Use these links to rapidly review the documentTABLE OF CONTENTS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended June 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For 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(IRS Employer
Identification No.)


233 Kansas Street
El Segundo, CA 90245(Address of Principal Executive Offices)(Zip Code)

Registrant's
telephone number, including area code:(310) 726-8000

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

Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value $1.00

The New York Stock ExchangePreferred Stock Purchase Rights

The New York Stock Exchange


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

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
ý No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o No ý

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 ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ý

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý

Accelerated filer oNon-accelerated filer o (Do not check if 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 Act). Yes
o No ý

The aggregate market value of the registrant's voting common stock, par value $1.00 per share, held by non-affiliates as of the last business day of
the registrant's most recently completed second fiscal quarter
was $2,418,855,115 (computed using the closing price of a share of Common Stock on December 28, 2007, reported by the New York Stock Exchange).

There
were 72,852,072 shares of the registrant's common stock, par value $1.00 per share, outstanding on September 5, 2008.



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TABLE OF CONTENTS



PART I

2ITEM 1.    BUSINESS

2ITEM 1A.    RISK FACTORS

12ITEM 1B.    UNRESOLVED STAFF COMMENTS

26ITEM 2.    PROPERTIES

26ITEM 3.    LEGAL PROCEEDINGS

27ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

30PART II

32ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

32ITEM 6.    SELECTED FINANCIAL DATA

33ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

35ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

55ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

58REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

59CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2008, 2007 AND
2006

61CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2008 AND 2007

62CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE FISCAL
YEARS ENDED JUNE 30, 2008, 2007 AND 2006

63CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30, 2008, 2007 AND
2006

64NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

65ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

121ITEM 9A.    CONTROLS AND PROCEDURES

121ITEM 9B.    OTHER INFORMATION

126PART III

127ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

127ITEM 11.    EXECUTIVE COMPENSATION

129ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

161ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

164ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

164PART IV

166ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES

166SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS ENDED JUNE 30, 2008, 2007 AND 2006

180


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EXPLANATORY NOTE

During fiscal year 2008, the Audit Committee of our Board of Directors ("Audit Committee") completed an investigation (the
"Investigation") into certain accounting and financial reporting matters. As a result of the issues identified in the Investigation, as well as issues identified in additional reviews and procedures
conducted by management with the assistance of external advisors, the Audit Committee determined that neither our financial statements for the fiscal quarters ended September 30, 2003 through
December 31, 2006 and for the fiscal years ended June 30, 2004 through June 30, 2006 nor management's reports on internal control over financial reporting for the fiscal years
ended June 30, 2005 and 2006 should be relied upon because of certain accounting errors and irregularities in those financial statements and reports on internal control over financial
reporting. Accordingly, we restated our previously issued financial statements for those periods. Restated financial information is presented in our Annual Report on Form 10-K for
the fiscal year ended June 30, 2007, filed with the Securities and Exchange Commission ("SEC") on August 1, 2008, which also contains a description of the Investigation, the accounting
errors and irregularities identified and the adjustments made as a result of the restatement.

This Annual Report on Form 10-K 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" 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 "Critical Accounting Policies and Estimates"
within Part II, Item 7, "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 SEC.

PART I

ITEM 1.    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.

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

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bipolar
transistors ("IGBTs"), high reliability DC-DC converters, PowerStage ("PS") modules, and DC-DC converter type applications.

Our
semiconductors are found in a wide variety of applications, such as:

Automotive Applications

NetworkingIndustrial Motors

DisplayConsumer Electronics

ServersPersonal Computers

Game StationsHousehold Appliances

Aerospace and DefenseTelecommunications


With
the demand for energy usage increasing worldwide, governments and consumers alike are striving to conserve energy and demand more efficient uses of power in everything from
computers to appliances to military aircraft to hybrid cars. According to iSuppli Corporation ("iSuppli"), a semiconductor industry market research company, the market for power management
semiconductors for calendar year 2008 is approximately $27.6 billion, primarily in three areas: voltage regulation, power switching transistors and ICs.

The
information technology, industrial, consumer, aerospace and defense and automobile industries use power management semiconductors to promote energy efficiency and improve performance
metrics. Power management semiconductors enable energy savings of up to 60 percent by delivering the power tailored for a particular electrical device, rather than delivering a constant stream
of power. Additionally, high-density semiconductors are required to power highly sophisticated electronic devices, such as servers and storage, telecommunications, networking and cell
phone infrastructure, desktop and laptop computers, and gaming devices.

Business Strategy and Segments

Business Strategy

Since our introduction of the power MOSFET in the 1970's, we have improved the technology and design of our power management products
while significantly expanding our offerings. Our mission has been to provide solutions that will continue to improve in their energy-efficient performance and reduce global energy consumption. Our
business segments primarily address two key challenges.

Our
first challenge is energy savings, which we define as applications driven by a reduction of energy consumption. The main applications influenced by energy consumption are in
automotive, motion
control, lighting and display products, audio and visual products, and satellite and aerospace. Lowering the amounts of energy consumption of these applications can largely influence a buyer's
decision as to whether or not to buy the product.

Our
second challenge is in promoting energy efficiency. For example, in data centers, high efficiency for enterprise servers, routers, switches and storage equipment needs to be
delivered at very high power density. The smaller we can make our solutions, the more room remains for additional system functionality. Efficiency and power density are increasingly influencing the
buyer's decision as to which solution to employ in their applications.

As
part of our strategy, we bring to our customers an experienced technical sales team that is recognized for its ability to assist customers in providing power management solutions for
the customers' longer-term technology and product requirements. These technical sales teams are comprised of account managers and field application engineers. These teams interface with
our customers and work closely with their designers to integrate our products to create greater energy efficiency. We have been known as an energy-efficient power management solutions company by
consistently working with customers to deliver new technologies in advance of their needs and solutions

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that
align our products with our customers' roadmap. To better understand and respond to our customers' longer-term needs, our technical sales teams often directly communicate information
from customers to the respective marketing and design center teams who address their technological needs.

With
the world continuing its focus on energy conservation, we develop technologies that will advance the state of the art in energy-efficiency. Our technologies help address the
following: thermal management, which is the management of the heat load within an application; high frequency, which is the challenge in our customer's applications of placing components closer
together that use little energy; high voltage, which is the challenge of moving a high amount of energy within an application; and cost reduction, which is the challenge of combining elements in
smaller and smaller chips at a low cost. We believe our products and technologies are very competitive in these areas in the relevant market segments in which we compete.

Segments

As discussed in Part II, Item 8, Note 2, "Discontinued Operations and the Divestiture," we sold our Power Control
Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc. ("Vishay") on April 1, 2007 (the "Divestiture"). Subsequent to the Divestiture in
the fourth quarter of our fiscal year ended June 30, 2007, our Chief Operating Decision Maker, who is our Chief Executive Officer ("CEO"), redefined our business segments to better focus on the
two key power management challenges, energy savings and energy efficiency. As a consequence, beginning in the fourth fiscal quarter ended June 30, 2007, we reported our financial segments based
on how our CEO reviewed and allocated resources for the business and assessed the performance of our business managers. We now report in seven segments: Enterprise Power ("EP"), Power Management
Devices ("PMD"), PS, Energy-Saving Products ("ESP"), Aerospace and Defense ("A&D"), Intellectual Property ("IP") and Transition Services ("TS").

As
part of the PCS Business sale to Vishay, we agreed to provide certain manufacturing and support services for up to three years following the closing date of the Divestiture, which is
reported separately in the TS segment. The results of the PCS Business through the Divestiture closing date were reported in our prior Commodity Products ("CP") and Non-Aligned Products
("NAP") segments, consistent with prior years and in line with our business segment reporting prior to our reorganization and the redefinition of our business segments by our CEO. For the fiscal year
ended June 30, 2007, the financial results of the former NAP segment were included in discontinued operations and prior period results were correspondingly reclassified. Financial results of
the former CP segment were not included in discontinued operations, as we expect to have significant ongoing involvement based on the significance of the cash flows to be derived from the PCS
transition services.

In
addition, as part of our reorganization, whereas previously power management MOSFETs were reported based on end market applications within the ESP segment and the previously reported
Computing and Communication ("C&C") segment (which is now separated into the EP, PMD and PS segments), they are now reported within the PMD segment.

Below
is a description of our reportable segments:



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To
realign our business segments in the fourth fiscal quarter ended June 30, 2007, we assessed our business strategy going forward after the Divestiture. As part of this analysis,
we determined that approximately $5.9 million of equipment was impaired and recorded the impairment in our financial statements for our fiscal year ended June 30, 2007, based on the
review of the discounted cash flow analyses of forecasted business to be derived as a result of our strategy.

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Products and Technology

The following table summarizes the types of products and end-market applications for our product segments:

Excluded
from the table below are our TS and IP segments, which are comprised primarily of services provided to Vishay related to the Divestiture and royalties from patent licensing and
technology claim settlements, respectively. The table also excludes the CP segment which was sold to Vishay as part of the Divestiture.

Power Management
Devices

Energy-Saving
Products

Aerospace and
Defense

Enterprise Power

PowerStageRevenues2008

$373.9 million

$202.2 million

$152.9 million

$102.5 million

$63.2 million2007

$416.5 million

$225.3 million

$157.0 million

$87.5 million

$84.1 million2006

$370.0 million

$200.6 million

$131.1 million

$68.3 million

$8.0 millionPrimary product function

Power conversion and management with the lowest RDS(on) and widest range of packages up to 250V for a diverse range of applications.

Integrated design platforms that enable customers to add energy-conserving features that help achieve lower operating energy costs and manufacturing bill of material costs.

Discrete components, complex hybrid power module assemblies and rugged DC-DC converters utilize leading-edge power technology which, together with demanding environmental specifications.

Optimized power management system solutions that deliver power density, efficiency and performance in enterprise power.

Optimized and versatile functional component combines multiple power semiconductors, ICs, and passive elements into a single thermally enhanced package.Type of products

Trench HEXFET® MOSFETs, discrete HEXFET® MOSFETs, dual HEXFET® MOSFETs, FlipFET®,
FETKY®, hybrid HEXFET® MOSFETs

High voltage ICs, Digital control ICs, IRAM integrated power modules, Intelligent power switches, MER ICs, High Voltage DirectFET®s, IGBTs

RAD-Hard MOSFETs, power modules/hybrid solutions, motor controls, DC-DC converters

Low voltage ICs, DirectFET®s, SupIRBuck, XPhase®

iP120x
iP200xEnd applications

Automotive, computing, communications, motor control

Automotive, motor control appliances, industrial automation, lighting and display, audio video

Commercial and military aircraft, launch vehicles, satellites, military ships, missiles, undersea telecommunication, submarines, oil drilling, medical devices

Servers, storage networks, routers, and switches, infrastructure equipment

Computers, switches, routers, servers and game stationsMajor original equipment manufacturers

Alcatel-Lucent, Emerson, Cisco, Delta, Motorola, Nortel, Power-One

Bosch, Electrolux, Grundfos, Hitachi, LG, Matsushita, Nagares, Osram, Samsung, Sanyo, Regal-Beloit, Whirlpool

Lockheed Martin, Space System Loral, L-3 Communications, BAE, Boeing, Honeywell, Astrium, Northrop-Grumman

Delta, Emerson, HP, IBM, Intel, Microsoft

Sony, Cisco


For additional financial information concerning our segments, see Part II, Item 7, "Management's Discussion and
AnalysisRevenues and Gross Margin."

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Manufacturing

Semiconductor manufacturing involves two phases of production: wafer fabrication and assembly. Wafer fabrication requires a sequence of
process steps that expose silicon wafers to chemicals that change their electrical properties. The chemicals are applied in patterns that define cells or circuits within numerous individual devices,
termed "die" or "chips" on each wafer. Assembly is the sequence of production steps that divide the wafer into individual chips and enclose the chips in structures, termed "packages" which make them
usable in a circuit. Power semiconductors generally use process technology and equipment already proven in the manufacturing of ICs.

Our
strategy is to build our products using a combination of internal factories and external contract manufacturers. We use our internal factories to manufacture our new products and
products where we utilize proprietary technologies. We also manufacture our high volume products at our factories since we are able to achieve relatively high equipment utilization and competitive
product costs. We use contract manufacturers in wafer fabrication and assembly for additional capacity and to manufacture certain of our older technology products. On industry standard products, our
contract manufacturing partners are able to provide competitive costs through their economies of scale that they achieve from spreading their capacity across many customers.

We
currently have wafer fabrication and/or assembly facilities in California, Arizona, Massachusetts, Mexico and Wales, United Kingdom. In addition, we have equipment at or manufacturing
supply agreements with subcontractors located in China, Israel, Korea, Malaysia, Philippines, Taiwan, Thailand, the United States and Vietnam. Our Newport, Wales facility provides wafer fabrication
capacity for our most advanced mixed-signal, analog and MOSFET processes. Our wafer fabrication facility in Temecula, California is used primarily for MOSFET-related processes. We have a
high-voltage power management IC wafer fabrication facility in El Segundo, California. We also have engaged foundry services for wafer fabrication abroad. Assembly operations for products
used in the A&D applications are located in Leominster, Massachusetts; Santa Clara, California; and Tijuana, Mexico. Our high-volume assembly lines for power MOSFETs and IGBTs are located
in our facility in Tijuana, Mexico. We also assemble power MOSFETs and other products in subcontracted facilities abroad. Our Mesa, Arizona facility provides specialty silicon epitaxial services both
in-house and to third parties.

Marketing, Sales and Distribution

Our sales organization consists of in-house sales employees, external sales representatives, in-house field
application, manufacturing and quality engineers. The function of the sales organization is to identify energy-efficient opportunities within our key customer applications, assist our original
equipment manufacturer ("OEM") customers in designing our products into their applications, and providing longer-term solutions based on our customers' technology and product requirements.
In many circumstances, we sell our products to the contract manufacturer of the OEM. We also leverage our distribution partners whose larger sales force, account network, inventory programs and
logistics services provide our customers with additional distribution options. In the fiscal year ended June 30, 2008, we derived 49.6 percent, 45.6 percent and 4.8 percent
of our revenues from direct sales to the OEMs, our distributors, and contract manufacturers, respectively.

The
goal of our marketing organization is to consolidate specific inputs from our customers and competition with the information gathered from our internal research and development
("R&D"), in order to develop enhanced solutions that can address our customers' requirements. Our marketing activities include identifying the existing products that may be incorporated into our
customers' products more effectively. Our marketing group also includes the determination that new solutions should be designed in order to exceed the capabilities of the products currently on the
market.

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For
financial information about the results for our geographic areas for each of the last three fiscal years, refer to Part II, Item 8, Note 8, "Segment Information"
of Notes to Consolidated Financial Statements. For the risks attendant to our foreign operations, see Part I, Item 1A, "Risk FactorsOur international operations expose us to
material risks."

Customers

Our devices are incorporated in subsystems and end products manufactured by other companies. Our customers include OEMs, distributors
and contract manufacturers. No customer accounted for more than ten percent of our consolidated revenue for the fiscal year ended June 30, 2008. The majority of our products in our ongoing
business segments, including those in the PMD, ESP, A&D, EP and PS segments, are sold directly to OEM customers or distributors. No single customer accounted for more than ten percent of the revenues
in our other segments. However, for the fiscal year ended June 30, 2008, approximately 5.9 percent of our consolidated revenue was associated with the shipment of one product either
directly to or through our distributors to one OEM.

The
transition services provided to Vishay related to the Divestiture amounted to approximately 6.1 percent of our total consolidated revenue in fiscal year 2008.

Our
major distributors, based on revenue, include Arrow Electronics, Avnet, Future Electronics, Weikeng and Zenitron for the fiscal year ended June 30, 2008. Our major contract
manufacturers included Celestica, Flextronics, Jabil, Sanmina-SCI and Solectron for the fiscal year ended June 30, 2008. Our major OEMs by revenue for our ongoing product
segments for the fiscal year ended June 30, 2008 are as follows:

Segment:

CustomersPower Management Devices

Alcatel-Lucent, Emerson, Cisco, Delta, Motorola, Nortel and Power-OneEnergy-Saving Products

Bosch, Electrolux, Grundfos, Hitachi, LG, Matsushita, Nagares, Osram, Samsung, Sanyo, Regal-Beloit and WhirlpoolAerospace and Defense

Lockheed Martin, Space System Loral, L-3 Communications, BAE, Boeing, Honeywell, Astrium and Northrop-GrummanEnterprise Power

Delta, Emerson, HP, IBM, Intel and MicrosoftPowerStage

Sony and Cisco


For
financial information about geographic areas, please see Part I, Item 8, Note 8, "Segment Information."

Competition

We encounter differing degrees of competition for our various products, depending upon the nature of the product and the particular
market served. Generally, the semiconductor industry is highly competitive and subject to rapid price changes and product design changes. Several of our competitors are larger companies with greater
financial resources. We believe that we differentiate from our competitors by our comprehensive line of power management products and our ability to combine these products into compact,
cost-effective packages and system-level solutions. Our products compete with products manufactured by others on the basis of enabling capability, performance, reliability, quality, price,
delivery time to customer and service (including technical advice and support).

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Our
major competitors for fiscal year ended June 30, 2008 are as follows:

Segment:

CompetitorsPower Management Devices

Fairchild, STMicroelectronics, ON Semiconductor and InfineonEnergy-Saving Products

STMicroelectronics, Infineon, NXP, Fairchild, Renesas, Toshiba, MitsubishiAerospace and Defense

Interpoint, VICOR, VPT, MS Kennedy, Microsemi, Intersil, Linear Technology, STMicroelectronicsEnterprise Power

Intersil, ON Semiconductor, Renesas, Volterra, InfineonPowerStage

Renesas, Toshiba, NXP


Research and Development

Our R&D program focuses on power management ICs and power conversion functional components such as the advancement and diversification
of our power MOSFET and IGBT switch product lines, as well as iPOWIR® and iRAM PS multi-chip modules. We have been developing and introducing some of the most
advanced power management products and new architectures for the next-generation of applications, including new game stations, high-performance servers, hybrid vehicles and
energy-efficient appliances. Our work with new technology platforms has led to our development of a gallium nitride-based power device technology platform for use in certain power conversion
solutions. We continue to commit to R&D to generate new patents and other IP and concentrate on incorporating our technologies into our products. In the fiscal years ended June 30, 2008, 2007
and 2006, we spent $105.8 million (10.7 percent of revenue), $122.8 million (10.2 percent of revenue), and $104.1 million (10.3 percent of revenue),
respectively, on R&D activities.

Our
design centers are located throughout the world, including the United States, the United Kingdom, Denmark, Italy and France. During fiscal year 2008, we continued to introduce
advanced power management solutions that drive high performance computing and save energy across our served markets. These products also highlighted our focus on delivering integrated solutions and
extensive applications support. Among them were a) tailored iMOTION integrated design platform for variable speed pumps, b) ICs and chipsets improving power density and
efficiency in DC-DC applications found in high performance computers and servers, c) the continued expansion of our popular XPhase® and DirectFET® product
families, d) ICs for Class D audio, electronic lighting ballasts and motor control, e) several "application-ready" reference designs for point-of-load
DC/DC conversion, multi-channel Class D audio, lighting and motor control, f) our SmartRectifier ICs helping computer
and consumer entertainment devices meet emerging system and standby power regulations, and g) radiation hardened DC-DC converter modules for space satellite power applications.

Intellectual Property

We continue to make significant investments in developing and protecting our IP. In the past fiscal year, we added over 160 patents
worldwide. We have approximately 500 issued unexpired U.S. patents and over 1,150 patent applications pending worldwide. We are also licensed to use certain patents owned by others. We have several
registered trademarks in the United States and abroad, including the trademarks HEXFET® and DirectFET®. We believe that our IP contributes to our competitive advantage.

We
are committed to enforcing our patent rights, including through litigation if necessary. Through successful enforcement of our MOSFET patents over the past decade, we have
historically entered into a number of license agreements, generated royalty income, and received substantial settlement payments.

We
report within the IP segment revenues from the sale and/or licensing of our technologies and manufacturing process know-how, in addition to reporting the operating results
of our patent licensing

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and
settlements of claims brought against third parties. In the fiscal years ended June 30, 2008, 2007 and 2006, we derived $30.5 million, $44.2 million and $38.8 million
of royalty revenues, respectively. IP segment revenue is dependent on the unexpired portion of our licensed MOSFET patents, the continued enforceability and validity of those patents, the ability of
our competitors to design around our MOSFET technology or develop competing technologies, and general market conditions. The continuation of such royalties is subject to a number of risks (see
Part I, Item 1A, "Risk FactorsOur ongoing protection and reliance on our IP assets expose us to risks"). Some of the MOSFET patents that have generated royalties and
settlements expired in calendar year 2007 and the broadest of them expire or will expire in calendar year 2008. Certain of the MOSFET patents remain in effect through 2010. With the expiration of our
broadest MOSFET patents, most of our IP segment revenue has ceased during the fourth quarter of fiscal year 2008; however, we continue, from time to time, to enter into opportunistic licensing
arrangements that we believe are consistent with our business strategy.

Aside
from our MOSFET technologies, our IP strategy has been to use our IP primarily for the design and development of a value-added family of products, and to defend those products in
the marketplace. From time to time, we also engage in opportunistic licensing. In our IP segment, we concentrate our
efforts on the licensing of technologies or fields of use that have application beyond our product groups or which no longer align with our long-term business strategies for our product
groups. We also target certain technologies for licensing that we believe help establish our product platforms and structures as industry standards and thereby enhance the growth of our products in
various end market applications.

Environmental Matters

Federal, state, local and foreign laws and regulations impose various restrictions and controls on the storage, use and discharge of
certain materials, chemicals and gases used in semiconductor manufacturing processes, and on the operation of our facilities and equipment. We believe we use reasonable efforts to maintain a system of
compliance and controls for these laws and regulations. Despite our efforts and controls, from time to time, issues may arise with respect to these matters. However, we do not believe that general
compliance with such laws and regulations as now in effect will have a material adverse effect on our results of operations, financial position or cash flows.

Additionally,
under some of these laws and regulations, we could be held financially responsible for remedial measures if properties are contaminated or if waste is sent to a landfill or
recycling facility that becomes contaminated. Also, we may be subject to common law claims if released substances damage or harm third parties. We cannot make assurances that changes in environmental
laws and regulations will not require additional investments in capital equipment and the implementation of additional compliance programs in the future, which could have a material adverse effect on
our results of operations, financial position or cash flows, as could any failure by us to comply with environmental laws and regulations.

As
part of the environmental review process, we provided certain disclosures of potential permit violations and other matters to local environmental authorities with respect to our Mesa,
Arizona and Temecula, California facilities. We have taken steps to correct the alleged deficiencies. However, during the fiscal quarter ended September 30, 2007, we received a notification of
proposed penalty in Mesa, Arizona from local environmental authorities in the amount of approximately $2.4 million, which we settled for $98,500 in December 2007. We have not yet been assessed
any penalties with respect to the disclosures made for our Temecula, California facility. Additionally, during negotiations for the Divestiture, chemical compounds were discovered in the groundwater
underneath one of our former manufacturing plants in Italy. We have advised appropriate governmental authorities and are awaiting further reply to our inquiries, with no current orders or directives
on the matter outstanding from the governmental authorities.

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IR
and Rachelle Laboratories, Inc. ("Rachelle"), a former operating subsidiary of ours that discontinued operations in 1986, were each named a potentially responsible party
("PRP") in connection with the investigation by the United States Environmental Protection Agency ("EPA") of the disposal of allegedly hazardous substances at a major superfund site in Monterey Park,
California ("OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 against a number of other PRPs, including us, for cost
recovery and contribution under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). We have settled all outstanding claims that have arisen against
us out of the OII Site. No claims against Rachelle have been settled. We have taken the position that none of the wastes generated by Rachelle were hazardous.

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

It
remains the position of Rachelle that its wastes were not hazardous. Our insurer has not accepted liability, although it has made payments for defense costs for the lawsuit against
us. We have made no accrual for potential loss, if any; however, an adverse outcome could have a material adverse effect on our results of operations or cash flows.

We
received a letter in June 2001 from a law firm representing UDT Sensors, Inc. ("UDT") relating to environmental contamination (chlorinated solvents such as trichlorethene)
purportedly found in UDT's properties in Hawthorne, California. The letter alleges that we operated a manufacturing business at that location in the 1970's and/or 1980's and that we may have liability
in connection with the claimed contamination. We have made no accrual for any potential losses since there has been no assertion of specific facts on which to form the basis for determination of
liability.

In
November 2007, we were named as one of approximately 100 defendants inAngeles Chemical Company, Inc. et al. v. Omega Chemical PRP Group, LLC et
al., No. EDCV07-1471 (TJH)(JWJx) (C.D. Cal.) (the "Angeles Case"). Angeles Chemical Company, Inc. and related entities ("Plaintiffs") own or operate a
facility (the "Angeles Facility") which is located approximately one and a half miles downgradient of the Omega Chemical Superfund Site (the "Omega Site") in Whittier, California. Numerous parties,
including us, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that contaminants from the Omega Site migrated in groundwater from the Omega Site to the Angeles Facility, thereby
causing damage to the Angeles Facility. In addition, they claim that the EPA considers them to be responsible for the groundwater plume near the Angeles Facility which Plaintiffs contend was caused by
disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA, nuisance and trespass and also seek declaratory relief. Plaintiffs seek to require the defendants to investigate and
cleanup the contamination and to recover damages. We previously entered into a settlement with other parties associated with the Omega Site pursuant to which we paid those entities money in exchange
for an agreement to defend and indemnify us with regard to certain environmental claims (the "Omega Indemnification"). In that agreement, it was estimated that our volumetric share of
wastes sent to the Omega Site was in the range of 0.08%. We believe that much, if not all of the risks associated with the Angeles Case should be covered by the Omega Indemnification. In addition, we
have tendered the complaint to several of our insurance carriers who have agreed to defend under a reservation of rights. Therefore, we do not expect our out-of-pocket defense costs to be significant.
In addition, in light of the Omega Indemnification, the potential for insurance coverage, and the fact that our volumetric share of Omega Site wastes was less than 0.1%, we do not believe that an
adverse judgment against us would be material.

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Employees

As of June 30, 2008, we employed approximately 5,100 people, approximately 4,100 of which were employed in North America, 700 in
Europe and 300 in Asia Pacific and Japan. As of June 30, 2008, none of our U.S. employees had collective bargaining agreements and we consider our relations with our employees to be good. In
some jurisdictions outside the United States, from time to time, employees may be covered by certain statutory, special or other arrangements, like work councils, that may seek benefits for covered
personnel. We believe our relationships with such organizations are good.

Available Information

We file with the SEC, pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended ("Exchange Act"), annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished. These reports may be accessed at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public
Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and
other information about us. The SEC's Internet address ishttp://www.sec.gov.

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

We
also make available, free of charge, through our corporate governance website, our corporate charter, Bylaws, Corporate Governance Guidelines, charters of the committees of our Board
of Directors, code of ethics and other information and material, including information about how to contact our Board of Directors, our committees and their members. To find this information and
materials, visit our corporate governance section of our website atwww.irf.com.

Information
made available on our website is not incorporated by this reference into this report.

Section 303A.12 of New York Stock Exchange Listed Company Manual Disclosure

Pursuant to Rule 303A.12(A) of the New York Stock Exchange ("NYSE") Listed Company Manual, we submitted to the NYSE last year a
Section 303A.12(a) CEO Certification as required by such rule. We are filing with the SEC the CEO and Chief Financial Officer (Acting) ("Acting CFO") certifications, without qualification,
required under Section 302 of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") as to this Form 10-K with respect to our 2008 fiscal year.

