Attached files
file | filename |
---|---|
EX-32.2 - EXHIBIT 32.2 - INTERNATIONAL RECTIFIER CORP /DE/ | exh32-2.htm |
EX-31.1 - EXHIBIT 31.1 - INTERNATIONAL RECTIFIER CORP /DE/ | exh31-1.htm |
EX-10.1 - EXHIBIT 10.1 - INTERNATIONAL RECTIFIER CORP /DE/ | exh10-1.htm |
EX-31.2 - EXHIBIT 31.2 - INTERNATIONAL RECTIFIER CORP /DE/ | exh31-2.htm |
EX-32.1 - EXHIBIT 32.1 - INTERNATIONAL RECTIFIER CORP /DE/ | exh32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended September 27, 2009
|
|
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)
Delaware
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
95-1528961
(I.R.S.
Employer
Identification
No.)
|
101
N. Sepulveda Blvd
El
Segundo, California
(Address
of Principal Executive Offices)
|
90245
(Zip
Code)
|
Registrant’s
Telephone Number, Including Area Code: (310) 726-8000
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer x
|
Accelerated filer o
|
Non-accelerated filer o
(Do not check if a smaller
reporting company)
|
Smaller reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No x
There
were 71,275,516 shares of the registrant’s common stock, par value $1.00 per
share, outstanding on October 31, 2008.
TABLE
OF CONTENTS
Page
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
4
|
Item 1.
|
FINANCIAL
STATEMENTS
|
4
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 27, 2009 AND SEPTEMBER 28, 2008
|
4
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE
MONTHS ENDED SEPTEMBER 27, 2009 AND SEPTEMBER 28, 2008
|
5
|
|
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 27, 2009 AND JUNE
28, 2009
|
6
|
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
SEPTEMBER 27, 2009 AND SEPTEMBER 28, 2008
|
7
|
|
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
8
|
|
Item 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
31
|
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
42
|
Item 4.
|
CONTROLS
AND
PROCEDURES
|
43
|
PART
II.
|
OTHER
INFORMATION
|
45
|
Item 1.
|
LEGAL
PROCEEDINGS
|
45
|
Item 1A.
|
RISK
FACTORS
|
45
|
Item
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
46
|
Item
5.
|
OTHER
INFORMATION
|
46
|
Item 6.
|
EXHIBITS
|
47
|
2
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
document contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that (a) are not historical facts,
(b) predict or forecast future events or results, or (c) embody
assumptions that may prove to have been inaccurate. These forward-looking
statements involve risks, uncertainties and assumptions. When we use words such
as “believe,” “expect,” “anticipate,” “will” or similar expressions, we are
making forward-looking statements. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, we cannot give
readers any assurance that such expectations will prove correct. The actual
results may differ materially from those anticipated in the forward-looking
statements as a result of numerous factors, many of which are beyond our
control. Important factors that could cause actual results to differ materially
from our expectations include, but are not limited to, the factors discussed in
the sections entitled “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.” All forward-looking
statements attributable to us are expressly qualified in their entirety by the
factors that may cause actual results to differ materially from anticipated
results. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our opinion only as of the date
hereof. We undertake no duty or obligation to revise these forward-looking
statements. Readers should carefully review the risk factors described in this
document as well as in other documents we file from time to time with the
Securities and Exchange Commission (“SEC”).
3
PART
I. FINANCIAL INFORMATION
ITEM
1. Financial Statements
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In
thousands, except per share data)
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Revenues
|
$ | 179,371 | $ | 244,474 | ||||
Cost
of sales
|
132,014 | 148,082 | ||||||
Gross
profit
|
47,357 | 96,392 | ||||||
Selling,
general and administrative expense
|
43,582 | 64,877 | ||||||
Research
and development expense
|
22,827 | 24,717 | ||||||
Amortization
of acquisition-related intangible assets
|
1,094 | 1,097 | ||||||
Asset
impairment, restructuring and other charges
|
167 | 471 | ||||||
Operating
(loss) income
|
(20,313 | ) | 5,230 | |||||
Other
expense, net
|
778 | 14,582 | ||||||
Interest
income, net
|
(3,970 | ) | (5,060 | ) | ||||
Loss
before income taxes
|
(17,121 | ) | (4,292 | ) | ||||
Benefit
from income taxes
|
(221 | ) | (106 | ) | ||||
Net
loss
|
$ | (16,900 | ) | $ | (4,186 | ) | ||
Net
loss per common share—basic
|
$ | (0.24 | ) | $ | (0.06 | ) | ||
Net
loss income per common share—diluted
|
$ | (0.24 | ) | $ | (0.06 | ) | ||
Average
common shares outstanding—basic
|
71,218 | 72,843 | ||||||
Average
common shares and potentially dilutive securities
outstanding—diluted
|
71,218 | 72,843 |
The
accompanying notes are an integral part of these statements.
4
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In
thousands)
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Net
loss
|
$ | (16,900 | ) | $ | (4,186 | ) | ||
Other
comprehensive loss:
|
||||||||
Foreign
currency translation adjustments
|
(4,156 | ) | (23,871 | ) | ||||
Unrealized
losses on securities:
|
||||||||
Unrealized
holding gains (losses) on available-for-sale securities, net of tax effect
of $2,657 and $0, respectively
|
2,209 | (6,464 | ) | |||||
Reclassification
adjustments of net gains on foreign currency forward
contract
|
(1,566 | ) | (196 | ) | ||||
Other
comprehensive loss
|
(3,513 | ) | (30,531 | ) | ||||
Comprehensive
loss
|
$ | (20,413 | ) | $ | (34,717 | ) |
The
accompanying notes are an integral part of these statements.
5
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In
thousands)
September 27,
2009
|
June 28,
2009
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 292,499 | $ | 365,761 | ||||
Restricted
cash
|
3,925 | 3,925 | ||||||
Short-term
investments
|
199,116 | 113,247 | ||||||
Trade
accounts receivable, net
|
112,928 | 97,572 | ||||||
Inventories
|
152,586 | 151,121 | ||||||
Current
deferred tax assets
|
1,248 | 1,223 | ||||||
Prepaid
expenses and other receivables
|
30,002 | 28,556 | ||||||
Total
current assets
|
792,304 | 761,405 | ||||||
Long-term
investments
|
95,278 | 121,508 | ||||||
Property,
plant and equipment, net
|
358,684 | 369,713 | ||||||
Goodwill
|
74,955 | 74,955 | ||||||
Acquisition-related
intangible assets, net
|
10,727 | 11,821 | ||||||
Long-term
deferred tax assets
|
7,913 | 7,994 | ||||||
Other
assets
|
55,652 | 53,911 | ||||||
Total
assets
|
$ | 1,395,513 | $ | 1,401,307 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 70,627 | $ | 62,570 | ||||
Accrued
income taxes
|
8,417 | 6,830 | ||||||
Accrued
salaries, wages and commissions
|
20,890 | 22,325 | ||||||
Current
deferred tax liabilities
|
2,793 | 2,793 | ||||||
Other
accrued expenses
|
116,201 | 114,043 | ||||||
Total
current liabilities
|
218,928 | 208,561 | ||||||
Long-term
deferred tax liabilities
|
5,266 | 4,439 | ||||||
Other
long-term liabilities
|
53,270 | 53,055 | ||||||
Total
liabilities
|
277,464 | 266,055 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders’
equity:
|
||||||||
Common
shares
|
73,181 | 73,101 | ||||||
Capital
contributed in excess of par value of shares
|
984,916 | 981,786 | ||||||
Treasury
stock, at cost
|
(23,632 | ) | (23,632 | ) | ||||
Retained
earnings
|
68,115 | 85,015 | ||||||
Accumulated
other comprehensive income
|
15,469 | 18,982 | ||||||
Total
stockholders’ equity
|
1,118,049 | 1,135,252 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 1,395,513 | $ | 1,401,307 |
The
accompanying notes are an integral part of these statements.
6
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In
thousands)
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Cash
flow from operating activities:
|
||||||||
Net
loss
|
$ | (16,900 | ) | $ | (4,186 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
16,558 | 16,622 | ||||||
Amortization
of acquisition-related intangible assets
|
1,093 | 1,097 | ||||||
Stock
compensation expense
|
2,539 | 1,190 | ||||||
Provision
for bad debt
|
41 | 225 | ||||||
Provision
for inventory write-downs
|
(5,135 | ) | 951 | |||||
Deferred
income taxes
|
(1,830 | ) | 163 | |||||
Other-than-temporary
impairment of investments
|
1,905 | 15,198 | ||||||
(Gain)
loss on derivatives
|
(1,256 | ) | 178 | |||||
(Gain)
loss on sale of investments
|
(2,560 | ) | 927 | |||||
Changes
in operating assets and liabilities, net
|
(2,425 | ) | (52,260 | ) | ||||
Other
|
901 | 3,764 | ||||||
Net
cash used in operating activities
|
(7,069 | ) | (16,131 | ) | ||||
Cash
flow from investing activities:
|
||||||||
Additions
to property, plant and equipment
|
(9,466 | ) | (4,799 | ) | ||||
Proceeds
from sale of property, plant and equipment
|
50 | 19 | ||||||
Additions
to restricted cash
|
— | (34 | ) | |||||
Sale
or maturities of investments
|
52,757 | 60,086 | ||||||
Purchase
of investments
|
(110,420 | ) | (57,444 | ) | ||||
Other,
net
|
— | 1,032 | ||||||
Net
cash used in investing activities
|
(67,079 | ) | (1,140 | ) | ||||
Cash
flow from financing activities:
|
||||||||
Proceeds
from exercise of stock options and stock participation
plan
|
870 | 981 | ||||||
Net
settlement of restricted stock units
|
(192 | ) | — | |||||
Other,
net
|
— | (129 | ) | |||||
Net
cash provided by financing activities
|
678 | 852 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
208 | (1,263 | ) | |||||
Net
decrease in cash and cash equivalents
|
(73,262 | ) | (17,682 | ) | ||||
Cash
and cash equivalents, beginning of period
|
365,761 | 320,464 | ||||||
Cash
and cash equivalents, end of period
|
$ | 292,499 | $ | 302,782 |
The
accompanying notes are an integral part of these statements.
7
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Business, Basis of Presentation and Summary of Significant Accounting
Policies
Business
International
Rectifier Corporation (“IR” or the “Company”) designs, manufactures and markets
power management semiconductors. Power management semiconductors address the
core challenges of power management, power performance and power conservation,
by increasing system efficiency, allowing more compact end-products, improving
features on electronic devices and prolonging battery life.
The
Company pioneered the fundamental technology for power metal oxide semiconductor
field effect transistors (“MOSFETs”) in the 1970s, and estimates that the
majority of the world’s planar powerMOSFETs use its technology. Power MOSFETs
are instrumental in improving the ability to manage power efficiently. The
Company’s products include power MOSFETs, high voltage analog and mixed signal
integrated circuits (“HVICs”), low voltage analog and mixed signal integrated
circuits (“LVICs”), digital integrated circuits (“ICs”), radiation-resistant
(“RAD-Hard™”) power MOSFETs, insulated gate bipolar transistors (“IGBTs”), high
reliability DC-DC converters, Automotive Products modules, and DC-DC converter
type applications.
Basis
of Presentation
The
condensed consolidated financial statements have been prepared in accordance
with the instructions for Form 10-Q pursuant to the rules and regulations
of the Securities and Exchange Commission (“SEC”), and therefore do not include
all information and notes normally provided in audited financial statements
prepared in accordance with generally accepted accounting principles (“GAAP”).
The condensed consolidated financial statements include the accounts of the
Company and its subsidiaries, which are located in North America, Europe and
Asia. Intercompany balances and transactions have been eliminated in
consolidation.
In the
opinion of management, all adjustments (consisting of normal recurring accruals
and other adjustments) considered necessary for a fair presentation of the
Company’s results of operations, financial position, and cash flows have been
included. The results of operations for any interim period are not necessarily
indicative, nor comparable to the results of operations for any other interim
period or for a full fiscal year. These condensed consolidated financial
statements and the accompanying notes should be read in conjunction with the
Company’s annual consolidated financial statements and the notes thereto
included in the Company’s Annual Report on Form 10-K for the fiscal year
ended June 28, 2009 filed with the SEC on August 27, 2009 (the “2009 Annual
Report”).
Fiscal
Year and Quarter
The Company operates on a
52-53 week fiscal year with the fiscal year ending on the Sunday closest to
June 30. The three months ended September 2009 and 2008 consisted of
13 weeks ending on September 27, 2009 and September 28, 2008,
respectively.
Estimates
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported revenues and expenses during the
reporting period. Actual results could differ from those estimates.
8
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies
(Continued)
Financial
Assets and Liabilities Measured at Fair Value
Financial assets and liabilities
measured and recorded at fair value on a recurring basis were presented on the
Company’s condensed consolidated balance sheet as of September 27, 2009 as
follows (in thousands):
Assets
and Liabilities:
|
Total
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
||||||||||||
Cash
and cash equivalents
|
$ | 38,997 | $ | 38,997 | $ | — | $ | — | ||||||||
Short-term
investments
|
199,116 | 176,257 | 22,859 | - | ||||||||||||
Long-term
investments
|
95,278 | 32,255 | 27,979 | 35,044 | ||||||||||||
Other
assets
|
35,398 | 33,245 | — | 2,153 | ||||||||||||
Other
accrued expenses
|
(1,375 | ) | — | (1,375 | ) | — | ||||||||||
Other
long-term liabilities
|
(7,128 | ) | (7,128 | ) | — | — | ||||||||||
Total
|
$ | 360,286 | $ | 273,626 | $ | 49,463 | $ | 37,197 | ||||||||
Fair
value as a percentage of total
|
100.0 | % | 76.0 | % | 13.7 | % | 10.3 | % | ||||||||
Level
3 as a percentage of total assets
|
2.7 | % |
The fair
value of investments, derivatives, and other assets and liabilities are
disclosed in Note 2, Note 3, and Note 9, respectively.
During
the three months ended September 27, 2009, the Company had no significant
measurements of assets or liabilities at fair value on a nonrecurring
basis.
Level 3
Valuation Techniques
Certain
financial assets are measured using Level 3 inputs such as pricing models,
discounted cash flow methodologies or similar techniques, and where at least one
significant model assumption or input is unobservable. Level 3 inputs are
used for financial assets that include a non-transferable put option on a
strategic investment and certain investment securities for which there is
limited market activity where the determination of fair value requires
significant judgment or estimation. Level 3 inputs are also used to value
investment securities that include certain mortgage-backed securities and
asset-backed securities for which there was a decrease in the observability of
market pricing for these investments. At September 27, 2009, these securities
were valued primarily using independent valuation firm or broker pricing models
that incorporate transaction details such as maturity, timing and amount of
future cash flows, as well as assumptions about liquidity and credit valuation
adjustments of marketplace participants at September 27, 2009.
The
following table provides a reconciliation of the beginning and ending balances
of items measured at fair value on a recurring basis that used significant
unobservable Level 3 inputs for the fiscal year ended September 27, 2009
(in thousands):
Fair
Value Measurements Using Significant Unobservable Inputs (Level
3)
|
||||||||||||
Derivatives
|
Investments
|
Total
|
||||||||||
Beginning
balance at June 28, 2009
|
$ | — | $ | 40,834 | $ | 40,834 | ||||||
Total
gains or losses (realized or unrealized):
|
||||||||||||
Included
in earnings (or changes in net assets)
|
— | 1,338 | 1,338 | |||||||||
Included
in other comprehensive income
|
— | 1,345 | 1,345 | |||||||||
Purchases,
issuance, and settlements
|
2,149 | (8,469 | ) | (6,320 | ) | |||||||
Transfers
in and/or out of level 3
|
— | — | — | |||||||||
Ending
balance at September 27, 2009
|
$ | 2,149 | $ | 35,048 | $ | 37,197 |
9
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies
(Continued)
Gains and
losses attributable to financial assets whose fair value is determined by using
Level 3 inputs and included in earnings as shown above consist of mark to
market adjustments for derivatives and other-than-temporary impairments for
investments which are included in other expense and realized losses on sale of
securities which are included in interest income
Subsequent
Events
The
Company has evaluated subsequent events through November 6, 2009, which
represents the date the financial statements were issued. The Company
did not identify any subsequent events that required disclosure.
Out-of-Period
Adjustments
Included in the results for the three
months ended September 27, 2009, are corrections of prior period errors, some of
which increased and some of which decreased net loss. Based on the Company's
current financial condition and results of operations, management has determined
that these corrections are immaterial to the financial statements in each
applicable prior period and the current period to date, both individually and in
the aggregate.
Adoption
of New Accounting Standards
In June,
2009, the FASB issued ASC update No. 2009-01, “Topic-105-Generally Accepted
Accounting Principles, amendments based on Statement of financial Accounting
Standards No. 168-The FASB Accounting Standards Codification and hierarchy of
Generally Accepted Accounting Principles”. The objective of this
Topic is to establish the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification as the source of authoritative principles and
standards recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”). Rules and interpretive releases of
the Securities and Exchange Commission (“SEC”) under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants. This update is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. The
adoption of FASB ASC Update No. 2009-01 during the first three months of fiscal
2010 did not have a material impact on the Company’s financial
statements.
