a variable-speed motor can run at the lowest speed needed to maintain the required

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temperature. Our Power Systems designed for variable-speed motors reduce electricity consumption, simplify product design, improve product performance and reduce overall costs. Also, we have achieved multiple sole-source design wins from leading worldwide manufacturers in high-end washers, refrigerators and other energy-efficient appliances. In July 2003, we announced an agreement to form a joint venture with the Semiconductor Division of Sanyo Electric Company. The joint venture, named IR-SA Integrated Technologies Co., will focus on electronic motion control solutions in the appliance and light industrial markets. The joint venture brings together IR's mixed signal IC and discrete expertise and Sanyo's packaging expertise to pursue those markets.

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.

        Through our HEXFET® 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® line of products. We pioneered the fundamental planar 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. Defense/aerospace applications include communications satellites and satellite 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 and power conditioning applications. Energy-efficient, variable-speed motor controls are an emerging application, and we believe hybrid and electric 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 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, forklifts, 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® 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

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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 manufacturing and/or assembly facilities in California, Massachusetts, Mexico, the United Kingdom, Germany, Italy, India and China. In addition, we have equipment at, or manufacturing supply agreements with subcontractors located in the Philippines, Thailand, Taiwan, Malaysia, the Czech Republic, Germany and the United States.

        Our most advanced wafer fabrication facility, located in Newport, Wales (United Kingdom), provides wafer fabrication capacity for mixed-signal and analog processes. We have a MOSFET wafer fabrication facility in Temecula, California, and a high-voltage Analog IC wafer fabrication facility in El Segundo, California. Assembly operations for products used in defense/aerospace applications are located in Leominster, Massachusetts and Santa Clara, California. 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 utilize production facilities in Penllergaer, Wales and Krefeld, Germany, to manufacture and assemble automotive power systems. In a duty-free zone in India, we have an assembly facility for rectifiers and thyristors.

        During the second quarter of fiscal 2003, we announced certain restructuring initiatives. Our goal was to position the Company to better fit market conditions, de-emphasize our commodity business and accelerate the move to our proprietary products. The restructuring plan included consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products. We also planned to lower overhead costs across our support organizations. Refer to Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Marketing, Sales and Distribution

        We market our products through direct sales staff, representatives and distributors. In fiscal 2003 we added a complement of field application engineers and technical sales support staff to better serve the needs of our customers for IR's proprietary products. We believe the depth of our power management product line enhances our competitive position in the overall power semiconductor market.

        In fiscal 2003, our product sales by region, based on the location of the customer, were approximately 32 percent from North America, 23 percent from Europe and 45 percent from Asia, which includes Japan and Asia Pacific. Our domestic direct sales force is organized into five 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 the United Kingdom, Sweden, Finland, Denmark, Spain, France, Italy, Germany, 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 and the Philippines. We also have sales representative or liaison offices in Mexico, 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") 8, Geographic Information and Foreign Operations."

        Because many applications require products from several product groups, we have organized our product development and marketing efforts by sector and application, rather than product type. In

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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. No single OEM customer accounted for more than ten percent of our revenue for the fiscal year ended June 30, 2003. Approximately 31 percent of our revenue in fiscal 2003 came from sales of our products to distributors. The following table lists some of our major customers by end-market for fiscal 2003:

Backlog

        As of June 30, 2003, our backlog of orders was $326.9 million compared to $277.6 million as of June 30, 2002. 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, 2003 is largely attributable to our acquisition of TechnoFusion GmbH in 2002, the success with our proprietary products, and the recent upturn in the semiconductor industry. Given adequate notice, we usually allow customers to cancel purchase orders without penalty. The amount of backlog to be shipped during any period is dependent on various factors and can vary significantly from month to month. Accordingly, backlog is not necessarily indicative of sales for any future period.

Research and Development

        We conduct research and development activities to improve the performance and cost effectiveness of our product offerings in target applications. Our research and development program focuses on Analog ICs, Advanced Circuit Devices and Power Systems and the advancement and diversification of our HEXFET®  power MOSFET and IGBT product lines. We also direct our research and development toward reducing our customers' time-to-market and reducing the cost of their products. 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.

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        In fiscal 2003, 2002 and 2001, we spent approximately $78.9 million, $69.8 million and $69.6 million, respectively, on research and development activities.

        Our design centers are located throughout the world, including the United States, Canada, the United Kingdom, Italy, France, Germany and Singapore. During fiscal 2003, we achieved performance enhancements and cost reductions across our product line. Most notably, our new product introductions for fiscal 2003 included: a) the new xPhase analog IC architecture for high-end computing and communication systems that require scalable multi-phase DC-DC converters, b) expansion of our proprietary DirectFET line of double density MOSFETs for servers, notebooks, networking and communications markets, c) our iMOTION integrated design platform that simplifies the use of energy-efficient variable speed motors in appliance and light industrial applications, d) the industry's first radiation-hardened Power MOSFET with logic level threshold voltage to provide direct interface between microprocessors and other low voltage control circuitry requiring higher voltages or currents, and e) our Z-series of DC/DC converters for satellite and aerospace applications which incorporate synchronous rectification and address low output voltage requirements.

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 273 issued U.S. patents and 288 U.S. patent applications pending (including approximately 112 provisional applications). Our power MOSFET patents expire between 2003 and 2010, with the broadest remaining in effect until 2007 and 2008. In addition, IR has 206 issued foreign patents and 321 foreign patent applications pending in a number of countries (including applications filed under treaty). 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®. 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, we have filed suits against Hitachi Ltd. and affiliated companies in January 2002 and IXYS Corporation in June 2000 charging infringement of several of our MOSFET patents (see Note 13, "Litigation"). Our broadest power MOSFET patents were subject to, and have successfully emerged from, reexamination by the United States Patent and Trademark Office. We currently have license agreements with the majority of power MOSFET manufacturers in the United States and abroad. In fiscal 2003, 2002 and 2001, we derived $42.0 million, $47.6 million and $51.1 million of royalty revenues from license agreements, respectively. Our royalty income stream is dependent on the continued enforceability and validity of our patents, the ability of our competitors to design around our MOSFET technology or develop competing technologies, and general market conditions. The continuation of such royalties is subject to a number of risks (see "Item 7, Management's Discussion and Analysis of Financial Condition—Factors that May Affect Future Results—Our ongoing protection and reliance on our intellectual property assets expose us to material risks").

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 product design changes. 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 enabling capability, performance, reliability, quality,

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price, delivery time to customer and service (including technical advice and support). Our major competitors in Analog ICs and Advanced Circuit Devices include Analog Devices, Intersil, Linear Technology, Maxim Integrated Products, Semtech and Texas Instruments. Our major competitors in Power Components include Fairchild Semiconductor, Hitachi, Infineon Technologies, Mitsubishi, NEC, ON Semiconductor, Phillips, STMicroelectronics, Toshiba and Vishay-Siliconix. Among typical industry competitors, our Power Systems products often compete with our customers as they decide whether to manufacture such products internally.

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.

        IR and Rachelle Laboratories, Inc. ("Rachelle"), a former operating subsidiary of ours 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 us, for cost recovery and contribution under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). IR has settled all outstanding claims that have arisen against it out of the OII Site. No claims against Rachelle have been settled. The Company has taken the position that none of the wastes generated by Rachelle were hazardous.

        Counsel for Rachelle received another letter, dated August 2001, from the U.S. Department of Justice, directed to all or substantially all PRPs for the OII Site, offering to settle claims against such parties for all work performed through and including the final remedy for the OII Site. The offer required a payment from Rachelle in the amount of approximately $9.3 million in order to take advantage of the settlement. Rachelle did not accept the offer.

        In as much as Rachelle has not accepted the settlement, we cannot predict whether the EPA or others would attempt to assert an action for contribution or reimbursement for monies expended to perform remedial actions at the OII Site. We cannot predict the likelihood that the EPA or such others would prevail against Rachelle in any such action. We maintain the position of Rachelle that its wastes were not hazardous. Our insurer has not accepted liability, although it has made payments for defense costs for the lawsuit against us. We have made no accrual for potential loss, if any; however, an adverse outcome could have a material adverse effect on our results of operations.

        We received a letter in June 2001 from a law firm representing UDT Sensors, Inc. relating to environmental contamination (chlorinated solvents such as trichlorethene) assertedly found in UDT's properties in Hawthorne, California. The letter alleges that we operated a manufacturing business at that location in the 1970's and/or 1980's and that we may have liability in connection with the claimed

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contamination. We have made no accrual for any potential losses since there has been no assertion of specific facts on which to form the basis for determination of liability.