ITEM 1A.    RISK FACTORS

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

This Annual Report on Form 10-K Report includes some statements and other information that are not historical facts
but are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The materials presented can be identified by the use of forward-looking
terminology such as "anticipate," "believe," "estimate," "expect," "may," "should," "view," or "will" or the negative or other variations thereof. We caution that such statements are subject to a
number of uncertainties, and actual results may differ materially. Factors that could affect our actual results include those set forth below under "Factors that May Affect Future Results" and other
uncertainties disclosed in our reports filed from time to time with the SEC. Unless required by law, we undertake no obligation to publicly update or revise any forward looking statements, to reflect
new information, future events or otherwise.

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Factors That May Affect Future Results

Pending and future governmental inquiries may adversely affect us, the trading prices of our securities and our
ability to access the capital markets.

During
the course of the Investigation led by our Audit Committee and following its completion, our representatives met with representatives of the SEC, the Internal Revenue Service
("IRS"), the Office of the U.S. Attorney and other governmental officials to keep them advised as to the course of the Investigation. We continue to share information with the SEC and other
governmental officials and are currently responding to subpoenas for records from the SEC. Adverse developments in connection with requests by the SEC or other governmental agencies, could negatively
impact us and divert our resources and the focus of our management team from our ordinary business operations. In addition, we may incur significant expenses associated with responding to these
investigations (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be subject to such
investigation(s)), and we may be required to pay criminal or civil fines, consent to injunctions on future conduct or suffer other penalties, any of which could have a material adverse effect on us.
It is also possible that the existence, findings and outcome of these inquiries may have a negative impact on lawsuits that are pending or may be filed against us, the trading prices of our securities
and our ability to access the capital markets. See Part I, Item 3, "Legal Proceedings" for a more detailed description of these proceedings.

Changes in end-market demand, due to downturns in the highly cyclical semiconductor industry, the sharp correction in the housing market and/or the
significant fluctuations of oil prices, could affect our operating results and the value of our business.

The
semiconductor industry is highly cyclical and the value of our business may decline during the down portion of these cycles. During fiscal years 2008 and 2007, we have experienced a
decline in end-market demand for our products as a result of the sharp correction in the housing market and the significant fluctuations of oil prices. Our revenue and gross margin are
dependent on the level of corporate and consumer spending in various information technology and energy-saving end-market applications. If our projections of these expenditures fail to
materialize, our operating results could be adversely impacted. To the extent these market conditions persist for a prolonged period of time, our business, financial condition and results of
operations could be significantly harmed.

In
addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix sought by customers, seasonality, price competition for
orders and the costs associated with the introduction of new products and start-up of new facilities and additional capacity lines. The markets for our products depend on continued demand
with the product technological platforms and in the mix we plan for and produce in the information technology, consumer, industrial, A&D and automotive markets. Changes in the demand mix, needed
technologies and these end markets may adversely affect our ability to match our products, inventory and capacity to meet customer demand and could adversely affect our operating results and financial
condition.

The semiconductor business is highly competitive and increased competition could adversely affect the price of our products and otherwise reduce the value of an
investment in our Company.

The
semiconductor industry, including the sectors in which we do business, is highly competitive. Competition is based on price, product performance, technology platform, product
availability, quality, reliability and customer service. Price pressures often emerge as competitors attempt to gain a greater market share by lowering prices or by offering a more desirable
technological solution. Pricing and other competitive pressures can adversely affect our revenue and gross margin, and hence, our profitability. We also compete in various markets with companies of
various sizes, many of which are larger and have greater financial and other resources than we have, and thus they may be better able to

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withstand
adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future.

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

Our
failure to develop new technologies or react to changes in existing technologies could materially delay our development of new products, which could result in decreased revenue and a
loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. As a result, we
must devote significant resources to R&D. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely
and cost-effective basis. During fiscal year 2008, we recognized significant revenues from the sale of certain PS product to one end customer. If our competitors were to develop a solution
around our technology, the future viability of this product could be materially adversely impacted.

We
cannot assure you that we will successfully identify new product opportunities and develop and bring new products to market in a timely and cost-effective manner, or that
products or technologies developed by others will not render our products or technologies obsolete or noncompetitive. A fundamental shift in technologies in our product markets could have a material
adverse effect on our competitive position within the industry. In addition, to remain competitive, we must continue to reduce die sizes and improve manufacturing yields. We cannot assure you that we
can accomplish these goals.

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

Our
future financial performance and success are largely dependent on our ability to implement our recently announced three-phase growth strategy, consisting of business stabilization,
operational optimization and growth acceleration. We cannot assure you that we will be able to successfully implement our business strategy or that implementing our strategy will sustain or improve
our results of operations in the future.

Our ongoing protection and reliance on our IP assets expose us to risks and continued levels of revenue in our IP segment is subject to our ability to
(i) maintain current licenses, (ii) licensee and market factors not within our control and (iii) our ability to obtain new licenses.

We
have traditionally relied on our patents and proprietary technologies. Patent litigation settlements and royalty income substantially contribute to our financial results. Enforcement
of our IP rights is costly, risky and time consuming. We cannot assure you that we can successfully continue to protect our IP rights, especially in foreign markets. Certain of our key MOSFET patents
expired during calendar year 2007 with the broadest expiring in calendar year 2008. Certain of our MOSFET patents will remain in effect through 2010. We expect that with the expiration of our key
MOSFET patents, most of our royalty revenue ceased during the fourth quarter of fiscal year 2008; however, from time to time, we continue to enter into opportunistic licensing arrangements that we
believe are consistent with our business strategy.

Our
royalty income is also largely dependent on the following factors: remaining coverage under unexpired MOSFET patents; the continuing introduction and acceptance of products that are
not covered by our patents; the defensibility and enforceability of our patents; changes in our licensees' unit sales, prices or die sizes; the terms, if any, upon which expiring license agreements
are renegotiated; and our ability to obtain revenue from new licensing opportunities. Market conditions and mix of licensee products, as well as sales of non-infringing devices can
significantly adversely affect royalty

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income.
We also cannot guarantee that we can obtain new licenses to offset reductions in royalties from existing licenses. While we try to predict the effects of these factors and efforts, often there
are variations or factors that can significantly affect results different from that predicted. Accordingly, we cannot guarantee that our predictions of our IP segment revenue will be consistent with
actual results. We also cannot guarantee that our royalty income will continue at levels consistent with prior periods. Any decrease in our royalty income could have a material adverse effect on our
operating results and financial condition.

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

Our
future success and competitive position may depend in part upon our ability to obtain or maintain certain proprietary technologies used in our principal products, which is achieved
in part by defending and maintaining the validity of our patents and defending claims by our competitors of IP infringement, and at times asserting IP claims against third parties. We license certain
patents owned by others. We are currently a defendant in IP claims, have asserted IP claims against others and we could become subject to other lawsuits in which it is alleged that we have infringed
upon the IP rights of others.

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

If some OEMs do not design our products into their equipment or convert design or program wins to actual sales, for whatever reasons, including
uncertainties regarding our Company, a portion of our revenue may be adversely affected.

A
"design-win" or program award from a customer does not guarantee that the design or program win will become future sales to that customer. For example, in our PS segment,
we have announced new design or program wins in next generation game stations, and our other segments have had other design or program wins. We also are unable to guarantee that we will be able to
convert these design or program wins, or any wins, into sales for the life of any particular program, or at all, or that the revenue from such wins would be significant. We also cannot guarantee that
we will achieve the same level of design or program wins as we have in the past, or at all. Uncertainties regarding our Company, including uncertainties regarding pending litigation (see Part I, Item
3, "Legal Proceedings") or uncertainties regarding the Divestiture and ongoing disputes with Vishay could affect our ability to achieve design-wins or sales therefrom. Without design or program wins
from OEMs, we would only be able to sell our products to these OEMs as a second source, if at all. Once an OEM designs another supplier's semiconductor into one of its product platforms, it is
more difficult for us to achieve future design or program wins with that OEM's product platform because changing suppliers involves significant cost, time, effort and risk. Achieving a design or
program win with a customer also does not ensure that we will receive significant revenue from that customer.

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

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

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

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

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

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

Our products may be found to be defective and, as a result, product claims may be asserted against us, which may harm our business and our reputation with our
customers and significantly adversely affect our results and financial condition.

Our
products are typically sold at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. Although we maintain quality control
systems, we ship large quantities of semiconductor devices to a wide range of customers around the world, for use in a variety of high profile and critical applications. In the ordinary course of our
business, we receive claims for some of these products that are defective, or that do not perform to published specifications. Since a defect or failure in our products could give rise to failures in
the end products that incorporate them (and consequential claims for damages against our customers from their customers depending on applicable law and contract), we often need to defend against
claims for damages that are disproportionate to the revenue and profit we receive from the products involved. In addition, our ability to reduce such liabilities may be limited by the laws or the
customary business practices of the countries where we do business. Even in cases where we do not believe we have legal liability for such claims, we may choose to pay for them to retain a customer's
business or goodwill or to settle claims to

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avoid
protracted litigation. Our results of operations and business would be adversely affected as a result of significant alleged quality or performance issues in our products, or if we are required
or choose to pay for the damages that result.

Although
we currently have product liability and other types of insurance, we have certain deductibles and exclusions to such policies and may not have sufficient insurance coverage. We
also may not have sufficient resources to satisfy all possible product liability or other types of product claims. In addition, in our A&D segment, we are sometimes subject to government procurement
regulations and other laws that could result in costly investigations and other legal proceedings as a consequence of allegedly defective products or other actions. Any perception that our products
are defective would likely result in reduced sales of our products, loss of customers and harm to our business and reputation.

Our reliance on subcontractors to assemble certain of our parts as a lower cost alternative may expose us to business risks.

Some
of our products are assembled and tested by third party subcontractors. We have used subcontractors to assemble certain of our parts as a lower cost alternative to
in-house manufacturing. We review these subcontractors' references and historical manufacturing experience prior to the engagement of their services, and require oversight over their
quality and assurance processes for the production of our inventory. However, if we fail to adequately or completely review the subcontractors' historical or current manufacturing processes, the
quality of our parts could be subject to higher failure rate, which could adversely impact our reputation and the growth of future business with the customers as a result.

We
have an existing dispute with one of our subcontractors over quality matters involving assembled product, and there can be no assurance that other disputes would not arise. In some
instances, we do not have long-term assembly agreements with our assembly contractors. As a result, we do not have immediate control over our product delivery schedules or product quality.
Due to the amount of time often required to qualify assemblers and testers and the high cost of qualifying multiple parties for the same products, we could experience delays in the shipment of our
products if we are forced to find alternative third parties to assemble or test them. Any product delivery delays in the future could have a material adverse effect on our operating results and
financial condition. Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.

Execution of our growth strategy exposes us to additional risks.

Our
growth strategy includes a number of changes to the manner in which we conduct business, including, among other things, the implementation of a number of cost reductions, and
consolidation and rationalization of suppliers and our distribution channels. We have previously accepted the return of inventory in certain circumstances and experienced lower sales volume with
certain distribution partners as we awaited the sale of channel inventory to end customers. Continued execution on our strategy could expose us to additional costs, the return of additional inventory
and reduced sales to distributors. All of these risks could have an adverse impact on our results of operations.

We maintain a backlog of customer orders that is subject to cancellation, reduction or delay in delivery schedules, which may result in lower than expected
revenue and gross profit.

With
certain exceptions related to products within our A&D segment, we manufacture primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to
long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in
end-market demand

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generally
or in the mix of that demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the manufacturing
of products, and a specific mix of products, without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to build them could have a
material adverse effect on our levels of inventory (the value of our inventory), our revenue and our operating results generally. Additionally, cancellation or significant reduction in significant
customer programs, like those for next generation game station or servers, could materially affect our ability to achieve our revenue and gross profit targets.

We build and maintain inventory in order to meet our historic and projected needs, but cannot guarantee that our inventory will be adequate to meet our needs or
will be salable at a future date.

We
build and maintain inventory in order to meet our historic and projected needs, but cannot guarantee that the inventory we build will be adequate or the right mix of products to meet
market demand. It is very important that we accurately predict both the demand for our products and the lead times required to obtain the necessary materials, and build the proper mix and amount of
inventory, otherwise our revenue and gross margin may be adversely affected. Additionally, if we produce or have produced inventory that does not meet current or future demand, we may determine at
some point that certain of the inventory may only be sold at a discount or may not be sold at all, resulting in the reduction in the carrying value of our inventory and a material adverse effect on
our financial condition and operating results.

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

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

Our distribution channel partners may return inventory which could negatively impact our financial results.

Many
of our distributors have some rights to return inventory under their stock rotation programs or may return inventory with our approval or other circumstances. In addition, as part
of our growth strategy, we have, from time to time, accepted, and may in the future accept, additional returns. If these channel partners return a large amount of inventory, our operating results
could be impacted by lower revenue and higher costs associated with inventory write-offs.

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

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

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

Our
future success depends, in part, upon our ability to attract and retain highly qualified technical, sales, marketing and managerial personnel, and key executive officers. Personnel
with the necessary semiconductor expertise are scarce and competition for personnel with these skills is intense. We cannot assure you that we will be able to retain existing key technical, sales,
marketing and managerial employees, and key executive officers or that we will be successful in attracting, assimilating or retaining other highly qualified technical, sales, marketing and managerial
personnel and key executive officers in the future.

We
have experienced significant turnover in some of our senior management positions. In fiscal year 2008, our Board of Directors has appointed a new CEO and Acting CFO. We will need to
implement procedures to ensure continuity of management in crucial areas, including the oversight of our financial reporting systems, financial controls and corporate governance practices. There can
be no assurance that future changes in senior management personnel will not adversely affect our efforts in this regard. Similarly, there is no assurance that we will be able to retain any of our
existing key personnel, or attract, assimilate and retain the additional personnel needed to support our business, especially in light
of publicity concerning our Audit Committee-led Investigation, the recent restatement of our financial statements and related matters, and unsolicited, nonbinding offers to purchase the outstanding
shares of our Company from a third party (including the public announcement by that party of its intention to commence a tender offer, to nominate three individuals for election as directors at our
2007 annual meeting, and to seek certain amendments to our Bylaws). If we are unable to retain existing key employees or are unsuccessful in attracting new highly qualified employees, our business,
financial condition and results of operations could be materially and adversely affected.

We have identified material weaknesses in our internal control over financial reporting, which could impact our ability to report our results of operations and
financial condition accurately and in a timely manner.

As
required by Section 404 of the Sarbanes-Oxley Act, we have conducted an assessment of our internal control over financial reporting, identified material weaknesses in our
internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of June 30, 2008. For a detailed description of these material
weaknesses, see Part II, Item 9A, "Controls and Procedures." Each of our material weaknesses results in more than a remote likelihood that a material misstatement in our financial
statements will not be prevented or detected. As a result, we must perform extensive additional work to obtain reasonable assurance regarding the reliability of our financial statements. Even with
this additional work, given the material weaknesses identified, including the number of continuing manual journal entries, the lack of integrated financial systems, the significant turnover of our
finance organization personnel, and use of consultants to augment our accounting staff, there is a risk of additional errors not being prevented or detected, which could result in additional
restatements. In addition, it is possible that in the future other material weaknesses may be identified. All of these factors continue to increase the time and cost involved in preparing our
financial statements and to undermine the credibility of such statements.

We have extensive work remaining to remedy the material weaknesses in our internal control over financial reporting.

We
are in the process of developing and implementing certain remediation efforts for the identified material weaknesses, and this work will continue during fiscal year 2009. There can be
no assurance as to when these remediation efforts will be fully developed, when they will be implemented, when they will be completed and the aggregate cost of implementation. Until our remedial
efforts are completed, we will continue to devote significant time and attention to these efforts. If we do not

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complete
our remediation in a timely fashion, or at all, there will also continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future
financial statements could contain errors that will be undetected.

We have been named as a defendant in a class action and other lawsuits that may adversely affect our financial condition, results of operations and cash
flows.

We
and certain of our former and current executive officers and directors are defendants in several securities class action and other lawsuits. These lawsuits are described in
Part I, Item 3, "Legal Proceedings." Our attention may be diverted from our ordinary business operations by these lawsuits and we may incur significant expenses associated with the
defense of these lawsuits (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be parties to
such action). Depending on the outcome of these lawsuits, we may be required to pay material damages and fines, consent to injunctions on future conduct, or suffer other penalties, remedies or
sanctions. The ultimate resolution of these matters could have a material adverse effect on our results of operations, financial condition, liquidity, our ability to meet our debt obligations and,
consequently, negatively impact the trading price of our common stock.

Our continuing obligations under the transaction documents for the Divestiture and claims by Vishay could adversely affect our operating
results.

As
part of the Divestiture, we have agreed to provide certain transition services related to the divested business and assets, including certain manufacturing, sales and marketing and
administrative support services for a period of up to three years. Such services are not provided at levels of profitability commensurate with other aspects of our business and may be subject to
unforeseen factors or other obligations or events which could adversely affect our profitability and operating results. Additionally, we have entered into a tax matters agreement that provides, among
other things, that we will indemnify Vishay against certain tax liabilities that may arise, on certain terms and conditions.

Additionally,
Vishay has advised us of certain claims under the transaction documents related to the Divestiture including claims regarding the adjustment of net working capital for the
PCS Business, claims involving chemicals found in the groundwater at our former manufacturing plant in Italy, and certain product quality claims relating to periods at or prior to the consummation of
the Divestiture. Vishay has also asserted that it is considering possible claims against us in connection with certain portions of the PCS Business, among them, allegations regarding business
forecasts. Vishay has additionally notified us that it intends to seek recission of the Divestiture. While we do not believe that Vishay's claims have merit and intend to defend our position
vigorously, there can be no assurance that Vishay would not bring one or more additional claims. Continuing covenants could involve changes to various aspects of our business or could involve costs or
additional claims, and such matters, if resolved against us, could adversely affect our financial condition and results of operations.

Continuing negative publicity and publicity generally may adversely affect our business.

As
a result of the Audit Committee-led Investigation, the fiscal year 2007 restatement of our financial statements and related matters as discussed herein, we have been the
subject of negative publicity. We have also been the subject of recent publicity regarding unsolicited, nonbinding offers to purchase all outstanding shares of our Company by a third party (including
the public announcement by that party of its intention to commence a tender offer, to nominate three individuals for election as directors at our 2007 annual meeting, and to seek certain amendments to
our Bylaws). This publicity may have an effect on the terms under which some customers, lenders, landlords and suppliers are willing to continue to do business with us and could affect our financial
performance and financial condition. We also believe that certain of our employees perceive themselves to be operating under

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stressful
conditions, which may cause them to terminate their employment or, if they remain, result in reduced morale that could adversely affect our business. Continuing publicity also could have a
material adverse effect on our business.

Potential indemnification obligations and limitations of our current and former director and officer liability insurance could adversely affect
us.

Several
of our current and former directors, officers and employees are the subject of lawsuits and may become the subject of additional lawsuits. Under Delaware law, our charter
documents and certain indemnification agreements, we may have an obligation to indemnify our current and former officers and employees and directors in relation to these matters on certain terms and
conditions. Some of these indemnification obligations may not be covered by our directors' and officers' insurance policies. If we incur significant uninsured indemnity obligations, this could have a
material adverse effect on our business, results of operations, financial condition and cash flows.

Final outcomes from various tax audits are difficult to predict and an unfavorable resolution may negatively impact our financial results.

From
time to time, various taxing authorities audit our tax returns. We have identified various errors relating to our accounting for income taxes for the fiscal years 2001 through 2007.
In particular, we identified errors in our intercompany transfer pricing practices and our accounting for certain types of foreign-earned income and distributions, deferred tax accounts, temporary
differences, certain foreign currency gains and losses, and certain provisions related to tax effecting the elimination of profit-in-ending inventory. Tax authorities in
various jurisdictions in which we operate may choose to audit our tax returns, either as originally filed or, in some cases, as amended, and matters related to our prior intercompany transfer pricing
adjustments are or may be a matter of interest in connection with an investigation by the IRS and/or other taxing authorities. Although we have provided for the estimated tax liabilities, which have
been included in the determination of our financial results, we cannot predict with certainty whether the amount of taxes, interest and/or penalties that may be assessed by the relevant tax
authorities following the completion of any such audits (or investigations) will approximate the amount we have estimated. Accordingly, unpredicted unfavorable settlements of one or more tax audits
(or investigations) may require
additional use of cash and may materially and adversely impact our financial position or results of operations.

Changes in our effective tax rate may have an adverse effect on our results of operations.

Our
future effective tax rates may be adversely affected by a number of factors, including the jurisdictions in which profits are determined to be earned and taxed and the intercompany
pricing related to those profits; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to
estimated taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes; changes in available tax credits; changes in share-based compensation expense; changes
in tax laws or the interpretation of such tax laws (including transfer pricing guidelines); changes in generally accepted accounting principles ("GAAP"); or the repatriation of non-U.S.
earnings for which we have not previously provided for U.S. taxes.

In
addition, we have made certain judgments regarding the realizability of our deferred tax assets. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"), the carrying value of the net deferred tax assets is based on our assessment whether it is more likely than not that we will
generate sufficient future taxable income in the relevant jurisdictions to realize these deferred tax assets, after considering all available positive and negative evidence. If our assumptions and
estimates change in the future given unforeseen changes in market conditions, tax laws or other factors, the valuation allowances established may be increased,

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resulting
in increased income tax expense. Conversely, if we are ultimately able to use all or a portion of the deferred tax assets for which a valuation allowance has been established, the related
portion of the valuation allowance will be released to reduce income tax expense or goodwill, or credit additional paid-in capital, as applicable.

Our A&D segment is subject to governmental regulation that exposes us to additional risks.

Our
A&D segment manufactures and sells certain products that are subject to U.S. export control laws and regulations. The A&D segment also manufactures and sells products that are sold
directly or indirectly to the U.S. government and may subject us to certain government procurement regulations, investigations or review. While we maintain a system of control of such products and
compliance with such laws and regulations, we cannot provide absolute assurance that these controls will always be effective. There are also inherent limitations on the effectiveness of controls,
including the failure of human judgment. If we fail to maintain an effective system of control or are otherwise found non-compliant with applicable laws and regulations, violations could
lead to governmental investigations, fines, penalties and limitations on our ability to export product, all of which could have a material affect on our results.

Quality
control and similar standards are applicable to our facilities and the facilities of our contractors in which certain products of our A&D segment are manufactured, and these
standards are subject to compliance review by certain U.S. Government agencies. Our use of third-party facilities meeting such standards is subject to negotiation of satisfactory agreements with those
parties and if we cannot reach such agreements, our A&D segment may experience production constraints and its revenues may be materially reduced.

Our business depends, in part, upon the efforts of third parties, which we cannot control.

We
rely on our collaborative partners to manufacture certain of our products. Although we believe that parties to any such arrangements would have an economic motivation to succeed in
performing their contractual responsibilities, the amount and timing of resources to be devoted to these activities may not be within our control. There can also be no assurance that these parties or
any future parties will perform their obligations as expected which could have a material adverse affect on our financial condition and results of operations.

The price of our common stock has fluctuated widely in the past and may fluctuate widely in the future.

Our
common stock, which is traded on the NYSE, has experienced and may continue to experience significant price and volume fluctuations that could adversely affect the market price of
our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in financial results, earnings below analysts' estimates and financial
performance and other activities of other publicly traded companies in the semiconductor industry could cause the price of our common stock to fluctuate substantially. In addition, in recent periods,
our common stock, the stock market in general and the market for shares of semiconductor industry-related stocks in particular have experienced extreme price fluctuations which have often been
unrelated to the operating performance of the affected companies. Any similar fluctuations in the future could adversely affect the market price of our common stock.

In
the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies.
We can provide no assurance that our share price will remain stable on a going-forward basis.

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

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

Our investments in certain securities expose us to market risks.

We
invest excess cash in marketable securities consisting primarily of commercial paper, corporate notes, corporate bonds, collateral-backed mortgage obligations and governmental
securities. During
fiscal years 2008 and 2007, we have seen a sharp decline in the value of our collateral-backed mortgage obligations and certain other securities. If the negative market conditions continue we may not
be able to hold these investments to maturity or may have to dispose of the investments while they are at a loss position, which could have a materially adverse impact on our results of operations,
financial position and cash flows.

We
also hold as strategic investments the common stock of three publicly traded foreign companies, one of which is closely held. We have seen significant market fluctuations in the value
of these equity investments. If we wished to dispose of certain shares of our investments during a market decline, we may be unable to dispose the shares immediately due to the illiquid nature of the
investments and incur significant losses as a result.

While we attempt to monitor the credit worthiness of our customers, we may from time to time be at risk due to the adverse financial condition of one or more
customers.

We
have established procedures for the review and monitoring of the credit worthiness of our customers and/or significant amounts owing from customers. However, from time to time, we may
find that, despite our efforts, one or more of our customers become insolvent or face bankruptcy proceedings (Delphi is currently one such customer). Such events could have an adverse effect on our
operating results if our receivables applicable to that customer become uncollectible in whole or in part, or if our customers' financial situation result in reductions in whole or in part of our
ability to continue to sell our products or services to such customers at the same levels or at all.

Large potential environmental liabilities may adversely impact our financial position, results of operations and cash flows.

Federal,
state, foreign and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our semiconductor manufacturing
processes, and on the operation of our facilities and equipment. We believe we use reasonable efforts to maintain a system of compliance and controls for these laws and regulations. However, we cannot
provide absolute assurance that these controls will always be effective or that issues with respect to these matters will not from time to time occur. There are also inherent limitations on the
effectiveness of controls, including the failure of human judgment.

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Under
some laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated or if we send waste to a landfill or recycling facility
that becomes contaminated, even if we did not cause the contamination. Under other laws, we may be subject to fines and penalties if facilities or equipment are not operated in technical compliance
with permit conditions or if required reports are not timely filed with applicable agencies. Also, we may be subject to common law claims if we release substances that damage or harm third parties.
Further, we cannot assure you that changes in environmental laws or regulations will not require additional investments in capital equipment or the implementation of additional compliance programs in
the future. Additionally, if we were to divest additional facilities, such facilities may undergo further environmental review and investigation which may lead to previously unknown environmental
liabilities. Any present or prior failure to comply with environmental laws or regulations could subject us to serious liabilities and could have a material adverse effect on our operating results and
financial condition.

Our liquidity may be subject to the availability of a credit facility upon acceptable terms and conditions.

We
have the $150.0 million credit facility with a group of banks under which our ability to draw has been suspended pending the banks review of our current financial reporting and
the presence of no default. There can be no assurance that the suspension will be removed or that the credit facility will not be terminated or modified to impose more onerous terms.

Our international operations expose us to material risks.

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

In
addition, certain of our operations and products are subject to restrictions or licensing under U.S. export laws. If such laws or the implementation of these restrictions change, or
if in the course of operating under such laws we become subject to claims, we cannot assure you that such factors would not have a material adverse effect on our financial condition and operating
results.

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

Unfavorable currency exchange rate fluctuations could adversely affect us.

As
a result of our foreign operations, we have sales, expenses, assets and liabilities that are denominated in foreign currencies. For example,



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Consequently,
movements in exchange rates could cause our net sales and expenses to fluctuate, affecting our profitability and cash flows. We use foreign currency forward contracts to
reduce our exposure to foreign currency exchange rate fluctuations. The objective of these contracts is to reduce the impact of foreign currency exchange rate movements on our operating results. We do
not use these contracts for speculative or trading purposes. We cannot assure you that these activities will be successful in reducing our foreign currency exchange rate exposure. Failure to do so
could have a material adverse effect on us.

Some of our facilities are located near major earthquake fault lines or high brush fire danger areas.

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

Certain general economic and business factors not specific to the semiconductor industry that are largely out of our control may adversely affect our results of
operations.

We
may experience a number of general economic and business factors, many of which are beyond our control. These factors include interest rates, recession, inflation, exchange rates,
consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence and spending. Unfavorable changes in any of these
factors or in other business and economic conditions affecting our customers could increase our costs or impose practical limits on pricing, any of which could lower our profit margins and have a
material adverse affect on our financial condition and results of operations.