In December 2007, the FASB issued
Accounting Standards Codification (“ASC”) 805-10, “Business Combinations” (“FASB
ASC 805-10”). Under FASB ASC 805-10, an entity is required to
recognize the assets acquired, liabilities assumed, contractual contingencies,
and contingent consideration at their fair value on the acquisition
date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred,
restructuring costs generally be expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the measurement period
impact income tax expense. In addition, acquired in-process research
and development (“R&D”) is capitalized as an intangible asset and amortized
over its estimated useful life. The adoption of FASB ASC 805-10 did
not have a material impact on the Company’s financial statements.
In February 2008, the FASB issued FASB
ASC 820-10-55, “Fair Value Measurements and Disclosures” (“FASB ASC
820-10-55”), which delayed the effective date of fair value
accounting for all non-financial liabilities, except those that are measured at
fair value on a recurring basis. Effective the beginning of fiscal
year 2010, the Company adopted FASB ASC 850-10 with respect to non-financial
assets and liabilities measured on a non-recurring basis. The
application of the fair value framework established by FASB ASC 820-10 to these
fair value measurements did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In June 2008, the FASB issued FASB ASC
260-10, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities” (“FASB ASC 260-10”), which addresses
whether instruments granted in share-based payment transactions are
participating securities prior to vesting and, therefore, need to be included in
the earnings allocation in computing earnings per share under the two-class
method. FASB ASC 260-10 is applied retroactively to all prior periods
presented in the Company’s financial statements. The adoption of FASB ASC 260-10
did not have a material impact on the Company’s financial statements for the
three months ended September 27, 2009 or September 28, 2008; however, the
adoption of FASB ASC 260-10 may have a material impact on earnings per share in
future periods.
10
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
1.
Business, Basis of Presentation and Summary of Significant Accounting Policies
(Continued)
In April 2008, the FASB issued FASB ASC
350-30 and 275-10, “Intangibles-Goodwill and Other” and “Risk and
Uncertainties”, respectively. These Topics amend the factors an
entity should consider in developing renewal or extension assumptions used in
determining the useful life of a recognized intangible asset under FASB ASC
350-10 and 350-20, “Intangibles-Goodwill and Other.” FASB ASC 350-30 and 275-10
are effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years. The Company adopted FASB
ASC 350-30 and 275-10 as of the beginning of fiscal year 2010, and the adoption
did not have a material impact on the Company’s financial
statements
Recent
Accounting Pronouncements
In
October 2009, the FASB issued ASC update No. 2009-13, “Revenue Recognition
(Topic 605), Multiple-Deliverable Revenue Arrangements a consensus of the FASB
Emerging Issues Task Force.” These amendments establish a selling
price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be
based on vendor-specific objective evidence if available, third-party evidence
if vendor-specific objective evidence is not available, or estimated selling
price if neither vendor-specific objective evidence nor third-party evidence is
available. The amendments also replace the term “fair value” in the
revenue allocation guidance with “selling price” to clarify that the allocation
of revenue is based on entity-specific assumptions rather than assumptions of a
marketplace participant. In addition, the amendments eliminate the
residual method of allocation and require that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method. The relative selling price method
allocates any discount in the arrangement proportionally to each deliverable on
the basis of each deliverable’s selling price. The amendments are
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. The
Company does not believe that the adoption of this update will have a material
impact on its financial statements.
In August
2009, the FASB issued ASC Update No. 2009-05, “Fair Value Measurements and
disclosures (Topic 820)-Measuring Liabilities at Fair Value”. This
update provides amendments to FASB ASC 820, “Fair Value Measurements and
Disclosures-Overall”, for the fair value measurement of
liabilities. This update also provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following techniques: 1) A valuation technique that
uses: a) the quoted price of the identical liability when traded as an asset, b)
quoted prices for similar liabilities or similar liabilities when trades as
assets, and 2) another valuation technique that is consistent with the
principles of Topic 820. Two examples would be an income approach,
such as a present value technique, or a market approach, such as a technique
that is based on the amount at the measurement date that the reporting entity
would pay to transfer the identical liability or would receive to enter into the
identical liability. The Company does not believe that the adoption
of update 2009-05 will have a material impact on its financial
statements.
2.
Investments
Available-for-sale investments are
carried at fair value, inclusive of unrealized gains and losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are included in other comprehensive loss
net of applicable income taxes. Gains or losses on sales of available-for-sale
investments are recognized on the specific identification basis.
11
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
Investments (Continued)
Available-for-sale
securities as of September 27, 2009 are summarized as follows (in
thousands):
Amortized
Costs
|
Gross
Unrealized Gain
|
Gross
Unrealized Loss
|
Net
Unrealized Gain
|
Market
Value
|
||||||||||||||||
Short-Term
Investments:
|
||||||||||||||||||||
U.S.
government and agency obligations
|
$ | 198,497 | $ | 628 | $ | (9 | ) | $ | 619 | $ | 199,116 | |||||||||
Total
short-term investments
|
$ | 198,497 | $ | 628 | $ | (9 | ) | $ | 619 | $ | 199,116 | |||||||||
Long-Term
Investments:
|
||||||||||||||||||||
Corporate
debt
|
$ | — | $ | 27 | $ | — | $ | 27 | $ | 27 | ||||||||||
U.S.
government and agency obligations
|
58,261 | 1,946 | — | 1,946 | 60,207 | |||||||||||||||
Mortgage-backed
securities
|
17,213 | 2,749 | — | 2,749 | 19,962 | |||||||||||||||
Asset-backed
securities
|
13,619 | 1,463 | — | 1,463 | 15,082 | |||||||||||||||
Total
long-term investments
|
$ | 89,093 | $ | 6,185 | $ | — | $ | 6,185 | $ | 95,278 | ||||||||||
Notes
receivable
|
$ | 2,050 | $ | - | $ | — | $ | — | $ | 2,050 | ||||||||||
Equity
securities
|
$ | 15,685 | $ | 5,782 | $ | — | $ | 5,782 | $ | 21,467 |
Available-for-sale securities as of
June 28, 2009 are summarized as follows (in thousands):
Amortized
Costs
|
Gross
Unrealized Gain
|
Gross
Unrealized Loss
|
Net
Unrealized Gain
|
Market
Value
|
||||||||||||||||
Short-Term
Investments:
|
||||||||||||||||||||
Corporate
debt
|
$ | 1,543 | $ | 58 | $ | — | $ | 58 | $ | 1,601 | ||||||||||
U.S.
government and agency obligations
|
111,199 | 447 | — | 447 | 111,646 | |||||||||||||||
Total
short-term investments
|
$ | 112,742 | $ | 505 | $ | — | $ | 505 | $ | 113,247 | ||||||||||
Long-Term
Investments:
|
||||||||||||||||||||
Corporate
debt
|
$ | 385 | $ | 300 | $ | — | $ | 300 | $ | 685 | ||||||||||
U.S.
government and agency obligations
|
79,024 | 2,570 | — | 2,570 | 81,594 | |||||||||||||||
Mortgage-backed
securities
|
18,600 | 1,668 | — | 1,668 | 20,268 | |||||||||||||||
Asset-backed
securities
|
17,818 | 1,143 | — | 1,143 | 18,961 | |||||||||||||||
Total
long-term investments
|
$ | 115,827 | $ | 5,681 | $ | — | $ | 5,681 | $ | 121,508 | ||||||||||
Notes
receivable
|
$ | 2,050 | $ | — | $ | — | $ | — | $ | 2,050 | ||||||||||
Equity
securities
|
$ | 16,893 | $ | 3,301 | $ | (1,766 | ) | $ | 1,535 | $ | 18,428 |
The Company manages its total portfolio
to encompass a diversified pool of investment-grade securities. The investment
policy is to manage its total cash and investments balances to preserve
principal and maintain liquidity while maximizing the returns on the investment
portfolio.
The Company holds as strategic
investments the common and preferred stock of three publicly traded foreign
companies. The common and preferred investments are shown as “Equity Securities”
and “Notes Receivable” in the table above, respectively, and are included in
other assets on the consolidated balance sheets. The common shares of
these companies are traded on either the Tokyo Stock Exchange or the Taiwan
Stock Exchange. The Company holds an option on one of the strategic
investments to put the shares to the issuer at the price the shares were issued
to the Company as adjusted for dividends received. The put option
became effective September 1, 2009, and was fair valued as of September 27, 2009
with the fair value of $2.1 million recorded in other income (See Note 3,
“Derivatives”). Dividend income from these companies was
$0.1 million and $0.2 million for the three months ended September 27,
2009 and September 28, 2008, respectively.
2.
Investments (Continued)
12
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Available-for-sale investments are
carried at fair value, inclusive of unrealized gains and losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are included in other comprehensive
income (loss) net of applicable income taxes. Gains or losses on sales of
available-for-sale investments are recognized on the specific identification
basis.
The
Company evaluates securities for other-than-temporary impairment on a quarterly
basis. Impairment is evaluated considering numerous factors, and their relative
significance varies depending on the situation. Factors considered include the
length of time and extent to which the market value has been less than cost; the
financial condition and near-term prospects of the issuer of the securities; and
the intent and ability of the Company to retain the security in order to allow
for an anticipated recovery in fair value. If, based upon the analysis, it is
determined that the impairment is other-than-temporary, the security is written
down to fair value, and a loss is recognized through earnings.
Other-than-temporary impairments relating to certain available-for-sale
securities for the three months ended September 27, 2009, and September 28, 2008
were $1.9 million and $15.2 million, respectively.
The
investments the Company determined were other-than-temporarily impaired were
mortgage-backed securities, asset-backed securities and an equity investment
during the first three months of fiscal year 2010 and mortgage-backed
securities, asset-backed securities and corporate bonds with stated maturities
ranging from 1 to 27 years (expected maturity from 3 months to
20 years) during the first three months of fiscal year 2009. As a result of
determining the investments were other-than-temporarily impaired, the Company
recorded an impairment charge of $0.7 million related to its investment in
mortgage-back securities and asset-backed securities, and $1.2 million related
to an equity investment during the first three months of fiscal 2010; and $11.3
million related to mortgage-backed and asset backed securities and $3.9 million
related to corporate bonds in fiscal year 2009.
As of
September 27, 2009, the Company had $4.1 million in investment positions in
mortgage-backed securities and asset-backed securities that were in a loss
position and which the Company does not intend to hold until maturity. These
securities were fair valued utilizing a cash flow model which relied upon
tranche specific cash flow projections, the benchmark yield, assumed collateral
performance and tranche specific yield. These investments were determined to be
other than temporarily impaired due to the expectation of a prolonged economic
slowdown weighing on the underlying assets of these securities. The Company does
not believe that it is more likely than not prices will recover before these
investment positions are sold. Additional information the Company considered in
determining that these securities were other than temporarily impaired included
quantitative information regarding the most recent delinquency rate, foreclosure
or real estate-owned rate, current credit rating and the rating date,
correlation of price change and benchmark yield change, net credit support,
coverage ratio and effective maturity for these securities. Qualitative analysis
considered past impairments, changes in prepayment speed and the magnitude of
the unrealized loss.
The
following table summarizes the fair value and gross unrealized losses related to
available-for-sale investments, aggregated by type of investment and length of
time that individual securities have been held. The unrealized loss position is
measured and determined at each fiscal quarter end (in thousands):
Securities
held
in
a loss position
for
less than
12 months
at
September
27, 2009
|
Securities
held
in
a loss position
for
12 months
or
more at
September
27, 2009
|
Total
in a loss position
at
September 27, 2009
|
||||||||||||||||||||||
Market
Value
|
Gross
Unrealized
Losses
|
Market
Value
|
Gross
Unrealized
Losses
|
Market
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
U.S.
government and agency obligations
|
$ | 23,351 | $ | (9 | ) | $ | — | $ | — | $ | 23,351 | $ | (9 | ) | ||||||||||
Total
|
$ | 23,351 | $ | (9 | ) | $ | — | $ | — | $ | 23,351 | $ | (9 | ) |
Securities
held
in
a loss position
for
less than
12 months
at
June
28, 2009
|
Securities
held
in
a loss position
for
12 months
or
more at
June
28, 2009
|
Total
in a loss position
at
June 28, 2009
|
||||||||||||||||||||||
Market
Value
|
Gross
Unrealized
Losses
|
Market
Value
|
Gross
Unrealized
Losses
|
Market
Value
|
Gross
Unrealized
Losses
|
|||||||||||||||||||
Equity
securities
|
$ | 18,428 | $ | (1,766 | ) | $ | — | $ | — | $ | 18,428 | $ | (1,766 | ) | ||||||||||
Total
|
$ | 18,428 | $ | (1,766 | ) | $ | — | $ | — | $ | 18,428 | $ | (1,766 | ) |
13
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2.
Investments (Continued)
The amortized cost and estimated fair
value of investments at September 27, 2009, by contractual maturity, are as
follows (in thousands):
Contractual
Maturity (1)
|
Amortized
Cost
|
Estimated
Market
Value
|
||||||
Due
in 1 year or less
|
$ | 198,497 | $ | 199,116 | ||||
Due
in 1-2 years
|
55,034 | 56,817 | ||||||
Due
in 2-5 years
|
3,543 | 3,746 | ||||||
Due
after 5 years
|
30,516 | 34,715 | ||||||
Total
investments
|
$ | 287,590 | $ | 294,394 |
|
(1)
|
Contractual
maturity for asset-backed and mortgage-backed securities was based on
initial contractual maturity dates.
|
In accordance with the Company’s
investment policy which limits the length of time that cash may be invested, the
expected disposal dates may be less than the contractual maturity dates as
indicated in the table above.
Gross
realized gains and (losses) were $2.6 million and $(0.0) million,
respectively, for the three months ended September 27, 2009. Gross realized
gains and (losses) were $0.4 million and $(1.3) million, respectively, for
the three months ended September 28, 2008. The cost of marketable
securities sold was determined by the first-in, first-out method.
For the
three months ended September 27, 2009 and September 28, 2008, as a result of
sales of available-for-sale securities and recognition of other-than-temporary
impairments on available-for-sale securities, the Company reclassified $0.8
million and $14.3 million from accumulated other comprehensive income to
earnings either as a component of interest expense (income) or other expense
depending on the nature of the gain (loss).
Fair
Value of Investments
The
following table presents the balances of investments measured at fair value on a
recurring basis, including cash equivalents, as of September 27,
2009:
Total
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
|||||||||||||
U.S.
government and agency obligations
|
$ | 298,320 | $ | 247,512 | $ | 50,808 | $ | — | ||||||||
Corporate
debt
|
27 | — | 27 | — | ||||||||||||
Mortgage-backed
securities
|
19,962 | — | — | 19,962 | ||||||||||||
Asset-backed
securities
|
15,082 | — | — | 15,082 | ||||||||||||
Notes
receivable
|
2,050 | 2,050 | — | — | ||||||||||||
Equity
securities
|
21,467 | 21,463 | — | 4 | ||||||||||||
Total
securities at fair value
|
$ | 356,908 | $ | 271,025 | $ | 50,835 | $ | 35,048 |
3.
Derivative Financial Instruments
The Company is exposed to financial market risks,
including fluctuations in interest rates, foreign currency exchange rates and
market value risk related to its investments. The Company uses derivative
financial instruments primarily to mitigate these risks, and as part of its
strategic investment program. In the normal course of business, the Company also
faces 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. In prior periods,
the Company has designated certain derivatives as fair value hedges or cash flow
hedges qualifying for hedge accounting treatment. As of September 27,
2009 and June 28, 2009, the Company had currency forward contracts and a foreign
currency swap contract which were not designated as accounting
hedges. In addition, at September 27, 2009, the Company had a put
option on one of the Company’s strategic investments (See Note 2,
“Investments”).
14
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
Derivative Financial Instruments (Continued)
Interest
Rates
The
Company is subject to interest rate risk through its investments. The
objectives of the Company’s investments in debt securities are to preserve
principal and maintain liquidity while maximizing returns. To achieve
these objectives, the returns on the Company’s investments in short-term
fixed-rate debt will be generally compared to yields on money market instruments
such as industrial commercial paper, LIBOR or Treasury
Bills. Investments in longer term fixed rate debt will be generally
compared to yields on comparable maturity Government or high grade corporate
securities with an equivalent credit rating.
The
Company had no outstanding interest rate derivatives as of September 27,
2009.
Foreign
Currency Exchange Rates
The
Company generally hedges the risks of foreign currency denominated repetitive
working capital positions with offsetting foreign currency denominated exchange
transactions, currency forward contracts or currency swaps. Transaction
gains and losses on these foreign currency denominated working capital positions
are generally offset by corresponding gains and losses on the related hedging
instruments, usually resulting in negligible net exposure.