Employees

        As of June 30, 2003, we employed approximately 5,500 people, of whom approximately 3,600 were employed in North America, 1,200 in Europe and 700 in Asia Pacific and Japan. The only collective bargaining agreements to which we are subject apply to our employees in Italy. We have approximately 400 employees in Italy. We consider our relations with our employees to be good.

Available Information

        We file, with the Securities and Exchange Commission ("SEC") pursuant to Section 13(a) or 15(d) of the Exchange Act, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished. These reports may be accessed at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information about us. The SEC's Internet address is http://www.sec.gov.

        Our Internet address is http://www.irf.com. We make available free of charge through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Item 2. Properties

        Our operations occupy a total of approximately 1.6 million square feet, of which approximately 0.7 million square feet are located within the United States. Of the worldwide total, approximately 0.4 million square feet are leased and the remaining is owned by us.

        Our leases expire between 2003 and 2011. 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:

        We believe that these facilities are adequate for our current and anticipated near-term operating needs. At fiscal year ended June 30, 2003, we operated at approximately 82 percent of our worldwide manufacturing capacity.

        We have sales or technical support offices located throughout the United States, Mexico, Canada, the United Kingdom, Spain, France, Italy, Germany, Switzerland, Sweden, Denmark, Finland, Russia,

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Hungary, the Czech Republic, China, Hong Kong, Taiwan, Japan, South Korea, India, Singapore, the Philippines, Australia and New Zealand.

Item 3. Legal Proceedings

        We and certain of our directors and officers were named as defendants in three class action lawsuits filed in Federal District Court for the Central District of California in 1991. These suits sought 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 Percent Convertible Subordinated Debentures due 2010. They also alleged that our projections for growth in fiscal 1992 were materially misleading. In June 2003, the court approved a settlement and dismissal of all actions, without any payment by us or any of the defendants.

        In June 2000, we filed suit in Federal District Court in Los Angeles, California, against IXYS Corporation, alleging infringement of our key U.S. patents 4,959,699, 5,008,725 and 5,130,767. The suit sought damages and other relief customary in such matters. In August 2000, IXYS filed an answer and counterclaim, and in February 2002, amended its answer and counterclaim, denying infringement and alleging patent invalidity and unenforceability. The Federal District Court entered a permanent injunction, effective on June 5, 2002, barring IXYS "and all persons in active concert or participation with them who receive actual notice" of the injunction from "making, using, offering to sell or selling in, or importing into, the United States, MOSFETs (including IGBTs) covered by" IR's U.S. patents 4,959,699, 5,008,725 and/or 5,130,767. In August 2002, the Court of Appeals for the Federal Circuit stayed that injunction, pending appeal on the merits. In the Federal District Court, in August 2002, following trial on damages issues, the jury awarded us $9.1 million in compensatory damages. In October 2002, the Federal District Court trebled the damages, increasing the award from $9.1 million to approximately $27.2 million, and ruled that the Company is entitled to an additional award of reasonable attorney's fees for a total monetary judgment of $29.5 million. IXYS has appealed to the Court of Appeals, which has issued a temporary stay of the judgment pending review of the merits. Oral argument on the merits took place before the Court in July 2003 and a ruling has not yet been issued. In January 2002, IXYS filed suit in the Federal Northern District of California alleging infringement of its U.S. patents 4,636,580, 4,670,771, 4,970,576, 4,483,810 and 4,505,418. In the latter suit, the court dismissed all of IXYS's claims, pursuant to a stipulation of the parties.

        IXYS has appealed the $29.5 million judgment, and the ultimate outcome is contingent on the Court of Appeals' ruling. Accordingly, we have not included any amounts related to the judgment in the current fiscal year's income as such amount represents a contingent gain per Statement of Financial Accounting Standards ("SFAS") No. 5.

        In January 2002, we filed suit in the Federal District Court in Los Angeles, California, against Hitachi, Ltd. and affiliated companies alleging infringement of certain of IR's U.S. patents. We amended our complaint in October 2002, alleging infringement of certain other of IR's patents. The suit sought damages and such other relief as is customary in such matters. Hitachi has denied infringement and validity of the patents and has entered a counterclaim of patent misuse. At our request, the District Court issued a preliminary injunction against certain infringing acts and, as a result of further action by the Court of Appeals for the Federal Circuit, since August 2, 2002, the Hitachi defendants have been enjoined from making, using, offering for sale or selling in, or importing into, the United States, certain Hitachi planar power MOSFETs. We have recently added Renesas Technology Corp (and its U.S. affiliate) to such suit as additional parties defendant. Renesas Technology Corp is a joint venture comprised of Hitachi (55 percent) and Mitsubishi Electric Corporation (45 percent). Trial in the case is scheduled for October 2003 but will likely be postponed to a later date until after a ruling has been rendered by the Court of Appeals on the injunction. Oral argument on the merits took place before the Court in July 2003, and a ruling has not yet been issued. Hitachi filed suit against us in the

11

Federal Northern District of California in April 2002 on its U.S. patent 5,101,244. The latter suit was transferred to, and has been consolidated with our suit pending in the Central District of California. The Court in July 2003 granted our motion for summary judgment of non-infringement of the Hitachi patent. IR and Hitachi have filed suit against each other in Tokyo, Japan, District Court alleging infringement of certain of their respective Japanese patents. The parties seek an injunction in these Japanese actions.

Item 4. Submission of Matters to a Vote of the Security Holders

        Not applicable.

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.

        The executive officers of IR are:

        Eric Lidow, the founder of the Company, 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.

        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 Trustees of the California Institute of Technology. Dr. Lidow is a son of Eric Lidow.

        Robert J. Mueller has been employed by us since 1961. He has been Executive Vice President, External Affairs since July 1993. He was first elected a director in 1990.

        Michael P. McGee joined us in 1990. He became Vice President and Chief Financial Officer in 1993. In November 1998, Mr. McGee was elected Executive Vice President. As of June 30, 2003, he was also Chairman of Nihon Inter Electronics Corporation, a publicly-held Japanese corporation.

        Robert Grant joined the Company in 1992 as Director, Worldwide Customer Operations. In October 1998, Mr. Grant 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. He was promoted to Executive Vice President, Global Sales and Corporate Marketing in November 2001.

        Walter Lifsey has been employed by us since 1999. His most recent assignment was as Senior Vice President, Corporate Development before being appointed Executive Vice President, Operations in April 2002. Prior to joining IR, he held senior management positions at AMP, Inc. and TRW Inc.

        Donald R. Dancer joined IR in August 2002. He most recently was General Counsel for GE Industrial Systems Solutions and served 22 years in various senior legal positions with the General Electric Company.

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PART II

Item 5. Market for the Registrants' Common Equity and Related Stockholders Matters

Price Range of Common Stock
(Closing Prices in Dollars)

        Our common stock is traded on The New York Stock Exchange and the Pacific Exchange under the symbol "IRF." There were approximately 1,917 holders of record of our common stock as of September 26, 2003. No dividends were declared or paid in any of the referenced years.

        The quoted market prices are as reported on the New York Stock Exchange Composite. Stockholders are urged to obtain current market quotations for the common stock.

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Item 6. Selected Financial Data

        The selected consolidated financial data as of June 30, 2003 and 2002 and for the fiscal years ended June 30, 2003, 2002 and 2001 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 34. The selected consolidated financial data as of June 30, 2001, 2000 and 1999, and for the fiscal years ended June 30, 2000 and 1999 are derived from our audited consolidated financial statements which are not included in this document.

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(1)

Certain reclassifications have been made to previously reported amounts to conform to the current year presentation.

(2)

Gross profit includes charges of $6.0 million, $38.4 million and $2.5 million for inventory written down to net realizable value during fiscal years 2003, 2001 and 1999, respectively.

(3)

Income (loss) before cumulative effect of accounting change includes total pretax charges of $193.9 million, $86.4 million and $27.0 million for the fiscal years 2003, 2001 and 1999, respectively, which are comprised of the inventory write-downs outlined in (2) and $187.9 million, $48.0 million and $24.5 million in impairment of assets, restructuring, severance and relocation costs and other charges for the fiscal years 2003, 2001 and 1999, respectively.