Our reported results can be affected adversely and unexpectedly by the implementation of new, or changes in the interpretation of existing, accounting principles
generally accepted in the United States of America.

Our
financial reporting is subject to GAAP, and GAAP is subject to change over time. If new rules or interpretations of existing rules require us to change our financial reporting, our
reported results of operations and financial condition could be affected substantially, including requirements to restate historical financial reporting.

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

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

Natural disasters, whether in the United States or internationally, may affect the markets in which our common stock trades, the markets in which we operate and
our profitability.

Natural
disasters, whether in the United States or internationally, may affect the markets in which our common stock trades, the markets in which we operate and our profitability. Such
events could affect our domestic and international sales, disrupt our supply chains, and impair our ability to produce

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and
deliver our products. While we do not have facilities located near the affected areas, such activities could affect physical facilities, primarily for raw materials and process chemicals and gases
of our suppliers or customers, and make transportation of our supplies and products more difficult or cost prohibitive. Due to the broad and uncertain effects that natural events have had on financial
and economic markets generally, we cannot provide any estimate of how these activities might affect our future results.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

As of the date of this Annual Report on Form 10-K, there are no unresolved Staff comments regarding our previously
filed periodic or current reports under the Exchange Act.

ITEM 2.    PROPERTIES

We maintain manufacturing and office facilities around the world. Our manufacturing facilities, design centers and business offices as
of September 5, 2008, are in the following locations:

Location

Owned

Leased

Semiconductor
Fabrication

Assembly/
Module
Manufacturing

Design
Center

Business
OfficeEl Segundo, California (U.S.A.)

X

X

X



X

XTemecula, California (U.S.A.)

X



X





XSanta Clara, California (U.S.A.)



X



X

XIrvine, California (U.S.A.)



X





XMesa, Arizona (U.S.A.)

X



XDurham, North Carolina (U.S.A.)



X





XLeominster, Massachusetts (U.S.A.)

X





X

XSt. Paul, Minnesota (U.S.A.)



X

XNorth Kingstown, Rhode Island (U.S.A.)



X





XTijuana, Mexico

X





X



XOxted, England (U.K.)

X







XReigate, England (U.K.)



X







XNewport, Wales (U.K.)

X



XSkovlunde, Denmark



X





XProvence, France



X





XNeu Isenburg, Germany



X







XPavia, Italy



X





XSingapore



X







XShanghai, China



X







XShenzhen, China



X







XSeoul, Korea



X







XTokyo, Japan



X







X


Our
manufacturing facilities in Santa Clara, California and Leominster, Massachusetts are dedicated for use by the A&D business segment. With the exception of the facilities at these two
locations, the rest of our fabrication and assembly facilities are shared by the PMD, ESP, A&D, EP, and PS segments. The IP segment generally operates out of our El Segundo, California business
office. Our Temecula, California and Tijuana, Mexico facilities include certain manufacturing and production activities related to the TS segment, and the sale of the PCS Business to Vishay as part of
the Divestiture (see also Part II, Item 8, Note 2, "Discontinued Operations and the Divestiture").

We
believe our facilities are adequate for current and anticipated near-term operating needs. During the fiscal quarter ended June 30, 2008, we operated at
approximately 70 percent, down from

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over
87 percent at the end of the June 30, 2007 fiscal year, of our worldwide in-house wafer fabrication and assembly manufacturing capacities, without considering
subcontract or foundry capacity. The decline in operating capacity primarily reflects the build up of inventory to meet anticipated demand which is slow to materialize, and shifting capacity to the
production of more complex products.

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. We expect the
closure and exiting of these two facilities to be completed by the end of the second quarter of fiscal year 2010.

In
addition to the facilities listed above, we have sales or technical support offices located in Canada, China, Denmark, Finland, France, Germany, Hong Kong, India, Italy, Japan,
Mexico, the Philippines, Russia, Singapore, South Korea, Sweden, Switzerland, Taiwan, the United Kingdom and the United States.

ITEM 3.    LEGAL PROCEEDINGS

We are involved in certain legal matters that arise in the ordinary course of business. Based on information currently available,
management does not believe that the ultimate resolution of such ordinary course matters have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, our business, financial condition, results of operations or cash flows
could be materially and adversely affected. In addition:

International Rectifier Securities Litigation.Following our disclosure on April 9, 2007 that our Audit Committee was conducting the internal Investigation
into certain revenue recognition matters, a series of putative class action lawsuits was filed against us in the United States District Court for the Central District of California. The complaints
were filed on behalf of a putative class of purchasers of our stock from October 27, 2005 through April 9, 2007 ("Original Class Period"), and named as defendants our Company and certain
of its present and former officers and directors. The complaints alleged violations of Sections 10(b) and 20(a) of the Exchange Act arising out of alleged accounting irregularities at our Japan
subsidiary. On July 22, 2007, the court consolidated all of the actions under the captionIn re International Rectifier Corporation Securities
Litigation, No. CV 07-02544-JFW (VBKx) (C.D. Cal.), and appointed the Massachusetts Laborers' Pension Fund and the General Retirement
System of the City of Detroit (together, "Lead Plaintiffs") as co-lead plaintiffs.

On
January 14, 2008, Lead Plaintiffs filed a Consolidated Class Action Complaint ("CAC"). The CAC purported to extend the Original Class Period by nearly two years, from
July 31, 2003 to August 29, 2007, and added claims based upon our disclosures that certain former officers improperly allocated operating expenses as restructuring charges, improperly
assigned tax liability from higher to lower tax jurisdictions and improperly accounted for tax benefits associated with the granting of stock options. The CAC named as defendants several of our former
officers, but did not name any of our past or present directors except Eric Lidow and Alex Lidow. On March 6, 2008, defendants filed motions to dismiss the CAC. On May 23, 2008, the
Court issued an order granting defendants' motions to dismiss, without prejudice, on the ground that Lead Plaintiffs failed to plead detailed facts sufficient to give rise to a strong inference of
defendants' scienter. The Court has permitted Lead Plaintiffs to file an amended complaint on or before October 17, 2008.

Derivative Litigation.On August 1, 2008, a partial derivative lawsuit captionedMayers v. Lidow, No.
BC395652, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint asserts derivative claims, purportedly on behalf of our Company, against certain of
our former officers, and current and former directors, alleging breach of fiduciary duty, unjust enrichment and violations of Section 25402 of the California Corporations Code in connection
with the matters reported in our recent public filings with the SEC. The derivative claims seek damages, disgorgement and imposition of a constructive trust against the individual defendants

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purportedly
for the benefit of our Company. The complaint also seeks injunctive relief against the current Board of Directors under a provision of Delaware law that permits shareholders to ask the
Court of Chancery to require, in its discretion, a company to hold an annual shareholders' meeting. The complaint does not seek monetary relief against our Company. IR intends to move for dismissal of
these claims on the grounds that plaintiff does not have standing to proceed derivatively on the behalf of the corporation.

Litigation Arising from Vishay Proposal.On August 15, 2008, shortly after our disclosure that Vishay had made an unsolicited, non-binding
proposal to acquire all our outstanding shares for $21.22 per share in cash, a purported class action complaint captionedHui Zhao v. International Rectifier
Corporation, No. BC396461, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint names as defendants our Company and
all current directors and alleges that the Vishay proposal is unfair and that our directors breached their fiduciary duties in connection with the proposed acquisition by failing to properly value our
Company and, if they accept the offer, by failing to maximize our Company's value through steps such as the solicitation of alternate offers. The action seeks to enjoin defendants from agreeing to the
Vishay proposal or, alternatively, to rescind a merger with Vishay if it were ultimately consummated, as well as an award of attorneys' fees and costs. Five other substantively identical complaints
seeking the same relief also have been filed in the same court:United Union of Roofers, Waterproofers & Allied Workers Local Union No. 8 v. International
Rectifier Corp., No. BC396490 (filed Aug. 19, 2008);Gerber v. International Rectifier Corporation,
No. BC 396678 (filed Aug. 20, 2008);Hay Ly v. International Rectifier Corporation, No. BC 396679
(filed Aug. 20, 2008);Soyugenc v. International Rectifier Corp., No. BC396855 (filed Aug. 22, 2008); and Guttman v. International Rectifier
Corp., No. BC396818 (filed Aug. 22, 2008). The lawyers that filed the Zhaocomplaint also filed the complaints inGerber, Ly,and Soyugenc. On August 22, 2008, United Union of Roofers, Waterproofers & Allied Workers Local Union No. 8 ("United Union") filed a
motion for consolidation and for appointment as lead plaintiff. In support of its motion, United Union argues that each action asserts similar claims, that United Union is the only institutional
plaintiff, and that United Union's attorneys are qualified to serve as lead counsel for the class. We expect to join United Union's motion for consolidation but likely will take no position as to the
appointment of lead plaintiff.

On
August 29, 2008, within hours of our announcement that we had rejected the August 15, 2008 proposal made by Vishay to purchase all of our Company's outstanding shares, a
partial derivative complaint captionedCity of Sterling Heights Police Fire Retirement System v. Dahl, No. BC397326, was
filed in the Superior Court of the State of California for the County of Los Angeles. The complaint names as defendants all of our current directors and alleges that the directors breached their
fiduciary duties by rejecting the Vishay offer and by failing to negotiate a higher price in connection with that offer. In addition to the claim for breach of fiduciary duty, which plaintiff brings
both derivatively and purportedly on behalf of a class of investors, plaintiff also alleges derivative claims for abuse of control, gross mismanagement, and waste. The complaint seeks an injunction
requiring the Board of Directors to appoint a committee of independent directors to consider strategic alternatives for our Company and invalidating any defensive measures the Board of Directors might
take in connection with this or any other offer.

None
of these actions seeks damages against our Company. We believe that the actions are without merit. We expect to seek to consolidate the actions and intend to oppose them vigorously.

On
September 10, 2008, Vishay made an unsolicited proposal to acquire all our outstanding shares at a price of $23.00 per share, and announced its intention to commence a
tender offer to purchase all of our shares. In addition, it gave notice of its intention: (a) to nominate three individuals for election as Class I directors at the 2007 Annual Meeting
scheduled for October 10, 2008 ("2007 Annual Meeting"), and (b) to present at that meeting proposals to amend our Bylaws. Vishay's proposed Bylaw amendments provide: (x) that the
meeting to elect our Class II directors be held by December 21,

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2008;
(y) that any adjournment of a stockholders' meeting at which a quorum is present must be approved by a majority of the shares present at the meeting in person or by proxy; and
(z) for an amendment to the Bylaws to repeal any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29, 2008 and the 2007 Annual Meeting unless approved
by holders of a majority of the outstanding shares of the Company.

On
the same date, Vishay also commenced an action in the Delaware Court of Chancery (the "Delaware Action") against us and our current directors seeking, among other things:
(a) to compel a meeting of shareholders on or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a
declaration that proposed amendments to our Bylaws are valid under Delaware law and our Certificate of Incorporation; and (c) a mandatory injunction requiring us to present such proposed
amendments for a vote at the 2007 Annual Meeting. The Delaware Action does not seek damages against us. We believe that the Delaware Action is without merit and intend to oppose it vigorously.

Governmental Investigations.We are cooperating fully with investigators from the SEC Division of Enforcement, the IRS and the U.S. Attorneys' Office regarding
matters relating to the Audit Committee-led Investigation and other matters described in Part II, Item 8, Note 2, "Restatements of Consolidated Financial Statements," of our
Annual Report on Form 10-K for fiscal year 2007 filed with the SEC on August 1, 2008. We have responded to subpoenas for records from the SEC;
and we will continue to cooperate with these investigators regarding their investigation into these matters.

IXYS Litigation.On June 22, 2000, we filedInternational Rectifier Corporation v. IXYS Corporation, Case
No. CV-00-06756-R, in the United States District Court for the Central District of California. Our complaint alleges that certain IXYS Corporation ("IXYS")
MOSFET products infringe our U.S. Patent Nos. 4,959,699, 5,008,725, and 5,130,767. On August 17, 2000, IXYS filed an answer and counterclaim, and, on February 14, 2001, amended
its answer and counterclaim, denying infringement and alleging patent invalidity and unenforceability. After proceedings, including a jury trial on damages, in the District Court and an initial
appeal, a jury trial on infringement and damages was held commencing September 6, 2005. The jury found that IXYS was infringing certain claims of Patent No. 4,959,699 and awarded us
$6.2 million in damages through September 30, 2005. On September 14, 2006, the District Court entered the final judgment and permanent injunction based on the jury verdict. IXYS
again appealed (with a notice of appeal filed after the deadline for doing so). The Federal Circuit lifted its temporary stay, and the permanent injunction was in effect until it terminated with the
expiration of the '699 patent in September 2007. The matter was argued to the Federal Circuit on January 7, 2008. In an opinion issued February 11, 2008, the Federal Circuit ruled
against us and reversed the judgment. The proceedings are now at an end, subject only to the possibility that the Supreme Court will review the case on writ of certiorari. We filed a petition for such a
writ in July 2008.

Angeles v. Omega.In November 2007, we were named as one of approximately 100 defendants inAngeles Chemical Company, Inc. et al. v.
Omega Chemical PRP Group, LLC et al., No. EDCV07-1471(TJH)(JWJx) (C.D. Cal.). The Plaintiffs own or operate the Angeles Facility which is located
approximately one and a half miles downgradient of the Omega Site in Whittier, California. Numerous parties, including us, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that
contaminants from the Omega Site migrated in groundwater from the Omega Site to the Angeles Facility, thereby causing damage to the Angeles Facility. In addition, they claim that the EPA considers
them to be responsible for the groundwater plume near the Angeles Facility which Plaintiffs contend was caused by disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA,
nuisance and trespass and also seek declaratory relief. Plaintiffs seek to require the Defendants to investigate and cleanup the contamination and to recover damages. We previously entered into a
settlement with other parties associated with the Omega Site pursuant to which we paid those entities money in exchange for an agreement to defend and indemnify us with regard to certain environmental
claims. In

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that
agreement, it was estimated that our volumetric share of wastes sent to the Omega Site was in the range of 0.08%. We believe that much, if not all of the risks associated with the Angeles Case
should be covered by the Omega Indemnification. In addition, we have tendered the complaint to several of our insurance carriers who have agreed to defend under a reservation of rights. Therefore, we
do not expect our out of pocket defense costs to be significant. In addition, in light of the Omega Indemnification, the potential for insurance coverage, and the fact that our volumetric share of
Omega Site wastes was less than 0.1%, we do not believe that an adverse judgment against us would be material.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

Additional Item. Executive Officers of the Registrant

The non-employee Chairman of the Board and executive officers of IR as of the date of this Annual Report on
Form 10-K are:

Name

Age

PositionRichard J. Dahl


57

Chairman of the BoardOleg Khaykin


43

President and Chief Executive OfficerDonald R. Dancer


57

Executive Vice President and Chief Administrative OfficerPeter B. Knepper


59

Chief Financial Officer (Acting)Michael Barrow


54

Executive Vice President and Chief Operations OfficerTim Bixler


41

Vice President, Secretary and General Counsel


Richard
J. Dahl has been a director since February 2008. He was appointed Chairman of the Board on May 1, 2008. Mr. Dahl has served as director of the NYSE-listed
DineEquity, Inc. (and formerly IHOP Corporation) since 2004, where he presides as Chairman of the Audit Committee. From 2002 to 2007, Mr. Dahl held various executive level positions with
the Dole Food Company, Inc. ("Dole"), most recently as President and Chief Operating Officer from 2004 to 2007, and served as a member of its Board of Directors. Prior to his work at Dole,
Mr. Dahl was President and Chief Operating Officer of Bank of Hawaii Corporation.

Oleg
Khaykin joined us in March 2008 as President and CEO. He was appointed a director promptly following March 1, 2008. Prior to joining us, Mr. Khaykin was Chief
Operating Officer for Amkor Technology, Inc., which he joined in 2003 as Executive Vice President of Strategy and Business Development. Prior to his work at Amkor Technology, Inc.,
Mr. Khaykin held various positions of increasing leadership at Conexant Systems Inc. ("Conexant") and its spin-off, Mindspeed Technologies Inc., from 1999 to 2003,
where he most recently served as Vice President of Strategy and Business Development. Before joining Conexant, Mr. Khaykin was with the Boston Consulting Group.

Donald
R. Dancer joined us in August 2002 as Vice President, Secretary and General Counsel. He was promoted to Executive Vice President in November 2005. He served as acting CEO from
August 2007 to February 2008. Mr. Dancer was appointed as Executive Vice President and Chief Administrative Officer in March 2008, and he retained the positions of General Counsel and Secretary
on an interim basis. Prior to joining IR, Mr. Dancer served 22 years in various senior legal positions with the General Electric Company ("General Electric") and most recently was
General Counsel for GE Industrial Systems Solutions.

Peter
B. Knepper has been assisting us since January 2008 as a partner with Tatum LLC ("Tatum") and since April 16, 2008 he has served as Acting CFO. He has advised and
held senior financial

30

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Table of Contents

management
positions with several prominent corporations including interim CFO from January to June 2006 at MDI, Inc., a publicly traded company, and Executive Vice President and CFO for
Key3Media Group, Inc. from March 2000 through June 2003. Prior to Key3Media Group, Inc., Mr. Knepper served for 10 years as Senior Vice President and CFO of Ticketmaster
Group, Inc.

Michael
Barrow joined us in April 2008 as Executive Vice President and Chief Operations Officer. Prior to joining IR, Mr. Barrow most recently served as Senior Vice President of
the Flip Chip and Wafer Level Business Unit for Amkor Technology, Inc., where Mr. Barrow served in various positions since late 2003. Prior to his work at Amkor Technology, Inc.,
Mr. Barrow served 12 years in various leadership roles at Intel Corporation ("Intel"), most recently as Technology General Manager of Intel's Communications Group.

Tim
Bixler joined us in July 2008 as Vice President, Secretary and General Counsel. Prior to joining us, Mr. Bixler most recently served as Senior Business Counsel of the Homeland
Protection Business of General Electric, which he joined in 2001 as Business Counsel for GE Plastics. Prior to his work at General Electric, Mr. Bixler served as General Counsel for eMD.com and
also served as counsel for Ashland Inc./APAC, Inc. Mr. Bixler also spent three years at the law firm of Arnall, Golden & Gregory.

31

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Table of Contents

PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on the NYSE under the symbol "IRF." There were 1,385 holders of record of our common stock as of
September 5, 2008. On September 5, 2008, the closing price of the common stock on the NYSE was $21.36. Stockholders are urged to obtain current market quotations for the common stock.
For equity compensation plan information, please refer to Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

As
of our fiscal year ended June 30, 2008, 13.8 million common stock shares are reserved for issuance under our stock option plans, of which 9.4 million stock
options and restricted stock units are outstanding and 4.4 million are available for future grants. As of the fiscal year ended June 30, 2008, 8.6 million stock option and
restricted stock units are exercisable at an average exercise price of $40.58.

Dividends

No cash dividends have been declared to stockholders during the past three years, and we do not expect to declare cash dividends in the
foreseeable future. The payment of dividends is within the discretion of our Board of Directors, and will depend upon, among other things, our earnings, financial condition, capital requirements, and
general business conditions. In addition, our bank credit agreement currently includes covenants putting limitations on certain dividend payments.

Stock Prices

The following table contains stock sales prices for each quarter of fiscal years 2008 and 2007:

First Quarter

Second Quarter

Third Quarter

Fourth QuarterFiscal Year

High

Low

High

Low

High

Low

High

Low2008

$
39.50

$
30.77

$
35.54

$
31.67

$
33.97

$
20.63

$
25.30

$
19.762007


38.75


32.38


41.37


33.50


43.95


37.00


38.80


34.11


32

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Table of Contents

Stock Performance

The following graph compares the cumulative total stockholder return of our common stock during the last five fiscal years with
(i) the cumulative total return of the Standard and Poor's 500 Stock Index and (ii) the cumulative total return of the Standard and Poor's High Technology Composite Index. The comparison
assumes $100 was invested on June 30, 2003 in our common stock and in each of the foregoing indices and the reinvestment of dividends through fiscal year ended June 30, 2008. The stock
price performance on the following graph is not necessarily indicative of future stock price performance.

GRAPHIC

End of Fiscal Year2003

2004

2005

2006

2007

2008International Rectifier

$
100

$
135

$
170

$
140

$
133

$
71S&P 500 Index


100


114


121


129


153


130S&P 500 Index Information Technology


100


121


118


118


148


137


ITEM 6.    SELECTED FINANCIAL DATA

The following tables include selected summary financial data for each of our last five fiscal years and include adjustments to reflect
the Divestiture and the classification of the results of our previously reported NAP segment sold as part of the Divestiture as discontinued operations. See Part II, Item 8,
Note 2, "Discontinued Operations and the Divestiture," to Notes to Consolidated Financial Statements. Our selected financial data as of and for our fiscal years ended June 30, 2008,
2007, 2006, 2005 and 2004 should be read in conjunction with Part II, Item 8, "Financial Statements and Supplementary

33

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Table of Contents

Data,"
and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A").

Fiscal Year Ended June 30,Statements of Operations Data

2008

2007

2006

2005

2004(In thousands, except per share data)Revenues

$
984,830

$
1,202,469

$
1,014,800

$
1,050,514

$
935,973Cost of sales


662,007


741,111


588,934


568,538


549,415Gross profit


322,823


461,358


425,866


481,976


386,558Selling and administrative expense


293,168


212,088


196,766


174,721


158,083Research and development expense


105,812


122,794


104,102


99,399


84,037Impairment of goodwill


32,624











Amortization of acquisition-related intangible assets


4,656


1,889


3,330


3,976


3,739Asset impairment, restructuring and other charges (credits)


3,080


10,398


87


(1,964
)

10,083Gain on royalty settlement











2,650


7,800Operating (loss) income


(116,517
)

114,189


121,581


208,494


138,416Other expense (income), net


19,423


(6,257
)

(15,786
)

(1,581
)

(487
)Interest (income) expense, net


(29,093
)

(16,036
)

(6,784
)

1,194


1,033(Loss) income from continuing operations before income taxes


(106,847
)

136,482


144,151


208,881


137,870(Benefit from) provision for income taxes


(44,205
)

62,995


93,987


104,113


46,897(Loss) income from continuing operations


(62,642
)

73,487


50,164


104,768


90,973Income (loss) from discontinued operations, net of taxes





4,255


(13,654
)

(19,774
)

(15,019
)Net (loss) income

$
(62,642
)
$
77,742

$
36,510

$
84,994

$
75,954Net (loss) income per common share:Basic:(Loss) income from continuing operations

$
(0.86
)
$
1.01

$
0.71

$
1.55

$
1.39Income (loss) from discontinued operations





0.06


(0.20
)

(0.29
)

(0.23
)Net (loss) income per share

$
(0.86
)
$
1.07

$
0.51

$
1.26

$
1.16Diluted:(Loss) income from continuing operations

$
(0.86
)
$
1.01

$
0.70

$
1.47

$
1.33Income (loss) from discontinued operations





0.06


(0.19
)

(0.26
)

(0.22
)Net (loss) income per share

$
(0.86
)
$
1.07

$
0.51

$
1.21

$
1.11Balance Sheet DataTotal cash, cash equivalents, restricted cash and investments

$
745,236

$
1,317,528

$
1,092,628

$
940,720

$
836,209Total assets


1,874,912


2,647,405


2,510,461


2,222,001


2,021,382Long-term debt, less current maturities








617,540


547,259


560,020


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Table of Contents

ITEM 7.    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
the other sections of this Annual Report on Form 10-K, including Part I, Item 1, "Business;" Part II, Item 6, "Selected Financial Data;" and
Part II, Item 8, "Financial Statements and Supplementary Data." 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 I, Item 1A, "Risk Factors" and
elsewhere in this Annual Report on Form 10-K, 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 Annual Report or to reflect actual outcomes.

Introduction

During fiscal year 2008, our Audit Committee completed the Investigation into certain accounting and financial reporting matters. As a
result of the issues identified in that Investigation, as well as issues identified in additional reviews and procedures conducted by management with the assistance of external advisors, the Audit
Committee determined that neither our financial statements for the fiscal quarters ended September 30, 2003 through December 31, 2006 and for the fiscal years ended June 30, 2004
through June 30, 2006 nor management's reports on internal control over financial reporting for the fiscal years ended June 30, 2005 and 2006 should be relied upon because of certain
accounting errors and irregularities in those financial statements and reports on internal control over financial reporting. Accordingly, we restated our previously issued financial statements for
those periods. Restated financial information is presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007, filed with the SEC on August 1,
2008, which also contains a description of the Investigation, the accounting errors and irregularities identified and the adjustments made as a result of the restatement.

As
of the fiscal year ended June 30, 2007, our segments were revised to reflect how our CEO viewed us subsequent to the sale of our PCS Business. For more information regarding
the Divestiture of our PCS Business, refer to Part II, Item 8, Note 2, "Discontinued Operations and the Divestiture" to the Consolidated Financial Statements. For more information
regarding our segments, refer to Part II, Item 8, Note 8, "Segment Information."

Overview

IR 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.

We
pioneered the fundamental technology for power 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, HVICs, LVICs, ICs, RAD-Hard power MOSFETs, IGBTs, high reliability
DC-DC converters, PS modules, and DC-DC converter type applications.

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Table of Contents

On
April 1, 2007, the last day of our fiscal quarter ended March 31, 2007, we completed the Divestiture and the resulting sale of our PCS Business to Vishay for
$339.6 million, including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and approximately $49.4 million of net cash retained
from the assets of the entities being sold. Since the consummation of the Divestiture, a number of matters have developed, as discussed in Part II, Item 8, Note 2, "Discontinued
Operations and the Divestiture," that raised uncertainties under applicable accounting standards and guidance as to the determination of the gain on the Divestiture. Consequently, we have continued to
defer recognition of the gain from continuing operations of $112.6 million as of June 30, 2008. However, we recognized the loss from discontinued operations of $4.3 million in
fiscal year 2007.

A
number of disputes have arisen between Vishay and us regarding the Divestiture which remain ongoing as of the date of this report. (See Part II, Item 8, Note 12,
"Commitments and Contingencies"). We cannot reasonably determine when these disputes will be resolved.

As
part of the Divestiture, we agreed to license certain of our technology and trademarks related to the PCS Business to Vishay. In addition, we agreed to transfer certain of our
technology related to the PCS Business to Vishay and Vishay, in turn, agreed to license back to us the technology it acquired in connection with the Divestiture on a non-exclusive,
perpetual and royalty free basis. As part of the Divestiture, we also entered into certain transition services agreements ("TSAs") for the sale and purchase of certain products, wafer and packaging
services, factory planning, quality, material
movement and storage, manufacturing and other support services, for up to three years following the closing date of the Divestiture.

The
Divestiture included essentially two components of our business. We have reported one of these components, our former NAP segment, as a discontinued operation in our accompanying
financial statements. The other and larger component, our former CP segment, was not presented as a discontinued operation due to the significance of our ongoing involvement relating to our TSAs with
Vishay.

Subsequent
to the Divestiture in the fourth fiscal quarter ended June 30, 2007, our CEO redefined our business segments to better focus on the two key power management challenges,
energy savings and energy efficiency. Beginning in the fourth fiscal quarter ended June 30, 2007, we reported our financial segments based on how our CEO reviewed and allocated resources for
the business and assessed the performance of our business managers. We now report in seven segments: EP, PMD, PS, ESP, A&D, IP and TS.