A
significant amount of the Company’s revenue, expense, and capital purchasing
transactions are conducted on a global basis in several foreign
currencies. At various times, the Company has currency exposure related to
the British Pound Sterling, the Euro and the Japanese Yen. For example, in
the United Kingdom, the Company has a sales office and a Semiconductor
Fabrication Facility with revenues primarily in the U.S. Dollar and Euro, and
expenses in British Pound Sterling. To protect against exposure to
currency exchange rate fluctuations, the Company has established cash flow and
balance sheet translation risk hedging programs. Currency forward contract
hedges have generally been utilized in these risk management programs. The
Company’s hedging programs seek to reduce, but do not always entirely eliminate,
the impact of currency exchange rate movements.
In May
2006, the Company entered into a forward contract for the purpose of reducing
the effect of exchange rate fluctuations on forecasted inter-company purchases
by its Japan subsidiary. The Company had designated the forward contract
as a cash flow hedge. Under the terms of the forward contract, the Company
was required to exchange 507.5 million Yen for $5.0 million on a
quarterly basis starting in June 2006 and expiring in March 2011. In
December 2007, the Company terminated the forward contract and received
$2.8 million of cash as part of the settlement. In accordance with
FASB ASC 850-10, “Derivatives and Hedging”, the net gain at the forward
contract’s termination date would continue to be reported in accumulated other
comprehensive income and recognized over the originally specified time period
through March 2011, unless it became probable that the forecasted
transactions will not occur.
The
Company concluded that beginning in the fourth quarter of fiscal year 2009, the
hedge would not have been effective. As a result of this ineffectiveness in the
hedge on a retroactive basis, the Company reassessed the effectiveness of the
hedge on a prospective basis and determined that the hedge was ineffective on a
prospective basis. As a result of the determination that the hedge
was ineffective, the Company recognized the remaining unamortized balance of the
gain of $1.6 million in other income during the first three months of fiscal
year 2010.
In
October 2004, the Company’s Japan subsidiary entered into a currency swap
agreement to hedge intercompany payments in U.S. Dollars. The transaction
commencement date was March 2005 and the termination date is April 2011.
Each month, the Company exchanges JPY 9,540,000 for $100,000. When the
applicable currency exchange rate is less than or equal to 95.40, the Company
exchanges JPY 18,984,600 for $199,000.
The
Company had approximately $41.6 million in notional amounts of forward
contracts not designated as accounting hedges under FASB ASC 850-10,
“Derivatives and Hedging”, at September 27, 2009. The net realized and
unrealized foreign-currency gains(losses) related to these contracts recognized
in earnings, as a component of other expense, were $(1.3) million, and $1.1
million for the three months ended September 27, 2009, and September 28, 2008,
respectively.
In
the normal course of business, the Company also faces 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 preceding
analysis.
15
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3.
Derivative Financial Instruments (Continued)
At September 27,
2009, the fair value carrying amount of the Company’s derivative instruments
were as follows:
Derivative
Assets September 27, 2009
|
Derivative
Liabilities September 27, 2009
|
||||||||||
Derivatives
Not Designated as Hedging Instruments Under FASB ASC
850-10
|
Balance
Sheet Location
|
Fair
Value
|
Balance
Sheet Location
|
Fair
Value
|
|||||||
(In
thousands)
|
|||||||||||
Put
option
|
Other
assets
|
$ | 2,149 | $ | — | ||||||
Currency
forward contracts
|
Prepaid
expenses and other receivables
|
— |
Other
accrued expenses
|
1,117 | |||||||
Foreign
currency swap contracts
|
Other
assets
|
— |
Other
accrued expenses
|
258 | |||||||
Total
|
$ | 2,149 | $ | 1,375 |
The gain
or (loss) recognized in earnings during the three months ended September 27,
2009 was:
Derivatives
Not Designated as Hedging Instruments Under FASB ASC
850-10
|
Location
of Gain or (Loss) Recognized in Income on Derivatives
|
Amount
of Gain or (Loss) Recognized in Income on Derivatives
(In
thousands)
|
||||
Put
option
|
Other
expense
|
$ | 2,149 | |||
Currency
forward contracts
|
Other
expense
|
(1,264 | ) | |||
Foreign
currency swap contracts
|
Other
expense
|
(128 | ) | |||
Total
|
$ | 757 |
Fair
Value
The
following table presents derivative instruments measured at fair value on a
recurring basis as of September 27, 2009:
Total
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
|||||||||||||
Put
Option
|
$ | 2,149 | $ | — | $ | — | $ | 2,149 | ||||||||
Foreign
Currency Derivatives
|
||||||||||||||||
Liabilities
|
(1,375 | ) | — | (1,375 | ) | — | ||||||||||
Total
derivative instruments at fair value
|
$ | 774 | $ | — | $ | (1,375 | ) | $ | 2,149 |
16
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4.
Supplemental Cash Flow Disclosures
Components
in the changes of operating assets and liabilities for the three months ended
September 27, 2009 and September 28, 2008 were comprised of the following
(in thousands):
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Trade
accounts receivable
|
$ | (14,777 | ) | $ | (6,808 | ) | ||
Inventories
|
3,253 | (2,282 | ) | |||||
Prepaid
expenses and other receivables
|
960 | (19,077 | ) | |||||
Accounts
payable
|
7,869 | (11,275 | ) | |||||
Accrued
salaries, wages and other commissions
|
(1,456 | ) | (5,598 | ) | ||||
Deferred
compensation
|
195 | (598 | ) | |||||
Accrued
income taxes payable
|
704 | (1,208 | ) | |||||
Other
accrued expenses
|
827 | (5,414 | ) | |||||
Changes
in operating assets and liabilities
|
$ | (2,425 | ) | $ | (52,260 | ) |
Supplemental disclosures of cash flow
information (in thousands):
As
of
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Non-cash
investing activities:
|
||||||||
Liabilities
accrued for property, plant and equipment purchases
|
$ | 2,691 | $ | 1,778 |
5.
Inventories
Inventories
at September 27, 2009 and June 28, 2009 were comprised of the
following (in thousands):
September 27,
2009
|
June 28,
2009
|
|||||||
Raw
materials
|
$ | 35,279 | $ | 32,717 | ||||
Work-in-process
|
70,031 | 66,613 | ||||||
Finished
goods
|
47,276 | 51,791 | ||||||
Total
inventories
|
$ | 152,586 | $ | 151,121 |
6.
Goodwill and Acquisition-Related Intangible Assets
At September 27, 2009 and June 28,
2009, acquisition-related intangible assets included the following (in
thousands):
September
27, 2009
|
||||||||||||||||
Amortization
Periods
(Years)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
|||||||||||||
Completed
technology
|
4 - 12 | $ | 29,679 | $ | (20,540 | ) | $ | 9,139 | ||||||||
Customer
lists
|
5 - 12 | 5,330 | (4,539 | ) | 791 | |||||||||||
Intellectual
property and other
|
5 - 15 | 7,963 | (7,166 | ) | 797 | |||||||||||
Total
acquisition-related intangible assets
|
$ | 42,972 | $ | (32,245 | ) | $ | 10,727 |
17
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6.
Goodwill and Acquisition-Related Intangible Assets (Continued)
June
28, 2009
|
||||||||||||||||
Amortization
Periods
(Years)
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
|
|||||||||||||
Completed
technology
|
4 - 12 | $ | 29,679 | $ | (19,593 | ) | $ | 10,086 | ||||||||
Customer
lists
|
5 - 12 | 5,330 | (4,437 | ) | 893 | |||||||||||
Intellectual
property and other
|
5 - 15 | 7,963 | (7,121 | ) | 842 | |||||||||||
Total
acquisition-related intangible assets
|
$ | 42,972 | $ | (31,151 | ) | $ | 11,821 |
As of September 27, 2009,
estimated amortization expense for the next five years is as follows (in
thousands): remainder of fiscal year 2010: $3,295; fiscal year 2011: $4,125;
fiscal year 2012: $1,771; fiscal year 2013: $231; and fiscal year 2014:
$177.
Goodwill
The
Company evaluates the carrying value of goodwill and other intangible assets
annually during the fourth quarter of each fiscal year and more frequently if it
believes indicators of impairment exist. In evaluating goodwill, a
two-step goodwill impairment test is applied to each reporting
unit. The Company identifies reporting units and determines the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting
units. In the first step of the impairment test, the Company
estimates the fair value of the reporting unit. If the fair value of
the reporting unit is less than the carrying value of the reporting unit, the
Company performs the second step which compares the implied fair value of the
reporting unit with the carrying amount of that goodwill and writes down the
carrying amount of the goodwill to the implied fair value.
The
carrying amounts of goodwill by ongoing business segment as of
September 27, 2009 and June 28, 2009 are as follows (in
thousands):
Business
Segments:
|
September
27,
2009
|
June
28, 2009
|
||||||
Power
Management Devices
|
$ | — | $ | — | ||||
Energy-Saving
Products
|
33,190 | 33,190 | ||||||
HiRel
|
18,959 | 18,959 | ||||||
Enterprise
Power
|
22,806 | 22,806 | ||||||
Automotive
Products
|
— | — | ||||||
Intellectual
Property
|
— | — | ||||||
Total
goodwill
|
$ | 74,955 | $ | 74,955 |
7.
Bank Loans and Long-Term Debt
As of September 27, 2009 and June 28,
2009, the Company had no long-term debt outstanding.
At September 27, 2009, the Company had
$2.9 million of outstanding letters of credit. These letters of
credit are secured by cash collateral provided by the Company equal to their
face amount.
8.
Other Accrued Expenses
18
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Other
accrued expenses were comprised of the following as of (in
thousands):
September
27, 2009
|
June
28, 2009
|
|||||||
Sales
returns
|
$ | 21,013 | $ | 21,036 | ||||
Accrued
accounting and legal costs
|
56,735 | 60,713 | ||||||
Deferred
revenue
|
9,042 | 7,885 | ||||||
Accrued
employee benefits
|
3,861 | 3,995 | ||||||
Accrued
Divestiture liability
|
2,090 | 2,410 | ||||||
Accrued
warranty
|
1,778 | 1,767 | ||||||
Accrued
utilities
|
1,637 | 1,563 | ||||||
Accrued
sales and other taxes
|
2,264 | 1,117 | ||||||
Short-term
severance liability
|
6,533 | 5,234 | ||||||
Other
|
11,248 | 8,323 | ||||||
Total
other accrued expenses
|
$ | 116,201 | $ | 114,043 |
Warranty
The
Company records warranty liabilities at the time of sale for the estimated costs
that may be incurred under the terms of its warranty agreements. The specific
warranty terms and conditions vary depending upon the product sold and the
country in which the Company does business. In general, for standard products,
the Company will replace defective parts not meeting the Company’s published
specifications at no cost to the customers. Factors that affect the liability
include historical and anticipated failure rates of products sold, and cost per
claim to satisfy the warranty obligation. If actual results differ from the
estimates, the Company revises its estimated warranty liability to reflect such
changes.
The
following table details the changes in the Company’s warranty reserve for the
three months ended September 27, 2009, which is included in other accrued
expenses (in thousands):
Accrued
warranty, June 28, 2009
|
$ | 1,767 | ||
Accruals
for warranties issued during the period
|
887 | |||
Changes
in estimates related to pre-existing warranties
|
(202 | ) | ||
Warranty
claim settlements
|
(674 | ) | ||
Accrued
warranty, September 27, 2009
|
$ | 1,778 |
9.
Other Long-Term Liabilities
Other
long-term liabilities were comprised of the following as of (in
thousands):
September
27, 2009
|
June
28, 2009
|
|||||||
Income
taxes payable
|
$ | 34,898 | $ | 35,197 | ||||
Divested
entities’ tax obligations
|
7,500 | 7,283 | ||||||
Deferred
compensation
|
7,128 | 6,543 | ||||||
Other
|
3,744 | 4,032 | ||||||
Total
other long-term liabilities
|
$ | 53,270 | $ | 53,055 |
19
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Other Long-Term Liabilities (Continued)
Fair
Value of Long-term Liabilities
The following table presents the
long-term liabilities and the related assets measured at fair value on a
recurring basis:
Long-term
Liabilities
|
Total
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other Observable Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
||||||||||||
Employee
deferred compensation plan
|
$ | 7,128 | $ | 7,128 | $ | — | $ | — | ||||||||
Assets
of employee deferred compensation plan (reported in Other
assets)
|
9,732 | 9,732 | — | — |
10.
Stock-Based Compensation
The
Company issues new shares to fulfill the obligations under all of its
stock-based compensation awards. The following table summarizes the stock option
activities for the three months ended September 27, 2009 (in thousands,
except per share price data):
Shares
|
Weighted
Average
Option
Exercise
Price
per Share
|
Weighted
Average
Grant
Date
Fair
Value per Share
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding,
June 28, 2009
|
8,248 | $ | 30.40 | — | $ | 3,738 | ||||||||||
Granted
|
136 | $ | 18.62 | $ | 5.79 | — | ||||||||||
Exercised
|
(55 | ) | $ | 15.46 | — | $ | 227 | |||||||||
Expired
or forfeited
|
(661 | ) | $ | 29.46 | — | — | ||||||||||
Outstanding,
September 27, 2009
|
7,668 | $ | 30.37 | — | $ | 11,664 |
For the
three months ended September 27, 2009 and September 28, 2008, the Company
received $0.8 million and $1.0 million, respectively, for stock options
exercised. The total tax benefit realized for the tax deductions from stock
options exercised was de minimis for the three months ended September 27, 2009
and September 28, 2008, respectively.
The
following table summarizes the Restricted Stock Unit (“RSU”) activities for the
three months ended September 27, 2009 (in thousands, except per share price
data):
Restricted
Stock
Units
|
Weighted
Average
Grant
Date
Fair
Value per Share
|
Aggregate
Intrinsic
Value
|
||||||||||
Outstanding,
June 28, 2009
|
355 | $ | 17.84 | $ | 5,215 | |||||||
Granted
|
3 | $ | 18.62 | — | ||||||||
Vested
|
(36 | ) | $ | 16.55 | $ | 599 | ||||||
Expired
or forfeited
|
(2 | ) | — | — | ||||||||
Outstanding,
September 27, 2009
|
320 | $ | 17.74 | $ | 6,054 |
20
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
10.
Stock-Based Compensation (Continued)
The
Company's employee stock option plan permits the reduction of a grantee's RSUs
for purposes of settling a grantee's income tax obligation. During the three
months ended September 27, 2009, the Company withheld RSUs representing 11,672
shares to fund a grantee's income tax obligations.
Additional
information relating to the stock option plans, including employee stock options
and RSUs at September 27, 2009 and June 28, 2009 is as follows (in
thousands):
As
of
|
|||
September
27, 2009
|
June
28, 2009
|
||
Options
exercisable
|
4,767
|
5,179
|
|
Options
available for grant
|
2,548
|
2,408
|
|
Total
reserved common stock shares for stock option plans
|
10,536
|
11,011
|
For the three months ended
September 27, 2009 and September 28, 2008, stock-based compensation expense
associated with the Company’s stock options and RSUs is as follows (in
thousands):
Three
Months
Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Cost
of sales
|
$ | 420 | $ | 134 | ||||
Selling
and administrative expense
|
1,673 | 508 | ||||||
Research
and development expense
|
446 | 548 | ||||||
Total
stock-based compensation expense
|
$ | 2,539 | $ | 1,190 |
The total
unrecognized compensation expense for outstanding stock options and RSUs was
$20.9 million as of September 27, 2009, which will be recognized, in
general, over three years, except for one stock option award and one RSU award
made to the CEO. The total unrecognized compensation expense for
these grants will be recognized over 2.2 years. The weighted average number of
years to recognize the total compensation expense (including that of the CEO) is
1.8 years.
The fair
value of the options issued during the three months ended September 27,
2009 and September 28, 2008, was determined at the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
September
27, 2009
|
September
28, 2008
|
||
Expected
life
|
3.5 years
|
4.4 years
|
|
Risk
free interest rate
|
1.4%
|
3.1%
|
|
Volatility
|
40.3%
|
45.0%
|
|
Dividend
yield
|
0.0%
|
0.0%
|
11.
Asset Impairment, Restructuring and Other Charges
Asset
impairment, restructuring and other charges reflect the impact of various cost
reduction programs and initiatives implemented by the Company. These programs
and initiatives include the closing of facilities, the termination and
relocation of employees and other related activities. Asset impairment,
restructuring and other charges include program-specific exit costs recognized
pursuant to FASB ASC 420-10, “Exit or Disposal Cost Obligations," severance
benefits pursuant to an ongoing benefit arrangement recognized pursuant to FASB
ASC 712-10, "Compensation-Nonretirement Postemployment Benefits,” and special
termination benefits recognized pursuant to FASB ASC 715-30,
"Compensation-Retirement Benefits." Severance costs unrelated to the
Company's restructuring initiatives are recorded as an element of cost of sales,
research and development or selling, general and administrative expense,
depending upon the classification and function of the employee terminated.
Restructuring costs were expensed during the period in which all requirements of
recognition were met.