(4)

Cumulative effect of accounting change reflects the adoption of SOP 98-5, "Reporting on the Costs of Start-Up Activities" which requires that previously deferred start-up and pre-operating costs be written off and subsequent costs be expensed as incurred. 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.

(5)

Working capital is defined as current assets less current liabilities.

(6)

Cash flows used in investing activities included acquisitions of certain business assets and businesses, net of cash of $169.6 million, $74.7 million and $28.5 million in fiscal 2002, 2001 and 2000, respectively; net sale (purchase) of cash investments of $60.1 million, $24.5 million, ($397.3) million, ($49.0) million and ($12.9) million of cash investments in fiscal 2003, 2002, 2001, 2000 and 1999, respectively; and capital expenditures of $71.7 million, $63.5 million, $98.6 million, $64.6 million and $71.6 million in fiscal 2003, 2002, 2001, 2000 and 1999, respectively.

(7)

Cash flows provided by financing activities in fiscal 2001 included the issuance of $550 million of 4.25 percent Convertible Subordinated Notes due 2007. Cash flows provided by financing activities in fiscal 2000 included the net proceeds from the issuance of 9,250,000 shares of common stock of $360.7 million, offset by $192.3 million of extinguishment of debt under the syndicated Credit Agreement with Banque Nationale de Paris.

15

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and notes to consolidated financial statements included elsewhere in this Form 10-K. Except for historic information contained herein, the matters addressed in this Item 7 constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed under the heading "Cautionary Statement for Purposes of the `Safe Harbor' Provision of Private Securities Litigation Reform Act of 1995", "Factors That May Affect Future Results" and elsewhere in this Annual Report on From 10-K, that could cause actual results to differ materially from those anticipated by the company's.

Results of Operations

        The following table sets forth certain items included in selected financial data as a percentage of revenues.

Fiscal 2003 Compared with Fiscal 2002

Revenues

        Revenues for fiscal 2003 were $864.4 million, versus $720.2 million in fiscal 2002. Fiscal 2003 revenues reflected the growth of what we categorize as our proprietary products and the upturn in the semiconductor industry. Royalties contributed $42.0 million to revenues, compared to $47.6 million in fiscal 2002. For the twelve months ended June 30, 2003, Semiconductor Industry Association data showed a 17 percent growth in semiconductor industry revenues for the business in which we operate, while IR's revenues increased by 20 percent during this period.

        Revenues from our proprietary products increased by 37 percent compared to the prior fiscal year. These revenues comprised 58 percent of product revenues for the fourth quarter of fiscal 2003, compared to 50 percent in the comparable prior year period. Our proprietary products refer to our Analog ICs, Power Systems and Advanced Circuit Devices. These products are value-added or are provided under reduced competition due to their technological content or our customer relationship.

        Revenues from sales to original equipment manufacturers ("OEMs") grew by 34 percent from fiscal 2002, accounting for 69 percent of fiscal 2003 product revenues, compared to 63 percent for fiscal

16

2002. We also classify revenues from sales to OEMs by end-market applications. Compared to the prior year, revenues from all end-market applications grew. Fiscal 2003 performance in end-market applications is as follows:

•

The information technology sector comprised approximately 35 percent of sales to OEMs for fiscal 2003. Revenues from this sector grew 36 percent from fiscal 2002. This increase reflected greater content, the introduction of Intel's Centrino™ and Pentium M™ based products, and an increase in market share.



•

The automotive sector comprised approximately 26 percent of sales to OEMs for fiscal 2003. Revenues from this sector grew by 69 percent from fiscal 2002. The revenue increase reflected new programs and the acquisition of TechnoFusion GmbH. TechnoFusion contributed $41.7 million and $7.5 million in automotive revenues for the twelve months ended June 30, 2003 and 2002, respectively.



•

The consumer sector comprised approximately 17 percent of sales to OEMs for fiscal 2003. Revenues from this sector increased by 22 percent from fiscal 2002, reflecting the success of energy-efficient appliances and plasma HDTV.



•

The defense/aerospace sector comprised approximately 13 percent of sales to OEMs for fiscal 2003. Revenues from this sector grew 13 percent from fiscal 2002, primarily as a result of new programs including advanced aircraft, global positioning satellites and smart weaponry.



•

The industrial sector comprised approximately eight percent of sales to OEMs for fiscal 2003. Revenues from this sector increased 11 percent from fiscal 2002.

        Our sales to distributors remained relatively unchanged from fiscal 2002, up two percent in fiscal 2003. However, distributors' sales of our products to their end customers increased 11 percent over the same period. Inventories at our distributors decreased by over 12 percent from fiscal 2002, and over 30 percent from the peak in fiscal 2001.

        Orders for proprietary products increased 37 percent from fiscal 2002, and represented 57 percent of total bookings. We continue to secure new designs for our proprietary products and to expand proprietary products content in target applications.

Gross Profit Margin

        For the twelve months ended June 30, 2003 and 2002, gross profit was $287.8 million and $256.9 million (33.3% and 35.7% of revenues), respectively. Compared to the prior year, the gross profit margin decline primarily reflected continued price pressure on multi-market components. For example, the average selling price of our HEXFET® products, which accounted for approximately 60 percent of our fiscal 2003 component product sales, decreased by approximately 10 percent compared to fiscal 2002. The decline in gross margin from the prior year was partially offset by more stable pricing of our proprietary products.

Selling and Administrative Expenses

        For the twelve months ended June 30, 2003, selling and administrative expense was 16.5 percent of revenues, compared to 17.4 percent of revenues in the twelve months ended June 30, 2002. The decline in the selling and administrative expense ratio primarily reflected a higher revenue base in fiscal 2003 and efforts to keep selling and administrative expenses down in light of the growth in revenue base. Absolute selling and administrative expenditures were $142.5 million for the current fiscal year, compared to $125.6 million in the comparable prior-year period. The increase primarily reflected selling commissions paid on a higher revenue base.

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Research and Development Expenses

        For the twelve months ended June 30, 2003 and 2002, research and development expense was 9.1 percent and 9.7 percent of revenues, respectively. Absolute research and development expenditures were $78.9 million and $69.8 million for the twelve months ended June 30, 2003 and 2002, respectively, reflecting increased development activities focused primarily on proprietary products.

Amortization of Acquisition-Related Intangible Assets

        For the twelve months ended June 30, 2003 and 2002, amortization of acquisition-related intangible assets was $5.4 million and $4.1 million, respectively. The increase reflected the acquisition of TechnoFusion at fiscal year-end 2002.

Impairment of Assets, Restructuring, Severance and Other Charges

        During the fiscal quarter ended December 31, 2002, we announced our restructuring initiatives. Under our restructuring initiatives, our goal was to reposition the Company to better fit the market conditions, de-emphasize the commodity business and accelerate the move to what we categorize as our proprietary products. Our restructuring plan included consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products. We also planned to lower overhead costs across our support organizations.

        We estimate that charges associated with the plan will be approximately $220 million. These charges will consist of approximately $189 million for asset impairment, plant closure costs and other charges, $6 million of raw material and work-in-process inventory, and approximately $25 million for severance. Of the $220 million in total charges, we expect cash charges to be $40 million to $50 million. As of June 30, 2003, we have achieved $30 million in annualized savings from the restructuring activities and expect to realize annualized savings of approximately $70 million by fiscal year-end 2004, and approximately $85 million by calendar year-end 2004, with approximately 80 percent to 85 percent of that savings affecting cost of goods sold.

        For the fiscal year ended June 30, 2003, we recorded $193.9 million in total charges, consisting of: $169.7 million for asset impairment, plant closure costs and other charges, $6.0 million for raw material and work-in-process inventory charges, and $18.2 million for severance-related costs. Components of the $169.7 million for asset impairment, plant closure costs and other charges include the following items:

•

As we emphasize more advanced generation planar products, we expect the future revenue stream from our less advanced facilities in Temecula, California to decrease significantly. These facilities had a net book value of $138.3 million and were written down by $77.7 million. It is expected that these facilities will continue in use until approximately December 2007 and the remaining basis is being depreciated over units of production during this period. It is assumed that salvage value will equal disposition costs.



•

As we emphasize more advanced generation trench products, we expect the future revenue stream from our less advanced facility in El Segundo, California to decrease significantly. This facility had a net book value of $59.5 million and was written down by $57.2 million. This facility had significantly reduced production as of fiscal year-end 2003.