As
part of the PCS Business sale to Vishay, we agreed to provide certain manufacturing and support services for up to three years following the closing date of the Divestiture, which is
reported separately in the TS segment. The results of the PCS Business through the Divestiture date were previously reported in the CP and NAP segments, consistent with prior years and in line with
our business segment reporting prior to our reorganization and the redefinition of our business segments by our CEO. As outlined above, for the fiscal year ended June 30, 2007, the financial
results of the NAP segment were included in discontinued operations and prior period results were correspondingly reclassified to conform to current period presentation. Financial results of the CP
segment were not included in discontinued operations. In addition, as part of our reorganization, whereas previously, power management MOSFETs were reported based on end market applications within the
ESP segment and our previously reported C&C segment (which has now been separated into EP, PMD and PS segments), they are now reported within the PMD segment.

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Table of Contents

Results of Operations

The following table sets forth certain items included in selected financial data as a percentage of revenues (in millions, except
percentages):

Fiscal Year Ended June 30,2008

2007

2006Revenues

$
984.8


100.0
%
$
1,202.5


100.0
%
$
1,014.8


100.0
%Cost of sales


662.0


67.2


741.1


61.6


588.9


58.0Gross profit


322.8


32.8


461.4


38.4


425.9


42.0Selling and administrative expense


293.1


29.8


212.1


17.6


196.8


19.4Research and development expense


105.8


10.7


122.8


10.2


104.1


10.3Impairment of goodwill


32.6


3.3











Amortization of acquisition-related intangible assets


4.7


0.5


1.9


0.2


3.3


0.3Asset impairment, restructuring and other charges


3.1


0.4


10.4


0.9


0.1


0.0Operating (loss) income


(116.5
)

(11.9
)

114.2


9.5


121.6


12.0Other expense (income), net


19.4


2.0


(6.3
)

(0.5
)

(15.8
)

(1.5
)Interest income, net


(29.1
)

(3.0
)

(16.0
)

(1.3
)

(6.8
)

(0.7
)(Loss) income from continuing operations before income taxes


(106.8
)

(10.9
)

136.5


11.3


144.2


14.2(Benefit from) provision for income taxes


(44.2
)

(4.5
)

63.0


5.2


94.0


9.3(Loss) income from continuing operations


(62.6
)

(6.4
)

73.5


6.1


50.2


4.9Income (loss) from discontinued operations, net of taxes








4.3


0.4


(13.7
)

(1.3
)Net (loss) income

$
(62.6
)

(6.4
)%
$
77.8


6.5
%
$
36.5


3.6
%


Fiscal Year 2008 Compared with Fiscal Year 2007

Revenues and Gross Margin

Revenue for the fiscal year ended June 30, 2008 was $1.0 billion, compared to $1.2 billion in the prior fiscal
year ended June 30, 2007. During fiscal year 2008, revenues decreased by 18.1 percent compared to fiscal year 2007. This year-over-year revenue decrease occurred
mostly due to fiscal year 2007 having three quarters of the PCS Business compared to none in 2008, the expiration of our broadest royalty-producing patents in the fourth quarter of fiscal year 2008,
and expected reductions in our channel inventory. During fiscal year 2008, we focused on reducing our channel inventories particularly in the fourth quarter. Since we recognize revenue upon shipment
to our channel partners, this initiative reduced our revenue compared to fiscal year 2007. Furthermore, we exited fiscal year 2007 with revenue declining in the second half of the fiscal year. This
trend continued to materialize in fiscal year 2008 as we saw declines in most of our segments. However, we did experience year-on-year strength in data center-related products,
including enterprise servers and workstations in the EP segment. Other segments also declined due to an overall market weakness resulting from decreased consumer spending and a downturn in the housing
market.

Gross
margin declined to 32.8 percent for fiscal year ended June 30, 2008, from 38.4 percent in the prior fiscal year. During the fiscal year ended June 30,
2008, our gross margin was negatively impacted by lower factory utilization in fiscal year 2008 compared to 2007 as volumes declined due to lower revenue, planned inventory reductions and a draw down
in our channel inventory. Furthermore, the Divestiture resulted in a lower base of revenue over which to absorb indirect manufacturing costs, and we did not complete a commensurate reduction in these
costs. In fiscal year 2008, our gross margin

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Table of Contents

decreased
as our TS revenue was $40.9 million higher than fiscal year 2007 with minimal or no gross margin attributed to that revenue. We also had $13.7 million lower gross
margin due to lower IP revenue as our broadest royalty-producing patents expired. These items that negatively impacted gross margin in fiscal year 2008 were partially offset by lower inventory
write-offs compared to fiscal year 2007. During fiscal year 2008, we recorded inventory charges totaling $29.8 million associated with a) products we deemed to be in excess of
demand or obsolete and no longer plan to support totaling $18.2 million, b) die component inventory that we determined to be in excess of demand totaling $9.6 million,
c) write-offs of $1.4 million related to channel inventory returns and d) quality issues of $0.6 million. During fiscal year 2007, we recorded inventory charges
totaling $45.3 million including a) products we deemed to be in excess of demand or obsolete and no longer plan to support totaling $25.7 million, b) quality issues in game
station products totaling $10.9 million and c) excess equipment spare parts inventory of $8.7 million.

Revenue
from our ongoing operating segments, which include the PMD, ESP, A&D, EP, PS and IP segments, decreased to $925.2 million for the fiscal year ended June 30, 2008,
from $1,014.5 million for the fiscal year ended June 30, 2007, due to a draw down of inventory in the channel, the expiration of our broadest royalty-producing patents and the overall
market decline. Ongoing segment revenues increased to 93.9 percent of our consolidated revenue for the fiscal year ended June 30, 2008, from 84.4 percent for fiscal year 2007.
Gross profit margin for these segments was 34.9 percent for the fiscal year ended June 30, 2008 and 42.5 percent for the prior fiscal year ended June 30, 2007. The gross
profit decline was due to lower factory utilization, a lower base of revenue over which to absorb indirect manufacturing costs, the expiration of our broadest royalty-producing patents and the
reduction of manufacturing volumes associated with the draw down of inventory in the channel.

Revenue
and gross margin by reportable segments are as follows (in thousands, except percentages):

June 30, 2008

June 30, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
373,947


38.0
%

21.2
%
$
416,464


34.6
%

33.7
%Energy-Saving Products


202,239


20.5


37.1


225,250


18.7


47.7Aerospace and Defense


152,855


15.5


50.4


157,008


13.1


51.2Enterprise Power


102,484


10.4


43.5


87,535


7.3


52.0PowerStage


63,197


6.4


25.4


84,070


7.0


15.5Intellectual Property


30,490


3.1


100.0


44,171


3.7


100.0Ongoing segments total


925,212


93.9


34.9


1,014,498


84.4


42.5Transition Services


59,618


6.1


0.4


18,730


1.6


7.5Commodity Products











169,241


14.0


17.1Consolidated total

$
984,830


100.0
%

32.8
%
$
1,202,469


100.0
%

38.4
%


PMD
segment revenue for the fiscal year ended June 30, 2008 decreased by 10.2 percent from the fiscal year ended June 30, 2007, due to reductions in channel
inventories and softening in the general market. Gross margin for the PMD segment declined to 21.2 percent for the fiscal year ended June 30, 2008, from 33.7 percent in the prior
fiscal year, primarily due to lower average selling price, lower factory utilization from lower revenue and lower manufacturing overhead absorption due to the Divestiture.

ESP
revenue decreased by 10.2 percent for the fiscal year ended June 30, 2008, from the fiscal year ended June 30, 2007. The revenue decrease was caused by a decline
in general purpose HVICs due to a reduction of inventory levels at distributors and general softening market demand. Gross margin for the ESP segment was 37.1 percent for the fiscal year ended
June 30, 2008, compared to

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Table of Contents

47.7 percent
in the prior fiscal year. The large volume decline in general purpose ICs reduced factory utilization and negatively impacted gross margin. In addition, production costs were
higher due to lower manufacturing overhead absorption due to the Divestiture.

A&D
revenue for the fiscal year ended June 30, 2008 decreased by 2.6 percent from the prior fiscal year ended June 30, 2007. The decline in revenue was driven by a
significant draw down in channel inventories and softening demand in our military replenishment programs. Strength in new markets for medical devices, fiber-optic communications and oil drilling
systems partially mitigated the overall revenue decline. Gross margin for the A&D segment declined to 50.4 percent for the fiscal year ended June 30, 2008, from 51.2 percent in
the prior fiscal year. The draw down in channel inventories impacted overall gross margins as these products were higher than average margin products.

EP
revenue for the fiscal year ended June 30, 2008 increased by 17.1 percent from the prior fiscal year ended June 30, 2007, due to increased demand in data
center-related products, including enterprise
servers and workstations in the EP segment. Gross margin for the EP segment decreased to 43.5 percent for the fiscal year ended June 30, 2008, from 52.0 percent in the prior
fiscal year. The gross margin was impacted by higher production costs in fiscal year 2008 due to under utilization of factory capacity and lower manufacturing overhead absorption due to the
Divestiture. Gross margins were also negatively impacted by $0.9 million of higher inventory write-offs in fiscal year 2008 versus 2007 associated with products we deemed obsolete
and no longer plan to support and die component inventory that we determined to be in excess of demand.

PS
revenue for fiscal year ended June 30, 2008 decreased by 24.8 percent from the prior fiscal year ended June 30, 2007, mainly due to lower sales of game station
products, as game station redesigns using new generation central processing units/graphics processing units ("CPU/GPUs") which require lower levels of power processing use fewer of our
iPOWIR® components. Gross margin for the PS segment increased to 25.4 percent for the fiscal year ended June 30, 2008, from 15.5 percent in the prior fiscal year, due
to $10.9 million of inventory write-offs related to quality issues in game station parts in fiscal year 2007 that did not repeat in fiscal year 2008. This gross margin improvement
was partially offset by $1.8 million of inventory related charges in fiscal year 2008 associated with products we deemed obsolete and no longer plan to support, die component inventory that we
determined to be in excess of demand and equipment spare parts.

IP
revenue was $30.5 million for the fiscal year ended June 30, 2008 compared to $44.2 million for the prior fiscal year. The decrease is due to the expiration of
our broadest MOSFET patents in the fourth quarter of fiscal year 2008.

TS
revenue was $59.6 million in fiscal year ended June 30, 2008 compared to $18.7 million in fiscal year ended June 30, 2007. The revenue increase was due to
having four quarters of TS revenue in fiscal year 2008 compared to one in the prior year. TS revenue consisted of new manufacturing and related services provided to Vishay. As part of the PCS sale
agreements, we supply manufacturing services to Vishay at approximately our cost. TS revenue is expected to continue for up to three years from the date of the Divestiture, which was April 1,
2007.

Selling and Administrative Expense

For the fiscal year ended June 30, 2008, selling and administrative expense was $293.1 million (29.8 percent of
revenue), compared to $212.1 million (17.6 percent of revenue) in the prior fiscal year ended June 30, 2007. Fiscal year 2008 selling and administrative expense included an
increase of $87.6 million of legal, audit and consulting costs associated with the Audit Committee-led Investigation, reconstruction of the financial results at our Japan
subsidiary, and restatements of multiple periods of consolidated financial statements. The Audit Committee-led Investigation and the financial restatements have continued through fiscal
year 2008 and as of June 30, 2008, these costs totaled $104.8 million with $96.2 million recorded in fiscal year 2008 and $8.6 million recorded in fiscal year

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Table of Contents

2007.
These costs, combined with consulting expenses in support of preparing our Annual Report on Form 10-K for our fiscal year 2008, are expected to total more than $125.0 million of
which approximately $20.0 million relates to the first quarter of fiscal year 2009.

Excluding
costs associated with the Audit Committee-led Investigation, there was a $6.6 million decrease in selling and administrative expense from fiscal years 2007 to 2008. This
decrease in selling and administrative expenses mainly due to cost reductions following the Divestiture was partially offset by stock option charges increasing from $8.6 million in fiscal year
2007 to $9.0 million in fiscal year 2008.

Research and Development Expense

For the fiscal year ended June 30, 2008 and 2007, R&D expense was $105.8 million and $122.8 million
(10.7 percent and 10.2 percent of revenue, respectively). The reason for the decline in R&D spending was primarily due to headcount reductions associated with lower revenue following the
Divestiture. We realized year-over-year cost savings of $1.6 million relating to facility closures in Oxted, England and El Segundo, California. In the third quarter of fiscal year 2008,
we adopted a plan for the closure of these facilities. The cost associated with closing and exiting these facilities and severance costs are expected to total approximately $13.8 million. Of
this amount, approximately $12.2 million represents the cash outlay related to this initiative in future periods. We expect the closure and exiting of these two facilities to be completed by
the end of the second quarter of fiscal year 2010. We continue to concentrate our R&D activities on developing new platform technologies, as well as our power management ICs and the advancement and
diversification of our HEXFET®, power MOSFET and IGBT product lines. We have been developing and introducing some of the most advanced power management products and new architectures for
the next generation of applications, including new game stations, industrial electronic motors, digital televisions,
high-performance servers, hybrid vehicles and energy-efficient appliances. Additionally stock option charges decreased from fiscal year 2007 to fiscal year 2008 by $2.5 million.

Impairment of Goodwill

In the fourth quarter of fiscal year 2008, we assessed our goodwill for impairment. Our assessment considered current economic
conditions and trends, estimated future operating results, anticipated future economic conditions and technology. After completing the first step in the Goodwill impairment analysis, we concluded that
the Goodwill in the PS and PMD segments should be impaired. Several factors led to a reduction in forecasted cash flows, including, among others, lower than expected performance in our PS segment, and
softening demand and pricing for our products in the PMD segment. Based on the results of the annual assessment of goodwill for impairment, the net book value of two of our reporting units, PMD
and PS, exceed their estimated fair value determined using a discounted cash flow analysis. Our initial assessment of our IP segment in the fourth quarter of fiscal year 2008 also indicated a
potential impairment for this segment. However, subsequent to this analysis, we signed an extension to an existing license agreement which improved our forecasted cash flows for the IP segment, and we
determined that no goodwill impairment would be required. We performed the second step of the impairment test to the PMD and PS segments and recorded goodwill impairment charges of
$28.7 million relating to PMD and $3.9 million relating to PS.

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Table of Contents

Asset Impairment, Restructuring and Other Charges

The following table sets forth the charges we recorded in the fiscal years ended June 30, 2008, 2007, and 2006 related to our
restructuring initiatives (in thousands):

2008

2007

2006Reported in cost of sales

$


$
1,001

$
3,444Reported in asset impairment, restructuring and other charges:Asset impairment

$


$
5,878

$
397Severance


2,670


5,073


(690
)Other charges


410


620


3,194Subtotal


3,080


11,571


2,901Discontinued operations





(1,173
)

(2,814
)Total asset impairment, restructuring and other charges

$
3,080

$
10,398

$
87


The December 2002 Initiative

In December 2002, we announced a restructuring initiative to better reposition ourselves for market conditions at the time and
de-emphasize our commodity business. Our restructuring plans included consolidating and closing certain manufacturing sites in designated facilities and discontinuing production in other
facilities that could not support more advanced technology platforms or products. In addition, we sought to implement initiatives to lower overhead costs across our support organizations. As of
December 31, 2006, these restructuring activities were substantially completed. The following illustrates the charges we recorded in the fiscal years ended June 30, 2007 and 2006,
related to our December 2002 restructuring initiative (in thousands):

2008

2007

2006Reported in cost of sales

$


$
1,001

$
2,918Reported in asset impairment, restructuring and other charges:Asset impairment

$


$


$
91Severance





111


(932
)Other charges





475


2,499Total asset impairment, restructuring and other charges

$


$
586

$
1,658


Charges
recorded as an element of cost of sales in 2007 and 2006 represent costs from the closure of our assembly line in Krefeld, Germany and the move of those
manufacturing activities to our facility in Swansea, Wales. The principal elements of those costs related to startup and transition costs, including:



Severance
credits in fiscal year 2006 represent reversals of our severance accruals stemming from downward changes in our estimates of our ultimate severance liability under the
December 2002 initiative. In 2006, the credit of $0.9 million is principally comprised of a downward revision of $1.6 million in our severance accrual as we completed an
initiative to consolidate certain A&D manufacturing operations. This amount was partly offset by severance expense of $0.7 million mainly relating to our Mexico facility.

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Other charges reflect the costs to relocate equipment related to the consolidation and closing of certain of our manufacturing sites and to discontinue production
at designated facilities. In 2006, we incurred $2.5 million principally related to contract termination costs and plant closure costs. These costs were principally incurred in connection with
the relocation of operations from our Krefeld facility to our Swansea facility.

The PCS Divestiture Initiative

During the fiscal year ended June 30, 2007, in anticipation of the sale of the PCS Business, which represented about
one-fourth of our business, we reviewed our overall manufacturing and support organizations and began to implement various cost-cutting measures. Our actions included
terminating approximately 100 employees who were part of the PCS Business, but ultimately not hired by Vishay. As part of the employee terminations, we recorded $5.0 million in
restructuring-related severance charges for the fiscal year ended June 30, 2007. The following illustrates the charges we recorded in the fiscal years ended June 30, 2007 and
2006 related to our PCS restructuring initiative (in thousands):

2008

2007

2006Reported in cost of sales

$


$


$
526Reported in asset impairment, restructuring and other charges:Asset impairment

$


$
5,878

$
Severance





4,962


240Other charges





158


457Total asset impairment, restructuring and other charges

$


$
10,998

$
697


We
recorded $5.9 million in asset impairment charges during fiscal year 2007 relating to certain property, plant and equipment not acquired by Vishay in connection with the
Divestiture.

Other Activities and Charges

From time to time, we also undertake and execute other smaller scale restructuring initiatives at our local sites. The following
illustrates the charges (credits) we recorded in the fiscal years ended June 30, 2008, 2007 and 2006 related to our other restructuring activities (in thousands):

2008

2007

2006Reported in cost of sales

$


$


$
Reported in asset impairment, restructuring and other charges (credits):Asset impairment

$


$


$
306Severance


2,670





2Other charges (credits)


410


(13
)

238Total asset impairment, restructuring and other charges (credits)

$
3,080

$
(13
)
$
546


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 expected to total approximately $13.8 million. Of this amount, approximately $12.2 million represents the
cash outlay related to this initiative in future periods. In fiscal year 2008, severance charges consisted of $1.2 million related to the closure of our Oxted facility and $1.5 million
related to our El Segundo facility. We expect the closure and exiting of these two facilities to be completed by the end of the second quarter of fiscal year 2010.

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Other Income and Expense

Other expense (income) was $19.4 million and $(6.3) million for the fiscal years ended June 30, 2008 and 2007,
respectively. The change is primarily due to investment impairment charges of $8.4 million in the second half of fiscal year 2008, a charge for debt retirement of $5.7 million in the
first quarter of fiscal year 2008, a write off of $3.6 million related to our investment in the common stock of a non-publicly traded company in the fourth quarter of fiscal
year 2008 and lower gains on foreign exchange transactions. Other expense (income) primarily includes foreign currency fluctuations, dividend income from our equity investments and investment
impairments.

In
the fiscal year ended June 30, 2007, we recognized foreign currency exchange gains of $3.8 million compared to a minimal loss in the fiscal year ended June 30,
2008.

Interest Income and Expense

Interest income was $33.0 million and $54.6 million for the fiscal years ended June 30, 2008 and 2007,
respectively, reflecting higher prevailing interest rates on lower average cash and investments balances during the fiscal year 2008 due primarily to the repayment of the $550.0 million
convertible subordinated notes ("Notes") on July 16, 2007, the $74.0 million payment of income taxes, and the payment of Investigation-related expenses throughout the fiscal
year of $96.2 million, offset by cash from operations.

Interest
expense was $3.9 million and $38.6 million for the fiscal years ended June 30, 2008 and 2007, respectively, primarily reflecting a lower interest expense
due to the repayment of the Notes on July 16, 2007.

Income Taxes

The rate of tax from continuing operations was (41.4) percent and 46.1 percent for the fiscal years ended June 30,
2008 and 2007, respectively. The rate for the fiscal year ended June 30, 2008 was higher than the expected U.S. federal statutory tax rate of 35 percent primarily from the availability
of carrying back current operating losses, the release of tax contingencies largely related to certain penalties, R&D and foreign tax credits, and lower statutory rates in certain jurisdictions, which
were partially offset by the impairment of goodwill, deemed foreign distributions, and an increase in tax contingencies. The rate for the fiscal year ended June 30, 2007 was higher than the
expected U.S. federal statutory tax rate of 35 percent primarily from actual and deemed foreign distributions, an increase in penalties and interest, transfer pricing adjustments resulting in
double taxation, and state taxes; partially offset by the tax benefit from the Divestiture, the benefit of R&D and foreign tax credits.

Fiscal Year 2007 Compared with Fiscal Year 2006

Revenues and Gross Margin

Revenue for the fiscal year ended June 30, 2007 was $1.2 billion, compared to $1.0 billion in the prior fiscal
year ended June 30, 2006. During fiscal year 2007, revenues increased by 18.5 percent compared to fiscal year 2006. The Divestiture was consummated on April 1, 2007; therefore,
the year-over-year revenue increase occurred even though fiscal year 2007 included only three quarters of the PCS Business compared to four quarters of the PCS Business in
2006. Although full year revenue growth was strong, we exited fiscal year 2007 with revenue declining in the second half of the fiscal year. This revenue decline was due to an overall market decline
resulting from decreased consumer spending, a downturn in the housing market, and higher distributor channel inventories. In addition to the market conditions, we experienced higher than expected
product returns resulting from quality issues with certain next-generation game station products.

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Gross
margin declined to 38.4 percent for fiscal year ended June 30, 2007, from 42.0 percent in the prior fiscal year. Our fiscal year 2007 gross profit was
negatively impacted by a write-off of $45.3 million of inventory including a) $25.7 million of inventory for products we deemed to be in excess of demand or obsolete
and no longer plan to support, b) $10.9 million related to quality issues in game station products and c) $8.7 million related to the write-off of excess
equipment spare parts inventory, compared to a $5.5 million Japan-related inventory write-off and an excess and obsolescence write off of $8.2 million in fiscal
year 2006. In fiscal year 2007, we also incurred higher than normal production costs primarily due to increased qualification expenses from the introduction of new products used in
next-generation game stations and servers. These costs were partially offset by favorable utilization of our other factories as we built inventory in the second half of fiscal year 2007.

Revenue
from our ongoing operating segments, which include the PMD, ESP, A&D, EP, PS and IP segments, increased to $1,014.5 million for the fiscal year ended June 30, 2007,
from $816.7 million for the fiscal year ended June 30, 2006, reflecting growth in all segments, as further described below. These revenues increased to 84.4 percent of our
consolidated revenue for the fiscal year ended June 30, 2007, from 80.5 percent for fiscal year 2006. Gross profit margin for these segments was 42.5 percent for the fiscal year
ended June 30, 2007 and 46.8 percent for the prior fiscal year ended June 30, 2006. The gross profit declined mostly due to inventory write-offs mentioned above.

Revenue
and gross margin by reportable segments are as follows (in thousands, except percentages):

June 30, 2007

June 30, 2006Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
416,464


34.6
%

33.7
%
$
369,974


36.5
%

36.6
%Energy-Saving Products


225,250


18.7


47.7


200,607


19.8


52.5Aerospace and Defense


157,008


13.1


51.2


131,062


12.9


48.1Enterprise Power


87,535


7.3


52.0


68,280


6.7


54.4PowerStage


84,070


7.0


15.5


7,962


0.8


36.0Intellectual Property


44,171


3.7


100.0


38,839


3.8


100.0Ongoing segments total


1,014,498


84.4


42.5


816,724


80.5


46.8Transition Services


18,730


1.6


7.5








Commodity Products


169,241


14.0


17.1


198,076


19.5


21.9Consolidated total

$
1,202,469


100.0
%

38.4
%
$
1,014,800


100.0
%

42.0
%


PMD segment revenue for the fiscal year ended June 30, 2007 increased by 12.6 percent from the fiscal year ended June 30,
2006, reflecting growth in multiple end markets, including desktop and laptop computers, associated consumer electronics, and industrial and commercial battery-powered applications. Gross
margin for the PMD segment declined to 33.7 percent for the fiscal year ended June 30, 2007, from 36.6 percent in the prior fiscal year, primarily due to a $7.4 million
excess equipment spare parts inventory write-off and a $2.8 million inventory write-off related to an older technology that we no longer support.

ESP
revenue increased by 12.3 percent for the fiscal year ended June 30, 2007, reflecting growth in consumer spending for energy-efficient appliances and
digital televisions partially offset by second half of 2007 lower demand for general purpose high voltage ICs that are primarily sold through our distribution channels. Gross margin for the ESP
segment was 47.7 percent for the fiscal year ended June 30, 2007, compared to 52.5 percent in the prior fiscal year. The decrease was primarily due to declining demand for high
margin, high voltage ICs, a decline in price of IGBTs, increased manufacturing costs from lower factory utilization, a $0.9 million inventory write-off related to products we no
longer support and a $0.8 million write-off associated with excess equipment spare parts inventory.

A&D
revenue for the fiscal year ended June 30, 2007 increased by 19.8 percent from the prior fiscal year ended June 30, 2006, reflecting first half of fiscal year
2007 growth in commercial and

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military
surveillance satellite programs coupled with commercial aircraft programs. Gross margin for the A&D segment increased to 51.2 percent for the fiscal year ended June 30, 2007,
from 48.1 percent in the prior fiscal year, reflecting manufacturing and design efficiencies, along with a strong demand for our space-grade products, partially offset by
$3.3 million of inventory write-offs for older A&D programs that we no longer support.

EP
revenue for fiscal year ended June 30, 2007 increased by 28.2 percent from the prior fiscal year ended June 30, 2006, due to first half of 2007 strength in data
center-related products,
including enterprise servers and workstations in the EP segment. Gross margin for the EP segment decreased to 52.0 percent for the fiscal year ended June 30, 2007, from
54.4 percent in the prior fiscal year. Gross margin declined primarily due to a write-off of $2.2 million of low voltage IC inventory that we no longer sell.

PS
revenue for fiscal year ended June 30, 2007 increased $76.1 million from the prior fiscal year ended June 30, 2006, due to a significant increase in the demand
for our game station products. Although we benefited from large growth in fiscal year 2007 from game station demand, we are expecting this demand to decline in fiscal year 2008 due to game station
redesigns using new generation CPU/GPUs which require lower levels of power processing and therefore use fewer of our iPOWIR® components. Gross margin for the PS segment decreased to
15.5 percent for the fiscal year ended June 30, 2007, from 36.0 percent in the prior fiscal year, reflecting $10.9 million in inventory write-offs related to
quality issues in game station parts and a $0.9 million write-off of excess and obsolete inventory and equipment spare parts, and a lower average selling price on the latest
generation game station parts.

IP
revenue was $44.2 million for the fiscal year ended June 30, 2007 compared to $38.8 million for the prior fiscal year. The increase reflects opportunistic
licensing of non-MOSFET technology. We expect that with the expiration of our broadest MOSFET patents in 2008, most of our IP segment revenue will cease in the fourth quarter of fiscal
year 2008, and our gross profit will be adversely impacted accordingly; however, we plan to continue to enter into opportunistic licensing arrangements that we believe are consistent with our business
strategy.

TS
revenue consisted of the new manufacturing and related services provided to Vishay beginning in the fourth fiscal quarter ended June 30, 2007. As part of the Divestiture, we
agreed to supply these services to Vishay at negotiated prices that are at or below our cost for up to three years following the closing date of the Divestiture. In addition, Vishay agreed to supply
certain die products to us, subject to certain terms in connection with the Divestiture. The fair value of these transition agreements was recorded at $20.0 million for the transition services
we provide to Vishay and $3.4 million for the transition services Vishay provides to us. We expect the gross profit for the TS segment to be near zero.

