Market Overview

International Rectifier Reports First Quarter Results

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EL SEGUNDO, Calif.--(BUSINESS WIRE)--

International Rectifier Corporation (NYSE: IRF) today announced financial results for the first quarter (ended September 23, 2012) of its fiscal year 2013. Revenue was $252.5 million, a 6.4% decrease from $269.7 million in the prior quarter and a 16.6% decrease from $302.7 million in the prior year quarter. GAAP net loss for the first quarter was $28.8 million, or $0.42 per fully diluted share compared with GAAP net loss of $68.2 million, or $0.99 per fully diluted share, in the prior quarter and GAAP net income of $22.0 million, or $0.31 per fully diluted share in the prior year quarter.

“Though the quarter came in better than our guidance, industry conditions remain challenging,” stated Oleg Khaykin, President and Chief Executive Officer of International Rectifier. “While the high performance computing and server end markets were strong, the increase was offset by lower demand in our other major end markets, particularly appliances and industrial goods. During the quarter, we managed to reduce our R&D and SG&A expenses to $80.7 million, in- line with our projections as we took actions to reduce our cost structure. In addition, we lowered our overall utilization level and reduced our inventory by $11.2 million dollars.”

GAAP gross margin for the first quarter was 27.9% compared with 25.9% in the prior quarter and 37.9% in the prior year quarter. GAAP operating loss was $20.8 million compared with an operating loss of $87.7 million in the prior quarter and operating income of $30.2 million in the prior year quarter.

Cash, cash equivalents and marketable investments totaled $367.2 million at the end of the first quarter, including restricted cash of $1.6 million.

Cash provided by operating activities for the quarter was $6.5 million.

Non-GAAP Results

The non-GAAP results the Company provides exclude the effects of accelerated depreciation, asset impairment and inventory write-offs associated with our El Segundo fab closure, severance payments, impairment of goodwill, amortization of intangibles, the associated net tax effects of these items, and discrete tax provisions and benefits. The Company excludes any tax provisions (benefits) that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability.

A reconciliation of these non-GAAP measures to the Company's reported net income (loss), gross margin and operating income (loss) results in accordance with U.S. GAAP are set forth in the attached schedules below and on our web-site at www.investor.irf.com.

On this basis, non-GAAP net loss for the first quarter was $13.9 million, or $0.20 per fully diluted share compared with non-GAAP net loss of $10.5 million, or $0.15 per fully diluted share in the prior quarter and non-GAAP net income of $25.4 million, or $0.36 per fully diluted share in the prior year quarter.

Non-GAAP gross margin for the first quarter was 28.3% compared with non-GAAP gross margin of 27.5% in the prior quarter and non-GAAP gross margin of 37.9% in the prior year quarter. Non-GAAP operating loss for the first quarter was $9.3 million compared with non-GAAP operating loss of $10.4 million in the prior quarter and non-GAAP operating income of $32.8 million in the prior year quarter.

Operational Restructuring Activities

During the September quarter the Company initiated two major manufacturing footprint restructuring measures aimed at reducing the Company's fixed cost.

The first is the closure of the Company's El Segundo, California fabrication facility, which remains on schedule. The Company expects to complete the closure of this facility by the end of March, 2013. This action is expected to save approximately $10 million per year when completed.

The second measure is the resizing of the Company's Newport, Wales fabrication facility, which is expected to be implemented in two phases and save a total of $16 million per year when completed. The first phase is expected to be completed by the end of the June quarter in 2013 resulting in annualized savings of approximately $5 million. The remainder of the Company's six-inch fabrication facility is expected to fully close by the middle of calendar year 2015, resulting in additional annualized savings of approximately $11 million.

“Given the continued weak demand in our end markets and macroeconomic uncertainty, we have initiated additional measures to reduce our SG&A and R&D expenses,” said Mr. Khaykin. “We expect these actions will further reduce our quarterly SG&A and R&D expenses to $75 million by the June quarter of 2013. When compared to the run rate exiting our 2012 fiscal year, we now expect to save approximately $40 million in SG&A and R&D expenses on an annualized basis when our actions are completed.”

December Quarter Outlook

Mr. Khaykin noted: “Though customer inventory levels appear to be at relatively reasonable levels, demand continues to remain weak and orders have not shown signs of improvement through the first part of the quarter. As such, we currently expect December quarter revenue to range between $215 million and $230 million. Gross margin is expected to be between 22% and 23% as a result of low factory utilization and revenue mix.