•

As we emphasize more advanced generation Schottky products, we expect the future revenue stream from our less advanced facility in Borgaro, Italy to decrease significantly. This facility had a net book value of $20.5 million and was written down by $13.5 million. It is expected that this facility will continue in use until approximately December 2007 and the remaining basis is being

18

depreciated over units of production during this period. It is assumed that salvage value will equal disposition costs.

•

We are in the process of restructuring our manufacturing activities in Europe. This activity involves rationalizing our Krefeld, Germany facility and our Swansea, Wales facility. As a result, our assembly assets in Swansea, Wales, with a net book value of $13.6 million, were written down by $8.2 million. We are also (i) moving the majority of the production from our Veneria, Italy facility to our Bombay, India facility, with targeted completion of December 2003, and (ii) eliminating manufacturing activities in our Oxted, England facility, which activity was substantially complete as of September 2003. The Oxted, England products were transferred to our Tijuana, Mexico assembly facility.



•

We plan to eliminate the manufacturing of our non-space military and aerospace products in our Santa Clara, California facility by July 2004. In the future, many of the current activities in these areas will be handled by subcontractors. Associated with this reduction in manufacturing activities, certain assets with a net book value of $3.3 million were written down by $1.4 million.



•

$11.7 million in other miscellaneous items were charged, including $6.9 million in contract termination and settlement costs and $4.8 million in other impaired asset charges and relocation costs.

        As a result of the restructuring initiatives, certain raw material and work-in-process inventories were impaired, including products that could not be completed in other facilities, materials that were not compatible with the processes used in the alternative facilities, and materials such as gases and chemicals that could not readily be transferred. Based on these factors we wrote down these inventories, with a carrying value of $98.2 million, by $6.0 million. As of June 30, 2003, we had disposed of $2.6 million of these inventories, which did not have a material impact on gross margin for the year ended.

        Asset impairments were calculated in accordance with SFAS No. 144. In determining the asset groups, we grouped assets at the lowest level for which independent identifiable cash flows were available. In determining whether an asset was impaired we evaluated undiscounted future cash flows and other factors such as changes in strategy and technology. The undiscounted cash flows from our initial analyses were less than the carrying amount for certain of the asset groups, indicating impairment losses. Based on this, we determined the fair value of these asset groups using the present value technique, by applying a discount rate to the estimated future cash flows that is consistent with the rate we used when analyzing potential acquisitions.

        Our restructuring activities were targeted to eliminate approximately 10 percent to 15 percent of our existing positions and are expected to result in severance charges of approximately $25 million through December 2004. Below is a table of approximate severance charges by major activity and location:

        For the year ended June 30, 2003, of the $25 million noted above, we recorded $15.9 million in severance termination costs related to approximately 710 administrative, operating and manufacturing

19

positions, and $2.3 million in costs to terminate a pension plan at our manufacturing facility in Oxted, England. The severance charges associated with the elimination of positions, which included the 710 persons notified to date, had been and will continue to be recognized ratably over the future service period, as applicable, in accordance with SFAS No. 146, "Accounting for the Costs Associated with Exit or Disposal Activities". We measured the total termination benefits at the communication date based on the fair value of the liability as of the termination date. A change resulting from a revision to either the timing or the amount of estimated cash over the future service period will be measured using the credit-adjusted risk-free rate that was used to initially measure the liability. The cumulative effect of the change will be recognized as an adjustment to the liability in the period of the change. Including the liability accrued prior to our December 2002 restructuring initiatives, the accrued severance and pension liabilities as of June 30, 2003 are as follows (in 000's):

Other Income and Expenses

        In fiscal 2002, we reached an insurance settlement for equipment that was damaged at one of our wafer fabrication lines (see Note 7, "Insurance Claim"). For the twelve months ended June 30, 2003 and 2002, we recognized a $2.4 million and $7.4 million net gain on the settlement, respectively, which had been included in other income and expenses.

        Fiscal 2003's gain from the insurance settlement was partially offset by a net foreign currency loss of $1.6 million. Fiscal 2002's gain was partially offset by litigation and claims settlements of $3.7 million and a net foreign currency loss of $1.2 million.

Interest Income and Expenses

        Interest income was $20.4 million and $28.6 million for the twelve months ended June 30, 2003 and 2002, respectively. The decrease in income reflected lower prevailing interest rates in the current year.

        Interest expense was $19.7 million and $22.1 million for the twelve months ended June 30, 2003 and 2002, respectively. The decrease in expense reflected primarily realized savings from lower variable rate resulting from the interest rate swap transaction with JP Morgan Chase Bank, as well as lower prevailing interest rates in the current year, partially offset by increase in expense from the Lehman Brothers interest rate contract (see Note 3, "Derivative Financial Instruments").

Income Taxes

        Our effective tax benefit for the twelve months ended June 30, 2003 was approximately 29 percent, rather than the expected U.S. federal statutory tax benefit of 35 percent as a result of restructuring charges, state taxes, higher statutory tax rates in certain foreign jurisdictions and certain foreign losses without foreign tax benefit; partially offset by foreign tax credits and research and development credits.

20

        Our effective tax rate for the twelve months ended June 30, 2002 was 26 percent, rather than the U.S. federal statutory tax rate of 35 percent. The lower effective tax rate reflected foreign tax credits and research and development credits, partially offset by higher statutory tax rates in certain foreign jurisdictions and certain foreign losses without foreign tax benefit.

Fiscal 2002 Compared with Fiscal 2001

Revenues

        Revenues for fiscal 2002 were $720.2 million, versus $978.6 million in fiscal 2001. Fiscal 2002 revenues were impacted by the downturn in the semiconductor industry. For the twelve months ended June 30, 2002, Semiconductor Industry Association data showed a 32 percent decline in semiconductor industry revenues, whereas IR's revenues declined by 26 percent during this period. Despite this challenging environment, revenues from IR's proprietary products (Analog ICs, Advanced Circuit Devices, and Power Systems) grew by five percent and comprised half of product revenues in fiscal 2002, compared to 35 percent in 2001. Royalties contributed $47.6 million to revenues, compared to $51.1 million in fiscal 2001.

        In line with the industry downturn, we experienced a 47 percent decline compared to the prior year period in the information technology sector and a 40 percent decline in revenues in the industrial sector for fiscal 2002. However, we returned to revenue growth in the second half of fiscal 2002 compared to the first half, with revenues increasing 13 percent over the first half of fiscal 2002.

        Notwithstanding the downturn, we achieved growth in several target sectors. We strengthened our position in the defense/aerospace sector by securing multiple sole-source design wins in leading defense and satellite programs. Revenues from this sector grew 18 percent over the prior year. Revenues from the consumer electronics market rose 19 percent, reflecting increased demand for applications in high-end household appliances. Including acquisitions, revenues from the automotive sector grew 13 percent compared to fiscal 2001. Excluding acquisitions, our revenue growth in the automotive sector was approximately seven percent.

        Orders for our proprietary products represented more than half of total bookings for fiscal 2002. Orders climbed 13 percent in the fourth quarter from the previous quarter, including bookings from TechnoFusion. Shipments into the distribution channel declined by 34 percent year-over-year, but strengthened in the fourth quarter, rising 21 percent from the third quarter level.

        During the third quarter of fiscal 2002, we acquired the assets of European Semiconductor Manufacturing, Ltd. and the "high-reliability" power MOSFET line of Fairchild Semiconductor. In the fourth quarter of fiscal 2002, we completed the acquisition of TechnoFusion GmbH, a leading maker of power generation products for the automotive industry, from Royal Philips Electronics. In total, these acquisitions contributed about $8.9 million to our revenues for the fiscal year.

Gross Profit Margin

        Gross profit was $256.9 million (35.7% of revenues) in fiscal 2002, versus $356.2 million (36.4% of revenues) in fiscal 2001, including an inventory write-down of $38.4 million in the fourth quarter of fiscal 2001. Strength in higher-margin proprietary products helped to counter the impact of price declines, lower production volumes for components and lower royalties.

Selling and Administrative Expenses

        In fiscal 2002, selling and administrative expense was $125.6 million (17.4% of revenues), versus $137.7 million (14.1% of revenues) in the comparable year-ago period. The decline in absolute spending reflected the benefits of our cost containment programs and selling commissions paid on a

21

lower sales base and was partially offset by $0.6 million from acquisitions. Expenses rose as a percentage of revenues because of lower sales compared to fiscal 2001.