For
the fiscal year ended June 30, 2007, CP revenue was $169.2 million compared to $198.1 million in the fiscal year ended June 30, 2006. The decline
reflects the discontinuation of the CP business upon its sale to Vishay on April 1, 2007. As a consequence of the timing of this sale, fiscal year 2006 includes four quarters of
CP revenue while fiscal year 2007 includes three quarters of CP revenue. Gross margin for the CP segment decreased to 17.1 percent for the fiscal year ended June 30,
2007, from 21.9 percent in the prior fiscal year, reflecting a lower average selling price due to competitive demand.

Selling and Administrative Expense

For the fiscal year ended June 30, 2007, selling and administrative expense was $212.1 million (17.6 percent of
revenue), compared to $196.8 million (19.4 percent of revenue) in the prior fiscal year ended June 30, 2006. Fiscal year 2007 selling and administrative expense included
$8.6 million of legal, audit and consulting costs associated with the Audit Committee-led Investigation, reconstruction of the financial results at our Japan subsidiary, and
restatements of multiple periods of consolidated financial statements.

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Excluding
costs associated with the Audit Committee-led Investigation, the selling and administrative expense increase from fiscal years 2006 to 2007 was primarily due to
$6.5 million of increased legal expenses and $6.3 million of higher stock option compensation charges. Additionally, there was an increase in selling expense and commission reflecting
variable costs on higher revenue and increased investment in information technology infrastructure. This increase in selling and administrative expense was partially offset in the fourth quarter of
fiscal year 2007 by cost reductions following the Divestiture.

Research and Development Expense

For the fiscal year ended June 30, 2007 and 2006, R&D expense was $122.8 million and $104.1 million
(10.2 percent and 10.3 percent of revenue, respectively), primarily reflecting increased spending for new platform technology, increased investment in A&D product development, and an
increased stock compensation charge of $3.1 million. Our R&D program focuses on power management ICs and the advancement and diversification of our HEXFET®, power MOSFET and IGBT
product lines. We have been developing and introducing some of the most advanced power management products and new architectures for the next generation of applications, including new game stations,
industrial electronic motors, digital televisions, high-performance servers, hybrid vehicles and energy-efficient appliances.

Stock Option Plan Modifications

Our employee stock option plan typically provides terminated employees a period of thirty days from date of termination to exercise
their vested stock options. In certain circumstances, we have extended that thirty-day period for a period consistent with the plan. In accordance with SFAS No. 123 (Revised 2004)
"Share-Based Payment" ("SFAS No. 123(R)"), the extension of the exercise period was deemed to be a modification of stock option terms. Additionally, certain of these modified awards
have been classified as liability awards within other accrued expenses. Accordingly, at the end of each reporting period, we determine the fair value of those awards and recognize any change in fair
value in our consolidated statements of operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the
mark-to-market adjustments of the liability awards included in other accrued expenses, we recorded a charge of $5.9 million for the fiscal year ended June 30,
2007 that was classified in cost of sales and operating expense.

Asset Impairment, Restructuring and Other Charges

Refer to "Fiscal Year 2008 Compared with Fiscal Year 2007Asset Impairment, Restructuring and Other Charges" above for the
information about our restructuring charges.

The Divestiture

On April 1, 2007, we sold our PCS Business to Vishay for $339.6 million, including $14.5 million of restricted
cash temporarily held in escrow to cover indemnity obligations, if any, and the net cash retained from the assets of the entities being sold totaling approximately $49.4 million. As discussed
in Part II, Item 8, Note 2, "Discontinued Operations and the Divestiture," in fiscal year 2007 we deferred recognition of the gain from continuing operations of
$116.1 million. However, we did recognize in fiscal year 2007 a loss from discontinued operations of $4.3 million.

Other Income and Expense

Other (income) expense was $(6.3) million and $(15.8) million for the fiscal years ended June 30, 2007 and 2006,
respectively. In the fiscal year ended June 30, 2007, we recognized foreign currency exchange gains of $3.8 million.

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Table of Contents

In
the fiscal year ended June 30, 2006, we recognized $13.6 million of gain from the sale of a portion of our equity investment in Nihon Inter Electronics Corporation
("Nihon"), a related party (see Part II, Item 8, Note 14, "Related Party Transactions").

Interest Income and Expense

Interest income was $54.6 million and $33.2 million for the fiscal years ended June 30, 2007 and 2006,
respectively. The increase in income reflected higher prevailing interest rates and a higher average cash and investments balance during the fiscal year 2007.

Interest
expense was $38.6 million and $26.4 million for the fiscal years ended June 30, 2007 and 2006, respectively. The increase in current period expense
primarily reflected a higher effective interest rate payable on our Notes outstanding, which were subsequently paid at maturity on July 16, 2007 (see Part II, Item 8,
Note 5, "Bank Loans and Long-Term Debt").

Income Taxes

The tax rate on income from continuing operations was 46.1 percent and 65.2 percent for the fiscal years ended
June 30, 2007 and 2006, respectively. The rate for the fiscal year ended June 30, 2007 was higher than the expected U.S. federal statutory tax rate of 35 percent primarily from
actual and deemed foreign distributions, an increase in penalties and interest, transfer pricing
adjustments resulting in double taxation, and state taxes; partially offset by the tax benefit from the Divestiture, the benefit of R&D and foreign tax credits, and the benefit of export incentives.
The tax provision for the fiscal year ended June 30, 2006 was higher than the expected U.S. federal statutory rate of 35 percent primarily from transfer pricing adjustments resulting in
double taxation, additional tax expense associated with the distribution of earnings previously treated as permanently reinvested and the special dividend repatriation from certain controlled foreign
subsidiaries under the American Jobs Creation Act of 2004, and an increase in penalties and interest, which was partially offset by the benefit of R&D and foreign tax credits, lower statutory rates in
certain foreign jurisdictions, and the benefit of export incentives. Due to errors in our transfer pricing related to intercompany transactions, we filed amended income tax returns in Singapore for
fiscal years 2004 through 2006 claiming tax refunds and asserted a claim for tax refunds for fiscal years 2001 and 2003. The benefit of these claims has not been recognized in our restated financial
statements because the likelihood that the Singapore tax authority will refund these amounts is not probable. Consequently, we have recorded both U.S. federal income tax and Singapore income tax with
respect to certain intercompany transactions in these fiscal years. The effective tax rates were based on tax law in effect at June 30, 2007 and 2006, respectively.

We
also recognized a tax benefit of $18.1 million in connection with the Divestiture of which $11.7 million was attributed to discontinued operations.

Discontinued Operations

The amounts and disclosures in this Annual Report on Form 10-K present the result of reclassifying the operating
results of our NAP segment to Discontinued Operations, net of applicable income taxes, for all reporting periods presented.

On
April 1, 2007, we completed the Divestiture and the resulting sale of our PCS Business to Vishay for $339.6 million. We received $339.6 million in cash in the
month following closing, including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and approximately $49.4 million of net cash
retained from the assets of the entities being sold. As discussed in Part II, Item 8, Note 2, "Discontinued Operations and the Divestiture," we deferred in fiscal year 2007
recognition of the gain from continuing operations of $116.1 million. However, we did recognize in fiscal year 2007 a loss from discontinued operations of $4.3 million.

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Table of Contents

The Divestiture included essentially two components of our business. We have reported one of these components, our former NAP segment, as a discontinued
operation in our accompanying financial statements. Our former NAP segment included certain modules, rectifiers, diodes and thyristors used in the automotive, industrial, welding and motor
control applications. The other and larger component, our former CP segment, was not presented as a discontinued operation due to the significance of our ongoing involvement due to our TSAs with
Vishay.

The
following table summarizes results from Discontinued Operations for the periods indicated (in thousands, except per share data):

Fiscal Year Ended
June 30,2007

2006Revenues

$
85,060

$
110,190Cost of sales


75,176


100,010Gross profit


9,884


10,180Selling and administrative expense


8,101


9,756Research and development expense


3,862


6,266Amortization of acquisition-related intangible assets


320


920Asset impairment, restructuring and other charges


1,173


2,814Operating loss from discontinued operations, before taxes


(3,572
)

(9,576
)Operating loss on sale of discontinued operations, before taxes


(4,262
)

Operating loss from discontinued operations and loss on sale of discontinued operations, before taxes


(7,834
)

(9,576
)Income tax benefit (provision)


12,089


(4,078
)Income (loss) from discontinued operations, net of taxes

$
4,255

$
(13,654
)Income (loss) from discontinued operations, per common share:Basic

$
0.06

$
(0.20
)Diluted

$
0.06

$
(0.19
)Average common shares outstandingbasic


72,421


70,914Average common shares and potentially dilutive securities outstandingdiluted


72,933


71,753


Included
in the determination of Net income for fiscal year 2007, we have, in connection with the Divestiture transaction, recorded a tax benefit of $18.1 million, of which
$11.7 million was attributed to discontinued operations.

Liquidity and Capital Resources

At June 30, 2008, we had $725.9 million of total cash (excluding $19.4 million of restricted cash), cash
equivalents and investments, consisting of available-for-sale fixed income and investment-grade securities. As of the fiscal years ended June 30, 2008 and 2007, fair
market values of our mortgage-backed and asset-backed securities were $168.2 million (23.2 percent of cash and cash equivalents, short-term and long-term
investments) and $209.2 million (16.1 percent of cash and cash equivalents, short-term and long-term investments), respectively (see Part II,
Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" for discussions about our investment strategy.) In fiscal year 2008, we recorded an $8.4 million charge for an
other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair market values through
June 30, 2008.

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Total
cash, cash equivalents, and investments at the end of each year were as follows (in thousands):

Fiscal Year Ended June 30,2008

2007Cash and cash equivalents

$
320,464

$
853,040Investments


405,419


449,896Total cash, cash equivalents, and investments

$
725,883

$
1,302,936


Our
cash flows were as follows (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Cash flows provided by operating activities

$
36,400

$
185,418

$
136,438Cash flows (used in) provided by investing activities


(12,687
)

271,792


(170,859
)Cash flows (used in) provided by financing activities


(554,950
)

(90,507
)

153,097Effect of exchange rates


(1,339
)

3,430


4,253Net (decrease) increase in cash and cash equivalents

$
(532,576
)
$
370,133

$
122,929


During
the fiscal year ended June 30, 2008, operating activities generated cash flow of $36.4 million compared to $185.4 million generated in the prior fiscal year
ended June 30, 2007. Non-cash increase to cash flow from operations during the fiscal year ended June 30, 2008 included $82.9 million of depreciation and amortization,
$32.6 million of goodwill impairment, $29.8 million in inventory write-downs, and $11.1 million of stock compensation expense. Changes in operating assets and liabilities
decreased cash by $42.7 million, primarily attributed to decreases in accrued taxes and other accrued liabilities, offset by decreases in trade accounts receivable, inventories and prepaids and
other receivables.

Cash
used in investing activities during the fiscal year ended June 30, 2008 consisted primarily of $41.8 million of capital equipment purchases. Proceeds from sale or
maturities of investments were $342.3 million, offset by $311.1 million of cash used to purchase investments. As of June 30, 2008, we had purchase commitments for capital
expenditures of approximately $3.3 million. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand, anticipated cash flow from
operations and available credit facilities.

Cash
used in financing reflected primarily the repayments of the Notes and foreign accounts receivable financing facilities. On July 16, 2007, we funded the payment at maturity of
our Notes due on July 16, 2007. The funding included a final interest payment of $11.7 million. In connection with the final maturity and payment of the Notes, we recorded a debt
retirement charge of $5.7 million from the concurrent termination of related interest rate swap transactions during the first fiscal quarter ended September 30, 2007 (see also
Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" and Part II, Item 8, Note 4, "Derivative Financial Instruments").

In
June 2006, our subsidiary in Singapore entered into a Credit Agreement with Bank of America, N.A. ("BoA"). Pursuant to the Credit Agreement, BoA loaned $81.0 million to the
Singapore subsidiary, bearing interest at the rate of London Interbank Offered Rate ("LIBOR") plus 1.0 percent and maturing on June 26, 2008. In conjunction with the Credit Agreement, we
entered into a guaranty in favor of BoA to guarantee the payment and performance of obligations by its Singapore subsidiary.

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In
January 2007, our subsidiary in Singapore made a prepayment of $26.0 million on the loan, and in May 2007, the Singapore subsidiary prepaid the remaining balance on the loan of
$55.0 million.

We
had been a party to a three-year syndicated multi-currency revolving credit facility led by BNP Paribas (the "BNP Facility") that expired in November 2006. The BNP
Facility provided a credit line of $150.0 million, of which up to $150.0 million could have been used for standby letters of credit. At June 30, 2006, we had $30.3 million
in foreign loans and $25.0 million in letters of credit outstanding under the BNP Facility.

We
had four accounts receivable financing facilities in Japan which we either cancelled or let expire as of June 30, 2008.

On
November 6, 2006, we entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank ("JPM"), BoA,
HSBC Bank USA, and Deutsche Bank AG (the "Facility"), to replace the BNP Facility. The Facility expires in November 2011 and provides a credit line of $150.0 million with an option to increase
the Facility limit to $250.0 million. Up to $75.0 million of the Facility may be used for standby letters of credit and up to
$10.0 million may be used for swing-line loans. The Facility bears interest at (i) local currency rates plus (ii) a margin between 0.0 percent and
0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on our senior leverage ratio. Other
advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility ranges between 0.175 and 0.25 percent of the unused portion of the total Facility,
depending upon our senior leverage ratio. The Facility also contains certain financial and other covenants, with which we were in compliance at June 30, 2008. We pledged as collateral shares of
certain of our subsidiaries.

The
Facility has been amended by (together, the "Facility Amendments"): an Amendment No. 1 to the Facility dated May 4, 2007, an Amendment No. 2 to the Facility
dated June 27, 2007, an Amendment No. 3 to the Facility dated September 13, 2007, an Amendment No. 4, to the Facility dated December 14, 2007 and an Amendment
No. 5, to the Facility dated March 17, 2008. Pursuant to these Facility Amendments, our lenders agreed that we would not be deemed in default with respect to certain representations,
warranties, covenants and reporting requirements during a period ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders had no obligation to make any
extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until, among other things, the lenders have received our audited
consolidated financial statements, reasonably satisfactory to the lenders, and no other default (as defined in the Facility) exists. As set forth in the Facility Amendments, we agreed to provide cash
collateral for the outstanding letters of credit under the Facility and paid amendment fees to the lenders. We intend to reinstate the Facility following the satisfaction of the necessary conditions,
but there can be no assurance that we will be successful (see Part I, Item 1A, "Risk FactorsOur liquidity may be subject to the availability of a credit facility upon
acceptable terms and conditions"). Although we are not able to access the Facility except for the renewal of outstanding letters of credit, we believe we have sufficient cash, cash equivalents, cash
investments and cash flows from operations to meet current foreseeable working capital and other operating cash requirements.

On
July 30, 2008, we and the lender parties to the Facility amended the Facility by Amendment No. 6 that extends the current accommodation through November 30, 2008
and provides that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of our current filings with the SEC and if we are in a position to
satisfy the other applicable conditions of the Facility, the lenders shall notify us in writing either (i) that extensions of credit are available under the Facility to us or (ii) that
the Facility must be amended on such further terms and conditions as reasonably requested by such lenders. Pending the receipt of such notice and, if applicable, execution of such further amendment to
the Facility, we are not able to access the Facility. The Amendment

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provides
that failure by us to provide full cash collateral for the approximately $4.3 million of letters of credit currently outstanding will result in termination of the Amendment.

As
further disclosed in Part II, Item 8, Note 4, "Derivative Financial Instruments," we had entered into a five-year foreign exchange forward contract in
May 2006 with BNP Paribas (the "Forward Contract") for the purpose of reducing the effect of exchange rate fluctuations on forecasted
intercompany purchases by our Japan subsidiary. Under the terms of the Forward Contract, we were 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, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS No. 133
Implementation Issue No. G3 "Cash Flow Hedges, Discontinuation of a Cash Flow Hedge," ("SFAS No. 133") the net gain at the Forward Contract's termination date will continue to be
reported in other comprehensive income and recognized over the originally specified time period through March 2011, until it is probable that the forecasted transaction will not occur by the end of
the originally specified time period or within an additional two-month period of time thereafter.

In
connection with certain tax matters described in Part II, Item 8, Note 9, "Income Taxes," we prepared and filed in September 2007 amended U.S. federal tax returns
for the fiscal years 2004 through 2006. In conjunction with the filing of these amended tax returns and extensions related to U.S. federal and state income tax returns for the fiscal year ended
June 30, 2007, we remitted income taxes and interest in the aggregate amount of $74.0 million to the IRS and state taxing agencies. Upon filing the amended returns and paying the
interest due on the indicated underpayment of tax, we released during the first quarter of fiscal year 2008, from accrued income taxes, $13.7 million of accrued penalty and related interest for
the underpayment of income taxes due for the fiscal years 2004 to 2006 that we determined would have been payable in those years and paid approximately $44.3 million in taxes and
$4.2 million for accrued interest on those taxes. We also paid, in the first quarter of fiscal year 2008, the IRS and state taxing agencies approximately $25.5 million upon the filing of
fiscal year 2007 extensions. Additionally, during fiscal year 2008, we filed Forms 3115 to change certain tax accounting methods with respect to the fiscal years ended June 30, 2001
through June 30, 2006. As a consequence of filing the Forms 3115, we reversed, throughout fiscal year 2008, approximately $1.2 million of accrued penalties and related interest
for the fiscal years ended June 30, 2001 through June 30, 2006.

We
are pursuing refunds for income taxes we believe to have overpaid in certain jurisdictions and have recorded in the financial statements a $15.2 million tax benefit. In certain
other jurisdictions, we cannot determine that the realization of the tax refunds of $59.3 million is probable and as such, we have not recognized them as income tax benefits in its financial
statements. We have determined that we have overpaid $49.0 million of income taxes (which is included in the $59.3 million) in Singapore as a result of changes in our transfer pricing of
intercompany transactions.

We
have determined that in fiscal year 2009 we will file amended U.S. federal income tax returns and consequently will pay approximately $14.2 million in taxes and
$13.2 million in related interest and penalties to the IRS in connection with uncertain tax positions recorded for fiscal years 2001 through 2003.

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Contractual Obligations

Our contractual obligations, including the income taxes payable described above, as of the fiscal year ended June 30, 2008, are
as follows (in thousands):

Payments Due by PeriodContractual Obligations

Total

Less than
1 Year

1 - 2
Years

2 - 3
Years

3 - 4
Years

4 - 5
Years

5 Years &
ThereafterTaxes payable

$
52,090

$
30,943

$
21,147

$


$


$


$
Operating leases


24,363


8,110


6,589


5,420


1,893


1,281


1,070Capital equipment purchase commitments


3,334


3,334














Other purchase commitments


22,425


7,876


4,353


2,811


2,742


2,672


1,971Total contractual obligations

$
102,212

$
50,263

$
32,089

$
8,231

$
4,635

$
3,953

$
3,041


Off-Balance Sheet Arrangements

Apart from the operating lease obligations and purchase commitments discussed above, we do not have any off-balance sheet
arrangements as of the fiscal years ended June 30, 2008 and 2007.

Recent Accounting Pronouncements

Information set forth under Part II, Item 8, Note 1, "Business, Basis of Presentation and Summary of Significant
Accounting PoliciesRecent Accounting Pronouncements" is incorporated herein by reference.

Critical Accounting Policies and Estimates

The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on the results of our
operations. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Although we
have based our estimates on the latest available historical information as well as known or foreseen trends, we cannot guarantee that we will continue to experience the same pattern in the future. If
the historical data and assumptions we used to develop our estimates do not properly reflect future activity, our net sales, gross profit, net income and earnings per share could be materially and
adversely impacted. We also have other policies that we consider key accounting policies.

Revenue Recognition and Allowances

In accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," we recognize revenue when evidence of an
arrangement exists, pricing is fixed or determinable, collection is reasonably assured, and delivery or performance of service has occurred. We recognize revenue based on established terms and
conditions with our customers, which are generally upon shipment for product sales. Certain of our customers' contracts contain substantive acceptance provisions. In such circumstances, we recognize
revenue in accordance with specific contract acceptance provisions, in most instances upon customer inspection or upon delivery of proof of conformance to customer specifications.

Certain
distributors and other customers have limited rights of returns and price protection programs. Revenue on product sales made through these distributors and customers are not
recognized until revenue recognition criteria are met. We estimate and establish allowances for expected product returns in accordance with SFAS No. 48, "Revenue Recognition When Right of
Return Exists," and

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reduce
revenues and cost of sales for estimated product returns in the same period that the related revenue is recorded. The estimation of future returns is based on historical sales returns, analysis
of credit memo data, and other factors known at the time. We also record accruals for price protection programs and stock rotation rights. The estimation process is based on historical data and other
known factors. Each quarter, we reevaluate our estimates to assess the adequacy of our recorded allowances and adjust the amounts as necessary.

We
maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Factors affecting our allowance for doubtful
accounts include historical and anticipated customer default rates of the various aging categories of accounts receivable and financing receivables. The expense associated with the allowance for
doubtful accounts is recognized as selling and administrative expense.

Inventories

Inventories are stated at the lower of cost (generally first-in, first-out) or market. Inventories are reviewed
for excess and obsolescence based upon demand forecasts within a specific time horizon and reserves are established accordingly. If actual market demand differs from our forecasts, our financial
position, results of
operations and cash flows may be materially impacted. Manufacturing costs deemed to be abnormal, such as idle facility expense, excessive spoilage, double freight, and re-handling costs
are charged as cost of sales in the current period, rather than capitalized as part of ending inventory, in accordance with SFAS No. 151, "Inventory Costs an Amendment of ARB No. 43,
Chapter 4." If the actual costs of production, including materials, labor and overhead costs, differ significantly from our forecasts, our gross margin and inventory may be materially impacted.

Income Taxes

On July 1, 2007, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting
for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109" ("FIN 48"). Under FIN 48, differences between the amounts recognized in the consolidated
financial statements prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained earnings.
The adoption of FIN 48 had no material impact on the consolidated financial statements. Consistent with the provisions of FIN 48, we have reclassified $21.1 million of income tax
liabilities (including interest and penalties) from accrued income taxes to other long-term liabilities in the consolidated balance sheet during the fourth quarter of fiscal year 2008
because it was determined that payment of cash is not anticipated within one year of the balance sheet date.

Deferred
income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in
which the differences are expected to reverse. This process requires estimating both our geographic mix of income and our current tax exposures in each jurisdiction where we operate. These estimates
involve complex issues, require extended periods of time to resolve, and require us to make judgments, such as anticipating the positions that we will take on tax returns prior to our actually
preparing the returns and the outcomes of disputes with tax authorities. We are also required to determine deferred tax assets and liabilities and the recoverability of deferred tax assets.
Realization of deferred tax assets is dependent upon generating sufficient taxable income, carryback of losses, offsetting deferred tax liabilities, and the availability of tax planning strategies.
Valuation allowances are established for the deferred tax assets that we believe do not meet the "more likely than not" criteria established by SFAS No. 109. Judgments regarding future taxable
income may be revised due to changes in market conditions, tax laws, or other factors. If our assumptions and estimates change in the future, the valuation allowances established may be increased,
resulting in increased income tax expense. Conversely, if we are ultimately able to use all or a portion of the deferred tax assets for which a valuation allowance has

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been
established, the related portion of the valuation allowance will be released to reduce income tax expense or goodwill, or credit additional paid-in capital, as applicable. Income tax
expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities recorded in our tax provision. We recognize any interest and penalties associated with
income taxes in accrued income taxes.

We
recognize certain tax liabilities for anticipated tax audit findings in the United States and other tax jurisdictions based on our estimate of whether, and the extent to which
additional taxes would be due, in accordance with FIN 48. If the audit findings result in actual taxes owed more or less than what we had anticipated, our income tax expense would be increased
or decreased, accordingly, in the period of the determination.

As
of June 30, 2008, U.S. income taxes have not been provided on approximately $79.3 million of undistributed earnings of foreign subsidiaries since we consider these
earnings 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.

Impairment of Long-Lived Assets, Intangibles and Goodwill

We evaluate the carrying value of goodwill in the fourth quarter of each fiscal year. In evaluating goodwill, a two-step
goodwill impairment test is applied to each reporting unit as prescribed by SFAS No. 142, "Goodwill and Other Intangible Assets." We identify our reporting units and determine 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, we
estimate 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, we perform the second step which compares the implied fair
value of the reporting unit with the carrying amount of that goodwill and write down the carrying amount of the goodwill to the implied fair value.

The
process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. The fair value of our reporting units is determined using the
income approach. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows that the reporting unit is expected to generate over its
remaining life. In the application of the income approach, we are required to make estimates of future operating trends and judgments on discount rates and other variables. Actual future results
related to assumed variables could differ from these estimates. Based on our annual impairment test in the fourth quarter, we determined that goodwill was impaired as of the fiscal year ended
June 30, 2008 and recognized an impairment charge of $32.6 million. See Part II, Item 8, Note 1, "Business, Basis of Presentation and Summary of Significant
Accounting Policies," for a description of the goodwill impairment.

In
estimating the fair value of the businesses with recognized goodwill for the purposes of our annual or periodic analyses, we make estimates and judgments about the future cash flows
of our businesses. Although the cash flow forecasts are based on assumptions that are consistent with the plans and estimates we use to manage the underlying businesses, there is significant judgment
in determining the cash flows attributable to these businesses. To the extent our forecasted income and cash flows do not
materialize or there are significant changes to other variables, we may be required to write down additional goodwill in the future.

We
evaluate the recoverability of long-lived assets and other intangible assets whenever events and circumstances indicate that the carrying value of such assets may not be
recoverable, in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." Asset impairment expense is recorded in operating income.

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Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS No. 123(R). Under SFAS No. 123(R), we
estimate the fair value of stock options granted using the Black-Scholes option pricing model. The fair value for awards that are expected to vest is then amortized on a straight-line
basis over the requisite service period of the award, which is generally the option vesting term. The amount of expense attributed is based on an estimated forfeiture rate, which is updated as
appropriate. We determine forfeiture rates of the stock options based on our historical exercise and termination data, unvested options' original life time remaining to vest and whether these options
were held by our officers and directors. We apply the SAB No. 107, "Share-Based Payment" simplified "plain-vanilla" method to determine the expected life in valuing our stock options to the
extent that we cannot rely on our historical exercise data as a result of the amendments to the 2000 Incentive Plan ("2000 Plan") which changed the expiration and vesting terms of the stock option
awards. We use market implied volatility of options with similar terms for valuing our stock options. We believe implied volatility is a better indicator of expected volatility because it is generally
reflective of both historical volatility and expectations of how future volatility will differ from historical volatility. The dividend yield of zero is based on the fact that we have never paid cash
dividends and have no present intention to pay cash dividends. Changes in these assumptions could materially impact reported results in future periods.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to financial market risks, including fluctuations in interest rates, foreign currency exchange rates and market value
risk related to our investments, including mortgage-backed securities. We use derivative financial instruments primarily to mitigate these risks and as part of our strategic investment program. In the
normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and are
not discussed or quantified in the following analyses, as well as risks set forth in Part I, Item 1A under the heading "Factors that May Affect Future Results."

Interest Rates

Our financial assets and liabilities subject to interest rate risk are investments and revolving credit facilities. The primary
objective of our investments in debt securities is to preserve principal while maximizing yields. To achieve this objective, the returns on our investments in fixed-rate debt are generally
based on the three-month LIBOR.

In
December 2001, we entered into an interest rate swap transaction (the "December 2001 Transaction") with JPM, to modify our effective interest payable with respect to
$412.5 million of our $550.0 million outstanding convertible debt due on July 16, 2007 (the "Debt") (see Part II, Item 8, Notes 4, "Derivative Financial
Instruments," and 5, "Bank Loans and Long-Term Debt"). In April 2004, we entered into an interest rate swap transaction (the "April 2004 Transaction") with JPM to modify the effective
interest payable with respect to the remaining $137.5 million of the Debt. At the inception of the April 2004 Transaction, interest rates were lower than that of the Debt and we believed that
interest rates would remain lower for an extended period of time. During the fiscal years ended June 30, 2007 and 2006, these arrangements increased interest expense by $7.7 million and
$1.6 million, respectively.