“We remain optimistic about our medium-term growth prospects and expect that our operational restructuring activities will help IR's return to profitability and increase future operating leverage,” concluded Mr. Khaykin.

The following table outlines International Rectifier's current forward looking December quarter outlook (on a GAAP basis unless otherwise indicated):

       
Revenue $215 to $230 million
Gross margin 22% to 23%
Research and development expense $32 to $33 million
Sales, general and administrative expense $46 million
Asset impairment, restructuring and other charges $2 to $3 million
Amortization of acquisition related intangibles $1.7 million
Other expense, net $1.5 million

GAAP tax $2 to $3 million benefit / Non-GAAP tax about $2 million expense*
*Non GAAP Tax excludes an estimated $4-$5 million one-time release of tax reserves

Segment Table Information/Customer Segments

The business segment tables included with this release for the Company's fiscal quarters ended September 23, 2012, June 24, 2012 and September 25, 2011, respectively, reconcile revenue and gross margin for the Company's segments to the consolidated total amounts of such measures for the Company.

Annual Report on Form 10-Q

The Company expects to file its Annual Report on Form 10-Q for the first quarter of the 2013 fiscal year with the Securities and Exchange Commission on Friday, November 2, 2012. This financial report will be available for viewing and download at http://investor.irf.com.

NOTE: A conference call will begin today at 2:00 p.m. Pacific time. CEO Oleg Khaykin and CFO Ilan Daskal will discuss the Company's September quarter results and December quarter outlook. All participants, both in the U.S. and international, may join the call by dialing 706-679-3195 by 1:55 p.m. Pacific time. In order to join this conference call, participants will be required to provide the Conference Passcode: “International Rectifier”. Participants may also listen over the Internet at http://investor.irf.com. To listen to the live call, please go to the web site at least 15 minutes early to register, download, and install any necessary audio software.

A taped replay of this call will be available from approximately 6:00 p.m. Pacific time on Thursday, November 1 through Thursday, November 8, 2012. To listen to the replay by phone, call 855-859-2056 or 404-537-3406 for international callers and enter reservation number 40276966. To listen to the replay over the Internet, please go to http://investor.irf.com. The live call and replay will also be available on www.streetevents.com.

About International Rectifier

International Rectifier Corporation (NYSE: IRF) is a world leader in power management technology. IR's analog, digital, and mixed signal ICs, and other advanced power management products, enable high performance computing and save energy in a wide variety of business and consumer applications. Leading manufacturers of computers, energy efficient appliances, lighting, automobiles, satellites, aircraft, and defense systems rely on IR's power management solutions to power their next generation products. For more information, go to www.irf.com.

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”, “outlook” 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, further reduced demand or order cancellations arising from a decline or volatility in general market and economic conditions; reduced margins from lower than expected factory utilization, higher than expected costs and customer shifts to lower margin products; changes in the timing or amount of costs associated with, or disruptions caused by, our restructuring initiatives; our ability to implement our restructuring initiatives as planned and achieve the anticipated benefits, which may be affected by, among other things: customer requirements, changes in business conditions and/or operational needs, retention of key employees, governmental regulations, delays and increased costs; unexpected costs or delays in implementing our plans to secure and qualify external manufacturing capacity for our products, including the purchase and installation of additional manufacturing equipment; the effects of longer lead times for certain products on meeting demand and any inability by us to satisfy or to timely satisfy customer demand; volatility or deterioration of capital markets; the adverse impact of regulatory, investigative and legal actions; increased competition in the highly competitive semiconductor business that could adversely affect the prices of our products or our ability to secure additional business; the effects of manufacturing, operational and vendor disruptions; unexpected delays and disruptions in our supply, manufacturing and delivery efforts due to, among other things, supply constraints, equipment malfunction or natural disasters; delays in launching new technology products; our ability to maintain current intellectual property licenses and obtain new intellectual property licenses; costs arising from pending and threatened litigation or claims; the effects of natural disasters; and other uncertainties disclosed in the Company's reports filed from time to time with the Securities and Exchange Commission, including its most recent reports on Forms 10-K and 10-Q, as filed from time to time.