Research and Development Expenses

        In fiscal 2002, our research and development expenditures were $69.8 million (9.7% of revenues), compared to $69.6 million (7.1% of revenues) in the prior-year period. We continue to invest in the development of new proprietary products for information technology, automotive, defense/aerospace and home appliances and other motion control applications.

Amortization of Acquisition-Related Intangible Assets

        In fiscal 2002, amortization of acquisition-related intangible assets was $4.1 million (0.6% of revenues), compared to $6.0 million (0.6% of revenues) in fiscal 2001. In fiscal 2002, we adopted SFAS No. 142, which eliminated the amortization of goodwill and assembled workforce.

Other Income and Expenses

        In fiscal 2002, we reached a settlement with our insurance carrier for equipment that was damaged at one of our wafer fabrication lines (see Note 7). We recognized a $4.0 million gain for the involuntary conversion of the damaged equipment. The gain primarily represents the excess of the proceeds received and used to replace the damaged equipment over the net book value of the replaced equipment. Additionally, a resulting net gain on the settlement of the claim of $3.4 million was recorded within other income and expenses. This was partly offset by litigation and claims settlements of $3.7 million and a foreign currency loss of $1.2 million.

        In fiscal 2001, other income included proceeds of $5.0 million 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 our share of the royalty proceeds payable to Unitrode Corporation. Fiscal 2001's royalty proceeds were partially offset by litigation and claims settlements of $3.6 million.

Interest Income and Expenses

        Interest income was $28.6 million and $47.8 million for the fiscal year ended June 30, 2002 and 2001, respectively. The fiscal 2002 figure primarily reflected the impact of lower interest rates.

        Interest expense was $22.1 million and $26.1 million for the fiscal years ended June 30, 2002 and 2001, respectively. The decrease principally reflected realized savings from the $412.5 million notional amount interest rate swap transaction with JP Morgan Chase Bank (see Note 3).

Income Taxes

        Our effective tax rate in fiscal 2002 and 2001 was approximately 26 percent, which differed from the U.S. federal statutory tax rate of 35 percent and reflected the benefits of foreign tax credits, research and development credits and state tax credits, partially offset by higher statutory tax rates in certain foreign jurisdictions, foreign jurisdiction losses without foreign tax benefit, and higher state taxes.

Liquidity and Capital Resources

        At June 30, 2003, we had cash and cash equivalent balances of $350.8 million and cash investments in marketable debt securities of $370.7 million. Our cash, cash equivalents, cash investments in marketable debt securities and unused credit facilities of $128.4 million, totaled $849.9 million. Our investment portfolio consists of available-for-sale fixed income, investment-grade securities with effective maturities of up to 36 months.

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        During fiscal 2003, operating activities generated cash flow of $129.5 million compared to $43.4 million in the prior year period. Non-cash restructuring-related charges adjusted cash flows from operations by $180.2 million. Deferred income taxes primarily related to the restructuring charges adjusted cash flows from operations by ($60.1) million. Depreciation and amortization adjusted cash flows from operations by $61.8 million. Additionally, changes in operating assets and liabilities increased cash by $36.9 million during fiscal 2003, primarily related to lower receivable and inventory levels from improvements in collections and inventory management, combined with higher accrued taxes and accounts payable. The higher accrued balances resulted from timing differences of tax payments and inventory purchases.

        During fiscal 2003, cash used in investing activities totaled $20.0 million. Proceeds from sales or maturities of cash investments were $514.9 million while purchases were $454.8 million. We invested $71.8 million in capital expenditures primarily related to upgrading wafer manufacturing capabilities and increasing assembly capacity. Additionally at June 30, 2003, we had made purchase commitments for capital expenditures of approximately $8.4 million. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand, anticipated cash flow from operations, and available credit facilities.

        Financing activities during fiscal 2003 generated $2.6 million. The issuance of common stock under our Employee Stock Participation Plan and exercise of stock options provided $8.1 million. This increase in cash was partially offset by $3.3 million of debt payments. As of June 30, 2003, we had revolving, equipment and foreign credit facilities of $158.9 million, of which $30.5 million had been utilized. As discussed in Note 3, we are required to obtain irrevocable standby letters of credit in favor of JP Morgan Chase Bank, for $11.5 million plus a collateral requirement for the interest rate swap transaction, as determined periodically. At June 30, 2003, $13.4 million in letters of credit were outstanding, of which $11.5 million were related to the swap transaction. The collateral requirement of the transaction may be adversely affected by an increase in the five-year LIBOR curve, a decrease in our stock price, or both. We cannot predict what the collateral requirement of the transaction and the letter of credit requirement will be over time. To illustrate the potential impact: Had the five-year LIBOR curve increased by as much as ten percent and our stock price decreased by as much as ten percent at the close of the fiscal year, our letter of credit commitment under the JP Morgan swap transaction would have remained $11.5 million.

        We lease certain of our administrative, research and development and manufacturing facilities, regional sales/service offices and certain equipment under non-cancelable operating and capital leases.

        In July 2000, we sold $550 million principal amount of 4.25 Percent Convertible Subordinated Notes due 2007. The interest rate is 4.25 percent per year on the principal amount, payable in cash in arrears semi-annually on January 15 and July 15. The notes are convertible into shares of the IR's common stock at any time on or before July 15, 2007, at a conversion price of $73.935 per share, subject to certain adjustments. In December 2001, we entered into an interest rate swap transaction that modified our effective interest payable with respect to $412.5 million of our outstanding convertible debt (see Item 7A, Quantitative and Qualitative Disclosures about Market Risk).

        In November 2000, we entered into a three-year syndicated multi-currency revolving credit facility (the "Credit Facility") led by BNP Paribas, which provided a credit line of $150 million, of which up to $100 million may be used for standby letters of credit. The credit agreement allows borrowings by our foreign subsidiaries and provides funding for our general corporate purposes. The facility bears interest at (i) local currency rates plus (ii) a margin between 0.25 percent and 1.125 percent for base rate advances and a margin of between 1.25 percent and 2.125 percent for euro-currency rate advances. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the credit agreement is 0.5 percent of the unused portion of the credit facility. The facility also contains

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certain financial and other covenants for which we were in compliance as of June 30, 2003. The Credit Facility will expire in November 2003. We are currently negotiating terms for renewal.

        As of June 30, 2003, the following lists our contractual obligations for the next five years:

        We believe that our current cash and cash investment balances, cash flows from operations and borrowing capacity, including unused amounts under the $150 million Credit Facility, will be sufficient to meet our currently foreseeable operating cash requirements and to take advantage of strategic opportunities as they occur in the next twelve months. Although we believe that our current financial resources will be sufficient for normal operating activities, 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.

Recent Accounting Pronouncements

        Effective January 2003, we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 changes guidance that previously existed under Emerging Issues Task Force ("EITF") Issue No. 94-3. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas under EITF No. 94-3, liabilities were recorded at the date of commitment to the plan. SFAS No. 146 establishes that fair value is the objective for initial measurement of the liability. In cases where employees are required to render service until they are terminated in order to receive termination benefits, a liability for termination benefits is recognized ratably over the future service period.

        Effective January 2003, we adopted SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of SFAS No. 123." SFAS No. 148 requires that the fair value method of accounting for stock-based employee compensation be prominently disclosed in both the annual and interim financial statements. SFAS No. 148 also amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation.

        In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 requires that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative discussed in paragraph 6(b) of SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to language used in FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", and (4) amends certain other existing pronouncements. This Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions. SFAS No. 149 is not expected to have a material impact on our financial position, results of operations or cash flows.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 requires that the following financial

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instruments be classified as liabilities (or assets in some circumstances): (1) Mandatorily redeemable shares that represent an unconditional obligation requiring the issuer to redeem those shares by transferring its assets at a specified or determinable date (or dates), or upon an event that is certain to occur; (2) An outstanding share, that, at inception, represents an obligation to repurchase the issuer's equity shares, or is indexed to such an obligation, and that requires or may require the issuer to settle the obligation by transferring assets; and (3) An unconditional obligation, or a financial instrument other than an outstanding share, that represents a conditional obligation that the issuer must or may settle by issuing a variable number of its equity shares, if, at inception, the monetary value of the obligation is based solely or predominantly on any of the following: (a) A fixed monetary amount known at inception, (b) Variations in something other than the fair value of the issuer's equity shares, or (c) Variations inversely related to changes in the fair value of the issuer's equity shares. This Statement is effective for financial instruments entered into or modified after May 31, 2003, with certain exceptions. SFAS No. 150 is not expected to have a material impact on our financial position, results of operations or cash flows.