The
above interest rate swap transactions qualified as fair value hedges under SFAS No. 133. To test effectiveness of the hedges, regression analyses were performed quarterly
comparing the changes in fair value of the swap transactions and the Debt. The fair values of the swap transactions and the Debt were calculated quarterly as the present value of the contractual cash
flows to the expected maturity date, where the expected maturity date was based on probability-weighted analyses of interest rates

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relating
to the five-year LIBOR curve and our stock prices. For the fiscal years ended June 30, 2007 and 2006, the hedges were highly effective, where the
mark-to-market adjustments of the December 2001 Transaction and April 2004 Transaction were significantly offset by the mark-to-market adjustments on
the Debt, and the ineffective portion did not have a material impact on earnings. The market value of the swap liabilities was $1.4 million at June 30, 2007.

In
April 2002, we entered into an interest rate contract (the "Contract") with an investment bank, Lehman Brothers ("Lehman"), to reduce the variable interest rate risk of the December
2001 Transaction. The notional amount of the Contract was $412.0 million, representing approximately 75 percent of the Debt. Under the terms of the Contract, we had the option to receive
a payout from Lehman covering our exposure to LIBOR fluctuations between 5.5 percent and 7.5 percent for any four designated quarters. The Contract had no market value at June 30,
2007 as the LIBOR was below 5.5 percent and this was the last quarter that the Contract option could be elected. Mark-to-market gains (losses) of $(0.6) million for
fiscal year ended June 30, 2007 and $0.5 million for the fiscal year ended June 30, 2006, were charged to interest expense.

On
July 16, 2007, concurrent with the Debt's maturity, the December 2001 Transaction and April 2004 Transaction with JPM and the Contract with Lehman terminated. For the fiscal
year 2008, we recorded a $5.7 million charge related to termination of the Debt and the related derivatives (see also Part II, Item 8, Note 4, "Derivative Financial
Instruments").

Foreign Currency Exchange Rates

We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt securities with offsetting currency
borrowings, currency forward contracts, or currency interest rate swaps. Gains and losses on these non-U.S.-currency investments would generally be offset by corresponding losses and gains
on the related hedging instruments, 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. Considering our specific foreign currency exposures, we have exposure to the Japanese Yen, since we have significant Yen-based
revenues without material Yen-based manufacturing costs. To protect against reductions in value and the volatility of future cash flows caused by changes in currency exchange rates, we
have established revenue, expense and balance sheet transaction risk management programs. Currency forward contracts and currency options are generally utilized in these hedging programs. Our hedging
programs reduce, but do not always entirely eliminate, the impact of currency exchange rate movements.

In
May 2006, we entered into the Forward Contract with BNP Paribas for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our Japan
subsidiary. We had designated the Forward Contract as a cash flow hedge. Under the terms of the Forward Contract, we were required to exchange 507.5 million Yen for $5.0 million on a
quarterly basis starting in June 2006 and expiring in March 2011. The market value of the Forward Contract was $7.3 million and $1.2 million at June 30, 2007 and 2006,
respectively, and was included in other assets. The mark-to-market gains included in other comprehensive income were $5.6 million and $0.8 million, net of tax,
for the fiscal years ended June 30, 2007 and 2006, respectively. In December 2007, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In
accordance with SFAS No. 133 Implementation Issue No. G3 "Cash Flow Hedges, Discontinuation of a Cash Flow Hedge," the net gain at the Forward Contract's termination date will continue
to be reported in other comprehensive income and recognized over the originally specified time period through March 2011, until it is probable that the forecasted transaction will not occur by the end
of the originally specified time period or within an additional two-month period of time thereafter.

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We
had approximately $39.0 million, $80.6 million and $48.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS
No. 133 at June 30, 2008, 2007 and 2006, respectively. Net realized and unrealized foreign-currency gains (losses) recognized in earnings were $(0.03) million, $3.8 million
and $2.3 million for the fiscal years ended June 30, 2008, 2007, and 2006, respectively.

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 those cases, different assumptions could result in significant changes in valuation.

At
June 30, 2008, we had $725.9 million of total cash, cash equivalents and investments, consisting of available-for-sale fixed income and
investment-grade securities. We manage our total portfolio to encompass a diversified pool of investment-grade securities. Our investment policy is to manage our total cash and investment
balances to preserve principal and maintain liquidity while maximizing the returns on the investment portfolio. To the extent that our marketable 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 in marketable securities. Based on our investment portfolio and interest
rates at June 30, 2008, a 100 basis point increase or decrease in interest rates would result in an annualized decrease or increase of approximately $6.4 million, respectively, 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 loss is considered to be other than temporary. In fiscal year 2008, the fair values of certain investments declined and through June 30, 2008 we recognized
$8.4 million in other-than-temporary impairment relating to certain available-for-sale securities.

We
hold as strategic investments the common and preferred stock of three publicly traded foreign companies, one of which is a closely held equity security. One of the investments is
Nihon, a related party as further disclosed in Part II, Item 8, Note 14, "Related Party Transactions." The value of these investments are subject to market fluctuations, which if
adverse, could have a material adverse effect on our financial position and if untimely sold due to illiquidity or otherwise at the down turn, could have a material adverse effect on its operating
results. We also have an investment in the common stock of a non-publicly traded company which is recorded at cost and included in other long-term assets. During the fourth
quarter of fiscal year 2008, we assessed this investment for impairment. Based on this analysis, we recorded an impairment charge of $3.6 million representing substantially all of the
recorded cost basis of this investment. The estimate of fair value is based on best available information or other estimates determined by management.

The
carrying values of the equity investments included in other long-term assets at June 30, 2008 and 2007 were $29.2 million and $48.0 million,
respectively, compared to their purchase cost at June 30, 2008 and 2007 of $24.9 million and $26.5 million, respectively. For the fiscal years ended June 30, 2008 and 2007,
we recorded unrealized loss of $15.9 million and $8.7 million, respectively, and was included, net of taxes, in other comprehensive income. The carrying values of these equity
investments are subject to market fluctuations, which if adverse, could have a material adverse effect on our financial position and if untimely sold due to illiquidity or otherwise at the down turn,
could have a material adverse effect on our operating results. Although the carrying values of these investments have declined significantly, we do not anticipate that we will dispose of these
strategic investments for a loss within the near term.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedule



PageReport of Independent Registered Public Accounting Firm


59Financial StatementsConsolidated Statements of Operations for the Fiscal Years Ended June 30, 2008, 2007 and
2006


61Consolidated Balance Sheets as of June 30, 2008 and 2007


62Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Fiscal Years
Ended June 30, 2008, 2007 and 2006


63Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 2008, 2007 and
2006


64Notes to Consolidated Financial Statements


65Supporting Financial Statement Schedule:Schedule No.

PageII. Valuation and Qualifying Accounts and Reserves for the Fiscal Years Ended June 30, 2008, 2007 and
2006


180


Schedules
other than those listed above have been omitted since they are either not required, not applicable, or the required information is shown in the Consolidated Financial
Statements or related Notes.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of International Rectifier Corporation

In
our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of International Rectifier
Corporation and its subsidiaries (the Company) at June 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended
June 30, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the
accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the
Company did not maintain, in all material respects, effective internal control over financial reporting as of June 30, 2008, based on criteria established inInternal
ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
because material weaknesses in internal control over financial reporting related to the 1) control environment, 2) controls over the completeness and accuracy of period-end
financial reporting, 3) controls over the proper periodic recognition of revenue, 4) controls to ensure the completeness and accuracy over processing and recording of accounts payable
and accrued liabilities, and 5) controls over the accounting for income taxes existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses referred to above are described in "Management's Report on Internal Control Over Financial Reporting" appearing under Part II, Item 9A, "Controls and Procedures."
We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the 2008 consolidated financial statements and our opinion regarding the
effectiveness of the Company's internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company's management is responsible for these
financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in management's report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the
Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.

As
discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109," effective July 1, 2007.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal

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Table of Contents

control
over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the
financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/PRICEWATERHOUSECOOPERS LLPLos Angeles, California
September 15, 2008

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Fiscal Year Ended June 30,2008

2007

2006Revenues

$
984,830

$
1,202,469

$
1,014,800Cost of sales


662,007


741,111


588,934Gross profit


322,823


461,358


425,866Selling and administrative expense


293,168


212,088


196,766Research and development expense


105,812


122,794


104,102Impairment of goodwill


32,624





Amortization of acquisition-related intangible assets


4,656


1,889


3,330Asset impairment, restructuring and other charges


3,080


10,398


87Operating (loss) income


(116,517
)

114,189


121,581Other expense (income), net


19,423


(6,257
)

(15,786
)Interest income, net


(29,093
)

(16,036
)

(6,784
)(Loss) income from continuing operations before income taxes


(106,847
)

136,482


144,151(Benefit from) provision for income taxes


(44,205
)

62,995


93,987(Loss) income from continuing operations


(62,642
)

73,487


50,164Income (loss) from discontinued operations, net of taxes (Note 2)





4,255


(13,654
)Net (loss) income

$
(62,642
)
$
77,742

$
36,510Net (loss) income per common share:Basic:(Loss) income from continuing operations

$
(0.86
)
$
1.01

$
0.71Income (loss) from discontinued operations





0.06


(0.20
)Net (loss) income per share

$
(0.86
)
$
1.07

$
0.51Diluted:(Loss) income from continuing operations

$
(0.86
)
$
1.01

$
0.70Income (loss) from discontinued operations





0.06


(0.19
)Net (loss) income per share

$
(0.86
)
$
1.07

$
0.51Average common shares outstandingbasic


72,819


72,421


70,914Average common shares and potentially dilutive securities outstandingdiluted


72,819


72,933


71,753


The
accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

June 30,2008

2007ASSETSCurrent assets:Cash and cash equivalents

$
320,464

$
853,040Restricted cash


4,341


Short-term investments


101,739


113,901Trade accounts receivable, net of allowances of $6,525 for 2008 and $8,401 for 2007


105,384


152,820Inventories


175,856


219,723Current deferred tax assets


13,072


11,087Prepaid expenses and other receivables


43,993


63,451Total current assets


764,849


1,414,022Restricted cash


15,012


14,592Long-term investments


303,680


335,995Property, plant and equipment, at cost, net


534,098


573,246Goodwill


98,822


131,446Acquisition-related intangible assets, net


16,225


20,881Long-term deferred tax assets


89,576


71,560Other assets


52,650


85,663Total assets

$
1,874,912

$
2,647,405LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Bank loans

$


$
462Long-term debt, due within one year





543,383Accounts payable


77,653


68,410Accrued income taxes


30,943


162,836Accrued salaries, wages and commissions


33,022


40,588Current deferred tax liabilities


2,266


2,883Other accrued expenses


103,355


133,463Total current liabilities


247,239


952,025Long-term deferred tax liabilities


4,828


4,188Deferred gain on Divestiture


112,609


116,059Other long-term liabilities


59,285


41,873Total liabilities


423,961


1,114,145Commitments and contingencies (Notes 11, 12 and 13)Stockholders' equity:Common shares, $1 par value, authorized: 330,000,000; issued and outstanding: 72,826,406 shares in 2008 and 72,811,406 shares in 2007


72,826


72,811Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in 2008 and 2007





Capital contributed in excess of par value of shares


971,920


958,417Retained earnings


338,946


401,588Accumulated other comprehensive income


67,259


100,444Total stockholders' equity


1,450,951


1,533,260Total liabilities and stockholders' equity

$
1,874,912

$
2,647,405


The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

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

(In thousands, except share data)

Common Shares

Capital
Contributed
in Excess of
Par Value
of Shares

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Comprehensive
Income (Loss)

TotalBalance, June 30, 2005

$
69,826

$
853,353

$
287,336

$
65,884

$


$
1,276,399Net income for the year ended June 30, 2006








36,510





36,510


36,510Other comprehensive loss:Foreign currency translation adjustments














9,193


Unrealized gains on foreign currency forward contract, net of deferred tax provision of $(460)














754


Net unrealized gains (losses) on available-for-sale securities, net of deferred tax benefit of $1,658














(2,717
)

Reclassification adjustments of gain on available-for-sale securities and foreign currency forward contract, net of tax benefit of $5,244














(8,588
)

Other comprehensive loss











(1,358
)

(1,358
)

(1,358
)Comprehensive income














35,152


Issuance of common shares:Exercise of stock options2,156,766 shares


2,158


55,540











57,698Stock participation plan4,234 shares


4


172











176Tax benefit from exercise of stock options





11,762











11,762Stock-based compensation cost





3,891











3,891Balance, June 30, 2006


71,988


924,718


323,846


64,526





1,385,078Net income for the year ended June 30, 2007








77,742





77,742


77,742Other comprehensive income:Foreign currency translation adjustments














45,443


Unrealized gains on foreign currency forward contract, net of deferred tax provision of $(4,028)














5,660


Net unrealized gains (losses) on available-for-sale securities, net of deferred tax benefit of $3,842














(5,400
)

Reclassification adjustments of gain on available-for-sale securities and foreign currency forward contract, net of tax benefit of $1,220














(1,714
)

Reclassification of currency translation adjustment related to the Divestiture














(8,071
)

Other comprehensive income











35,918


35,918


35,918Comprehensive income














113,660


Issuance of common shares:Exercise of stock options805,136 shares


805


18,668











19,473Stock participation plan18,542 shares


18


610











628Tax benefit from exercise of stock options





3,739











3,739Stock-based compensation cost





10,682











10,682Balance, June 30, 2007


72,811


958,417


401,588


100,444





1,533,260Net loss for the year ended June 30, 2008








(62,642
)




(62,642
)

(62,642
)Other comprehensive loss:Foreign currency translation adjustments














(6,971
)

Unrealized loss on foreign currency forward contract, net of deferred tax provision of $0














(3,941
)

Net unrealized gains (losses) on available-for-sale securities, net of deferred tax provision of $0














(21,054
)

Reclassification adjustments of gain on available-for-sale securities and foreign currency forward contract, net of tax provision of $0














(1,219
)

Other comprehensive loss











(33,185
)

(33,185
)

(33,185
)Comprehensive loss














(95,827
)

Issuance of common shares:Exercise of stock options15,000 shares


15


174











189Tax charge from stock options





(1,019
)










(1,019
)Stock-based compensation cost





14,348











14,348Balance, June 30, 2008

$
72,826

$
971,920

$
338,946

$
67,259

$


$
1,450,951


The accompanying notes are an integral part of this statement.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Fiscal Year Ended June 30,2008

2007

2006Cash flow from operating activities:Net (loss) income

$
(62,642
)
$
77,742

$
36,510Adjustments to reconcile net (loss) income to net cash provided by operating activities:Depreciation and amortization


82,934


78,491


82,598Amortization of acquisition-related intangible assets


4,656


2,209


4,250Stock compensation expense


11,128


14,201


3,891Pre-tax loss on Divestiture, discontinued operations





4,262


Debt retirement charge


5,659





Goodwill impairment


32,624





Loss (gain) on sale of investments


358


(2,070
)

(13,304
)Write-down of investments


12,023





Provision for bad debt


387


6,498


2,960Provision for inventory write-downs


29,825


36,622


13,714Asset impairment





5,878


397Unrealized gains on derivatives





(2,244
)

(3,678
)Deferred revenue


(16,449
)

(880
)

374Deferred income taxes


(20,298
)

(20,573
)

6,902Tax (charge) benefit from stock options


(1,019
)

3,739


11,762Excess tax benefit from stock options exercised


(81
)

(1,559
)

(6,016
)Changes in operating assets and liabilities, net (Note 1)


(42,705
)

(16,898
)

(3,922
)Net cash provided by operating activities


36,400


185,418


136,438Cash flow from investing activities:Additions to property, plant and equipment


(41,780
)

(120,539
)

(156,509
)Proceeds from sale of property, plant and equipment


837


1,055


1,317Acquisition of technologies





(1,000
)

(3,500
)Proceeds from Divestiture





339,615


Cash conveyed as part of Divestiture





(56,964
)

Cost associated with Divestiture


(1,800
)

(28,762
)

Sale or maturities of investments


342,329


564,139


750,297Purchase of investments


(311,075
)

(398,797
)

(787,873
)Proceeds from sale of equity investments








19,068Additions to restricted cash


(420
)

(14,592
)

Other, net


(778
)

(12,363
)

6,341Net cash (used in) provided by investing activities


(12,687
)

271,792


(170,859
)Cash flow from financing activities:(Repayments of) proceeds from short-term debt


(550,462
)

(29,858
)

8,928(Repayments of) proceeds from long-term debt





(81,746
)

81,090Increase in restricted cash


(4,341
)




Repayments of obligations under capital leases


(417
)

(432
)

(1,339
)Proceeds from exercise of stock options and stock participation plan


189


20,101


57,874Excess tax benefit from options exercised


81


1,559


6,016Other, net





(131
)

528Net cash (used in) provided by financing activities


(554,950
)

(90,507
)

153,097Effect of exchange rate changes on cash and cash equivalents


(1,339
)

3,430


4,253Net (decrease) increase in cash and cash equivalents


(532,576
)

370,133


122,929Cash and cash equivalents, beginning of year


853,040


482,907


359,978Cash and cash equivalents, end of year

$
320,464

$
853,040

$
482,907


The accompanying notes are an integral part of this statement.

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        NOTES TO 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 power MOSFETs 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, PowerStage ("PS") modules, and DC-DC
converter type applications.

Basis of Presentation and Consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States ("GAAP"). The 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.

On
April 1, 2007, the Company sold its Power Control Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc. ("Vishay") for $339.6 million,
including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and the net cash retained from the assets of the entities being sold totaling
approximately $49.4 million (the "Divestiture"). Since the consummation of the Divestiture, a number of matters developed, as discussed in Note 12, "Commitments and Contingencies," that
raised uncertainties under applicable accounting standards and guidance as to the determination of the gain on the Divestiture. Consequently, the Company has continued to defer recognition of the gain
from continuing operations of $112.6 million as discussed in Note 2, "Discontinued Operations and the Divestiture," as of June 30, 2008. However, the Company recognized in fiscal
year 2007 a loss from discontinued operations of $4.3 million.

The
PCS Business consisted of the Company's previously reported Non-Aligned Products ("NAP") and Commodity Products ("CP") segments, and included its subsidiary operations in
Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; and Halifax, Nova Scotia, Canada, as well as certain equipment and business operations located in Temecula and El Segundo
(California), Tijuana (Mexico) and Singapore. The PCS product lines sold included certain high voltage discrete planar MOSFETs, discrete diodes and rectifiers, discrete thyristors,
multi-chip modules not containing ICs and certain other specified products.

For
the fiscal year ended June 30, 2007, the financial results of NAP segment were included in discontinued operations and prior period results were correspondingly reclassified
to conform to current period presentation. Financial results of the CP segment were not included in discontinued operations, as the Company expects to have significant ongoing involvement based on the
significance of the cash flows expected to be derived from certain transition services ("TS") to be provided to

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Vishay
for up to three years as part of the Divestiture (see Note 2, "Discontinued Operations and the Divestiture"). The reclassifications had no impact on the Company's total assets, total
liabilities, stockholders' equity, cash flows or total consolidated net income reported.

Fiscal Year

The Company operates on a 52-53 week fiscal year with the fiscal year ending on a Sunday closest to
June 30th. Fiscal year 2008 consisted of 52 weeks ending June 29, 2008, fiscal year 2007 consisted of 52 weeks ending July 1, 2007, and fiscal year 2006 consisted of
52 weeks ending July 2, 2006. For ease of presenting the accompanying consolidated financial statements, the fiscal year end for all periods presented is shown as June 30.
Similarly, each fiscal quarter end is reported as the last day of the calendar month, although the actual fiscal period end date may be different.

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.

Revenue Recognition and Allowances

In accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," the Company recognizes revenue when
evidence of an arrangement exists, pricing is fixed or determinable, collection is reasonably assured, and delivery or performance of service has occurred. The Company recognizes revenues based on
established terms and conditions with its customers, which are generally upon shipment for product sales. Certain distributors and other customers have limited rights of return and price protection
programs. The Company estimates and establishes allowances for expected future product returns in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue
Recognition When Right of Return Exists."

The
Company records a reduction to revenue for estimated future product returns in the period revenues are recognized. The estimation of future returns is based on historical sales
returns, analysis of credit memo data, and other factors known at the time. The Company continuously monitors product returns and potential price adjustments.

Certain
of the Company's customers' contracts contain substantive acceptance provisions. In these circumstances, the Company recognizes revenue in accordance with the specific contract
acceptance provisions.

Sales
and other taxes directly imposed on revenue-producing transactions are reported on a net (excluded from revenue) basis, as permitted by Emerging Issues Task Force Issue
No. 06-3 "How Sales Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement."

The
Company maintains allowances for doubtful accounts and pricing disputes. These allowances as of fiscal years ended June 30, 2008 and 2007 were $6.5 million and
$8.4 million, respectively.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Shipping Costs

Outbound customer shipping costs are expensed as incurred and are included in selling and administrative expense. The expense for
outbound customer shipments for the fiscal years ended June 30, 2008, 2007 and 2006 was $8.6 million, $11.9 million and $11.2 million, respectively.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the fiscal years ended June 30, 2008, 2007 and 2006 was
$2.6 million, $3.6 million and $4.0 million, respectively.

Research and Development Costs

Research and development ("R&D") costs, including salaries and departmental general overhead and allocated expenses, are expensed as
incurred.

Environmental Costs

The Company accrues for costs associated with environmental remediation obligations when such losses are probable and reasonably
estimable and adjusts its estimates as new facts and circumstances come to its attention. Costs incurred to investigate and remediate contaminated sites are expensed when these costs are identified
and estimable and are not discounted to their present value.

Interest (Income) Expense

Interest (income) expense for the fiscal years ended June 30, 2008, 2007 and 2006 are as follows (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Interest income

$
(33,018
)
$
(54,632
)
$
(33,157
)Interest expense


3,925


38,596


26,373Interest income, net

$
(29,093
)
$
(16,036
)
$
(6,784
)


Interest
expense capitalized as part of construction-in-progress for the fiscal years ended June 30, 2007 and 2006 was $4.6 million and
$4.5 million, respectively. No interest was capitalized for the fiscal year ended June 30, 2008.

Income Taxes

On July 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109" ("FIN 48"). Under FIN 48, differences between the amounts recognized in the
consolidated financial statements prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained
earnings. The adoption of FIN 48 had no material impact on the consolidated financial statements. Consistent with the provisions of FIN 48, the Company has reclassified
$21.1 million of income tax liabilities (including interest and penalties) from accrued income taxes to other long-term liabilities in

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

the
consolidated balance sheet during the fourth quarter of fiscal year 2008 because it was determined that payment of cash is not anticipated within one year of the balance sheet date.

Deferred
income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in
which the differences are expected to reverse. This process requires estimating both the Company's geographic mix of income and its current tax exposures in each jurisdiction where it operates. These
estimates involve complex issues, require extended periods of time to resolve, and require the Company to make judgments, such as anticipating the positions that it will take on tax returns prior to
actually preparing the returns and the outcomes of disputes with tax authorities. The Company is also required to determine deferred tax assets and liabilities and the recoverability of deferred tax
assets. Realization of deferred tax assets is dependent upon generating sufficient taxable income, carryback of losses offsetting deferred tax liabilities and the availability of tax planning
strategies. Valuation allowances are established for the deferred tax assets that the Company believes do not meet the "more likely than not" criteria established by SFAS No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Judgments regarding future taxable income may be revised due to changes in market conditions, tax laws, or other factors. If the Company's assumptions and
estimates change in the future, the valuation allowances established may be increased, resulting in increased income tax expense. Conversely, if the Company is ultimately able to use all or a portion
of the deferred tax assets for which a valuation allowance has been established, the related portion of the valuation allowance will be released to reduce income tax expense or goodwill, or credit
additional paid-in capital, as applicable. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities recorded in its tax
provision. The Company recognizes any interest and penalties associated with income taxes in accrued income taxes.

The
Company recognizes certain tax liabilities for anticipated tax audit findings in the United States and other tax jurisdictions based on its estimate of whether, and the extent to
which additional taxes would be due, in accordance with FIN 48. If the audit findings result in actual taxes owed more or less than what the Company had anticipated, its income tax expense
would be increased or decreased, accordingly, in the period of the determination.

As
of June 30, 2008, U.S. income taxes have not been provided on approximately $79.3 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.

Net Income per Common Share

Net income per common sharebasic is computed by dividing net income available to common stockholders (the numerator) by
the weighted average number of common shares outstanding (the denominator) during the period. In general, the computation of net income per common sharediluted is similar to the
computation of net income per common sharebasic except that the denominator is increased to include the number of additional common shares that would have been outstanding for the
exercise of stock options using the treasury stock method and the conversion of the Company's convertible subordinated notes using the if-converted method only if the conversion of the
bonds results in the dilution of earnings per share. The Company's use of the treasury stock method reduces the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

gross
number of dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised and related unrecognized compensation. The Company's use of the
if-converted method increases reported net income by the interest expense, net of tax, related to the convertible subordinated notes when computing net income per common
sharediluted. For the fiscal years ended June 30, 2008, 2007 and 2006, the number of common shares used in computing the diluted per-share amount for income from
continuing operations was used as the control number in computing the diluted per-share amount for income (loss) from discontinued operations in accordance with SFAS No. 128,
"Earnings per Share" ("SFAS No. 128"). The conversion effect of the Company's outstanding convertible subordinated notes into 7,439,000 shares of common stock was not included in the
computation of diluted income from continuing operations per share (the "Effect") for the fiscal years ended June 30, 2007 and 2006, since the Effect would have been anti-dilutive.

At
the beginning of fiscal year 2006, the Company adopted SFAS No. 123 (Revised 2004) "Share-Based Payment" ("SFAS No. 123(R)") on a modified prospective basis. Assumed
proceeds from the in-the-money outstanding options for the fiscal years ended June 30, 2007 and 2006, include the windfall tax benefits, net of shortfalls, calculated
under the "as-if" method as prescribed by SFAS No. 123(R).

Statements of Cash Flows

Components in the changes of operating assets and liabilities, net of effects of acquisitions and the Divestiture (see Note 2,
"Discontinued Operations and the Divestiture"), for the fiscal years ended June 30, 2008, 2007 and 2006 were comprised of the following (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Trade accounts receivable

$
48,590

$
(4,904
)
$
(1,771
)Inventories


16,943


(56,146
)

(67,193
)Prepaid expenses and other receivables


21,196


(4,918
)

(22,294
)Accounts payable


11,572


(8,268
)

(268
)Accrued salaries, wages and commissions


(7,866
)

(8,668
)

23,738Deferred compensation


(440
)

3,488


(2,499
)Accrued income taxes


(110,746
)

26,281


59,477Other accrued expenses


(21,954
)

36,237


6,888Changes in operating assets and liabilities

$
(42,705
)
$
(16,898
)
$
(3,922
)


Supplemental
disclosures of cash flow information (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Cash paid during the year for:Interest

$
28,706

$
46,004

$
19,030Income taxes


92,192


27,759


23,908Non-cash investing activities:Liabilities accrued for property, plant and equipment purchases


1,207


7,084


17,091


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" ("SFAS No. 107"), requires the disclosure of fair
value information about financial instruments. Quoted
market prices, when available, are used as the measure of fair value. In cases where quoted market prices are not available, fair values are based on present value estimates or other valuation
techniques. These derived fair values are significantly affected by assumptions used, the timing of future cash flows and the discount rate. Considerable judgment and assumptions, which are inherently
subjective in nature, are required to interpret market data in developing the estimates of fair value. Accordingly, the estimated fair values may not necessarily be realized in an immediate sale or
settlement of the instrument in a current market exchange. The disclosure requirements of SFAS No. 107 exclude certain financial instruments (e.g., leases) and all
non-financial instruments. Accordingly, the aggregate amount presented does not reflect the underlying value of the Company. The Company's financial instruments, including cash, cash
equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates their fair value because of the short-term nature of these investments.