 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
(In thousands, except per share data)
 
Three Months Ended
September 23, 2012   June 24,

2012

  September 25, 2011
Revenues $ 252,492 $ 269,675 $ 302,741
Cost of sales   181,951     199,871     187,903  
Gross profit 70,541 69,804 114,838
 
Selling, general and administrative expense 47,295 51,284 48,991
Research and development expense 33,449 35,052 33,028
Impairment of goodwill 69,421
Amortization of acquisition-related intangible assets 1,680 1,718 2,615
Asset impairment, restructuring and other charges   8,966          
Operating income (loss) (20,849 ) (87,671 ) 30,204
Other expense, net 1,008 154 2,203
Interest income, net   (32 )   (46 )   (209 )
Income (loss) before income taxes (21,825 ) (87,779 ) 28,210
Provision for (benefit from) income taxes   6,950     (19,593 )   6,247  
Net income (loss) $ (28,775 ) $ (68,186 ) $ 21,963  
 
Net income (loss) per common share—basic (1) $ (0.42 ) $ (0.99 ) $ 0.31  
Net income (loss) per common share—diluted (1) $ (0.42 ) $ (0.99 ) $ 0.31  
 
Average common shares outstanding—basic   69,283     69,157     69,768  
Average common shares and potentially dilutive securities outstanding—diluted   69,283     69,157     70,285  
       

(1)

 

Net income (loss) per common share is computed using the two-class method as required by accounting rules. We do not pay dividends; however, net income must be allocated to unvested restricted stock units (“RSUs”) on which we could pay dividend equivalents. The amount of net income allocated to these RSUs is excluded from income available to common shareholders in the calculation of earnings per share. This amount was $267 thousand for the three months ended September 25, 2011. As we were in a net loss for the three months ended September 23, 2012 and June 24, 2012, we did not have any income to allocate to unvested RSUs on which we could pay dividend equivalents.

 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
     
September 23, 2012 June 24,

2012 (1)

September 25, 2011
ASSETS
Current assets:
Cash and cash equivalents $ 279,815 $ 305,423 $ 264,539
Restricted cash 616 595 445
Short-term investments 75,777 63,872 172,248
Trade accounts receivable, net of allowances 151,556 168,499 183,408
Inventories 283,516 294,702 282,927
Current deferred tax assets 5,251 5,110 1,988
Prepaid expenses and other receivables   34,347     29,845     34,918  
Total current assets 830,878 868,046 940,473
Restricted cash 940 940 1,632
Long-term investments 10,048 15,054 4,815
Property, plant and equipment, net 465,501 461,115 459,061
Goodwill 52,149 52,149 121,570
Acquisition-related intangible assets, net 26,896 28,576 34,330
Long-term deferred tax assets 38,118 40,850 25,118
Other assets   62,393     65,093     55,519  
Total assets $ 1,486,923   $ 1,531,823   $ 1,642,518  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,342 $ 88,726 $ 102,509
Accrued income taxes 750 11,714
Accrued salaries, wages and commissions 44,008 40,403 40,558
Current deferred tax liabilities 2
Other accrued expenses   75,745     83,164     100,774  
Total current liabilities 186,095 213,043 255,557
Long-term deferred tax liabilities 7,692 6,653 3,845
Other long-term liabilities   37,343     35,800     35,662  
Total liabilities   231,130     255,496     295,064  
Commitments and contingencies
Stockholders' equity:
Common shares 75,322 75,125 74,708
Capital contributed in excess of par value 1,042,962 1,037,736 1,023,632
Treasury stock, at cost (113,175 ) (107,965 ) (104,821 )
Retained earnings 261,910 290,685 367,698
Accumulated other comprehensive loss   (11,226 )   (19,254 )   (13,763 )
Total stockholders' equity   1,255,793     1,276,327     1,347,454  
Total liabilities and stockholders' equity $ 1,486,923   $ 1,531,823   $ 1,642,518  

(1) Amounts derived from the audited financial statements at June 24, 2012.