21
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
Asset Impairment, Restructuring and Other Charges (Continued)
Asset
write-downs are principally related to facilities and equipment that will not be
used subsequent to the completion of exit or downsizing activities being
implemented, and cannot be sold for amounts in excess of carrying value. The
Company recognizes asset impairment in accordance with FASB ASC 360-10,
"Property, Plant and Equipment." In determining the asset groups for
the purpose of calculating write-downs, the Company groups assets at the lowest
level for which identifiable cash flow information is largely independent of the
cash flows of other assets and liabilities. In determining whether an asset was
impaired the Company
evaluates
estimated undiscounted future cash flows and other factors such as changes in
strategy and technology.
An
indicator of impairment loss exists if the estimated undiscounted future cash
flows from the initial analysis are less than the carrying amount of the asset
group. The Company then determines the fair value of the asset group using the
present value technique, by applying to the estimated future cash flows a
discount rate that is consistent with the rate used when analyzing potential
acquisitions.
Asset
impairment, restructuring and other charges represent costs related primarily to
the following:
·
|
El
Segundo Fabrication Facility
Closure
|
·
|
Research
and Development Facility Closure
Initiative
|
·
|
Termination
of the Vishay Intertechnology, Inc. (“Vishay”) transition product services
agreement (“TPSA”) (Described under Other Activities and Charges
below)
|
The
following table summarizes restructuring charges incurred during the three
months ended September 27, 2009, and September 28, 2008 related to the
restructuring initiatives discussed below. These charges were recorded in asset
impairment, restructuring and other charges (in thousands):
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Reported
in asset impairment, restructuring and other charges
|
||||||||
Severance
and workforce reduction costs
|
$ | 91 | $ | 351 | ||||
Other
Charges
|
76 | 120 | ||||||
Total
asset impairment, restructuring and other charges
|
$ | 167 | $ | 471 |
In
addition to the amounts in the table above, $0.4 million of workforce
reduction expense related to retention bonuses were recorded in cost of sales
during the first three months of fiscal year 2010 related to the restructuring
initiatives. The Company also incurred approximately $1.4 million of
costs to relocate and install equipment. These costs are not
considered restructuring costs and were recorded in costs of sales.
The
following table summarizes changes in the Company's restructuring related
accruals for fiscal years ended September 27, 2009, and June 28, 2009 which are
included in other accrued expenses on the balance sheet (in
thousands):
Newport,
Wales
|
El
Segundo
|
Research
& Development and PCS Divestiture
|
||||||||||
Accrued
severance and workforce reduction costs, June 28, 2009
|
$ | 359 | $ | 3,535 | $ | 376 | ||||||
Accrued
during the quarter and charged to asset impairment, restructuring and
other charges
|
— | 202 | — | |||||||||
Accrued
during the quarter and charged to operating expenses
|
— | 341 | 16 | |||||||||
Costs
paid during the quarter
|
— | (2 | ) | (92 | ) | |||||||
Foreign
exchange gains
|
(12 | ) | — | (4 | ) | |||||||
Change
in provision
|
— | — | (111 | ) | ||||||||
Accrued
severance and workforce reduction costs, September 27,
2009
|
$ | 347 | $ | 4,076 | $ | 185 |
22
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
Asset Impairment, Restructuring and Other Charges (Continued)
The
following table summarizes the total asset impairment, restructuring and other
charges by initiative for the three months ended September 27, 2009, and
September 28, 2008:
El
Segundo
|
Research
& Development Facility
|
PCS
Divestiture (Recoveries)
|
Total
|
|||||||||||||
For
the three months ended September 28, 2008 reported in asset impairment,
restructuring and other charges
|
||||||||||||||||
Severance
and workforce reduction costs
|
$ | — | $ | 351 | $ | — | $ | 351 | ||||||||
Other
charges
|
— | 120 | — | 120 | ||||||||||||
For
the three months ended September 28, 2008, total asset impairment,
restructuring and other charges
|
$ | — | $ | 471 | $ | — | $ | 471 | ||||||||
For
the three months ended September 27, 2009, reported in asset impairment,
restructuring and other charges
|
||||||||||||||||
Asset
impairment
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Severance
and workforce reduction costs (recoveries)
|
202 | — | (111 | ) | 91 | |||||||||||
Other
charges
|
— | 76 | — | 76 | ||||||||||||
For
the three months ended September 27, 2009, total asset impairment,
restructuring and other charges
|
$ | 202 | $ | 76 | $ | (111 | ) | $ | 167 |
Newport,
Wales Fabrication Facility Consolidation Initiative
The
Company adopted a plan during the second quarter of fiscal year 2009 to
consolidate its wafer manufacturing operations in Newport, Wales to reduce
manufacturing costs and reduce capacity as a result of a decline in market
demand. When the Company adopted this plan, market demand had fallen
precipitously during the second quarter of fiscal year 2009, and the Company did
not foresee a significant recovery in demand in the foreseeable
future. However, subsequent to initiating the plan and exiting
certain portions of the facility, there was a significant recovery in demand
during the second half of fiscal year 2009. To service this
unforeseen demand, the Company reopened approximately 40% of the space
previously designated for closure as part of this initiative. This
space will be utilized through the second half of fiscal year 2010 and possibly
beyond, to provide necessary wafer production capacity. The total
pre-tax cost of the consolidation plan is approximately $52.4 million of which
$48.9 million is non-cash charges. These charges consisted of severance and
other workforce reduction costs of $1.8 million and asset impairment charges of
$48.9 million and other costs incurred to close or consolidate the facilities of
$1.7 million. Through the end of fiscal year 2009, the Company had
recorded $52.0 million of the estimated costs to complete the
initiative. During the three months ended September 27, 2009, the
Company recorded $0.4 million of costs related to moving and installing
equipment. These costs were charged to cost of sales.
Cash
payments for this initiative are estimated to be approximately $0.7 million
during fiscal year 2010.
El
Segundo, California Facility Closure Initiative
The
Company adopted a plan for the closure of its El Segundo, California fabrication
facility during fiscal year 2009. The plan will be carried out through fiscal
year 2010 with a revised estimated total pre-tax cost of $12.7 million of
which approximately $0.8 million will be non-cash charges. These charges
consist of severance and other workforce reduction costs of $5.9 million
and other costs incurred to close or consolidate the facilities of
$6.8 million. Approximately $1.1 million of the additional costs
relate to equipment relocation and installation and the reconfiguration of
ventilation systems. These costs will be charged to operating
expense. The restructuring charge recorded through fiscal year 2009
under this initiative included $3.6 million of severance, $0.7 million
other workforce reduction costs and $2.3 million of other charges for this
initiative.
23
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11.
Asset Impairment, Restructuring and Other Charges (Continued)
Cash
payments for this initiative were approximately $1.0 million during the
first three months of fiscal year 2010, and are estimated to be
$5.9 million and $2.1 million during the remainder of fiscal year 2010
and thereafter, respectively.
Research
and Development Facility Closure Initiative
In the
third quarter of fiscal year 2008, the Company adopted a plan for the closure of
its Oxted, England R&D facility and its El Segundo, California R&D
fabrication facility. The costs associated with closing and exiting
these facilities and severance costs are currently estimated to total
approximately $9.0 million. Of this amount, approximately $5.4 million
represents the cash outlay related to this initiative. The Company estimates
that the closure and exiting of these two facilities will be completed by the
end of the second quarter of fiscal year 2011. Through fiscal year
2009, the Company had incurred approximately $7.3 million of the total estimated
costs under this initiative. Restructuring related cash payments were
approximately $0.1 million during the first three months of fiscal year 2010,
and are estimated to be $0.3 million and $1.4 million for the remainder of
fiscal year 2010, and thereafter, respectively.
12.
Segment Information
The
Company reports in six segments: EP, PMD, ESP, HiRel, AP, and
IP. During fiscal 2009 the Company reported the ongoing work for
Vishay under the Transition Product Services Agreement (“TPSA”) as Transition
Services (“TS”), separate from the Company’s ongoing segments. This
work declined substantially during the fourth quarter of fiscal 2009 due to the
termination of all most all of the services in the agreement, and the immaterial
amount of remaining sales to Vishay has been included in the Company’s PMD
segment as of the beginning of the first quarter of fiscal year
2010.
Below is a description of the Company’s
reportable segments:
|
•
|
The
PMD segment consists of the Company’s discrete power MOSFETs, excluding
its Low Voltage DirectFET®
products. These products are multi-market in nature and
therefore add value across a wide-range of applications and
markets. The PMD segment targets power supply, data processing,
and industrial and commercial battery-powered
applications.
|
|
•
|
The
ESP segment includes the Company’s HVICs, digital control ICs,
micro-electronic relay ICs, motion control modules and
IGBTs. ESP targets solutions in variable-speed motion controls
for washing machines, refrigerators, air conditioners, fans, pumps and
compressors; advanced lighting products such as fluorescent lamps, high
intensity discharge lamps, cold cathode fluorescent tubes and
light-emitting diodes; and consumer applications such as plasma
televisions, liquid crystal display (“LCD”) television and class D
audio systems. These products provide multiple technologies to
deliver completely integrated design platforms specific to these
customers.
|
|
•
|
The
HiRel segment includes the Company’s RAD-Hard™ power management modules,
RAD-Hard™ power MOSFETs, RAD-Hard™ ICs, and the Company’s RAD-Hard™ DC/DC
converters as well as other high-reliability power components that address
power management requirements in satellites, launch vehicles, aircraft,
ships, submarines, and other defense and high-reliability applications
including an expanding interest in heavy industry and biomedical
applications. HiRel’s strategy is to apply multiple
technologies to deliver highly efficient power delivery in applications
that operate in naturally harsh environments like space and undersea as
well as applications that require a high level of reliability to address
issues of safety, cost of failure or difficulty in replacement, like
medical applications.
|
|
•
|
The
EP segment includes the Company’s LVICs (including XPhase®
and SupIRBuck™), iPOWIR integrated Power Stages and low-voltage
DirectFET®
Power MOSFETs. Products within the EP segment are focused on
data center applications (such as servers, storage, routers and switches),
notebooks, graphics cards, gaming consoles and other computing and
consumer applications. Generally, these products contain
multiple differentiated technologies and are targeted to be combined as
system solutions to the Company’s customers for their next generation
applications that require a higher level of performance and technical
service.
|
24
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
Segment Information (Continued)
|
•
|
The
AP segment consists of the Company’s automotive qualified HVICs,
intelligent power switch ICs, power MOSFETs including DirectFET®
and IGBTs. These products were previously reported in the ESP
and PMD segments. The AP segment products are focused solely on
automotive customers and applications that require a high level of
reliability, quality and performance. The Company’s automotive
product portfolio provides high performance and energy saving solutions
for a broad variety of automotive systems, ranging from typical 12V power
net applications up to 1200V hybrid electric vehicle power management
solutions. The Company’s automotive expertise comprises
supplying products for AC and DC motor drives of all power classes,
actuator drivers, automotive lighting (such as high intensity discharge
lamps), direct fuel injection in diesel and gasoline engines, hybrid
electric vehicle power train and peripheral systems in micro, mild, full
and plug hybrids or electric vehicles, as well as for body electronic
systems like glow plugs, Positive Temperature Coefficient (“PTC”) heater,
electric power steering, fuel pumps, Heating Ventilation and Air
Conditioning (“HVAC”) and rear wipers. The Company’s automotive
designs address both application-specific solutions (application-specific
integrated circuits (“ASICs”) and application-specific standard parts
(“ASSPs”)) and generic high volume products for multi original equipment
manufacturer (“OEM”) platform
usage.
|
|
•
|
The
IP segment includes revenues from the sale of the Company’s technologies
and manufacturing process know-how, in addition to the operating results
of the Company’s patent licensing and settlements of claims brought
against third parties. IP segment revenue is dependent on the
unexpired portion of the Company’s licensed MOSFET
patents. Some of the Company’s power MOSFET patents have
expired in calendar year 2007 and the broadest have expired in calendar
year 2008. Certain of the licensed MOSFET patents remain in
effect through 2010. With the expiration of the Company’s
broadest MOSFET patents, most of its IP segment revenue ceased during the
fourth quarter of fiscal year 2008; however, the Company continues, from
time to time, to enter into opportunistic licensing arrangements that it
believes are consistent with its business strategy. The
strategy within the IP segment is to concentrate on creating and using the
Company’s IP primarily for the design and development of new value-added
products, along with opportunistic
licensing.
|
|
•
|
For
fiscal year 2009 the TS segment consists of the operating results of the
transition services, including wafer fabrication, assembly, product
supply, test and other manufacturing-related support services being
supplied to Vishay as part of the Sale of the PCS Business (“the
Divestiture”). After ongoing ramp-down in many of such
services, Vishay terminated most wafer processing services under the TPSA
effective April 30, 2009. The revenue from such terminating
services represents all but an immaterial amount of the remaining revenue
reported under the TS segment. The immaterial amount of revenue
generated from these services during fiscal year 2010 is reported in the
PMD segment.
|
The
Company does not allocate assets, sales and marketing, information systems,
finance and administrative costs and asset impairment, restructuring and other
charges to the operating segments, as these are not meaningful statistics to the
CEO in making resource allocation decisions or in evaluating performance of the
operating segments.
Because
operating segments are generally defined by the products they design and sell,
they do not make sales to each other. The Company does not directly
allocate assets to its operating segments, nor does the CEO evaluate operating
segments using discrete asset information. However, depreciation and
amortization related to the manufacturing of goods is included in gross profit
for the segments as part of manufacturing overhead. Due to the
Company’s methodology for cost build up at the product level, it is impractical
to determine the amount of depreciation and amortization included in each
segment’s gross profit.
25
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12.
Segment Information (Continued)
For the three months ended
September 27, 2009 and September 28, 2008, revenue and gross margin by
reportable segments are as follows (in thousands, except
percentages):
Three
Months Ended
September 27,
2009
|
Three
Months Ended
September 28,
2008
|
|||||||||||||||||||||||
Business
Segment
|
Revenues
|
Percentage
of
Total
|
Gross
Margin
|
Revenues
|
Percentage
of
Total
|
Gross
Margin
|
||||||||||||||||||
Power
Management Devices
|
$ | 66,524 | 37.1 | % | 5.3 | % | $ | 73,778 | 30.2 | % | 21.4 | % | ||||||||||||
Energy-Saving
Products
|
37,863 | 21.1 | 34.6 | 46,136 | 18.9 | 42.9 | ||||||||||||||||||
HiRel
|
32,609 | 18.2 | 48.2 | 37,352 | 15.3 | 52.7 | ||||||||||||||||||
Automotive
Products
|
13,192 | 7.4 | 18.3 | 17,593 | 7.2 | 33.4 | ||||||||||||||||||
Enterprise
Power
|
27,445 | 15.3 | 39.6 | 37,279 | 15.2 | 42.6 | ||||||||||||||||||
Ongoing
customer segments total
|
177,633 | 99.0 | 25.7 | 212,138 | 86.8 | 36.3 | ||||||||||||||||||
Intellectual
Property
|
1,738 | 1.0 | 100.0 | 19,967 | 8.2 | 100.0 | ||||||||||||||||||
Ongoing
segments total
|
179,371 | 100.0 | 26.4 | 232,105 | 95.0 | 41.8 | ||||||||||||||||||
Transition
Services
|
— | — | — | 12,369 | 5.0 | (4.7 | ) | |||||||||||||||||
Consolidated
total
|
$ | 179,371 | 100.0 | % | 26.4 | % | $ | 244,474 | 100.0 | % | 39.4 | % |
13.
Income Taxes
Under
FASB ASC 270-10, "Interim Financial Reporting," and FASB ASC 740-270,
"Accounting for Income Taxes in Interim Periods—an Interpretation of APB Opinion
No. 28," the Company is required to adjust its effective tax rate each
quarter to be consistent with the estimated annual effective tax rate. The
Company is also required to record the tax impact of certain discrete items,
unusual or infrequently occurring, including changes in judgment about valuation
allowances and effects of changes in tax laws or rates, in the interim period in
which they occur. In addition, jurisdictions with a projected loss for the year
or a year-to-date loss where no tax benefit can be recognized are excluded from
the estimated annual effective tax rate. The impact of such an exclusion could
result in a higher or lower effective tax rate during a particular quarter,
based upon the mix and timing of actual earnings versus annual
projections.
In
accordance with FASB ASC 740-10, “Accounting for Income Taxes” (“FASB ASC
740-10”), the Company evaluates its deferred income taxes quarterly to determine
if valuation allowances are required. Based on the consideration of all
available evidences using a “more likely than not” standard, the Company
determined that the valuation allowance established against its deferred tax
assets in the U.S. and the U.K. during the fiscal year 2009 should remain for
the first quarter of fiscal year 2010.