        In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51". This Interpretation requires an investor with a majority of the variable interests (primary beneficiary) in a variable interest entity ("VIE") to consolidate the entity. It also requires majority and significant variable interest investors to provide certain disclosures. A VIE is an entity in which the voting equity investors do not have a controlling interest, or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from other parties. For arrangements entered into with VIEs created prior to January 31, 2003, the provisions of FIN 46 are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. For all arrangements entered into with new VIEs created after January 31, 2003, FIN 46 becomes effective immediately. We are currently evaluating the impact of adoption of this Interpretation.

Critical Accounting Policies

Revenue Recognition

        In accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition", we recognize revenue when the evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured, and delivery or performance of service has occurred. We recognize the majority of revenues upon shipment for product sales to all customers, including distributors, with provisions for estimated returns and allowances recorded at the time of shipment. Certain customers have limited rights of returns and price protection programs. We continuously monitor product returns and potential price adjustments and record a provision for these based on notification we receive of pending credits and historical experience. While such credits have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same predictability in estimating returns and allowances. If the historical data and estimates we used to calculate these provisions do not properly reflect future activity, our net sales, gross profit, net income and earnings per share could be impacted.

        Certain of our customers' contracts contain substantive acceptance provisions. In such circumstances, we recognize revenue in accordance with specific contract acceptance provisions, in most instances upon customer inspection or upon delivery of proof of conformance to customer specifications. We also maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

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Inventories

        Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories are reviewed for excess and obsolescence based upon demand forecasts within a specific time horizon and reserves are established accordingly.

Long-Lived Assets

        Long-lived assets are net property, plant and equipment and intangible assets. We test long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events and circumstances include, but are not limited to:

•

A significant change in business strategy or in the extent or manner for which the asset is being used or in its physical condition;



•

A significant negative change in the business climate, industry conditions, economic conditions or market value of an asset; and



•

Current period operating losses or negative cash flow combined with a history of similar losses or a forecast that indicates continuing losses associated with the use of an asset.

        We evaluate the recoverability of long-lived assets based on the expected undiscounted cash flows for their asset group as determined in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", without regard to taxes. Impairments, if any, are recognized based upon the fair value of the assets. Fair value is based upon a discounted cash flow analysis. We use the undiscounted cash flows and apply an appropriate discount rate that is representative of the discount rate we use when evaluating potential acquisitions.

        In developing our cash flow projections, we use revenue and cost assumptions based on current levels adjusted for anticipated future market conditions. If these market conditions do not materialize, our cash flow forecasts could be materially impacted.

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Goodwill and Acquisition-Related Intangible Assets

        We classify the difference between the purchase price and the fair value of net assets acquired at the date of acquisition as goodwill. We classify intangible assets apart from goodwill if the assets have contractual or other legal rights or if the assets can be separated and sold, transferred, licensed, rented or exchanged. Depending on the nature of the assets acquired, the amortization period may range from four to twelve years for those acquisition-related intangible assets subject to amortization. We evaluate the carrying value of goodwill and acquisition-related intangible assets, including the related amortization period, in the fourth quarter of each fiscal year. In evaluating goodwill and intangible assets not subject to amortization, we compare the total carrying value of goodwill and intangible assets not subject to amortization to our fair value as determined by our market capitalization. In evaluating intangible assets subject to amortization, we assess the carrying value of each intangible asset in accordance with SFAS No. 144.

Derivative Financial Instruments

        Our primary objectives for holding derivative financial instruments are to take advantage of the current low interest rate environment and hedge non-U.S. currency risks. Our derivative instruments are recorded at fair value and are included in other current assets, other long-term assets or long-term debt. Our accounting policies for derivative financial instruments are based on our criteria for designation as hedging transactions, either as cash flow or fair value hedges as defined by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133". A cash flow hedge refers to the hedge of the exposure to variability in the cash flows of an asset or a liability, or of a forecasted transaction. A fair value hedge refers to the hedge of the exposure to changes in fair value of an asset or a liability, or of an unrecognized firm commitment. The criteria for designating a derivative as a hedge include the instrument's effectiveness in risk reduction and, in most cases, a one-to-one matching of the derivative instrument to its underlying transaction. We recognize gains and losses on derivatives that are not designated as hedges for accounting purposes currently in earnings. These gains and losses generally offset changes in the values of hedged assets, liabilities or debt.

        For currency forward contracts, we measure the effectiveness of the hedge using forward rates to value the forward contract and the forward value of the underlying hedged transaction. For interest rate swaps, we measure the effectiveness using regression analysis, which offsets the change in fair value of the long-term debt with the change in fair value of the interest rate swap.

        We recognize in current period's interest and other income and expense, depending on the nature of the underlying asset or liability, the ineffective portions of the hedge, as well as, the amounts not included in the assessment of effectiveness. If we determined that the original hedged transaction probably will not occur as anticipated, and a cash flow hedge is to be discontinued, we would reclassify the unrealized gains or losses into earnings. We would recognize subsequent gains or losses on the related derivative instrument in income in each period until the instrument matures, is terminated or is sold.

Stock-Based Compensation

        We account for stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance with SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment of SFAS No. 123", we disclose the pro forma effects of recording stock-based employee compensation plans at fair value on "net income (loss)" and "net income (loss) per common share—basic and diluted" as if the compensation expense was recorded in the financial

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statements. Had we recorded the compensation expense, "net income (loss)" and "net income (loss) per common share—basic and diluted", as compared to the actual reported amounts, would approximate the following (in 000's, except per share data):

        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.

Statement of Caution Under the Private Securities Litigation Reform Act of 1995

        This Form 10-K Report includes some statements and other information that are not historical facts but are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The materials presented 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. We caution that such statements are subject to a number of uncertainties, and actual results may differ materially. Factors that could affect our actual results include those set forth below under "Factors that May Affect Future Results" and other uncertainties disclosed in our reports filed from time to time with the Securities and Exchange Commission.

Factors That May Affect Future Results

        Downturns in the highly cyclical semiconductor industry or changes in end market demand could affect our operating results and the value of our business.

        The semiconductor industry is highly cyclical and the value of our business may decline during the "down" portion of these cycles. We have experienced these conditions in our business in the past, are currently experiencing a significant and prolonged downturn and may experience such downturns in the future. The recent downturn over the past couple of years has been severe and prolonged, and it is uncertain when any meaningful recovery might occur. Future downturns in the semiconductor industry, or any failure of the industry to recover fully from its recent downturns could seriously impact our revenues and harm our business, financial condition and results of operations. Although markets for semiconductors appear to be improving, we cannot assure you that they will continue to improve or that our markets will not experience renewed, possibly more severe and prolonged, downturns in the future.

        In addition, we may experience significant changes in our profitability as a result of variations in sales, seasonality, changes in product mix, price competition for orders and the costs associated with the introduction of new products. The markets for our products depend on continued demand in the communications, consumer electronics, information technology, automotive, industrial and government/space markets, and these end markets may experience changes in demand that could adversely affect our operating results and financial condition.

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        The failure to implement, as well as the completion and impact of our restructuring programs and cost reductions could adversely affect our business.

        In December 2002, we announced a number of restructuring initiatives. Our goal was to reposition our company to better fit the market conditions, de-emphasize our commodity business and accelerate the move to what we categorize as our proprietary products. The restructuring includes consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products. The restructuring also includes lowering overhead costs across our support organization. We cannot assure you that these restructuring initiatives will achieve their goals or accomplish the cost reductions planned. Additionally, because our restructuring activities involve changes to many aspects of our business, the costs reductions could adversely affect productivity and sales to an extent we have not anticipated. Even if we fully execute and implement these restructuring activities, and they generate the anticipated cost savings, there may be other unforeseen factors that could adversely impact our profitability and business.

        If we are unable to implement our business strategy, our revenues and profitability may be adversely affected.

        Our future financial performance and success are largely dependent on our ability to implement our business strategy successfully of transforming our business to one led by our proprietary products. We cannot assure you that we will successfully implement our business strategy or that implementing our strategy will sustain or improve our results of operations.

        The semiconductor business is highly competitive and increased competition could reduce the value of an investment in our company.