 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
 
Three Months Ended
September 23, 2012 (Unaudited)   June 24, 2012 (Unaudited)   September 25, 2011 (Unaudited)
Cash flows from operating activities:
Net income (loss) $ (28,775 ) $ (68,186 ) $ 21,963
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 22,687 22,865 19,523
Amortization of acquisition-related intangible assets 1,680 1,718 2,615
Loss (gain) on disposal of fixed assets (84 ) 22 692
Stock compensation expense 5,739 4,032 3,707
Impairment of goodwill 69,421
Gain on sale of investments (11 ) (54 )
Other-than-temporary impairment of investments 482 535
Provision for bad debts 2 58 1,232
Provision for inventory write-downs 5,335 7,200 4,211
Impairment of long-lived assets 2,530
(Gain) loss on derivatives 2,210 (1,050 ) (1,409 )
Deferred income taxes 5,357 (16,346 ) 1,424
Excess tax benefit from stock-based awards (1 ) (34 ) (623 )
Changes in operating assets and liabilities, net (5,119 ) 35,860 (39,237 )
Other   (2,492 )   (245 )   2,021  
Net cash provided by operating activities   6,539     58,316     16,600  
Cash flows from investing activities:
Additions to property, plant and equipment (21,986 ) (31,560 ) (45,245 )
Proceeds from sale of property, plant and equipment 118
Sale of investments 48,682 5,342
Maturities of investments 3,000 32,684 52,025
Purchase of investments (9,979 ) (13,124 ) (36,096 )
Additions to restricted cash   (4 )   (165 )   (21 )
Net cash used in (provided by) investing activities   (28,851 )   36,517     (23,995 )
Cash flows from financing activities:
Proceeds from exercise of stock options 663 918 399
Excess tax benefit from stock-based awards 1 34 623
Purchase of treasury stock (5,210 ) (3,145 ) (23,576 )
Net settlement of restricted stock units for tax withholdings   (980 )   (1,750 )   (1,802 )
Net cash used in financing activities (5,526 ) (3,943 ) (24,356 )
Effect of exchange rate changes on cash and cash equivalents   2,230     (2,967 )   (2,441 )
Net increase (decrease) in cash and cash equivalents (25,608 ) 87,923 (34,192 )
Cash and cash equivalents, beginning of year   305,423     217,500     298,731  
Cash and cash equivalents, end of year $ 279,815   $ 305,423   $ 264,539  

For the three months ended September 23, 2012, June 24, 2012, and September 25, 2011, revenue and gross margin by reportable segments were as follows (in thousands, except percentages):

  Three Months Ended
September 23, 2012   June 24, 2012   September 25, 2011
Business Segment Revenues   Percentage
of Total
  Gross
Margin
Revenues   Percentage
of Total
  Gross
Margin
Revenues   Percentage
of Total
  Gross
Margin
Power management devices $ 90,826 36.0 % 20.4 % $ 103,564 38.4 % 14.0 % $ 111,207 36.7 % 29.4 %
Energy saving products 44,455 17.6 14.1 50,983 18.9 29.1 76,058 25.1 41.4
Automotive products 28,838 11.4 10.4 31,007 11.5 21.3 28,900 9.6 31.5
Enterprise power 37,809 15.0 38.0 33,474 12.4 31.1 35,966 11.9 40.3
HiRel   48,416 19.2   55.5     50,324 18.7   46.0     48,842 16.1   51.8  
Customer segments total 250,344 99.1 27.6 269,352 99.9 25.8 300,973 99.4 37.6
Intellectual property   2,148 0.9   69.3     323 0.1   100.0     1,768 0.6   100.0  
Consolidated total $ 252,492 100.0 % 27.9 % $ 269,675 100.0 % 25.9 % $ 302,741 100.0 % 37.9 %
 

For the three months ended September 23, 2012, June 24, 2012, and September 25, 2011, stock-based compensation were as follows (in thousands):

  Three Months Ended
September 23,

2012

  June 24, 2012   September 25, 2011
Selling, general and administrative expense $ 3,160 $ 2,109 $ 2,655
Research and development expense 1,420 1,122 727
Cost of sales   1,159   801   325
Total stock-based compensation expense $ 5,739 $ 4,032 $ 3,707
 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
NON-GAAP RESULTS
 
(In thousands, except per share and gross profit-percentage data)
 
Reconciliation of GAAP to Non-GAAP Gross Profit:
 
Three Months Ended
September 23,

2012

  June 24, 2012   September 25, 2011
GAAP Gross profit $ 70,541 $ 69,804 $ 114,838
 
Adjustments to reconcile GAAP to Non-GAAP gross profit:
Impairment of long-lived assets 2,530
Accelerated depreciation 491
Inventory write-downs related to fab closure   398     1,867      
Non-GAAP gross profit $ 71,430   $ 74,201   $ 114,838  
Non-GAAP gross profit-percentage   28.3 %   27.5 %   37.9 %
 

Reconciliation of GAAP to Non-GAAP Operating Income (Loss):

  Three Months Ended
September 23, 2012   June 24,

2012

  September 25, 2011
GAAP Operating income (loss) $ (20,849 ) $ (87,671 ) $ 30,204
 
Adjustments to reconcile GAAP to Non-GAAP operating income (loss):
Impairment of long-lived assets 2,530
Accelerated depreciation 491
Inventory write-downs related to fab closure 398 1,867
Impairment of goodwill 69,421
Severance 1,692
Amortization of acquisition-related intangible assets 1,680 1,718 2,615
Asset impairment, restructuring and other charges   8,966        
Non-GAAP operating income (loss) $ (9,314 ) $ (10,443 ) $ 32,819
 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
NON-GAAP RESULTS
 