During
the first three months of fiscal year 2010, the FASB ASC 740-10-25 reserve
increased by $1.5 million due to certain tax positions taken during this
quarter. Additionally, this reserve increased by $1.0 million and
decreased by $0.3 million respectively due to certain tax positions taken in
prior periods. A reduction in the reserve of $1.4 million was recorded due
to the lapse of the applicable statutes of limitation in this quarter. As of
September 27, 2009, the liability for income tax associated with uncertain tax
positions was $67.1 million. If the uncertain tax positions are resolved
favorably it would result in a benefit to income taxes on the consolidated
statement of operations of $44.6 million which would reduce the Company's
future effective tax rate.
The
Company's continuing practice is to recognize interest and penalties related to
uncertain tax positions as a component of income tax expense. As of September
27, 2009, the Company had accrued $22.3 million of interest and penalties
related to uncertain tax positions. For the quarter, penalties and interest
increased the reserve by $0.3 million.
In
October of 2009, the Company was notified by the Internal Revenue Service that
it has recommended to the Joint Committee on Taxation that the Company’s refund
claim for fiscal years 2004 - 2007 should be approved as well as the Company’s
originally filed return for fiscal year 2008. The Company has not
received written approval from the Joint Committee of Taxation on these refund
claims. Based on the foregoing, the Company believes it is reasonable to expect
a reduction within 12 months of its uncertain tax positions related to these
fiscal years. The expected reduction in the reserve related to
uncertain tax positions is $31.9 million, including penalties and
interest.
26
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
13.
Income Taxes (Continued)
While it is often difficult to predict
the final outcome or the timing of resolution of any particular uncertain tax
position, the Company believes its reserves for income taxes represent the most
probable outcome. The Company adjusts these reserves, including those for the
related interest, in light of changing facts and circumstance.
The
Company is pursuing refunds for income taxes it believes to have overpaid in
certain jurisdictions. In these jurisdictions, the Company cannot determine that
the realization of the tax refunds of $56.6 million is probable and as such, it
has not recognized them as income tax benefits in its financial statements. The
Company has determined it has overpaid $53.7 million of income taxes (which is
included in the $56.6 million) in Singapore as a result of errors in its
transfer pricing of intercompany transactions. The Company is also
seeking refunds in Japan for $2.9 million. The Company has
determined its claim for a refund of tax is not probable and has not recognized
benefit for such refund claims. Consequently, the Company has recorded both U.S.
federal income taxes and Singapore income taxes with respect to certain fiscal
years.
The
Company received a notice of assessment for the Singapore tax authority due to
the late filing of the Singapore subsidiary's fiscal year 2007 income tax
return. The assessment of approximately $15.5 million was based upon the
Company's transfer pricing methodology prior to fiscal year 2007. The Company
has determined that collection on this assessment is not probable as the Company
believes it is more likely than not that its current transfer pricing
methodology will be sustained.
The
Company's effective tax rate related to continuing operations was
(1.3) percent and (5.7) percent for the three months ended September
27, 2009 and September 28, 2008, respectively. For the three months ended
September 27, 2009, the Company's effective tax rate differed from the U.S.
federal statutory tax rate of 35 percent, resulting from (a) the release of
contingent liabilities related to uncertain tax positions and (b) the benefit to
continuing operations of an unrealized gain of certain securities which was
partially offset by its inability to benefit the loss in the U.S. due to
valuation allowances that remain against its deferred tax assets. For the three
months ended September 28, 2008, the Company’s effective tax rate differed from
the U.S. federal statutory tax rate of 35 percent, resulting from (a) lower
statutory rates in certain foreign jurisdictions, (b) the benefit of foreign tax
credits, and (c) the benefit from state income taxes, partially offset by (a)
non deferral of income from certain foreign jurisdictions, (b) valuation
allowances recorded on impaired securities and other items, and (c) an increase
in contingent tax liabilities. The first three months of fiscal year
2009 was prior to the Company’s determination that, due to the losses incurred
in subsequent quarters, valuation allowances were required to be recorded
against U.S. and U.K. deferred tax assets. The Company's effective
tax rate will be volatile due to the losses that cannot benefit its tax expense
in the U.S. in combination with its geographic mix of income which results in
profit in certain foreign jurisdictions with a resulting tax
payable.
As of
June 28, 2009, U.S. income taxes have not been provided on approximately
$17.4 million of undistributed earnings of foreign subsidiaries since those
earnings are considered to be invested indefinitely. Determination of the amount
of unrecognized deferred tax liabilities for temporary differences related to
investments in these non-U.S. subsidiaries that are essentially permanent in
duration is not practicable.
Pursuant
to Sections 382 and 383 of the U.S. Internal Revenue Code, the utilization
of net operating losses ("NOLs") and other tax attributes may be subject to
substantial limitations if certain ownership changes occur during a three-year
testing period (as defined). The Company does not believe an ownership change
has occurred that would limit the Company's utilization of any NOL, credit carry
forward or other tax attributes.
27
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
14.
Net Loss per Common Share
The
following table provides a reconciliation of the numerator and denominator of
the basic and diluted per-share computations for the three months ended
September 27, 2009 and September 28, 2008 (in thousands, except per share
amounts):
Three
Months Ended
September 27,
2009
|
||||||||||||
Loss
(Numerator)
|
Shares
(Denominator)
|
Per
Share
Amount
|
||||||||||
Net
loss per common share—basic
|
$ | (16,900 | ) | 71,218 | $ | (0.24 | ) | |||||
Effect
of dilutive securities:
|
||||||||||||
Stock
options and restricted stock units
|
— | — | ||||||||||
Net
loss per common share—diluted
|
$ | (16,900 | ) | 71,218 | $ | (0.24 | ) |
Three
Months Ended
September 28,
2008
|
||||||||||||
Loss
(Numerator)
|
Shares
(Denominator)
|
Per
Share
Amount
|
||||||||||
Net
loss per common share—basic
|
$ | (4,186 | ) | 72,843 | $ | (0.06 | ) | |||||
Effect
of dilutive securities:
|
||||||||||||
Stock
options and restricted stock units
|
— | — | ||||||||||
Net
loss per common share—diluted
|
$ | (4,186 | ) | 72,843 | $ | (0.06 | ) |
As a
result of the net loss for the fiscal quarters ended September 27, 2009 and
September 28, 2008, 7,987,557 and 9,420,679 of common stock equivalents were
antidilutive and were not included in the computation of diluted earnings per
share for these periods, respectively.
15.
Environmental Matters
The
Company incorporates by reference its disclosure set forth in Note 12,”Environmental Matters,” to
its consolidated financial statements set forth in Part II, Item 8 in the
Company’s Annual Report on Form 10-K for its fiscal year ended June 28, 2009
(“2009 Annual Report”), subject to the following updates to such disclosure for
events taking place subsequent to the filing of the 2009 Annual
Report:
The
Company has previously reported that it received allegations of potential permit
violations from the South Coast Air Quality Management District (“SCAQMD”) with
respect to the Company's Temecula, California facility, and that the Company has
not yet been assessed any penalties with respect to the disclosures made for
alleged violations at that facility. Since the Company’s filing of its 2009
Annual Report, the Company has been in settlement discussions with the
enforcement division for the SCAQMD, and has reached an agreement in principle
to settle all previously reported NOVs issued by the SCAQMD for the payment of a
fine less than $115,000 plus the payment of certain de minimis administrative
expenses. In October 2009, the SCAQMD issued a new additional NOV
(the “October 2009 NOV”) which was in part related to the previously reported
NOVs at the Company’s Temecula, California facility and in part based on a new
permit violation allegation. The Company has not yet been assessed
any penalties with respect to the October 2009 NOV, and it is too early to
assess whether any such penalties will be assessed in the future.
28
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16.
Litigation
The
Company incorporates by reference its disclosure set forth in Note 14,”Litigation,” to its
consolidated financial statements set forth in Part II, Item 8 in the Company’s
2009 Annual Report, subject to the following updates to such disclosure for
events that have taken place since the filing of the 2009 Annual
Report:
International Rectifier Securities
Litigation.
As
described in the 2009 Annual Report, on July 29, 2009, an agreement in principle
was reached to settle the consolidated securities class action case entitled
In re International Rectifier
Corporation Securities Litigation (formerly Edward R. Koller v. International
Rectifier Corporation, et al.), No. CV 07-02544-JFW (VBKx) (C.D.
Cal.). The proposed settlement, which is dependent upon final approval by
the United States District Court for the Central District of California, would
resolve all class members’ claims against the Company and certain of its former
officers and directors. It would provide for a payment to the
plaintiff class of $90 million, of which $45.0 million is to be paid by the
Company’s insurance carriers and $45.0 million by the Company. Since the
filing of the Company’s Annual Report for fiscal year 2009, on or about
September 22, 2009, the parties filed with the Court a Stipulation of Settlement
of the action and, on September 25, 2009, the Court preliminarily
approved the proposed case settlement. The Court set February 8,
2010, as the hearing date for final approval of the settlement, and set
January 25, 2010, as the deadline for class members to object to and/or opt out
of the settlement. All discovery and other litigation
activity in this case is suspended pending the final approval
hearing. The Company previously accrued a reserve of $45.0 million in
fiscal year 2009 for this settlement. Pursuant to the Stipulation of
Settlement, on October 1, 2009, the settlement funds were deposited by the
Company and its insurance carriers in a settlement escrow account to remain
in escrow pending final approval of the settlement.
International
Rectifier Derivative Litigation.
As
described in the 2009 Annual Report, on August 13, 2009, the Superior
Court of the State of California for the County of Los Angeles sustained
with prejudice the Company's demurrer to the amended complaint in a purported
shareholder derivative action entitled Mayers v. Lidow, No. BC
395652. Since the filing of the Company’s Annual Report for fiscal year
2009, on September 1, 2009, the Court entered judgment dismissing the
action with prejudice, and on September 14, 2009, plaintiff filed a notice of
appeal from the judgment.
Litigation
from Vishay Proposal.
As
described in the 2009 Annual Report, on or about July 20, 2009, the
plaintiff in City of
Sterling Heights Police & Fire Retirement System v. Dahl, No. BC
397326, and the Company entered into a memorandum of understanding regarding
settlement of the action, pursuant to which, inter alia, the derivative
claims asserted in the action would be dismissed with prejudice and the Company
would pay to plaintiff's counsel $60,000 in attorneys' fees. Since the
filing of the Company's Annual Report for fiscal year 2009, on August 20, 2009,
the parties filed with the Superior Court of the State of California for the
County of Los Angeles a Stipulation of Settlement of the action, and on
September 8, 2009, the Court approved the settlement and entered judgment
dismissing the derivative claims with prejudice. Pursuant to the
Stipulation of Settlement, on September 22, 2009, the Company paid to
plaintiff's counsel $60,000 in attorneys' fees.
Governmental
Investigations.
In the
2009 Annual Report, the Company reported that it was cooperating fully with
investigators from the SEC Division of Enforcement, the U.S. Attorney’s Office
and the Internal Revenue Service regarding matters relating to the Audit
Committee-led investigation and other matters described in Note 2,
"Restatements of Consolidated Financial Statements," of the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2007.
Since the filing of the Company’s Annual Report for fiscal year 2009, the Office
of the U.S. Attorney for the Central District of California has notified the
Company it has concluded its investigation and has decided not to bring any
action against the Company or any of its current or former directors, officers
or employees. The Company is continuing to cooperate fully with the SEC Division
of Enforcement and the Internal Revenue Service in connection with their ongoing
investigation of such matters.
29
INTERNATIONAL
RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
16.
Litigation (Continued)
EPC/Lidow
Litigation.
In the
2009 Annual Report, the Company reported that in September 2008, the Company
filed suit in the U.S. District Court for the Central District of California
against Efficient Power Conversion Corp. ("EPC"), certain of EPC's employees and
other defendants (including Alex Lidow, a former chief executive officer and
director of the Company, and now a principal of EPC). alleging improper and
unauthorized use and/or misappropriation of certain Company confidential
information, trade secrets and technology related to the Company's Gallium
Nitride development program. The Company also reported that in
March 2009, the Company refiled the suit in the Los Angeles Superior Court,
Case No. BC409749, and that in March 2009, Alex Lidow and EPC filed suit in
the Los Angeles Superior Court, Case No. BC409750, against the Company alleging
claims arising out of Lidow's employment with and separation from the Company,
and for violations of the California Labor Code and California Business and Professions
Code, and alleging the Company unfairly competed and interfered with
EPC. In September 2009, EPC dismissed its claim from the complaint in Case
No. BC409750, and is anticipated to refile its claim as a cross-complaint in
case No. BC409749. The Company intends to vigorously pursue its rights in
and defend against both actions.
17.
Commitments and Contingencies
During
the fiscal year 2009, the Company entered into an amended foundry services
agreement with one of its foundry suppliers, under which the Company is entitled
to purchase up to 1,000 silicon wafers per week. Under the terms of the
agreement, the Company may be required to advance funds or transfer equipment
against future processing charges if the Company does not purchase minimum
required amounts of dies or wafers determined on a quarterly basis. The maximum
amount the Company would be required to advance under the agreement is
$5.5 million of cash and equipment, at fair market value, with cash
advances limited to a maximum of $2.5 million. If future purchases exceed a
minimum level, a portion of the purchase price of these purchases will be
credited against the advance. As of September 27, 2009, the Company had advanced
$1.1 million to the foundry of which $0.6 million was recorded in prepaid
assets and $0.5 million was recorded in other assets as a long-term receivable
on the balance sheet at September 27, 2009. The Company believes that the
advances will be recovered through future purchases under the
agreement.
In
connection with the divestiture of the Company’s Power Control Systems business
in fiscal year 2007, the Company recorded a provision of $18.6 million for
certain tax obligations with respect to divested entities. The
balance of the divested entities tax obligations have decreased over time due to
settlement of tax audits, lapsing of statute of limitations, and the decrease in
foreign currency translation on the underlying obligation partially offset by an
increase in adjustments arising from the filing of amended tax
returns. As of September 27, 2009, the balance of the divested
entities tax obligations was $7.5 million.
18.
Stock Repurchase Program
On October 27, 2008, the Company
announced that its Board of Directors authorized a stock repurchase program of
up to $100.0 million. Stock repurchases under this program may be made in
the open market or through privately negotiated transactions. The timing and
actual number of shares repurchased depend on market conditions and other
factors. The stock repurchase program may be suspended at any time without prior
notice. The Company has used and plans to continue to use existing cash to fund
the repurchases. For the three months ended September 27, 2009, the Company did
not repurchase any shares. While no shares were repurchased during the first
three months of fiscal year 2010 the plan has not been suspended. As
of September 27, 2009, the Company had not cancelled the shares of common stock
previously purchased under the program, and as such they are reflected as
treasury stock in the September 27, 2009 and June 28, 2009 balance
sheets.
30
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management’s Discussion and
Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read in conjunction with our audited historical consolidated financial
statements which are included in our Form 10-K, filed with the SEC on August 27,
2009. Except
for historic information contained herein, the matters addressed in this
MD&A constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended (“Securities Act”),
and Section 21E of the Exchange Act, as amended. Forward-looking statements
may be identified by the use of terms such as “anticipate,” “believe,” “expect,”
“intend,” “project,” “will,” and similar expressions. Such forward-looking
statements are subject to a variety of risks and uncertainties, including those
discussed under the heading “Statement of Caution Under the Private Securities
Litigation Reform Act of 1995,” in Part II, Item 1A, “Risk Factors”
and elsewhere in this Quarterly Report on Form 10-Q, that could cause
actual results to differ materially from those anticipated by us. We
undertake no obligation to update these forward-looking statements to reflect
events or circumstances after the date of this Quarterly Report or to reflect
actual outcomes.
Overview
We
design, manufacture and market power management semiconductors. Power management
semiconductors address the core challenges of power management, power
performance and power conservation, by increasing system efficiency, allowing
more compact end-products, improving features on electronic devices and
prolonging battery life.
We
pioneered the fundamental technology for power metal oxide semiconductor field
effect transistors ("MOSFETs") in the 1970s, and estimate that the majority of
the world's planar power MOSFETs use our technology. Power MOSFETs are
instrumental in improving the ability to manage power efficiently. Our products
include power MOSFETs, high voltage analog and mixed signal integrated circuits
("HVICs"), low voltage analog and mixed signal integrated circuits ("LVICs"),
digital integrated circuits ("ICs"), radiation-resistant ("RAD-Hard™") power
MOSFETs, insulated gate bipolar transistors ("IGBTs"), high reliability DC-DC
converters, PowerStage ("PS") modules, and DC-DC converter type
applications.
Although
our revenues declined for the three months ended September 27, 2009, compared to
the prior year comparable period by 22.7 percent for our ongoing segments, we
experienced stronger demand during the first three months of fiscal year 2010
with the overall market, resulting in a 12.4 percent sequential increase in
revenue in the quarter compared to the prior quarter. This sequential
revenue growth during the quarter allowed us to reduce our weeks of inventory by
one week from the prior quarter to 15 weeks of inventory as of September 27,
2009. We currently expect a further revenue increase for the three
months ending December 27, 2009. With the increased demand, our lead
times for many of our products have increased, and we have had challenges in
meeting all of the demand. To respond to the increased demand, we are
continuing with a strategy to increase capacity through qualification of
external manufacturing sources.