        The semiconductor industry, including the sector in which we do business, is highly competitive. Competition is based on price, product performance, product availability, quality, reliability and customer service. Price pressures may emerge as competitors attempt to gain a greater market share by lowering prices. We compete in various markets with companies of various sizes, many of which are larger and have greater financial and other resources than we have, and thus they may be better able to pursue acquisition candidates and to withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future.

        New technologies could result in the development of new products and a decrease in demand for our products, and we may not be able to develop new products to satisfy changes in demand.

        Our failure to develop new technologies or react to changes in existing technologies could materially delay our development of new products, which could result in decreased revenues and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. As a result, we must devote significant resources to research and development. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. We cannot assure you that we will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner, or that products or technologies developed by others will not render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets could have a material adverse effect on our competitive position within the industry. In addition, to remain competitive, we must continue to reduce die sizes and improve manufacturing yields. We cannot assure you that we can accomplish these goals.

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        Our failure to obtain or maintain the right to use certain technologies may negatively affect our financial results.

        Our future success and competitive position may depend in part upon our ability to obtain or maintain certain proprietary technologies used in our principal products, which is achieved in part by defending claims by our competitors of intellectual property infringement. We license certain patents owned by others. We have also been notified that certain of our products may infringe the patents of third parties. Although licenses are generally offered in such situations, we cannot eliminate the risk of litigation alleging patent infringement. We are currently a defendant in intellectual property litigation and we could become subject to other lawsuits in which it is alleged that we have infringed upon the intellectual property rights of others.

        Our involvement in existing and future intellectual property litigation could result in significant expense, adversely affect sales of the challenged product or technologies and divert the efforts of our technical and management personnel, whether or not such litigation is resolved in our favor. If any such infringements exist, arise or are claimed in the future, we may be exposed to substantial liability for damages and may need to obtain licenses from the patent owners, discontinue or change our processes or products or expend significant resources to develop or acquire non-infringing technologies. We cannot assure you that we would be successful in such efforts or that such licenses would be available under reasonable terms. Our failure to develop or acquire non-infringing technologies or to obtain licenses on acceptable terms or the occurrence of related litigation itself could have a material adverse effect on our operating results and financial condition.

        Our ongoing protection and reliance on our intellectual property assets expose us to material risks.

        We have traditionally relied on our patents and proprietary technologies. Patent litigation settlements and royalty income substantially contribute to our financial results. Enforcement of our intellectual property rights is costly, risky and time-consuming. We cannot assure you that we can successfully continue to protect our intellectual property rights, especially in foreign markets. Our key MOSFET patents expire between 2003 and 2010, although our broadest MOSFET patents expire in 2007 and 2008. Our royalty income is largely dependent on the following factors: the remaining terms of our MOSFET patents; the continuing introduction and acceptance of products that are not covered by our patents; the defensibility and enforceability of our patents; changes in our licensees' unit sales, prices or die sizes; and the terms, if any, upon which expiring license agreements are renegotiated. Market conditions and mix of licensee products, as well as sales of non-infringing devices can significantly affect royalty income. Any decrease in our royalty income could have a material adverse effect on our operating results and financial condition.

        Our international operations expose us to material risks.

        We expect revenues from foreign markets to continue to represent a significant portion of total revenues. We maintain or contract with significant operations in foreign countries. Among others, the following risks are inherent in doing business internationally: changes in, or impositions of, legislative or regulatory requirements, including tax laws in the United States and in the countries in which we manufacture or sell our products; trade restrictions; transportation delays; work stoppages; economic and political instability; and foreign currency fluctuations.

        In addition, it is more difficult in some foreign countries to protect our products or intellectual property rights to the same extent as is possible in the United States. Therefore, the risk of piracy or misuse of our technology and products may be greater in these foreign countries. Although we have not experienced any material adverse effect on our operating results as a result of these and other factors, we cannot assure you that such factors will not have a material adverse effect on our financial condition and operating results in the future.

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        Delays in initiation of production at new facilities, implementing new production techniques or resolving problems associated with technical equipment malfunctions could adversely affect our manufacturing efficiencies.

        Our manufacturing efficiency will be an important factor in our future profitability, and we cannot assure you that we will be able to maintain or increase our manufacturing efficiency to the same extent as our competitors. Our manufacturing processes are highly complex, require advanced and costly equipment and are continuously being modified in an effort to improve yields and product performance. Impurities, defects or other difficulties in the manufacturing process can lower yields.

        In addition, as is common in the semiconductor industry, we have from time to time experienced difficulty in beginning production at new facilities or in effecting transitions to new manufacturing processes. As a consequence, we have experienced delays in product deliveries and reduced yields. We may experience manufacturing problems in achieving acceptable yields or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenues. Our operating results could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately.

        Interruptions, delays or cost increases affecting our materials, parts or equipment may impair our competitive position and our operations.

        Our manufacturing operations depend upon obtaining adequate supplies of materials, parts and equipment, including silicon, mold compounds and leadframes, on a timely basis from third parties. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of materials, parts and equipment in a timely manner or if the costs of materials, parts or equipment increase significantly. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. We have a limited number of suppliers for some materials, parts and equipment, and any interruption could materially impair our operations.

        We manufacture a substantial portion of our wafer product at our Temecula, California and Newport, Wales facilities. Any disruption of operations at those facilities could have a material adverse effect on our business, financial condition and results of operations.

        Also, some of our products are assembled and tested by third party subcontractors. We do not have any long-term assembly agreements with these subcontractors. As a result, we do not have immediate control over our product delivery schedules or product quality. Due to the amount of time often required to qualify assemblers and testers and the high cost of qualifying multiple parties for the same products, we could experience delays in the shipment of our products if we are forced to find alternative third parties to assemble or test them. Any product delivery delays in the future could have a material adverse effect on our operating results and financial condition. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.

        We must commit resources to product production prior to receipt of purchase commitments and could lose some or all of the associated investment.

        We sell products primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. Many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the production of products without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to them could have a material adverse effect on our levels of inventory and our business, financial condition and results of operations.

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        We receive a significant portion of our revenues from a small number of customers and distributors.

        Historically, a significant portion of our revenues has come from a relatively small number of customers and distributors. The loss or financial failure of any significant customer or distributor, any reduction in orders by any of our significant customers or distributors, or the cancellation of a significant order, could materially and adversely affect our business.

        We may fail to attract or retain the qualified technical, sales, marketing and managerial personnel required to operate our business successfully.

        Our future success depends, in part, upon our ability to attract and retain highly qualified technical, sales, marketing and managerial personnel. Personnel with the necessary semiconductor expertise are scarce and competition for personnel with these skills is intense. We cannot assure you that we will be able to retain existing key technical, sales, marketing and managerial employees or that we will be successful in attracting, assimilating or retaining other highly qualified technical, sales, marketing and managerial personnel in the future. If we are unable to retain existing key employees or are unsuccessful in attracting new highly qualified employees, our business, financial condition and results of operations could be materially and adversely affected.

        We are acquiring and may continue to acquire other companies and may be unable to successfully integrate such companies with our operations.

        We have acquired several companies over the past three years. We may continue to expand and diversify our operations with additional acquisitions. If we are unsuccessful in integrating these companies with our operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse effect on our business, financial condition and results of operations.

        Our products may be found to be defective, claims may be asserted against us and we may not have sufficient insurance.

        One or more of our products may be found to be defective after we have already shipped the products in volume, requiring a product replacement or recall. We may also be subject to product returns that could impose substantial costs and have a material and adverse effect on our business, financial condition and results of operations.

        Product liability or commercial claims may be asserted with respect to our products. Although we currently have product liability or commercial insurance, we cannot assure you that we have obtained sufficient insurance coverage for all types of commercial or other losses, that we will have sufficient insurance coverage in the future or that we will have sufficient resources to satisfy any claims.

        Large potential environmental liabilities, including those relating to a former operating subsidiary, may adversely impact our financial position.

        Federal, state and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our semiconductor manufacturing processes. In addition, under some laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did not cause the contamination. Also, we may be subject to common law claims if we release substances that damage or harm third parties. Further, we cannot assure you that changes in environmental laws or regulations will not require additional investments in capital equipment or the implementation of additional compliance programs in the future. Any failure to comply with environmental laws or regulations could subject us to serious liabilities and could have a material adverse effect on our operating results and financial condition.

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        Some of our facilities are located near major earthquake fault lines.