(In thousands, except per share and gross profit-percentage data)
 
Reconciliation of GAAP to Non-GAAP Net Income (Loss):
 
Three Months Ended
September 23, 2012   June 24,

2012

  September 25, 2011
GAAP Net income (loss) $ (28,775 ) $ (68,186 ) $ 21,963
 
Adjustments to reconcile GAAP to Non-GAAP net income (loss):
Impairment of long-lived assets 2,530
Accelerated depreciation 491
Inventory write-downs related to fab closure 398 1,867
Impairment of goodwill 69,421
Severance 1,692
Amortization of acquisition-related intangible assets 1,680 1,718 2,615
Asset impairment, restructuring and other charges 8,966
Tax (benefit) expense of discrete items and other tax adjustments   3,300     (19,591 )   824
Non-GAAP net income (loss) $ (13,940 ) $ (10,549 ) $ 25,402
 
GAAP net income (loss) per common share—basic (1) $ (0.42 ) $ (0.99 ) $ 0.31
Non-GAAP adjustments per above   0.22     0.84     0.05
Non-GAAP net income (loss) per common share—basic (1) $ (0.20 ) $ (0.15 ) $ 0.36
 
GAAP net income (loss) per common share—diluted (1) $ (0.42 ) $ (0.99 ) $ 0.31
Non-GAAP adjustments per above   0.22     0.84     0.05
Non-GAAP net income (loss) per common share—diluted (1) $ (0.20 ) $ (0.15 ) $ 0.36
 
Average common shares outstanding—basic   69,283     69,157     69,768
Average common shares and potentially dilutive securities outstanding—diluted   69,283     69,157     70,285
 
       

(1)

 

GAAP net income (loss) per common share is computed using the two-class method as required by accounting rules. We do not pay dividends; however, to properly calculate non-GAAP net income (loss) per common share, non-GAAP net income must be allocated to unvested restricted stock units (“RSUs”) on which we could pay dividend equivalents. The amount of non-GAAP net income allocated to these RSUs is excluded from income available to common shareholders in the calculation of earnings per share. This non-GAAP amount was $309 thousand for the three months ended September 25, 2011. As we were in a net loss for the three months ended September 23, 2012 and June 24, 2012, we did not have any non-GAAP income to allocate to unvested RSUs on which we could pay dividend equivalents.

We provide non-GAAP net income and non-GAAP net income per share amounts in order to provide meaningful supplemental information regarding our operational performance. These supplemental measures exclude, among other things, accelerated depreciation, inventory write-offs related to fab closures, severance, impairment of goodwill, charges related to the amortization of acquisition-related intangible assets, the impact of asset impairment, restructuring and other charges. We also exclude tax provisions (benefits) that are not directly related to ongoing operations and which are either isolated or cannot be expected to occur again with any regularity or predictability in addition to tax adjustments related to non-GAAP operating income (loss) adjustments.

We use non-GAAP measures to evaluate the performance of our core businesses and to estimate future core performance. Since we find these measures to be useful, we believe that investors will benefit from seeing non-GAAP measures in addition to seeing our GAAP results. This information facilitates our internal comparisons to our historical operating results as well as to the operating results of our competitors.

Our management recognizes that items such as amortization of intangibles and asset impairment, restructuring and other charges can have a material impact on our cash flows and/or our net income. Our GAAP financial statements including our statement of cash flows portray those effects. Although we believe it is useful for investors to see core performance free of non-GAAP adjustments, investors should understand that the excluded items can be expenses and charges that impact the Company's total cash balance. To gain a complete picture of all effects on the Company's profit and loss from any and all events, management does (and investors should) consider only the GAAP income statement and the other financial measures. The non-GAAP numbers focus instead upon the core business of the Company, which is only a subset, albeit an important one, of the Company's performance, and should not be relied upon by investors.

Readers are reminded that non-GAAP numbers are merely a supplement to, and not a replacement for, GAAP financial measures. They should be read in conjunction with the GAAP financial measures. It should be noted as well that our non-GAAP information may be different (and contain different inclusions and exclusions as compared to GAAP information) from the non-GAAP information provided by other companies and therefore are not being provided for the purpose of comparisons with other companies.

International Rectifier Corporation
Investors
Chris Toth, 310-252-7731
Media
Sian Cummins, 310-252-7148

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