We are
proceeding with our plans to consolidate our manufacturing sites in order to
reduce our costs. The plans we initiated during fiscal year 2009 to reduce the
size of our Newport, Wales wafer fabrication facility and to close our El
Segundo, California wafer fabrication facility are proceeding. However, as
we noted in our Annual Report on Form 10-K filed in August 2009, we postponed a
portion of the initiative at our Newport, Wales wafer fabrication facility in
the fourth quarter of fiscal year 2009, due to a significant increase in demand,
until at least July 2010 or when sufficient alternative external capacity comes
on-line. Since we already implemented fixed cost reductions associated
with this initiative, we are saving $3.6 million on an annualized basis
associated with this initiative beginning in the June 2009 quarter. The
estimated completion of the closure of our El Segundo, California wafer
fabrication facility is the end of the second quarter of fiscal year 2011. We
estimate that this factory closure will save us approximately $12.7 million
per year beginning in third quarter of fiscal year 2011.
In
addition to reducing our manufacturing costs, we have continued our efforts to
align our operating expense structure with our revenue levels. During
the three months ended September 27, 2009, excluding a $45.0 million class
action lawsuit settlement and a $9.5 million insurance reimbursement that were
recorded in the prior quarter, we reduced our selling, general and
administrative expenses from the prior quarter by $3.9 million. On a
year over year basis, excluding $16.4 million of investigation, filing support
and proxy contest and filing costs, selling, general and administrative expense
decreased approximately $4.9 million. These selling, general and
administrative savings were achieved through lower salary related costs due to
headcount reductions which were partially offset by higher severance
expenses. Although we plan to reduce our manufacturing and selling
and administrative costs in the near term, we expect to maintain our investment
levels in new product development in order to meet our longer term revenue
goals. However, during the three months ended September 27, 2009,
research and development spending declined by $3.4 million from the prior
quarter. This reduction in research and development expense was
driven by lower engineering builds rather than lower research and development
headcount, which remained flat with the prior quarter.
31
Our cash
flows from operations was a use of cash of approximately $7.1 million for the
first three months of fiscal year 2010 an improvement from the prior year
comparable period which was a use of cash of $16.1 million. Our cash, cash
equivalents and investments, excluding restricted cash, as of September 27, 2009
totaled $586.9 million compared to $600.5 million as of June 28, 2009. The
quarterly decline in cash and investments was
driven primarily by cash used in operations and capital expenditures of
approximately $9.5 million during the first three months of fiscal year
2010.
Segments
During fiscal 2009 we reported the
ongoing work for Vishay Intertechnology, Inc. (“Vishay”) under the transition
product services agreement (“TPSA”) as part of Transition Services segment,
separate from our ongoing segments. The immaterial amount of
remaining sales to Vishay has been included in our ongoing segments in the Power
Management Devices segment beginning in the first three months of fiscal year
2010. For a description of our reportable segments, see Note 12,
“Segment Information.”
Results
of Operations
Selected
Operating Results
The
following table sets forth certain operating results for the three months ended
September 27, 2009 and September 28, 2008 as a percentage of revenues (in
millions, except percentages):
Three
Months Ended
|
||||||||||||||||
September
27, 2009
|
September
28, 2008
|
|||||||||||||||
Revenues
|
$ | 179.4 | 100.0 | % | $ | 244.5 | 100.0 | % | ||||||||
Cost
of sales
|
132.0 | 73.6 | 148.1 | 60.6 | ||||||||||||
Gross
profit
|
47.4 | 26.4 | 96.4 | 39.4 | ||||||||||||
Selling
and administrative expense
|
43.6 | 24.3 | 64.9 | 26.5 | ||||||||||||
Research
and development expense
|
22.8 | 12.7 | 24.7 | 10.1 | ||||||||||||
Amortization
of acquisition-related intangible assets
|
1.1 | 0.6 | 1.1 | 0.4 | ||||||||||||
Asset
impairment, restructuring and other charges
|
0.2 | 0.1 | 0.5 | 0.2 | ||||||||||||
Operating
(loss) income
|
(20.3 | ) | (11.3 | ) | 5.2 | 2.1 | ||||||||||
Other
expense, net
|
0.8 | 0.4 | 14.6 | 6.0 | ||||||||||||
Interest
income, net
|
(4.0 | ) | (2.2 | ) | (5.1 | ) | (2.1 | ) | ||||||||
Loss
before income taxes
|
(17.1 | ) | (9.5 | ) | (4.3 | ) | (1.7 | ) | ||||||||
Benefit
from income taxes
|
(0.2 | ) | (0.1 | ) | (0.1 | ) | — | |||||||||
Net
loss
|
$ | (16.9 | ) | (9.4 | )% | $ | (4.2 | ) | (1.7 | )% |
Results
of Operations for the Three Months Ended September 27, 2009 compared with
the Three Months Ended September 28, 2008
The
following table sets forth certain items included in selected financial data as
a percentage of revenues (in millions, except percentages):
Revenue
and Gross Margin
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Ongoing
Segments
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 179,371 | $ | 232,105 | (22.7 | %) | ||||||
Gross
Margin
|
$ | 47,357 | $ | 96,978 | (51.2 | %) | ||||||
Gross
Margin %
|
26.4 | % | 41.8 | % |
(15.4) ppt
|
32
Revenue
for our ongoing segments, which includes all of our operating segments, declined
$52.7 million, or 22.7 percent, for the three months ended September 27, 2009
compared to the three months ended September 28, 2008. This does not include
revenue from the Transition Services segment, due to the completion of the
Divestiture transition during the fourth quarter of fiscal year
2009. Beginning with the three months ended September 27, 2009, the
immaterial amount of remaining Transition Services revenues are now included
within the PMD segment.
Revenue
from our product sales segments declined by $34.5 million, or 16.3 percent for
the three months ended September 27, 2009 compared to the three months ended
September 28, 2008, due primarily to 1) a slowdown in the economy, 2) customer
draw down of inventories, 3) lower sales of our game station related products
and 4) the impact of lower average selling prices. Our IP segment reported lower
revenue by $18.2 million due to the non-recurrence of an $18.7 million in
royalties attributed to a one-time amendment to one of our patent licenses in
the prior year.
During
the three months ended September 27, 2009, our gross margin declined 15.4
percentage points for our ongoing segments compared to the three months ended
September 28, 2008. This decline was due to the unfavorable impact on
gross margin from; 1) a decline in IP segment revenue, recognized at 100 percent
gross margin, 2) lower average selling prices, 3) a shift in sales mix toward
lower-margin products, and 4) the spreading of our fixed manufacturing costs
over a lower volume of products manufactured. The majority of the
decline in product segment margin was due to lower average selling prices and
the shift in mix. We shifted production toward lower-margin products
to utilize our production capacity. This resulted in a smaller
decline in revenues in our PMD business segment compared to the other
segments. Additionally, even within the PMD segment, there was a
shift toward lower-margin products.
We expect
our margin percentages to improve incrementally for the three months ended
December 27, 2009, with better factory utilization from increased volumes as a
result of expected increases in revenue.
Revenue
and gross margin by business segments are as follows (in thousands, except
percentages):
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Power
Management Devices (PMD)
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 66,524 | $ | 73,778 | (9.8 | %) | ||||||
Gross
Margin
|
$ | 3,528 | $ | 15,800 | (77.7 | %) | ||||||
Gross
Margin %
|
5.3 | % | 21.4 | % |
(16.1) ppt
|
The 9.8 percent revenue decrease for the three months ended September 27, 2009 compared to the three months ended September 28, 2008 for PMD was due to a slowdown in the market, a decline in demand for industrial products as well as notebooks and other consumer related products. The year-over-year decrease of 16.1 percentage points in gross margin was primarily due to lower average selling prices, which accounted for approximately two thirds of the margin decline, unfavorable product mix due to a higher percentage of consumer business, and higher unit costs as we shipped parts during the quarter that were produced in prior periods when our manufacturing costs were higher due to lower volumes.
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Energy
Saving Products (ESP)
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 37, 863 | $ | 46,136 | (17.9 | %) | ||||||
Gross
Margin
|
$ | 13,096 | $ | 19,177 | (33.8 | %) | ||||||
Gross
Margin %
|
34.6 | % | 42.9 | % |
(8.3)
ppt
|
The 17.9 percent revenue decrease for
the three months ended September 27, 2009 compared to the three months ended
September 28, 2008 for ESP was due to a slowdown in the market as a result of
the economic recession and a decline in sales of our industrial and consumer
appliance related products. The 8.3 percentage point decline in gross
margin for the three months ended September 27, 2009 compared to the prior year
comparable period was primarily due to lower volumes which increased our fixed
costs as a percent of revenue and to lower average selling
prices. These unfavorable impacts on gross margin were partially
offset by a favorable product mix.
33
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
HiRel
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 32,609 | $ | 37,352 | (12.7 | %) | ||||||
Gross
Margin
|
$ | 15,706 | $ | 19,667 | (20.1 | %) | ||||||
Gross
Margin %
|
48.2 | % | 52.7 | % |
(4.5) ppt
|
The 12.7
percent revenue decrease for the three months ended September 27, 2009 compared
to the three months ended September 28, 2008 for HiRel was mainly due to a
reduction in volume as a result of a weaker commercial aviation market and
delayed shipments due to the introduction of improved proprietary testing
technologies and equipment. These new proprietary testing
technologies and equipment have subsequently been released to production and no
further delays are expected. The 4.5 percentage point decline in
gross margin for the three months ended September 27, 2009 compared to the three
months ended September 28, 2008 was driven by a decrease in volume which
increased our fixed costs as a percentage of revenues and an increase in
inventory write-down costs which reduced the gross margin by 2.4 percentage
points associated with inventory that was deemed to be in excess of
demand. These unfavorable impacts on gross margin were partially
offset by an improvement in average selling prices and a favorable product
mix.
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Automotive
Products (AP)
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 13,192 | $ | 17,593 | (25.0 | %) | ||||||
Gross
Margin
|
$ | 2,414 | $ | 5,873 | (58.9 | %) | ||||||
Gross
Margin %
|
18.3 | % | 33.4 | % |
(15.1) ppt
|
The 25.0 percent revenue decrease for
the three months ended September 27, 2009 compared to the three months ended
September 28, 2008 for AP was due to the production cuts by the automotive
industry in the U.S. and Europe as a result of softness in the U.S. and European
markets. The 15.1 percentage point decrease in gross margin was due
to the impact of lower average selling prices which accounted for about 60
percent of the decline and lower volumes. These unfavorable impacts on gross
margin were partially offset by a favorable product mix.
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Enterprise
Power (EP)
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 27,445 | $ | 37,279 | (26.4 | %) | ||||||
Gross
Margin
|
$ | 10,877 | $ | 15,894 | (31.6 | %) | ||||||
Gross
Margin %
|
39.6 | % | 42.6 | % |
(3.0) ppt
|
The 26.4 percent revenue decrease for
the three months ended September 27, 2009 for EP was primarily due to a
significant last time buy in the year ago comparable quarter with one of our
gaming console customers. Our server and storage business remained
approximately flat in spite of a significant decrease in end unit sales as the
industry transitioned from an older server platform to a newer, more energy
efficient platform, where EP enjoys significantly higher content per box.
The 3.0 percentage point decline in the gross margin was due to the unfavorable
impact of lower average selling prices partially offset by a favorable product
mix.
34
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||
Intellectual
Property (IP)
|
September
27, 2009
|
September
28, 2008
|
Change
|
|||||||||
Revenues
|
$ | 1,738 | $ | 19,967 | (91.3 | %) | ||||||
Gross
Margin
|
$ | 1,738 | $ | 19,967 | (91.3 | %) | ||||||
Gross
Margin %
|
100.0 | % | 100.0 | % | --- | % |
The 91.3 percent decline in IP revenue
for the three months ended September 27, 2009 compared to the three months ended
September 28, 2008 was due to the non-recurrence of an $18.7 million in
royalties attributed to a one-time amendment to one of our patent licenses in
the prior year.
Selling, General and Administrative
Expense
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||||||||||
Selling,
General and Administrative
|
September
27, 2009
|
%
of Revenue
|
September
28, 2008
|
%
of Revenue
|
Change
|
|||||||||||||||
Revenues
|
$ | 179,371 | $ | 244,474 | (26.6 | %) | ||||||||||||||
Selling,
general and administrative expenses
|
$ | 43,582 | 24.3 | % | $ | 64,877 | 26.5 | % |
(2.2)
ppt
|
|||||||||||
Proxy
contest and filing costs
|
$ | — | — | % | $ | 1,980 | 0.8 | % |
(0.8)
ppt
|
|||||||||||
Investigation
and Filing Support
|
$ | — | — | % | $ | 14,460 | 5.9 | % |
(5.9)
ppt
|
Selling,
general and administrative expense was $43.6 million (24.3 percent of revenue)
and $64.9 million (26.6 percent of revenue) for the three months ended September
27, 2009 and September 28, 2008, respectively. The year-over-year decrease in
selling, general and administrative expense was due primarily to the $14.5
million of investigation and filing support costs and $1.9 million of proxy
contest and filing costs incurred in the prior year comparable
period. The investigation and filing support costs related to the
prior Audit Committee-led investigation including legal, audit and consulting
fees and costs associated with the Investigation, reconstruction of the
financial results at our Japan subsidiary, and restatement of multiple periods
of consolidated financial statements. The proxy filing cost relate to
costs incurred in the year ended June 28, 2009, in connection with our delayed
2007 annual meeting and the unsolicited proposal, tender offer, and certain
other actions initiated by Vishay, as further discussed in our annual report on
Form 10-K for the period ending June 28, 2009 filed August 27,
2009.
Excluding
the above mentioned costs, selling, general and administrative expense decreased
by $4.9 million to $43.6 million in the current fiscal quarter as compared to
the prior fiscal period ended September 28, 2008. These cost decreases were
primarily due to lower salary related expenses as a result of the company
initiatives to reduce headcount and lower freight cost due to the decline in
sales; partially offset by $0.7 million of higher severance related expenses for
the three months ended September 27, 2009 compared with the three months ended
September 28, 2008. We expect to slightly lower our selling, general,
and administrative expenses further during the three months ending December 27,
2009.
Research
and Development Expense
(Dollars
in thousands)
|
Three
Months Ended
|
|||||||||||||||||||
Research
and Development
|
September
27, 2009
|
%
of Revenue
|
September
28, 2008
|
%
of Revenue
|
Change
|
|||||||||||||||
Revenues
|
$ | 179,371 | $ | 244,474 | (26.6 | %) | ||||||||||||||
Research
and Development costs
|
$ | 22,827 | 12.7 | % | $ | 24,717 | 10.1 | % |
2.6
ppt
|
35
Research
and development (“R&D”) expense was $22.8 million (12.7 percent of
revenue) and $24.7 million (10.1 percent of revenue) for the three
months ended September 27, 2009 and September 28, 2008, respectively.
The year-over-year decrease of $1.9 million in R&D expenses was mainly due
to our initiatives to size the organization to be in line with our lower revenue
level as well as savings related to the planned closure of two R&D
facilities in El Segundo, California and Oxted, England. Total costs
incurred for the facility closures were $0.1 million and $0.9 million for the
three months ended September 27, 2009 and September 28, 2008,
respectively. Despite these actions, we continue to devote
significant resources to our R&D activities. We concentrate our R&D
activities on developing new platform technologies, such as our recently
announced Gallium Nitride (“GaN”) technology, as well as our power management
ICs and the advancement and diversification of our HEXFET®, power MOSFET™ and
insulated gate bipolar transistor (“IGBT”) product lines.
Asset
Impairment, Restructuring and Other Charges
Asset
impairment, restructuring and other charges reflect the impact of cost reduction
programs initiated during fiscal years 2009 and 2008 as well as work force
reduction actions undertaken as a result of the termination of the wafer
services portion of the TPSA. These programs and initiatives include
the closing of facilities, the relocation of equipment and employees, the
termination of employees and other related activities.
The following table summarizes restructuring charges incurred related to the
restructuring initiatives discussed below. These charges were
recorded in asset impairment, restructuring and other charges (in
thousands):
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Reported
in asset impairment, restructuring and other charges
|
||||||||
Severance
and workforce reduction costs
|
$ | 91 | $ | 351 | ||||
Other
Charges
|
76 | 120 | ||||||
Total
asset impairment, restructuring and other charges
|
$ | 167 | $ | 471 |
In addition to the amounts in the table
above, $0.4 million of workforce reduction expense related to retention
bonuses were recorded in cost of sales during the first three months of fiscal
year 2010 related to the restructuring initiatives. We also incurred
approximately $1.4 million of costs to relocate and install
equipment. These costs are not considered restructuring costs and
were recorded in costs of sales.