        Our corporate headquarters, our major manufacturing facility, our research facility and certain other critical business operations are located near major earthquake fault lines. We could be materially and adversely affected in the event of a major earthquake. Although we maintain earthquake insurance, we can give you no assurance that we have obtained or will maintain sufficient insurance coverage.

        There can be no assurance that we will have sufficient capital resources to make necessary investments in manufacturing technology and equipment.

        The semiconductor industry is capital intensive. Semiconductor manufacturing requires a constant upgrading of process technology to remain competitive, as new and enhanced semiconductor processes are developed which permit smaller, more efficient and more powerful semiconductor devices. We maintain certain of our own manufacturing, assembly and test facilities, which have required and will continue to require significant investments in manufacturing technology and equipment. There can be no assurance that we will have sufficient capital resources to make necessary investments in manufacturing technology and equipment. Although we believe that anticipated cash flows from operations, existing cash reserves and other equity or debt financings that we may obtain will be sufficient to satisfy our future capital expenditure requirements, there can be no assurance that this will be the case or that alternative sources of capital will be available to us on favorable terms or at all.

        Terrorist attacks, such as those that took place on September 11, 2001, or threats or occurrences of other terrorist activities whether in the United States or internationally may affect the markets in which our common stock trades, the markets in which we operate and our profitability.

        Terrorist attacks, such as those that took place on September 11, 2001, or threats or occurrences of other terrorist or related activities, whether in the United States or internationally, may affect the markets in which our common stock trades, the markets in which we operate and our profitability. Future terrorist or related activities could affect our domestic and international sales, disrupt our supply chains and impair our ability to produce and deliver our products. Such activities could affect our physical facilities or those of our suppliers or customers, and make transportation of our supplies and products more difficult or cost prohibitive. Due to the broad and uncertain effects that terrorist attacks have had on financial and economic markets generally, we cannot provide any estimate of how these activities might affect our future results.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

        We are exposed to various risks, including fluctuations in interest and foreign currency rates. In the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and are not discussed or quantified in the following analyses, as well as risks set forth under the heading "Factors that May Affect Future Results".

Interest Rate Risk

        Our financial assets and liabilities subject to interest rate risk are cash investments, convertible debt, credit facilities and interest rate swaps. Our primary objective is to preserve principal while maximizing yield without significantly increasing risk. At June 30, 2003, we evaluated the effect that near-term changes in interest rates would have had on these transactions. An adverse change of as much as ten percent in the London InterBank Offered Rate ("LIBOR") or approximately 20 basis points would have had an annualized favorable impact of approximately $0.6 million on net interest income/expense. For our interest rate contract with Lehman Brothers, an increase of ten percent in interest rates would have had a favorable impact of $0.3 million, and a decrease of ten percent in interest rates would have had an adverse impact of ($0.2) million, on net interest income/expense. These changes would not have had a material impact on our results of operations, financial position or cash flows.

        In December 2001, we entered into an interest rate swap transaction (the "Transaction") with JP Morgan Chase Bank (the "Bank"), to modify our effective interest payable with respect to $412.5 million of our outstanding convertible debt (the "Debt") (see Notes 3, "Derivative Financial Instruments," and 4, "Bank Loans and Long-Term Debt"). At the inception of the Transaction, interest rates were lower than that of the Debt and we believed that interest rates would remain lower for an extended period of time. The variable interest rate we have paid since the inception of the swap has averaged 2.1 percent, compared to a coupon of 4.25 percent on the Debt. During the fiscal years ended 2003 and 2002, this arrangement reduced interest expense by $10.4 million and $4.6 million, respectively.

        Accounted for as a fair value hedge under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", the mark-to-market adjustments of the Transaction were offset by the mark-to-market adjustments on the Debt, resulting in no material impact to earnings. To measure the effectiveness of the hedge relationship, we use a regression analysis. To evaluate the relationship of the fair value of the Transaction and the changes in fair value of the Debt attributable to changes in the benchmark rate, we discount the estimated cash flows by the LIBOR swap rate that corresponds to the Debt's expected maturity date. In addition, our ability to call the Debt must be considered in assessing the effectiveness of the hedging relationship. For those years that are projected to include at least a portion of redemption of the convertible debentures, we employ a valuation model known as a Monte Carlo simulation. This simulation allows us to project probability-weighted contractual cash flows discounted at the LIBOR swap rate that corresponds to the Debt's expected maturity date. The market value of the Transaction of $23.7 million and $6.9 million at June 30, 2003 and 2002, respectively, was included in other long-term assets.

        In April 2002, we entered into an interest rate contract (the "Contract") with an investment bank, Lehman Brothers ("Lehman"), to reduce the variable interest rate risk of the Transaction. The notional amount of the Contract is $412.0 million, representing approximately 75 percent of the Debt. Under the terms of the Contract, we have the option to receive a payout from Lehman covering our exposure to LIBOR fluctuations between 5.5 percent and 7.5 percent for any four designated quarters. The market value of the Contract at June 30, 2003 and 2002, respectively, was $1.4 million and $4.5 million, respectively, and was included in other long-term assets. Interest expense was increased by

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mark-to-market losses of $3.1 million and $1.2 million, for the fiscal years ended 2003 and 2002, respectively.

Foreign Currency Risk

        We conduct business on a global basis in several foreign currencies, and at various times, we have currency exposure related to the British Pound Sterling, the Euro and the Japanese Yen. Our risk to the European currencies is partially offset by the natural hedge of manufacturing and selling goods in both U.S. dollars and the European currencies. Considering our specific foreign currency exposures, we have the greatest exposure to the Japanese Yen, since we have yen-based revenues without the yen-based manufacturing costs. We have established a foreign-currency hedging program using foreign exchange forward contracts, including the Forward Contract described below, to hedge certain foreign currency transaction exposures. To protect against reductions in value and volatility of future cash flows caused by changes in currency exchange rates, we have established revenue, expense and balance sheet hedging programs. Currency forward contracts and local Yen and Euro borrowings are used in these hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of currency exchange rate movements. We considered an adverse near-term change in exchange rates of ten percent for the British Pound Sterling, the Euro and the Japanese Yen. Such an adverse change, after taking into account our derivative financial instruments and offsetting positions, would have resulted in an annualized adverse impact on income before taxes of less than $1 million for the fiscal years ended June 30, 2003, 2002 and 2001.

        In March 2001, we entered into a five-year foreign exchange forward contract (the "Forward Contract") for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our subsidiary in Japan. We have designated the Forward Contract as a cash flow hedge under which mark-to-market adjustments are recorded in other comprehensive income, a separate component of stockholders' equity, until the forecasted transactions are recorded in earnings. Under the terms of the Forward Contract, we are required to exchange 1.2 billion yen for $11.0 million on a quarterly basis from June 2001 to March 2006. At June 30, 2003, 11 quarterly payments of 1.2 billion yen remained to be swapped at a forward exchange rate of 109.32 yen per U.S. dollar. The mark-to-market gain of the Forward Contract was $6.4 million and $3.6 million at June 30, 2003 and 2002, respectively, and was included in other long-term assets. The mark-to-market gain, net of tax, of $4.0 million, $1.0 million and $1.3 million for the year ended June 30, 2003, 2002 and 2001, respectively, was included in other comprehensive income. Based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to its cash flow requirements, we do not expect to incur a material charge to income during the next twelve months as a result of the Forward Contract.

        We had approximately $22.7 million and $27.0 million in notional amounts of forward contracts not designated as hedges at June 30, 2003 and 2002, respectively. Net realized and unrealized gains (losses) on forward contracts recognized in earnings were ($1.2) million, ($1.3) million and $0.7 million for the fiscal years ended June 30, 2003, 2002 and 2001, respectively.

        Net realized and unrealized foreign-currency gains (losses) recognized in earnings, excluding any impact from forward contracts, were less than $1 million for the fiscal years ended June 30, 2003, 2002 and 2001.

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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements and Financial Statement Schedule

Supporting Financial Statement Schedule:

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.

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REPORT OF INDEPENDENT AUDITORS

To the Stockholders and Board of Directors of International Rectifier Corporation

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of International Rectifier Corporation and its subsidiaries at June 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2003 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 our opinion.

PricewaterhouseCoopers LLP

Los Angeles, California
July 31, 2003

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(In 000's except per share amounts)

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(In 000's except share amounts)

The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)

(In 000's except share amounts)