The
following table summarizes changes in our restructuring related accruals for
three months ended September 27, 2009 which are included in other accrued
expenses on the balance sheet (in thousands):
Newport,
Wales
|
El
Segundo
|
Research
& Development and PCS Divestiture
|
||||||||||
Accrued
severance and workforce reduction costs, June 28, 2009
|
$ | 359 | $ | 3,535 | $ | 376 | ||||||
Accrued
during the quarter and charged to asset impairment, restructuring and
other charges
|
— | 202 | — | |||||||||
Accrued
during the quarter and charged to operating expenses
|
— | 341 | 16 | |||||||||
Costs
paid during the quarter
|
— | (2 | ) | (92 | ) | |||||||
Foreign
exchange gains
|
(12 | ) | — | (4 | ) | |||||||
Change
in provision
|
— | — | (111 | ) | ||||||||
Accrued
severance and workforce reduction costs, September 27,
2009
|
$ | 347 | $ | 4,076 | $ | 185 |
36
The
following table summarizes the total asset impairment, restructuring and other
charges by initiative for the three months ended September 27, 2009 and
September 28, 2008:
El
Segundo
|
Research
& Development Facility
|
PCS
Divestiture (Recoveries)
|
Total
|
|||||||||||||
For
the three months ended September 28, 2008 reported in asset impairment,
restructuring and other charges
|
||||||||||||||||
Severance
and workforce reduction costs
|
$ | — | $ | 351 | $ | — | $ | 351 | ||||||||
Other
charges
|
— | 120 | — | 120 | ||||||||||||
For
the three months ended September 28, 2008, total asset impairment,
restructuring and other charges
|
$ | — | $ | 471 | $ | — | $ | 471 | ||||||||
For
the three months ended September 27, 2009, reported in asset impairment,
restructuring and other charges
|
||||||||||||||||
Asset
impairment
|
$ | — | $ | — | $ | — | $ | — | ||||||||
Severance
and workforce reduction costs (recoveries)
|
202 | — | (111 | ) | 91 | |||||||||||
Other
charges
|
— | 76 | — | 76 | ||||||||||||
For
the three months ended September 27, 2009, total asset impairment,
restructuring and other charges
|
$ | 202 | $ | 76 | $ | (111 | ) | $ | 167 |
Newport, Wales Fabrication Facility Consolidation Initiative
We
adopted a plan during the second quarter of fiscal year 2009 to consolidate our
wafer manufacturing operations in Newport, Wales to reduce manufacturing costs
and reduce capacity as a result of a decline in market demand. When
we adopted this plan market demand had fallen precipitously during the second
quarter of fiscal year 2009 and we did not foresee a significant recovery in
demand in the foreseeable future. However, subsequent to initiating
the plan and exiting certain portions of the facility, there was a significant
recovery in demand during the second half of fiscal year 2009. To
service this unforeseen demand, we have reopened approximately 40% of the space
previously designated for closure as part of this initiative. This
space will be utilized through the second half of fiscal year 2010 and possibly
beyond, to provide necessary wafer production capacity. The total
pre-tax cost of the consolidation plan is approximately $52.4 million of which
$48.9 million is non-cash charges. These charges consisted of severance and
other workforce reduction costs of $1.8 million and asset impairment charges of
$48.9 million and other costs incurred to close or consolidate the
facilities of $1.7 million. Through the end of fiscal year 2009, we
have recorded $52.0 million of the estimated costs to complete the
initiative. During the first three months of fiscal year 2010, we
recorded $0.4 million of costs related to moving and installing
equipment. These costs were charged to costs of sales.
As a
result of the changes to the plan, estimated cost savings have been revised and
are now projected to be approximately $3.6 million annually beginning in the
fourth quarter of fiscal year 2009. Estimated cost savings during the
first three months of fiscal year 2010 were approximately $0.9
million. We do not anticipate these cost savings will be offset by
additional costs incurred in other locations. Cash payments for this
initiative are estimated to be $0.7 million during fiscal year
2010.
El
Segundo, California Facility Closure Initiative
We
adopted a plan for the closure of our El Segundo, California fabrication
facility during fiscal year 2009. The plan will be carried out through fiscal
year 2010 with a revised estimated total pre-tax cost of $12.7 million of
which approximately $0.8 million will be non-cash charges. These
charges consist of severance and other workforce reduction costs of
$5.9 million and other costs incurred to close or consolidate the
facilities of $6.8 million. Approximately $1.1 million of the
additional costs relate to equipment relocation and installation and the
reconfiguration of ventilation systems. These costs will be charged
to operating expense. Through the end of fiscal year 2009 the Company has
recorded $3.6 million of severance costs and $0.7 million other workforce
reduction costs and $2.3 million of other charges for this
initiative.
37
Cash
payments for this initiative were approximately $1.0 million during the
first three months of fiscal year 2010, and are estimated to be approximately
$5.9 million and $2.1 million during the remainder of fiscal year 2010
and thereafter, respectively. We estimate cost savings from the El
Segundo, California fabrication facility closure initiative of approximately
$12.7 million per year beginning in calendar year 2011. These costs
savings will result in reduced manufacturing overhead costs, which will impact
cost of sales. We do not anticipate these cost savings to be offset
by additional costs incurred in other locations.
Research
and Development Facility Closure Initiative
In the
third quarter of fiscal year 2008, we adopted a plan for the closure of our
Oxted, England facility and our El Segundo, California R&D fabrication
facility. The costs associated with closing and exiting these
facilities and severance costs are estimated to total approximately
$9.0 million. Of this amount, approximately $5.4 million represents
the cash outlay related to this initiative. Through fiscal year 2009, we had
incurred approximately $7.3 million of the estimated costs to complete this
initiative. We estimate that the closure and exiting of these two
facilities will be completed by the end of the second quarter of fiscal year
2011. Restructuring related cash payments were approximately $0.1
million during the first three months of fiscal year 2010, and are estimated to
be $0.3 million and $1.4 million for the remainder of fiscal year 2010, and
thereafter, respectively.
This
restructuring initiative resulted in cost savings of approximately $1.6 million
in the first three months of fiscal year 2010, and is expected to provide cost
savings of approximately $7.1 million in fiscal year 2010 and
thereafter. These savings will come from reduced salaries and
facility overhead reductions and will impact research and development
expense. We do not anticipate these cost savings to be offset by
additional costs incurred at other locations.
Other
Income and Expense
Other
expense (income) primarily includes foreign currency fluctuations, and
investment impairments. Other expense (income), net was
$0.8 million and $14.6 million for the first three months of fiscal
years 2010 and 2009, respectively. The decrease in expense is
primarily due to a decrease in investment impairment charges from $15.2 million
to $1.9 million for the three months ended September 27, 2009 compared to the
three months ended September 28, 2008. In the first three
months of fiscal 2010, the investment impairments were offset by a gain on a put
option on one of our strategic equity investments of $2.1 million during the
first three months of fiscal 2010. Currency exchange transaction
(losses) gains were $(0.9) million and $0.9 million in the first three months of
fiscal years 2010 and 2009, respectively.
Interest
Income and Expense
Interest
income was $4.1 million and $5.6 million for the first three months of
fiscal years 2010 and 2009, respectively, reflecting lower interest income due
primarily to lower average balances of interest bearing investments and lower
interest rates partially offset by an increase in realized gains on
investments.
Interest
expense was $0.1 million and $0.5 million for the first three months
of fiscal years 2010 and 2009, respectively.
Income
Taxes
The rate
of tax expense (benefit) from continuing operations was (1.3) percent and (5.7)
percent for the fiscal years ended September 27, 2009 and September 30, 2008,
respectively. For the first period of fiscal year 2010, the effective
tax rate differed from the U.S. federal statutory tax rate of 35 percent,
resulting from(a) the release of contingent liabilities related to uncertain tax
positions and (b) the benefit to continuing operations of an unrealized gain of
certain securities which was partially offset by inability to benefit from the
loss in the U.S. due to valuation allowance remained against its deferred tax
assets. For the corresponding period of fiscal year 2009, the effective tax rate
differed from the U.S. federal statutory tax rate of 35 percent, resulting from
(a) lower statutory rates in certain foreign jurisdictions, (b) the benefit of
foreign tax credits, and (c) the benefit from state income taxes, partially
offset by (a) non deferral of income from certain foreign jurisdictions, (b)
valuation allowances recorded on impaired securities and other items, and (c) an
increase in contingent tax liabilities. First quarter 2009 was prior to our
determination that, due to the losses incurred in subsequent quarters, valuation
allowances were required to be recorded against U.S. and U.K. deferred tax
assets. Our effective tax rate will be volatile due to the
losses that cannot benefit our tax expense in the U.S. in combination with its
geographic mix of income which results in profit in certain foreign
jurisdictions with a resulting tax payable.
38
Liquidity
and Capital Resources
Cash
Requirements
Sources
and Uses of Cash
We
require cash to fund our operating expense and working capital requirements
which include capital expenditures, research and development costs and
restructuring costs and funds to repurchase our common stock under our stock
repurchase program. Our primary sources for funding these
requirements are cash and investments on hand and, historically, cash from
operations. While we currently have no outstanding long-term debt or
credit facilities, we may need to borrow additional funds if we are unable to
generate sufficient cash from operations to meet our capital
requirements. As such, we may evaluate, from time to time,
opportunities to sell debt securities or obtain credit facilities to provide
additional liquidity.
As of
September 27, 2009, we had $586.9 million of total cash (excluding 3.9
million of restricted cash), cash equivalents and short-term and long-term
investments, consisting of available-for-sale fixed income and investment-grade
securities, a decrease of $13.6 million from June 28, 2009. The
decrease in our cash and investments was the result of funding working capital
needs, other-than-temporary impairments of investment securities of $1.9 million
and capital equipment expenditures of $9.5 million. These decreases
were partially offset by interest income from the short-term and long-term
investments. The need to fund working capital was the result of an
operating cash outflow for the first three months of fiscal year 2010 of $7.0
million.
Included
in our long-term investments are mortgaged-backed and asset-backed securities
with a fair market value of $35.0 million (6.0 percent of cash and
cash equivalents, short-term and long-term investments) as of September 27, 2009
(see Part II, Item 7A, “Quantitative and Qualitative Disclosures about
Market Risk” for discussions about our investment strategy.)
The
markets for mortgage-backed and asset-back securities have been severely
impacted by the subprime mortgage and other ensuing credit crises. We
have steadily reduced our positions in these securities to a balance of $35.0
million, at fair value as of September 27, 2009. As we did not have
the intent to hold these securities until maturity, we recorded charges of $0.7
million and $11.3 million during the first three months of fiscal year 2010 and
2009, respectively, for other-than-temporary impairments to reduce the carrying
value of these securities to their fair value.
Total
cash, cash equivalents, and investments were as follows (in
thousands):
As
of
|
||||||||
September
27, 2009
|
June
28, 2009
|
|||||||
Cash
and cash equivalents
|
$ | 292,499 | $ | 365,761 | ||||
Investments
|
294,394 | 234,755 | ||||||
Total
cash, cash equivalents, and investments
|
$ | 586,893 | $ | 600,516 |
Our outlook for fiscal 2010 is that our
operating cash flow will continue to be a net outflow during at least the first
half of the fiscal year. However, we believe that our existing cash and cash
equivalents will be sufficient to meet operating requirements and satisfy our
existing balance sheet liability obligations for at least the next twelve
months. Our cash and cash equivalents are available to fund
continuing operating losses, capital expenditures which we project to be
approximately $11.0 million during the second quarter of fiscal year 2010, and
the repurchase of stock, if any, for our stock repurchase program.
39
Cash
Flow
Our cash flows were as follows (in
thousands):
Three
Months Ended
|
||||||||
September
27, 2009
|
September
28, 2008
|
|||||||
Cash
flows used in operating activities
|
$ | (7,069 | ) | $ | (16,131 | ) | ||
Cash
flows used in investing activities
|
(67,079 | ) | (1,140 | ) | ||||
Cash
flows provided by financing activities
|
678 | 852 | ||||||
Effect
of exchange rate changes
|
208 | (1,263 | ) | |||||
Net
decrease in cash and cash equivalents
|
$ | (73,262 | ) | $ | (17,682 | ) |
Non-cash
adjustments to cash flow used in operations during the three months ended
September 27, 2009 included $17.7 million of depreciation and amortization,
$5.1 million change in the inventory valuation provision, $2.5 million
of stock compensation expense, $1.9 million for impairment of long-term
investments, and a $1.8 million tax benefit due to unrealized gains. Changes in
operating assets and liabilities reduced operating cash flow by
$2.4 million.
Cash
provided by investing activities during the three months ended September 27,
2009 was the result of purchases of investments for $110.4 million and capital
expenditures of $9.5 million partially offset by proceeds from the sale or
maturities of investments of $52.8 million.
Cash
provided by financing activities during the three months ended September 27,
2009 of $0.7 million was from proceeds from the exercise of stock options
partially offset by the net settlement of restricted stock units.
Working
Capital
Our
working capital is dependent on demand and our ability to manage accounts
receivable and inventory. Other factors which may result in changes
to our working capital levels are restructuring initiatives, investment
impairments and share repurchases. Our working capital,
excluding cash and cash equivalents and restricted cash, at September 27, 2009
was $277.0 million.
The changes in working capital for the
three months ended September 27, 2009 were as follows (in
millions):
September
28,
|
June
28,
|
|||||||||||
2009
|
2009
|
Change
|
||||||||||
Current
Assets
|
||||||||||||
Cash
and cash equivalents
|
$ | 292.5 | $ | 365.8 | $ | (73.3 | ) | |||||
Restricted
cash
|
3.9 | 3.9 | — | |||||||||
Short-term
investments
|
199.2 | 113.2 | 86.0 | |||||||||
Trade
accounts receivable, net
|
112.9 | 97.6 | 15.3 | |||||||||
Inventories
|
152.6 | 151.1 | 1.5 | |||||||||
Current
deferred tax assets
|
1.2 | 1.2 | — | |||||||||
Prepaid
expenses and other receivables
|
30.0 | 28.6 | 1.4 | |||||||||
Total
current assets
|
$ | 792.3 | $ | 761.4 | $ | 30.9 | ||||||
Current
Liabilities
|
||||||||||||
Accounts
payable
|
$ | 70.6 | $ | 62.6 | $ | 8.0 | ||||||
Accrued
income taxes
|
8.4 | 6.8 | 1.6 | |||||||||
Accrued
salaries, wages and commissions
|
20.9 | 22.3 | (1.4 | ) | ||||||||
Current
deferred tax liabilities
|
2.8 | 2.8 | — | |||||||||
Other
accrued expenses
|
116.2 | 114.0 | 2.2 | |||||||||
Total
current liabilities
|
218.9 | 208.5 | 10.4 | |||||||||
Net
working capital
|
$ | 573.4 | $ | 552.9 | $ | 20.5 |
40
The
decrease in cash and cash equivalents of $73.3 million was primarily the result
of the purchase of short-term investments with excess cash
balances. The increase in short-term investments of $86.0 million was
the result of the investment of excess cash balances in short-term investments
as well as the impact of rebalancing our investment portfolio during the first
quarter to improve the liquidity of our investments.
The
increase in net trade accounts receivable of $15.3 million reflects the
sequential quarter over quarter increase in revenue of approximately 12.4
percent during the first quarter of fiscal year 2010.
Inventories
were essentially unchanged from the end of the prior fiscal year as a decrease
in finished goods was offset by increases in work-in-process and raw
materials.
The
increase in accounts payable of $8.0 million reflects the increase in the raw
materials inventories and other manufacturing related expense. We had
$9.5 million of capital expenditures during the first three months of fiscal
2010 which also contributed to the increase in accounts payable.
The
increase in accrued income taxes reflects the provision for the first three
months of fiscal year 2010.
Other
In
connection with certain tax matters described in Part I, Item 1,
Note 13, “Income Taxes,” we are pursuing refunds for income taxes we
believe to have overpaid in certain jurisdictions. In these jurisdictions, we
cannot determine that the realization of the tax refunds of $56.6 million is
probable and as such, we have not recognized them as income tax benefits in our
financial statements. We have determined we overpaid $53.7 million of income
taxes (which is included in the $56.6 million) in Singapore as a result of
errors in our transfer pricing of intercompany transactions. We are
also seeking refunds in Japan for $2.9 million. We have determined
our claim for a refund of tax is not probable and have not recognized a benefit
for such refund claims. Consequently, we have recorded both U.S. federal income
taxes and Singapore income taxes with respect to certain fiscal years. During
the third quarter of fiscal year 2009, we received notice of assessment from the
Singapore tax authority due to the late filing of the Singapore subsidiary’s
fiscal year 2007 income tax return. The assessment of approximately
$15.5 million was based upon our transfer pricing methodology prior to fiscal
year 2007. We have determined that collection on this assessment is
not probable as it is more likely than not that our current transfer pricing
methodology will be sustained.
During
fiscal 2009 we filed amended U.S. federal income tax returns and we claimed a
refund, which we have not benefitted to the financial statements, that we
anticipate will range from $22.0 million to $25.0 million depending upon
potential interest associated with the refund.
Contractual
Obligations
There has
been no material change to our contractual obligations as disclosed in the
fiscal year 2009 Form 10-K filed August 27, 2009.
Off-Balance
Sheet Arrangements
In the
normal course of business, we enter into various operating leases for buildings
and equipment. In addition, we provide standby letters of credit or
other guarantees as required for certain transactions. We currently
provide cash collateral for outstanding letters of credit as we do not have a
revolving credit agreement to provide security or support for these letters of
credit.
Apart
from the operating lease obligations and purchase commitments discussed in the
2009 Annual Report, we do not have any off-balance sheet arrangements as of
September 27, 2009.
41
Recent
Accounting Pronouncements
Information set forth under
Part I, Item 1, Note 1, “Business, Basis of Presentation and
Summary of Significant Accounting Policies—Recent Accounting Pronouncements” is
incorporated herein by reference.
Out-of-Period
Adjustments
Included
in the results for the first quarter of fiscal year 2010 are corrections of
prior period errors, some of which increased and some of which decreased net
loss. Based on our current and historical financial condition and results of
operations, management has determined that these corrections are immaterial both
individually and in the aggregate to the financial statements in each applicable
prior period and the current periods to date.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest
Rates
Our
exposure to interest rate risk is primarily through our investment
portfolio. The objectives of our investments in debt securities are
to preserve principal and maintain liquidity while maximizing returns. To
achieve these objectives, the returns on our investments in short-term
fixed-rate debt securities will be generally compared to yields on money
market instruments such as industrial commercial paper, LIBOR or Treasury
Bills. Investments in longer term fixed rate debt will be generally
compared to yields on comparable maturity high grade Government or high grade
corporate instruments with an equivalent credit rating. Based on our
investment portfolio and interest rates at September 27, 2009, a 100 basis point
increase or decrease in interest rates would result in an annualized change of
approximately $2.6 million in the fair value of the investment
portfolio. Changes in interest rates may affect the fair value of the
investment portfolio; however, unrealized gains or losses are not recognized in
net income unless the investments are sold or the gains or losses are considered
to be other than temporary.
Foreign
Currency Exchange Rates
We hedge
the risks of foreign currency denominated repetitive working capital positions
with offsetting foreign currency denominated exchange transactions, currency
forward contracts or currency swaps. Exchange gains and losses on these
foreign currency denominated working capital positions are generally offset by
corresponding gains and losses on the related hedging instruments, usually
resulting in negligible net exposure.
A
significant amount of our revenue, expense, and capital purchasing transactions
are conducted on a global basis in several foreign currencies. At various
times, we have currency exposure related to the British Pound Sterling, the Euro
and the Japanese Yen. For example, in the United Kingdom, we have a sales
office and a Semiconductor Fabrication Facility with revenues primarily in U.S.
Dollars and Euros and expenses in British Pounds Sterling. To protect
against exposure to currency exchange rate fluctuations, we have established
cash flow and balance sheet translation risk hedging programs. Currency
forward contract hedges have generally been utilized in these risk management
programs. Our hedging programs seek to reduce, but do not always entirely
eliminate, the impact of currency exchange rate movements.
In
October 2004, our Japan subsidiary entered into a currency swap agreement to
hedge intercompany payments in U.S. Dollars. The transaction commencement
date was March, 2005 and the termination date is April, 2011. Each month,
we exchange JPY 9,540,000 for $100,000. When the applicable currency
exchange rate is less than or equal to 95.40, we exchange JPY 18,984,600 for
$199,000.
We had
approximately $41.6 million in notional amounts of forward contracts not
designated as accounting hedges under FASB ASC 815-10, “Derivatives and
hedging”, at September 27, 2009 . Net realized and unrealized
foreign-currency gains (losses) recognized in earnings, as a component of other
expense, were $(1.1) million and $2.3 million for the three months ended
September 27, 2009 and September 28, 2008, respectively.
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 preceding
analysis.
42
Market
Value Risk
We carry
certain assets at fair value. Generally, for assets that are reported
at fair value, we use quoted market prices or valuation models that utilize
market data inputs to estimate fair value. In certain cases quoted
market prices or market data inputs may not be readily available or availability
could be diminished due to market conditions. In these cases, our
estimate of fair value is based on best available information or other estimates
determined by management.
At
September 27, 2009, we had $586.9 million of total cash, cash equivalents and
investments, excluding restricted cash, consisting of available-for-sale fixed
income securities. We manage our total portfolio to encompass a
diversified pool of investment-grade securities. The average credit
rating of our investment portfolio is A3/A-. Our investment policy is
to manage our total cash and investment balances to preserve principal and
maintain liquidity while maximizing the returns. To the extent that
our portfolio of investments continues to have strategic value, we typically do
not attempt to reduce or eliminate our market exposure. For
securities that we no longer consider strategic, we evaluate legal, market, and
economic factors in our decision on the timing of disposal. We may or
may not enter into transactions to reduce or eliminate the market risks of our
investments. During the three months ended September 27, 2009, the
fair values of certain of our investments declined and we recognized
$1.9 million in other-than-temporary impairment relating to certain
available-for-sale securities. See Part I, Item 1A, “Risk
Factors—Our investments in certain securities expose us to market risks”, set
forth in our Annual Report on Form 10-K for the fiscal year ended June 28,
2009.
ITEM
4. CONTROLS AND PROCEDURES
This
Report includes the certifications of our Chief Executive Officer (“CEO”) and
Chief Financial Officer (“CFO”) required by Rule 13a-14 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). See
Exhibits 31.1 and 31.2. This Item 4 includes information
concerning the controls and control evaluations referred to in those
certifications.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) are designed to ensure that information required to be
disclosed in reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and that such information is accumulated and
communicated to our management, including the CEO and CFO, to allow timely
decisions regarding required disclosures.
Our
management, under the supervision and with the participation of our CEO and CFO,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of September 27, 2009. Based on our
evaluation and the identification of the material weaknesses in our internal
controls over financial reporting, our CEO and CFO concluded that, as of
September 27, 2009, our disclosure controls and procedures were not
effective. Management has identified the following control
deficiencies that constituted individually or in the aggregate material
weaknesses in our internal control over financial reporting as of September 27,
2009:
1. We
did not maintain an effective IT general control
environment. Specifically, we did not maintain effective controls
over the restriction of access to incompatible functions within certain business
system applications, giving rise to the opportunity to record or process
transactions inconsistent with the user’s roles and responsibilities.
Additionally, we did not maintain effective controls to monitor system
developer’s access to make modifications to source code and data in certain
business applications.
2. We
did not maintain effective controls over the completeness and accuracy of our
period end financial reporting processes for certain transactions, including
controls with respect to review and analysis of supporting documentation of
various accounting transactions and monitoring of certain accounts.
Throughout the year, including the fourth quarter, numerous prior period
adjustments (which were immaterial to each period, both individually and in the
aggregate) were identified, mostly relating to transactions from prior years,
but also some from earlier periods in the current year.
3 We
did not maintain effective controls over the preparation, review, presentation
and disclosure of our consolidated statement of cash
flows. Specifically, the controls were not effective to ensure that
cash flows from the effect of exchange rate changes and certain other items
related to operating activities were presented correctly as part of cash flows
from operating activities in the consolidated statement of cash flows in
accordance with generally accepted accounting principles, as opposed to being
reflected within the effect of exchange rate changes on cash and cash
equivalents. The net effect of the errors had no impact to total cash and cash
equivalents but did cause a change in line item presentation.
43
4. We
did not maintain effective controls over the accounting for income taxes,
including the accurate determination and reporting of income taxes payable,
deferred income tax assets and liabilities and the related income tax
provision. We did not effectively review and monitor the accuracy of
the components of the income tax provision calculation and related income taxes
payable. We did not maintain a sufficient complement of personnel
with income tax accounting knowledge and expertise to ensure the completeness
and accuracy of our income taxes payable, deferred income tax assets and
liabilities, and income tax provision.
Changes
in Internal Control Over Financial Reporting
During the first quarter of fiscal year
2010 there were no changes in internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Plans
for Remediation of Material Weaknesses
We have
engaged in and are continuing to engage in substantial efforts to improve our
internal control over financial reporting and disclosure controls and procedures
related to the preparation of our financial statements and
disclosures. We have begun the implementation of some of the measures
described below and are in the process of developing and implementing
remediation plans to address our material weaknesses. Our remediation
plans include many actions that are in various stages of completion and designed
to strengthen our internal controls over financial reporting. They
include the following:
IT General Controls—We will
continue to review and evaluate our business applications and remove those
conflicts where users may have the ability to process transactions which are
inconsistent with the user’s roles and responsibilities and identify controls to
mitigate the risk. In addition, we have implemented monitoring
controls over the developer’s access to modify certain business applications but
we have not yet had a sufficient period of time to complete the assessment of
the effectiveness of our newly implemented controls. These controls
monitor the developers access to ensure that the modification to source code and
data have been appropriately authorized, tested and approved.
Period End Financial Reporting
Process—We have hired various personnel with an appropriate level of
accounting knowledge, experience and training in the application of generally
accepted accounting principles (“GAAP”) commensurate with our financial
reporting requirements. In December 2008 and February 2009, we
hired a Vice President, Corporate Controller, and a Director, Financial
Reporting, respectively, both reporting directly to the CFO. We
believe we have adequately engaged a sufficient complement of skilled personnel
and we will continue to supplement our accounting staff with external advisors
and technical accounting staff, as needed. We have implemented
certain analytical procedures as part of our closing process to ensure that we
have additional monitoring controls designed to improve the accuracy of our
financial statements. Additionally, we continue to improve and
implement more rigorous period end reporting processes to include improved
controls and procedures involving review and approval of accounting transaction
supporting documentation. We will continue to reinforce the importance of
understanding GAAP.
Cash Flows—Beginning in the
fourth quarter of the fiscal year 2009, we transitioned the preparation of the
cash flow statement internally to newly hired personnel with the appropriate
accounting knowledge rather than relying on outside consultants. During the transition,
we were able to identify the issues and accurately reflect the proper reporting
of the consolidated cash flow statement. We will continue to enhance
procedures and controls which include improved training and review processes to
ensure proper preparation, review, presentation and disclosure of amounts
included in our consolidated statement of cash flows.
Accounting for Income Taxes—We
continue to assess and train our tax professionals in order to ensure adequate
technical and accounting expertise commensurate with our needs to properly
consider and apply GAAP for income taxes. In November 2008, we
hired a Director of Tax, who reports directly to the Vice President of
Tax. Until we develop a technically strong and knowledgeable team, we
will continue to engage external technical advisers to assist us with the
evaluation of complex tax issues.
We are
increasing the level of review of the preparation of the quarterly and annual
income tax provision calculations, allocations and methodologies. We
are improving the process, procedures and documentation standards relating to
the preparation of the income tax provision calculations. We are
correcting the methodology and accounting for certain types of foreign-earned
income that is subject to taxation currently, rather than deferred until the
earnings are remitted. We are evaluating the implementation of new
tax software to facilitate the computation of our tax provision.
44
Our
remediation efforts are continuing and we expect to make additional changes to
our control environment and accounting and income tax reporting processes that
we believe will strengthen our internal control over financial
reporting. We have dedicated considerable resources to the design,
implementation, documentation, and testing of our internal controls and although
we believe the steps taken to date have improved the effectiveness of our
internal control over financial reporting, we have not completed all the
corrective processes and procedures we believe
necessary. Accordingly, we will continue to monitor the effectiveness
of our internal control over financial reporting in the areas affected by the
material weaknesses and as required, perform additional procedures, including
the use of manual procedures and utilization of external technical advisors to
ensure that our financial statements continue to be fairly stated in all
material respects.
Inherent
Limitations Over Internal Controls
We do not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent or detect all errors. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be
met. Further, the design of a control system must acknowledge the
fact that there are resource constraints and the benefits of controls must be
considered relative to their costs. These inherent limitations
include the realities that judgments in decision making can be faulty and that
breakdowns can occur because of simple error or mistake. Controls can
also be circumvented by the deliberate acts of one or more
persons. The design of any system of controls is based, in part, upon
certain assumptions about the likelihood of future events and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of
compliance with associated policies or procedures. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error may occur and not be detected.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
Our disclosures
regarding the matters set forth in Note 15, "Environmental Matters," and
Note 16, "Litigation," to our consolidated financial statements set forth
in Part II, Item 8, herein, are incorporated herein by
reference.
ITEM
1A. RISK FACTORS
Statement
of Caution Under the Private Securities Litigation Reform Act of
1995
This Quarterly Report on
Form 10-Q 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 under "Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended June 28, 2009, as supplemented by
the factors set forth below, and other uncertainties disclosed in our
reports filed from time to time with the SEC.
If
the demand for our products or a particular mix of our products increases
faster than we anticipate or are able to produce, we may not be able to satisfy
the demand with our planned available capacity, which could limit our revenue
growth potential and expose us to loss of design and sale opportunities, and
potential liability.
Although
we operated with significant excess manufacturing capacity during most of the
fiscal year ended June 28, 2009, the markets in which we operate are very
cyclical and subject to large swings in demand. We attempt to install capacity
to meet our demand forecast. However, since additional capacity can take up to
six months or more to install, if the demand for our products or a particular
mix of our products increases at a rate faster than we anticipate or are able to
produce, we may not be able to increase our internal and external manufacturing
capacity fast enough to satisfy the higher demand. As a result, the company's
revenue growth may be limited by manufacturing capacity constraints. We
have also had delays and may experience delays in the shipment of certain of our
products to customers. Additionally, to the extent we are not able to satisfy
customer demands timely or otherwise, we may risk the loss of design and sales
opportunities which could have a material adverse effect on our results of
operation. Additionally, to the extent we may not be able to satisfy
contractual obligations, we may be subject to potential claims. While we
would defend ourselves vigorously against any such claims, large claims, if
found to be meritorious, could have a material adverse effect on our results of
operation and financial condition.
45
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
(a) None
(b) None
The
following provides information on a monthly basis for the three months ended
September 27, 2009 with respect to the Company's purchases of equity
securities:
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans Programs
(1)
|
Maximum
Number (or approximate Dollar Value) of Shares that May Yet be Purchased
under the Plans or Programs
|
||||||||||||
June
29, 2009 to July 26, 2009
|
0 | $ | — | — | $ | 76,425,267 | ||||||||||
July
27, 2009 to August 23, 2009
|
0 | $ | — | — | $ | 76,425,267 | ||||||||||
August
24, 2009 to September 27, 2009
|
0 | $ | — | — | $ | 76,425,267 |
(1) On
October 27, 2008, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to $100.0 million. This plan
may be suspended at anytime without prior notice.
ITEM
5. OTHER INFORMATION
(a) On
September 21, 2008, the Company and Ilan Daskal, entered into a letter agreement
(“Offer Letter”), pursuant to which, among other things, Mr. Daskal agreed to
join the Company as the Company’s Chief Financial Officer and the Company agreed
to provide certain compensation and other benefits. Included as part
of Mr. Daskal’s benefits were certain relocation, home sale assistance and
temporary living assistance benefits for a period of one year following his
employment start date with the Company. A copy of the Offer
Letter is attached to the Company’s Current Report on Form 8-K dated September
26, 2008 and filed with the SEC. On November 4, 2009, the Company and
Mr. Daskal entered into an Offer Letter Amendment extending the period during
which Mr. Daskal is eligible to receive such relocation, home sale assistance
and temporary living assistance benefits until October 6, 2011, the end of third
year following Mr. Daskal’s start date with the Company. A copy of the Offer
Letter Amendment is filed herewith as Exhibit 10.1 and incorporated herein by
reference. The above summary of the Offer Letter Amendment is not complete and
is qualified in its entirety by reference to the actual document filed
herewith.
46
ITEM
6. EXHIBITS
Index:
|
|
3.1
|
Certificate
of Incorporation, as amended to date (incorporated by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-8
filed with the Securities and Exchange Commission ("Commission")on
July 19, 2006; Registration No. 333-117489)
|
3.2
|
Bylaws
as Amended (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the Commission on September 1,
2009)
|
10.1
|
Offer
Letter Amendment, dated November 5, 2009, between the Company and Ilan
Daskal.*+
|
10.2
|
Confidential Settlement Agreement and Release, Amendment No. 1 to Transition Buy Back Die Supply Agreement, Amendment No. 2 to Technology License Agreement, Amendment No. 7 to Master Purchase Agreement, and Amendment No. 3 to Asset Purchase Agreement, dated June 25, 2009, by and between Vishay Intertechnology, Inc. and International Rectifier Corporation (incorporated by reference to Exhibit 10.1 to the Company's Current Report Amendment No. 1 on Form 8-K/A filed with the Commission on July 29, 2009) |
31.1
|
Certification
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*
|
31.2
|
Certification
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*
|
32.1
|
Certification
Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
32.2
|
Certification
Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002*
|
*
|
Denotes
document submitted herewith. + Denotes
management contract or compensation arrangement or
agreement.
|
47
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
INTERNATIONAL RECTIFIER CORPORATION
Registrant
|
|
Date:
November 6, 2009
|
/s/
ILAN DASKAL
|
Ilan
Daskal
Chief
Financial Officer
(Principal
Financial and
Accounting
Officer)
|