Cash, Restricted Cash, Cash Equivalents, and Investments

The Company classifies all highly liquid investments purchased with original or remaining maturities of ninety days or less at the date
of purchase to be cash equivalents. The cost of these investments approximates their fair value. The Company invests excess cash in marketable securities consisting of
available-for-sale fixed income and investment-grade securities, as well as, strategic investments in the common stock and preferred stock of publicly traded foreign companies.
In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"), unrealized gains and losses on these investments are included in
other comprehensive income, a separate component of stockholders' equity, net of related tax effect. Realized gains and losses are included in other income and expense. Declines in value of these
investments judged by management to be other than temporary, if any, are included in other income and expense.

Investments
in non-marketable securities are carried at cost pursuant to Accounting Principles Board ("APB") No. 18, "The Equity Method of Accounting for Investments
in Common Stock," as the Company does not exert significant influence over any of its investments. The Company evaluates the carrying value of its investment for impairment on a periodic basis.

Marketable
and non-marketable equity securities are classified as a long-term asset in the Company's consolidated balance sheet.

The
Company manages its total portfolio to encompass a diversified pool of investment-grade securities. The Company's 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Cash,
restricted cash, cash equivalents and investments as of June 30, 2008 and 2007 are summarized as follows (in thousands):

June 30,2008

2007Cash and cash equivalents

$
320,464

$
853,040Short-term investments


101,739


113,901Restricted cash


19,353


14,592Long-term investments


303,680


335,995Total cash, restricted cash, and cash equivalents and investments

$
745,236

$
1,317,528


Restricted
cash of $15.0 million and $14.6 million at June 30, 2008 and 2007, respectively, is maintained to secure the Company's indemnity obligations, if any,
pursuant to the terms of the Divestiture. The restricted cash is held by Union Bank of California, as escrow agent. The escrow agent will continue to hold the funds in escrow and invest in
seven-day term deposits until it receives either joint instructions of the parties or a court order directing it to release all or a portion of the escrow funds. Interest earned on the
escrow funds will be reinvested and held in the name of the escrow account, and distributed to the parties based on the allocation of principal funds in the escrow account. Any funds remaining in the
escrow account 18 months after closing, unless subject to a dispute with Vishay, will be disbursed to the Company. In addition, during fiscal year 2008, the Company agreed to establish a
collateral pledge of $4.3 million to Bank of America ("BoA") in connection with the $150.0 million revolving credit facility ("Facility") as discussed in Note 5, "Bank Loans and
Long-Term Debt." The Company agreed in Amendment No. 2 of the Facility to secure the letter of credit with cash collateral no later than July 12, 2007. In July 2007, the
Company transferred the cash collateral to a term deposit account held by BoA.

Inventories

Inventories are stated at the lower of cost (generally first-in, first-out) or market. Inventories are reviewed
for excess and obsolescence based upon demand forecasts for a specific time horizon and reserves are established accordingly. Manufacturing costs deemed to be abnormal, such as idle facility expense,
excessive
spoilage, double freight, and re-handling costs are charged as cost of sales in the period incurred, in accordance with SFAS No. 151, "Inventory Costs an Amendment of ARB
No. 43, Chapter 4."

Inventories
at June 30, 2008 and 2007, were comprised of the following (in thousands):

June 30,2008

2007Raw materials

$
34,046

$
31,067Work-in-process


67,855


85,383Finished goods


73,955


103,273Total inventories

$
175,856

$
219,723


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Any gain or loss on retirement or disposition is included in operating expenses.
Depreciation is provided using the straight-line method, based on the estimated useful lives of the assets, ranging from three to 40 years, or the units of production method based
upon the estimated output of the equipment. Depreciation and amortization expense for the fiscal years ended June 30, 2008, 2007 and 2006 was $82.9 million, $78.5 million and
$82.6 million, respectively. Property, plant and equipment at June 30, 2008 and 2007 were comprised of the following (in thousands):

June 30,Range of
Useful Life2008

2007Building and improvements

$
182,779

$
176,543


3 - 40Equipment


1,038,323


978,582


3 - 15Less: accumulated depreciation and amortization


(773,285
)

(703,564
)447,817


451,561Land


17,799


17,743Construction-in-progress


68,482


103,942Total property, plant and equipment

$
534,098

$
573,246


Amortization
of improvements to leased premises is provided using the straight-line method over the shorter of the remaining term of the lease or estimated useful lives of
the
improvements. Capital leases included in property, plant and equipment were not material at June 30, 2007. There were no capital leases as of June 30, 2008.

Repairs
and maintenance costs are charged to expense as incurred. In the fiscal years ended June 30, 2008, 2007 and 2006, repairs and maintenance costs were $38.3 million,
$44.3 million and $38.7 million, respectively.

The
Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events and
circumstances include, but are not limited to:



The
Company evaluates the recoverability of long-lived assets based on the expected undiscounted cash flows for their asset group as determined in accordance with SFAS
No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Goodwill and Acquisition-Related Intangible Assets

The Company classifies the difference between the purchase price and the fair value of net assets acquired at the date of acquisition
as goodwill. The Company classifies intangible assets apart from goodwill if the assets have contractual or other legal rights or if the assets can be separated and sold, transferred, licensed, rented
or exchanged. Depending on the nature of the assets acquired, the amortization period may range from four to twelve years for those acquisition-related intangible assets subject to amortization.

The
Company evaluates the carrying value of goodwill in the fourth quarter of each fiscal year. In evaluating goodwill, the Company completes the two-step goodwill impairment
test as required by SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). The Company identifies its 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 of a two-step impairment test, the Company compares the carrying value of the reporting units with the fair value of these reporting units determined using a
discounted cash flow valuation model. The second step, if necessary, compares the implied fair value of the goodwill with the carrying amount of that goodwill. Based on its annual impairment test in
the fourth quarter of each fiscal year, the Company determined that goodwill was impaired as of fiscal year ended June 30, 2008, and recorded a reduction in value of $3.9 million and
$28.7 million related to its PS and Power Management Devices ("PMD") segments.

At
June 30, 2008 and 2007, acquisition-related intangible assets are as follows (in thousands):

June 30, 2008Amortization
Periods
(Years)

Gross Carrying
Amount

Accumulated
Amortization

NetCompleted technology


4 - 12

$
29,679

$
(15,803
)
$
13,876Customer lists


5 - 12


5,446


(4,107
)

1,339Intellectual property and other


5 - 12


7,963


(6,953
)

1,010Total acquisition-related intangible assets




$
43,088

$
(26,863
)
$
16,225




June 30, 2007Amortization
Periods
(Years)

Gross Carrying
Amount

Accumulated
Amortization

NetCompleted technology


4 - 12

$
29,679

$
(11,849
)
$
17,830Customer lists


5 - 12


5,446


(3,677
)

1,769Intellectual property and other


5 - 12


7,963


(6,681
)

1,282Total acquisition-related intangible assets




$
43,088

$
(22,207
)
$
20,881


As
of June 30, 2008, estimated amortization expense for the next five years is as follows: fiscal year 2009: $4.4 million; fiscal year 2010: $4.4 million; fiscal
year 2011: $4.1 million; fiscal year 2012: $1.8 million; and fiscal year 2013: $0.2 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

The
carrying amounts of goodwill by segment as of fiscal years ended June 30, 2008 and 2007 are as follows (in thousands):

June 30,2008

2007Power Management Devices

$


$
28,748Energy-Saving Products


36,984


36,984Aerospace and Defense


18,959


18,959Enterprise Power


22,805


22,805PowerStage





3,876Intellectual Property


20,074


20,074Total goodwill

$
98,822

$
131,446


As
of June 30, 2008, $49.8 million of goodwill is deductible for income tax purposes for which $3.3 million, $3.0 million and $3.0 million were deducted in the
fiscal years ended June 30, 2008, 2007 and 2006, respectively.

The
changes in the carrying amount of goodwill for the fiscal years ended June 30, 2008 and 2007 are as follows (in thousands):

Balance, June 30, 2006

$
180,430Divestiture


(50,767
)Foreign exchange impact


1,783Balance, June 30, 2007


131,446Impairment


(32,624
)Balance, June 30, 2008

$
98,822


In
the fourth quarter of fiscal year 2008, the Company performed its annual assessment of goodwill for impairment. During this quarter, the forecasted cash flows of the Company's
reporting units were updated. This update considered current economic conditions and trends, estimated future operating results, anticipated future economic conditions, and technology. Several factors
have resulted in reductions of forecasted cash flows, including, among others, lower than expected performance in the Company's PS segment, and softening demand and pricing for its products in the PMD
segment. Based on the results of the annual assessment of goodwill for impairment, the net book value of two of its reporting units, PS and PMD, exceeded their estimated fair value determined using a
discounted cash flow analysis. Therefore, the Company has recorded impairment charges of $3.9 million and $28.7 million related to its PS and PMD segments during the fourth quarter of
fiscal year 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)



Other accrued expenses at June 30, 2008 and 2007 were comprised of the following (in thousands):

June 30,2008

2007Sales returns

$
40,850

$
34,561Accrued accounting and legal costs


18,884


8,924Deferred revenue


7,326


21,773Accrued compensation


6,679


10,354Transition services contract liability


6,667


6,665Accrued Divestiture transaction costs


3,101


4,901Accrued warranty


2,672


2,434Accrued utilities


2,320


2,934Accrued sales and other taxes


1,583


6,958Short-term severance liability


1,091


826Accrued interest


76


15,749Due to customers





4,535Other


12,106


12,849Total other accrued expenses

$
103,355

$
133,463




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 product sold and 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.

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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

The
following table details the changes in the Company's warranty reserve for the fiscal years ended June 30, 2008, 2007 and 2006, which is included in other accrued liabilities
in the schedule above (in thousands):

Accrued warranty, June 30, 2005

$
2,940Accruals for warranties issued during the year


5,725Changes in estimates related to pre-existing warranties


(480
)Warranty claim settlements


(4,595
)Accrued warranty, June 30, 2006


3,590Accruals for warranties issued during the year


5,264Changes in estimates related to pre-existing warranties


(2,595
)Warranty claim settlements


(3,825
)Accrued warranty, June 30, 2007


2,434Accruals for warranties issued during the year


4,555Changes in estimates related to pre-existing warranties


(992
)Warranty claim settlements


(3,325
)Accrued warranty, June 30, 2008

$
2,672




Other long-term liabilities at June 30, 2008 and 2007 were comprised of the following (in thousands):

June 30,2008

2007Income taxes payable

$
21,147

$
Divested entities' tax obligations(1)


20,734


18,578Deferred compensation


9,326


9,645Transition services contract liability


5,000


11,665Other


3,078


1,985Total other long-term liabilities

$
59,285

$
41,873


---



The Company's primary objectives for holding derivative financial instruments are to (1) hedge non-U.S. currency
risks and (2) minimize U.S. interest rate risk. The Company's derivative instruments are recorded at fair value and are included in other current assets, other long-term assets or
other long-term liabilities. The Company's accounting policies for derivative financial instruments are based

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

on
the criteria for designation as hedging transactions, either as cash flow or fair value hedges as defined by SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS No. 133"), SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133" and SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." A cash flow hedge refers to the hedge of the exposure to variability in the cash flows of an asset or a liability, or of a forecasted
transaction. A fair value hedge refers to the hedge of the exposure to changes in fair value of an asset or a liability, or of an unrecognized firm commitment. The criteria for designating a
derivative as a hedge include the instrument's effectiveness in risk reduction and, in most cases, a one-to-one matching of the derivative instrument to its underlying
transaction. The Company recognizes gains and losses on derivatives that are not designated as hedges for accounting purposes currently in earnings. These gains and losses generally offset changes in
the values of hedged assets or liabilities.

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

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



In general, the functional currency of a foreign operation is deemed to be the local country's currency. Assets and liabilities of
operations outside the United States are translated into U.S. dollars using current exchange rates. Income and expense are translated at average exchange rates prevailing during the period. The
effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income within stockholders' equity.



The components of accumulated other comprehensive income as of June 30, 2008, 2007 and 2006 were as follows (in thousands):

June 30,2008

2007

2006Foreign currency translation adjustments

$
77,146

$
84,117

$
46,745Net unrealized (losses) gains on foreign currency forward contracts


(373
)

4,787


841Net unrealized (losses) gains on available-for-sale securities


(9,514
)

11,540


16,940Accumulated other comprehensive income

$
67,259

$
100,444

$
64,526


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)



Effective at the beginning of fiscal year 2006, the Company adopted the provisions of SFAS No. 123(R) to account for stock-based
compensation. Under SFAS No. 123(R), the Company estimates the fair value of stock options granted using the Black-Scholes option pricing
model. The fair value for awards that are expected to vest is then amortized on a straight-line basis over the requisite service period of the award, which is generally the option vesting
term. The amount of expense attributed to awards is based on the estimated forfeiture rate, which is updated based on the Company's actual forfeiture rates. This option pricing model requires the
input of subjective assumptions, including the expected volatility of the Company's common stock, pre-vesting forfeiture rate and an option's expected life. The financial statements
include amounts that are based on the Company's best estimates and judgments.

In
December 2007, the Securities and Exchange Commission ("SEC") issued SAB No. 110, "Share-Based Payment" ("SAB 110") to permit entities, under certain circumstances, the
continued use of the "simplified" method, in developing estimates of the expected term of "plain-vanilla" share options in accordance with SFAS No. 123(R). SAB 110 amended SAB
No. 107, "Share-Based Payment" ("SAB 107") to permit the use of the "simplified" method beyond December 31, 2007. The Company currently uses the "simplified" method to estimate
the expected term for share option grants as the Company does not have enough historical experience to provide a reasonable estimate. The Company will continue to use the "simplified" method until it
has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. SAB 110 was effective for the Company on January 1, 2008.



The Company expenses legal costs incurred related to loss contingencies. The Company capitalizes legal costs associated with filing and
maintaining successful U.S. and foreign patent applications. The Company also capitalizes legal costs related to the defense and enforcement of issued patents (until success is deemed improbable), and
these costs are amortized over the estimated useful lives of the patents. Such deferred costs are reviewed for impairment and recoverability periodically. Capitalized legal patent costs, net of
accumulated amortization at June 30, 2008, 2007 and 2006 were approximately $10.4 million, $15.7 million and $15.3 million, respectively.



The Company places its cash in investment-grade vehicles with high credit quality financial institutions. The Company performs periodic
credit evaluations of its customers' financial conditions and generally does not require collateral.



In July 2006, the FASB issued FIN 48. FIN 48 clarifies the accounting for income taxes by prescribing the minimum
recognition threshold an uncertain tax position is required to meet before being recognized in the financial statements. This Interpretation requires that the impact of a material, uncertain tax
position be recognized if it is more likely than not of being sustained in an audit, based on the technical merits of the position. FIN 48 also provides guidance on de-recognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. In

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1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

addition,
FIN 48 excludes income taxes from the scope of SFAS No. 5, "Accounting for Contingencies." On July 1, 2007, the Company adopted the provisions of FIN 48. Under
FIN 48, differences between the amounts recognized in the consolidated financial statements prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be
accounted for as a cumulative effect adjustment recorded to retained earnings. The adoption of FIN 48 had no material impact on the financial statements.



In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157"), which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position ("FSP") Financial Accounting Standard
("FAS") 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13" ("FSP FAS 157-1"). FSP FAS 157-1 is effective upon initial adoption of SFAS No. 157. In February 2008,
the FASB issued FSP FAS 157-2, "Effective Date of FASB Statement No. 157," which defers the effective date of SFAS No. 157 to fiscal years beginning after
November 15, 2008 and interim periods within those fiscal years, for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring basis (at
least annually). The Company is currently assessing the potential impact that the adoption of SFAS No. 157 will have on its consolidated financial statements.

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159 gives the
Company the irrevocable option to carry many financial assets and liabilities at fair values, with changes to fair value recognized in earnings. SFAS No. 159 is effective for the Company
beginning July 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on the Company's consolidated financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). Under SFAS No. 141(R), 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 are
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 R&D is capitalized as an intangible asset and
amortized over its estimated useful life. The adoption of SFAS No. 141(R) will change the Company's accounting treatment for business combinations on a prospective basis beginning
July 1, 2009.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS
No. 161"). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of:
(i) how and why an entity uses derivative instruments; (ii) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related
interpretations and (iii) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)

early
application encouraged. The Company is in the process of evaluating the impact of SFAS No. 161 on its consolidated financial statements.

In
April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP FAS 142-3") which amends the factors an
entity should consider in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset under SFAS No. 142. FSP FAS 142-3
is effective for fiscal years and interim periods beginning after December 15, 2008. The Company is currently assessing the potential impact that the adoption of FSP
FAS 142-3 will have its consolidated financial statements.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for
nongovernmental entities. This statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to Interim Auditing Standards
Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The Company is currently assessing the potential impact that the adoption of SFAS
No. 162 will have on its consolidated financial statements.

2. Discontinued Operations and the Divestiture

On April 1, 2007, the Company completed the sale of its PCS Business to Vishay for $339.6 million, including $14.5 million of restricted cash temporarily held in
escrow to cover indemnity obligations, if any, and the net cash retained from the assets of the entities being sold totaling approximately $49.4 million. Since the consummation of the
Divestiture, a number of matters developed, as discussed in Note 12, "Commitments and Contingencies," that raised uncertainties under applicable accounting standards and guidance as to the
determination of the gain on the Divestiture. Consequently, the Company deferred recognition of the gain from continuing operations of $116.1 million. However, the Company has recognized the
loss from discontinued operations of $4.3 million.

The
PCS Business consisted of the Company's former NAP and CP segments. Product lines included in the sale were certain discrete planar MOSFETs, discrete diodes and rectifiers, discrete
thyristors, multi-chip modules not containing ICs and certain other specified products.

As
part of the Divestiture, the Company sold operations in Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; and Halifax, Nova Scotia, Canada as well as
certain equipment and business operations located in Temecula and El Segundo (California), Tijuana (Mexico) and Singapore.

Although
the Company divested itself of both the NAP and CP segments, the CP segment results were not included in discontinued operations, as the Company expects to have significant
ongoing involvement based on the significance of the cash flows to be derived from the transition services agreements ("TSAs") with Vishay.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Discontinued Operations and the Divestiture (Continued)

The following table shows the components of the Divestiture transaction for the fiscal year ended June 30, 2007 (in thousands):

Gross proceeds from sale

$
339,615Costs of disposition


(33,922
)Fair value of Transition Services Agreements


(16,650
)Net proceeds


289,043Net assets sold


(177,246
)Gain on Divestiture, before taxes

$
111,797Deferred gain on Divestiture from continuing operations, before taxes

$
116,059Loss on Divestiture from discontinued operations, before taxes


(4,262
)Gain on Divestiture, before taxes

$
111,797


Included
in the determination of Net income for fiscal year 2007, the Company has, in connection with the Divestiture transaction, recorded a tax benefit of $18.1 million, of
which $11.7 million was attributed to discontinued operations.

Loss on Divestiture from discontinued operations, before taxes

$
(4,262
)Income tax benefit on Divestiture, discontinued operations


11,714Gain on Divestiture from discontinued operations, after taxes

$
7,452


Since
the consummation of the Divestiture, a number of matters developed, as discussed in Note 12, "Commitments and Contingencies," that raised uncertainties under applicable
accounting standards and guidance as to the determination of the gain on the Divestiture. Consequently, as of June 30, 2007, the Company deferred recognition of the gain from continuing
operations of $116.1 million. However, the Company has recognized the loss from discontinued operations of $4.3 million. During the fourth quarter of fiscal year 2008, the Company
revised the value of net assets sold in the Divestiture which resulted in a decrease in the deferred gain on the Divestiture of $4.6 million. Additionally, during the fourth quarter of fiscal
year 2008, the deferred gain on Divestiture was increased because certain tax indemnification obligations with respect to divested entities aggregating $1.2 million ceased to exist through the
lapsing of a statute of limitation in a foreign tax jurisdiction.

A
summary of the change in deferred gain on Divestiture follows (in thousands):

Deferred gain on Divestiture, June 30, 2007

$
116,059Revision of value of net assets sold


(4,646
)Decrease in tax indemnification obligations of divested entities


1,196Deferred gain on Divestiture, June 30, 2008

$
112,609


Under
the terms of the transaction agreement, the Company entered into license agreements pursuant to which it agreed to license certain of its technology related to the PCS Business to
Vishay. In addition, as part of the Divestiture, the Company agreed to transfer certain other technology related to the PCS Business to Vishay. Vishay, in turn, agreed to license back to IR such other
technology. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Discontinued Operations and the Divestiture (Continued)

Company
also entered into certain TSAs for the sale and purchase of specified products, wafer and packaging services, manufacturing and other support services, for up to three years following the date
of the Divestiture. The fair value of these transition agreements was recorded at $20.0 million for the transition services the Company will provide to Vishay and $3.4 million for the
transition services Vishay will provide to the Company. The fair value of these agreements is being amortized over the life of the TSAs.

The
following table represents revenues and the components of discontinued operations, net of taxes for the fiscal years 2007 and 2006 (in thousands):

Fiscal Year Ended June 30,2007

2006Revenue

$
85,060

$
110,190Operating loss before income taxes


(7,834
)

(9,576
)Income tax benefit (expense)


12,089


(4,078
)Income (loss) from discontinued operations, net of taxes

$
4,255

$
(13,654
)


3. Investments

Available-for-sale securities as of June 30, 2008 are summarized as follows (in thousands):

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
Loss

Market
ValueShort-Term Investments:Corporate debt

$
34,181

$
44

$
(103
)
$
(59
)
$
34,122U.S. government and agency obligations


67,507


132


(22
)

110


67,617Total short-term investments

$
101,688

$
176

$
(125
)
$
51

$
101,739Long-Term Investments:Corporate debt

$
44,031

$
205

$
(466
)
$
(261
)
$
43,770U.S. government and agency obligations


90,260


1,760


(325
)

1,435


91,695Mortgage-backed securities


96,204


546


(5,492
)

(4,946
)

91,258Asset-backed securities


80,023


272


(3,338
)

(3,066
)

76,957Total long-term investments

$
310,518

$
2,783

$
(9,621
)
$
(6,838
)
$
303,680


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Investments (Continued)

Available-for-sale
securities as of June 30, 2007 are summarized as follows (in thousands):

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
Loss

Market
ValueShort-Term Investments:Corporate debt

$
80,482

$
15

$
(215
)
$
(200
)
$
80,282U.S. government and agency obligations


32,563





(11
)

(11
)

32,552Asset-backed securities


1,070





(3
)

(3
)

1,067Total short-term investments

$
114,115

$
15

$
(229
)
$
(214
)
$
113,901Long-Term Investments:Corporate debt

$
84,216

$
115

$
(372
)
$
(257
)
$
83,959U.S. government and agency obligations


44,062


120


(242
)

(122
)

43,940Mortgage-backed securities


111,388


80


(827
)

(747
)

110,641Asset-backed securities


97,797


70


(412
)

(342
)

97,455Total long-term investments

$
337,463

$
385

$
(1,853
)
$
(1,468
)
$
335,995


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, one of which is a closely held equity security. One of the
investments is Nihon Inter Electronics Corporation ("Nihon"), a related party as further disclosed in Note 14, "Related Party Transactions." The value of the Company's investments is subject to
market fluctuations, which, if adverse, could have a material adverse effect on its financial position and if untimely sold due to illiquidity or otherwise at the down turn, could have a material
adverse effect on its operating results. The Company accounts for these available-for-sale investments under SFAS No. 115. These stocks are traded on either the Tokyo
Stock Exchange or the Taiwan Stock Exchange. Dividend income from these companies was $0.6 million, $0.8 million and $0.5 million during the fiscal years ended June 30,
2008, 2007 and 2006, respectively. In June 2006, the Company sold 2.6 million shares in one of the equity investments for net proceeds of $19.1 million and recognized
$13.6 million of pretax gains in other income.

The
Company also has an investment in the common stock of a non-publicly traded company which is recorded at cost and included in other long-term assets. During
the fourth quarter of fiscal year 2008, the Company assessed this investment for impairment. Based on this analysis, the Company recorded an impairment charge of $3.6 million representing
substantially all of the recorded cost basis of this investment. The estimate of fair value is based on best available information or other estimates determined by management.

The
carrying values of the equity investments included in other long-term assets at June 30, 2008 and 2007 were $29.2 million and $48.0 million,
respectively, compared to their purchase cost at June 30, 2008 and 2007 of $24.9 million and $26.5 million, respectively. For the fiscal years ended June 30, 2008 and 2007,
the Company recorded unrealized loss of $15.9 million and $8.7 million, respectively, and was included, net of taxes, in other comprehensive income. The carrying values of the

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3. Investments (Continued)

Company's
equity investments are subject to market fluctuations, which if adverse, could have a material adverse effect on its financial position and if untimely sold due to illiquidity or otherwise
at the down turn, could have a material adverse effect on its operating results. Although the carrying values of these investments have declined significantly, the Company does not anticipate that it
will dispose of these strategic investments for a loss within the near term.

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. There
were no impairment charges on investments for fiscal years 2007 and 2006, however, during fiscal year 2008, the fair values of certain investments declined and these declines were determined to be
other-than-temporary. The Company recorded an impairment charge of $8.4 million relating to these available-for-sale securities as a result of
declines in their fair values through June 30, 2008.

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 year end (in thousands):

Securities held
in a loss position
for less than
12 months at
June 30, 2008

Securities held
in a loss position
for 12 months
or more at
June 30, 2008

Total in a loss position
at June 30, 2008Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
LossesCorporate debt

$
37,473

$
(485
)
$
6,182

$
(84
)
$
43,655

$
(569
)U.S. government and agency obligations


32,026


(347
)







32,026


(347
)Mortgage-backed securities


43,297


(5,077
)

1,893


(415
)

45,190


(5,492
)Asset-backed securities


31,567


(2,915
)

4,920


(423
)

36,487


(3,338
)Total

$
144,363

$
(8,824
)
$
12,995

$
(922
)
$
157,358

$
(9,746
)


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Investments (Continued)



Securities held
in a loss position
for less than
12 months at
June 30, 2007

Securities held
in a loss position
for 12 months
or more at
June 30, 2007

Total in a loss position
at June 30, 2007Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
LossesCorporate debt

$
76,920

$
(354
)
$
38,287

$
(233
)
$
115,207

$
(587
)U.S. government and agency obligations


54,023


(181
)

17,704


(72
)

71,727


(253
)Mortgage-backed securities


55,923


(599
)

16,779


(228
)

72,702


(827
)Asset-backed securities


46,663


(186
)

17,877


(229
)

64,540


(415
)Total

$
233,529

$
(1,320
)
$
90,647

$
(762
)
$
324,176

$
(2,082
)


The
amortized cost and estimated fair value of investments at June 30, 2008, by contractual maturity, are as follows (in thousands):

Amortized
Cost

Estimated
Market ValueDue in 1 year or less

$
96,288

$
96,339Due in 1-2 years


80,636


81,477Due in 2-5 years


104,338


104,423Due after 5 years


130,944


123,180Total investments

$
412,206

$
405,419


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 $1.0 million and $(1.3) million, respectively, for the year ended June 30, 2008. Gross realized gains and (losses) were
$0.4 million and $(2.2) million, respectively, for the year ended June 30, 2007. Gross realized gains and (losses) were $0.2 million and $(1.9) million, respectively, for the year
ended June 30, 2006. The cost of marketable securities sold was determined by the first-in, first-out method.

4. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Derivative Financial Instruments (Continued)

Interest Rates

The Company's financial assets and liabilities subject to interest rate risk are investments and revolving credit facilities. The
primary objective of the Company's investments in debt securities is to preserve principal while maximizing yields. To achieve this objective, the returns on the Company's investments in
fixed-rate debt are generally based on the three-month London Interbank Offered Rate ("LIBOR").

In
December 2001, the Company entered into an interest rate swap transaction (the "December 2001 Transaction") with JPMorgan Chase Bank ("JPM"), to modify the Company's effective
interest payable with respect to $412.5 million of its $550.0 million outstanding convertible debt due on July 16, 2007 (the "Debt") (see Note 5, "Bank Loans and
Long-Term Debt"). In April 2004, the Company entered into an interest rate swap transaction (the "April 2004 Transaction") with JPM to modify the effective interest payable with respect to
the remaining $137.5 million of the Debt. At the inception of
the April 2004 Transaction, interest rates were lower than that of the Debt and the Company believed that interest rates would remain lower for an extended period of time. During the fiscal years
ended June 30, 2007 and 2006, these arrangements increased interest expense by $7.7 million and $1.6 million, respectively.

The
above interest rate swap transactions qualified as fair value hedges under SFAS No. 133. To test effectiveness of the hedges, regression analyses were performed quarterly
comparing the changes in fair value of the swap transactions and the Debt. The fair values of the swap transactions and the Debt were calculated quarterly as the present value of the contractual cash
flows to the expected maturity date, where the expected maturity date was based on probability-weighted analyses of interest rates relating to the five-year LIBOR curve and the Company's
stock prices. For the fiscal years ended June 30, 2007 and 2006, the hedges were highly effective, where the mark-to-market adjustments of the December 2001 Transaction
and April 2004 Transaction were significantly offset by the mark-to-market adjustments on the Debt, and the ineffective portion did not have a material impact on earnings. The
market value of the swap liabilities was $1.4 million at June 30, 2007.

In
April 2002, the Company entered into an interest rate contract (the "Contract") with an investment bank, Lehman Brothers ("Lehman"), to reduce the variable interest rate risk of the
December 2001 Transaction. The notional amount of the Contract was $412.0 million, representing approximately 75 percent of the Debt. Under the terms of the Contract, the Company had the
option to receive a payout from Lehman covering its exposure to LIBOR fluctuations between 5.5 percent and 7.5 percent for any four designated quarters. The Contract had no market value
at June 30, 2007 as the LIBOR was below 5.5 percent and this was the last quarter that the Contract option could be elected. Mark-to-market gains (losses) of
$(0.6) million for fiscal year ended June 30, 2007 and $0.5 million for the fiscal year ended June 30, 2006, were charged to interest expense.

On
July 16, 2007, concurrent with the Debt's maturity, the December 2001 Transaction and April 2004 Transaction with JPM and the Contract with Lehman terminated. For the fiscal
year 2008, the Company recorded a $5.7 million charge related to the termination of Debt and the related derivatives.

Foreign Currency Exchange Rates

The Company generally hedges currency risks of non-U.S.-dollar-denominated investments in debt securities with offsetting
currency borrowings, currency forward contracts, or currency interest rate

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Derivative Financial Instruments (Continued)

swaps.
Gains and losses on these non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging instruments, 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. Considering its specific foreign currency exposures, the Company has exposure to the Japanese Yen, since it
has significant Yen-based revenues without material Yen-based manufacturing costs. To protect against reductions in value and the volatility of future cash flows caused by
changes in currency exchange rates, the Company has established revenue, expense and balance sheet transaction risk management programs. Currency forward contracts and currency options are generally
utilized in these hedging programs. The Company's hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate movements.

In
May 2006, the Company entered into a five-year foreign exchange forward contract ("the Forward Contract") with BNP Paribas for the purpose of reducing the effect of
exchange rate fluctuations on forecasted intercompany 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. The market value of the Forward Contract
was $7.3 million and $1.2 million at June 30, 2007 and 2006, respectively, and was included in other assets. The mark-to-market gains included in other
comprehensive income were $5.6 million and $0.8 million, net of tax, for the fiscal years ended June 30, 2007 and 2006, respectively. In December 2007, the Company terminated the
Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS No. 133 Implementation Issue No. G3 "Cash Flow Hedges, Discontinuation of a Cash
Flow Hedge," the net gain at the Forward Contract's termination date will continue to be reported in other comprehensive income and recognized over the originally specified time period through March
2011, until it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter.

The
Company had approximately $39.0 million, $80.6 million and $48.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS
No. 133 at June 30, 2008, 2007 and
2006, respectively. Net realized and unrealized foreign-currency gains (losses) recognized in earnings were $(0.03) million, $3.8 million and $2.3 million for the fiscal years ended
June 30, 2008, 2007 and 2006, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Bank Loans and Long-Term Debt

The following is a summary of the Company's long-term debt and other loans at June 30, 2008 and 2007 (in thousands):

June 30,2008

2007Convertible subordinated notes at 4.25% due in July 2007 ($550,000 principal amount, plus accumulated fair value adjustment of $(7,049) at June 30, 2007)

$


$
542,951Foreign loans and capitalized lease obligations





432Foreign accounts receivable financing facilities at rates from 1.625% to 1.825%





462Total debt, including current portion of long-term debt ($543,383 in 2007)

$


$
543,845


In
July 2000, the Company issued $550.0 million in principal amount of 4.25 percent convertible subordinated notes due July 2007 (the "Notes"). The interest rate was
4.25 percent per year on the principal amount, payable in cash in arrears semi-annually on January 15 and July 15. The Notes were convertible into shares of the
Company's common stock at any time on or before July 16, 2007, at a conversion price of $73.935 per share, subject to certain adjustments. The Notes were subordinated to all of the Company's
existing and future debt. The Company could redeem any of the Notes, in whole or in part, subject to certain call premiums on or after July 18, 2003, as specified in the Notes and related
indenture agreement. In December 2001 and April 2004, the Company entered into transactions with JPM for $412.5 million and $137.5 million notional amounts, respectively, which had the
effect of converting the interest rate to variable and required that the Notes be marked to market (see Note 4, "Derivative Financial Instruments").

On
July 16, 2007, the Company funded the payment in full at maturity of the Notes due on July 16, 2007. The funding included a final interest payment of
$11.7 million. In connection with the final maturity and payment of the Notes, the Company recorded a debt retirement charge of $5.7 million in the fiscal year ended June 30, 2008
(see also Note 4, "Derivative Financial Instruments").

In
June 2006, the Company's subsidiary in Singapore entered into a Credit Agreement with BoA. Pursuant to the Credit Agreement, BoA loaned $81.0 million to the Singapore
subsidiary, bearing interest at the rate of LIBOR plus 1.0 percent and maturing on June 26, 2008. In conjunction with the Credit Agreement, the Company entered into a guaranty in favor
of BoA to guarantee the payment and performance of obligations by its Singapore subsidiary. The Credit Agreement contained certain financial and other covenants, with which the Company and its
Singapore subsidiary were in compliance at June 30, 2006. In January 2007, the Company's subsidiary in Singapore made a
prepayment of $26.0 million on the loan, and in May 2007, the Singapore subsidiary prepaid the remaining balance on the loan of $55.0 million.

The
Company had been a party to a three-year syndicated multi-currency revolving credit facility led by BNP Paribas (the "BNP Facility") that expired in November 2006. The
BNP Facility provided a credit line of $150.0 million of which up to $150.0 million could have been used for standby letters of

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5. Bank Loans and Long-Term Debt (Continued)

credit.
At June 30, 2008 and 2007, the Company had $4.3 million and $4.3 million, respectively, in letters of credit outstanding under the bank facilities effective at the time.

The
Company had four accounts receivable financing facilities in Japan which it had either cancelled or let expire as of June 30, 2008.

On
November 6, 2006, the Company entered into the new five-year multi-currency Facility with a syndicate of lenders including JPM, BoA, HSBC Bank USA, and Deutsche
Bank AG, to replace the BNP Facility. The Facility expires in November 2011 and provides a credit line of $150.0 million with an option to increase the Facility limit to $250.0 million.
Up to $75.0 million of the Facility may be used for standby letters of credit and up to $10.0 million may be used for swing-line loans. The Facility bears interest at
(i) local currency rates plus (ii) a margin between 0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for
Euro-currency rate advances, based on the Company's senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility
ranges between 0.175 and 0.25 percent of the unused portion of the total Facility, depending upon the Company's senior leverage ratio. The Facility also contains certain financial and other
covenants, with which the Company was in compliance at June 30, 2008. The Company pledged as collateral shares of certain of its subsidiaries.

The
Facility has been amended by (together, the "Facility Amendments"): an Amendment No. 1 to the Facility dated May 4, 2007, an Amendment No. 2 to the Facility
dated June 27, 2007, an Amendment No. 3 to the Facility dated September 13, 2007, an Amendment No. 4, to the Facility dated December 14, 2007 and an Amendment
No. 5, to the Facility dated March 17, 2008. Pursuant to these Facility Amendments, the Company's lenders agreed that, it would not be deemed in default with respect to certain
representations, warranties, covenants and reporting requirements during a period ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders had no
obligation to make any extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until, among other things, the lenders have
received the Company's audited consolidated financial statements, reasonably satisfactory to the lenders, and no other default (as defined in the Facility) exists. As set forth in the Facility
Amendments, the Company agreed to provide cash collateral for the outstanding letters of credit under the Facility and paid amendment fees to the lenders. The Company intends to reinstate the Facility
following the satisfaction of the necessary conditions, but there can be no assurance that it will be successful.

On
July 30, 2008, the Company and the lender parties to the Facility amended the Facility by Amendment No. 6 that extends the current accommodation through
November 30, 2008 and provides that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of its current filings with the SEC and if the
Company is in a position to satisfy the other applicable conditions of the Facility, the lenders shall notify the Company in writing either (i) that extensions of credit are available under the
Facility to the Company or (ii) that the Facility must be amended on such further terms and conditions as reasonably requested by such lenders. Pending the receipt of such notice and, if
applicable, execution of such further amendment to the Facility, the Company is not able to access the Facility. The Amendment provides that failure by the Company to provide full cash collateral for
the approximately $4.3 million of letters of credit currently outstanding will result in termination of the Amendment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Bank Loans and Long-Term Debt (Continued)

At
June 30, 2008, the Company had $150.0 million in total lines of credit (including the Facility), of which $4.3 million had been utilized in letters of credit. At
June 30, 2008, the Company had no scheduled principal payments on debt.

6. Stock-Based Compensation



In November 2005, the Company's stockholders approved an amendment to its 1984 Employee Stock Participation Plan ("Amended ESPP"). The
terms of the Amended ESPP provide that employees may designate between two and ten percent of their compensation to purchase shares of the Company's common stock at a price determined by a committee
appointed by the Board of Directors (the "Committee"). The Committee will declare, prior to the start of a subscription period, that the purchase price for that subscription period shall be determined
by applying a discount amount not to exceed 15 percent to either (1) the fair market value of a share of the Company's common stock on the grant date of that subscription period, or
(2) the fair market value of a share of common stock on the subscription date of that subscription period, or (3) the lesser of the fair market value of a share of common stock on the
grant date or on the subscription date of that subscription period. The Amended ESPP also provides that the subscription period shall be a six consecutive month period commencing on each grant date,
unless declared by the Committee in advance of the applicable subscription period to be a shorter period. The Committee declared the Amended ESPP effective for employee participation beginning in
January 2006 for a three-month subscription period, for purchase of the Company's common stock at a five percent discount from the fair market value on the subscription date. Based on the terms as
declared by the Committee, the Amended ESPP was not compensatory pursuant to SFAS No. 123(R). The maximum number of shares of the Company's common stock that may be delivered under this Amended
ESPP is 4,500,000 shares. In April 2007, the Committee determined that participation in the Amended ESPP should be suspended due to the Investigation led by the Audit Committee of the Company's Board
of Directors ("Audit Committee") into the Company's accounting issues and practices and the resulting non-timely filing of its periodic SEC reports, and participation in the Amended ESPP
remained suspended throughout fiscal year 2008. During fiscal year 2008 no shares were issued. During fiscal years 2007 and 2006, 18,542 shares and 4,234 shares, respectively were issued at weighted
average price per share of $33.90 and $41.50, respectively, and 755,542 remained unissued at June 30, 2008. For the fiscal years ended June 30, 2007 and 2006, the Company received
$0.6 million and $0.2 million, respectively, from shares issued under the stock participation plan.

Stock Option Plans

For the fiscal years ended June 30, 2008, 2007 and 2006, stock-based compensation awards were granted under one of two stock
option plans: the 1997 Employee Stock Incentive Plan ("1997 Plan") and the 2000 Incentive Plan ("2000 Plan"). Options granted before November 22, 2004, generally became exercisable in annual
installments of 25 percent beginning on the first anniversary date, and expire after seven years. Options granted after November 22, 2004, generally became exercisable in annual
installments of 331/3 percent beginning on the first anniversary date, and expire after five years.

Under
the 1997 Plan, options to purchase shares of the Company's common stock may be granted to the Company's employees and consultants. In addition, other stock-based awards
(e.g., restricted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

stock
units ("RSUs"), share appreciation rights and performance shares) may be granted. As noted below, on November 22, 2004, the Company's stockholders approved an amendment to the 2000 Plan
to increase the authorized number of shares from 7,500,000 to 12,000,000, at which point no awards may be granted under the 1997 Plan.

Under
the 2000 Plan, options to purchase shares of the Company's common stock and other stock-based awards may be granted to the Company's employees, consultants, officers and directors.
The terms of the 2000 Plan were substantially similar to those under the 1997 Plan. On November 22, 2004, the Company's stockholders approved an amendment to the 2000 Plan which increased the
authorized number of shares to be granted from 7,500,000 to 12,000,000. The amendment changed the options expiration term on future grants to five years, and contained certain limitations on the
maximum number of shares that may be awarded to an individual. No awards may be granted under the 2000 Plan after August 24, 2014. As of June 30, 2008, there were 4,440,029 shares
available for future grants.

The
Company's employee stock option plan typically provides terminated employees a period of thirty days from date of termination to exercise their vested stock options. In certain
circumstances, the Company has extended that thirty-day period for a period consistent with the plan. In accordance with SFAS No. 123(R), the extension of the exercise period was
deemed to be a modification of stock option terms. Additionally, certain of these modified awards have been classified as liability awards within other accrued expenses as it was determined the
Company does not have the current ability to settle the underlying shares with restricted stock. Accordingly, at the end of each reporting period, the Company determined the fair value of those awards
and recognized any change in fair value in its consolidated statements of operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these
modifications and the mark-to-market adjustments of the liability awards included in other accrued expenses, the Company recorded a charge of $5.9 million for the fiscal
year ended June 30, 2007. In fiscal year 2008, the Company continued to provide, from time to time, extensions to certain terminated employees to exercise their vested stock options. As a
result of these actions, the Company recorded a charge of $0.3 million through June 30, 2008 for the modifications and mark-to-market adjustments associated with
such extensions. The aggregate fair value of the liability awards included in other accrued expenses was $0.6 million at June 30, 2008.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

The
Company issues new shares subject to the registration of those shares with the SEC, to fulfill the obligations under all of its stock-based compensation awards. The following table
summarizes the stock option activities for the fiscal years ended June 30, 2008, 2007 and 2006 (in thousands, except per share price data):

Stock Option
Shares

Weighted
Average Option
Exercise Price
per Share

Weighted
Average Grant
Date Fair Value
per Share

Aggregate
Intrinsic ValueOutstanding, June 30, 2005


13,558

$
38.09




$
149,290Granted


1,239

$
44.30

$
13.65


Exercised


(2,157
)
$
26.75




$
39,883Expired


(565
)
$
46.90





Outstanding, June 30, 2006


12,075

$
40.35




$
45,981Granted


1,401

$
36.66

$
12.79


Exercised


(797
)
$
24.42




$
12,490Expired


(925
)
$
43.80





Outstanding, June 30, 2007


11,754

$
40.72




$
29,921Granted











Exercised


(15
)
$
12.63




$
314Expired


(2,379
)
$
41.97





Outstanding, June 30, 2008


9,360

$
40.43




$
2,568


For
the fiscal years ended June 30, 2008, 2007 and 2006, the Company received $0.2 million, $19.5 million and $57.7 million, respectively, for stock options
exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.1 million, $3.7 million and $11.8 million for the fiscal years ended
June 30, 2008, 2007 and 2006, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

The
following table summarizes the RSU activities for the fiscal years ended June 30, 2008, 2007, and 2006 (in thousands, except per share price data):

Restricted Stock
Units

Weighted
Average Grant
Date Fair Value
Per Share

Aggregate
Intrinsic ValueOutstanding, June 30, 2005


24

$
49.44

$
1,123Granted


6

$
48.10


Expired


(7
)
$
49.44


Outstanding, June 30, 2006


23

$
49.09

$
909Granted


15

$
42.44


Vested


(2
)
$
35.30

$
71Expired


(27
)
$
44.45


Outstanding, June 30, 2007


9

$
49.14

$
337Granted








Vested








Expired


(8
)
$
49.23


Outstanding, June 30, 2008


1

$
48.10

$
13


The
following table summarizes the stock options and RSUs outstanding at June 30, 2008, and the related weighted average price and life information (in thousands, except year and
price data):

June 30, 2008Outstanding

ExercisableRange of Exercise
Price per Share

Number
Outstanding

Weighted
Average
Remaining
Life (Years)

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Remaining
Life (Years)

Weighted
Average
Exercise Price$  0.00 to $14.13


284


0.82

$
11.69


284


0.81

$
11.70$15.62 to $25.35


845


1.00

$
20.57


845


1.00

$
20.57$26.00 to $35.90


1,578


2.15

$
34.40


1,284


1.93

$
34.24$36.39 to $45.87


5,020


1.55

$
42.42


4,657


1.41

$
42.64$46.19 to $54.69


973


1.55

$
50.55


891


1.49

$
50.77$55.31 to $63.88


660


1.75

$
62.46


660


1.75

$
62.469,360


1.56

$
40.43


8,621


1.42

$
40.58


Additional
information relating to the stock option plans, including employee stock options and RSUs, at June 30, 2008, 2007 and 2006, is as follows (in thousands):

June 30,2008

2007

2006Options exercisable


8,621


9,855


10,813Options available for grant


4,440


2,932


3,696Total reserved common stock shares for stock option plans


13,800


14,695


15,794


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

In
the beginning of fiscal year 2006, the Company adopted SFAS No. 123(R) on a modified prospective transition method to account for its employee stock options. Under the modified
prospective transition method, fair value of new and previously granted but unvested equity awards are recognized as compensation expense in the consolidated statement of operations, and prior period
results are not restated. SFAS No. 123(R) requires that forfeitures are estimated at the time of grant rather than recorded as the options expire. Based on the Company's historical exercise and
termination data, a five percent forfeiture rate is assumed. As a result of the adoption, for the fiscal years ended June 30, 2008, 2007 and 2006, the Company's income from continuing
operations, which is the same as income before income taxes, decreased by $10.9 million, $14.1 million and $3.5 million, respectively; net income was decreased by
$6.9 million, $8.9 million and $2.2 million, respectively. The impact on basic earnings per share for fiscal years 2008, 2007 and 2006, was $0.09 per share, $0.12 per share and
$0.03 per share, respectively. In addition, cash flows related to the classification of excess tax benefit from options
exercised increased and decreased cash flows from financing and operating activities, respectively, by $0.1 million, $1.6 million and $6.0 million for the fiscal years ended
June 30, 2008, 2007 and 2006, respectively. The adoption of SFAS No. 123(R) did not affect the stock-based compensation expense associated with the Company's RSUs, which were already
recognized over the service period based on the fair market price of the stock at the RSUs grant date.

For
the fiscal years ended June 30, 2008, 2007 and 2006, stock-based compensation expense associated with the Company's stock options and RSUs, is as follows (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Selling and administrative expense

$
9,013

$
8,629

$
2,377Research and development expense


1,762


4,273


1,136Cost of sales


353


1,299


378Total stock-based compensation expense

$
11,128

$
14,201

$
3,891


The
total unrecognized compensation expense for outstanding stock options and RSUs was $6.1 million as of June 30, 2008, and will be recognized, in general, over three
years. The weighted average number of years to recognize the compensation expense is 1.1 years.

The
fair value of the options associated with the above compensation expense for the fiscal years ended June 30, 2008, 2007 and 2006, respectively, was determined at the grant
date using the Black-Scholes option pricing model with the following weighted average assumptions:

2008

2007

2006Expected life

N/A

3.5 years

3.5 yearsRisk free interest rate

N/A

4.7%

4.3%Volatility

N/A

40.0%

34.3%Dividend yield

N/A

0.0%

0.0%


Beginning
on July 1, 2006, the Company applied the SAB 107 "simplified" method to determine the expected life. SAB 107 provided a simplified formula for determining
expected life in valuing stock options, to the extent that an entity cannot rely on its historical exercise data. Subsequent to the 2000 Plan amendments on November 22, 2004, the Company issued
stock options with a five-year expiration

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation (Continued)

and
generally a three-year annual vesting term, whereas, prior to that date, the Company granted stock options with a seven- or ten-year expiration and generally a
four- or five-year annual vesting term. Prior to July 1, 2006, the Company used historical exercise and termination data to determine the expected life.

The
risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option.

With
respect to volatility, SAB 107 clarified that there is not a particular method of estimating volatility and to the extent that the Company has traded financial instruments
from which it can derive the implied volatility, it may be appropriate to use only implied volatility in its assumptions. The Company has certain financial instruments that are publicly traded from
which it can derive the implied volatility. Therefore, beginning on July 1, 2006, the Company has used market implied volatility of options with similar terms for valuing its stock options,
whereas previously, it had used historical volatility. The Company believes implied volatility is a better indicator of expected volatility because it is generally reflective of both historical
volatility and expectations of how future volatility will differ from historical volatility.

Stockholder Rights Plan

On August 2, 1996, the Company's Board of Directors adopted a Stockholder Rights Plan (the "Plan") under which preferred stock
purchase rights (the "Rights") have been and will continue to be granted for each outstanding share of the Company's common stock held at the close of business on August 14, 1996. The Plan is
intended to ensure fair and equitable treatment for all stockholders in the event of unsolicited attempts to acquire the Company.

The
Rights will become exercisable ten business days after the earlier of: (i) a public announcement that a person or group (the "Acquirer") has acquired beneficial ownership of
20 percent or more of the Company's general voting power other than pursuant to a qualified offer or (ii) the announcement or commencement of a tender offer or exchange offer that would
result in the acquisition of beneficial ownership of 20 percent or more of the Company's general voting power by a person or group. Once exercisable, each Right entitles the holder to purchase
one one-thousandth of a share of a new series of junior participating preferred stock at an exercise price of $135, subject to adjustment to prevent dilution. If the Acquirer acquires
20 percent or more of the Company's general voting power, each Right (except those beneficially owned by the Acquirer) entitles the holder to purchase either that number of the Company's common
shares or common share equivalents having a market value of two times the exercise price of the Right. The Rights have no voting power and may be redeemed at a price of $0.01 per Right up to and
including the tenth business day after a public announcement that the Acquirer has acquired 20 percent or more of the Company's voting power. As of December 15, 1998, the Company amended
and restated its Rights Agreement to remove the requirement that continuing directors vote in board approvals of certain corporate transactions. The original expiration date of the Plan and underlying
Rights was August 14, 2006. On August 11, 2006, the Company extended the expiration date of the Rights Agreement from August 14, 2006 to November 21, 2006. By amendments to
this plan dated November 20, 2006 and November 14, 2007, the Company further extended the expiration date of the Rights Agreement to November 20, 2007 and November 25,
2008, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. 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 SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," severance benefits pursuant to an ongoing benefit arrangement recognized pursuant to
SFAS No. 112, "Employers' Accounting for Postemployment Benefits," and special termination benefits recognized pursuant to SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits." Severance costs unrelated to the Company's restructuring initiatives are recorded as an element of cost of sales, R&D or
selling 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.

Asset
write-downs are principally related to facilities and equipment that will not be used subsequent to the completion of restructuring initiatives being implemented, and cannot be
sold for amounts in excess of carrying value. The Company recognizes asset impairment in accordance with SFAS No. 144. In determining the asset groups, the Company groups assets at the lowest
level for which independent identifiable cash flows information is available. In determining whether an asset was impaired the Company evaluates undiscounted future cash flows and other factors such
as changes in strategy and technology. An indicator of impairment loss exists if the undiscounted 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 a discount rate to the estimated future cash flows that is consistent with the rate used when analyzing
potential acquisitions.

Asset
impairment, restructuring and other charges represent costs related primarily to the following initiatives:



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Asset Impairment, Restructuring and Other Charges (Continued)



The
following table summarizes the charges the Company recorded in the fiscal years ended June 30, 2008, 2007 and 2006 and recorded in asset impairment, restructuring and other
charges as well as the portion of those charges attributable to discontinued operations (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Reported in cost of sales

$


$
1,001

$
3,444Reported in asset impairment, restructuring and other charges:Asset impairment

$


$
5,878

$
397Severance


2,670


5,073


(690
)Other charges


410


620


3,194Subtotal


3,080


11,571


2,901Discontinued operations(1)





(1,173
)

(2,814
)Total asset impairment, restructuring and other charges

$
3,080

$
10,398

$
87


---

The December 2002 Initiative

In December 2002, the Company announced a restructuring initiative to better reposition itself for market conditions at the time and
de-emphasize its commodity business. The restructuring plans included consolidating and closing certain manufacturing sites in designated facilities and discontinuing production in other
facilities that could not support more advanced technology platforms or products. In addition, the Company sought to implement initiatives to lower overhead costs across its support organizations. As
of December 31, 2006, these restructuring activities were substantially completed. The following illustrates the charges the Company recorded in the fiscal years ended June 30, 2007 and
2006 related to its December 2002 restructuring initiative (in thousands):

Fiscal Year Ended
June 30,2008

2007

2006Reported in cost of sales

$


$
1,001

$
2,918Reported in asset impairment, restructuring and other charges:Asset impairment

$


$


$
91Severance





111


(932
)Other charges





475


2,499Total asset impairment, restructuring and other charges

$


$
586

$
1,658


Charges
recorded as an element of cost of sales in 2007 and 2006 represent the costs from the closure of the Company's assembly line in Krefeld, Germany and the move of these
manufacturing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Asset Impairment, Restructuring and Other Charges (Continued)

activities
to its facility in Swansea, Wales. The principal elements of those costs related to startup and transition costs, including:



Severance
credits in fiscal year 2006 represent reversals of severance accruals stemming from downward changes in the Company's estimates of its ultimate severance liability under the
December 2002 initiative. In 2005, the credit of $3.1 million represents a downward adjustment related to the Company's withdrawal of an initiative to close one of its North American production
facilities. In connection with the withdrawal of this initiative, severance accruals for 110 employees were reversed and recorded as a credit to severance expense. In 2006, the credit of
$0.9 million is principally comprised of a downward revision of $1.6 million of the Company's severance accrual as it completed an initiative to consolidate certain Aerospace and Defense
("A&D") manufacturing operations. This amount was offset by severance expense of $0.7 million mainly relating to its Mexico facility.

Other
charges reflect the costs to relocate equipment related to the consolidation and closing of certain of the Company's manufacturing sites and to discontinue production at designated
facilities. In 2006, the Company incurred $2.5 million principally related to contract termination costs and plant closure costs. These costs were principally incurred in connection with the
relocation of operations from the Company's Krefeld facility to its Swansea facility.

The PCS Divestiture Initiative

During the fiscal year ended June 30, 2007, in anticipation of the sale of the PCS Business, which represented about one-fourth
of the Company's business, the Company reviewed its overall manufacturing and support organizations and began to implement various cost-cutting measures. The Company's actions included
terminating approximately 100 employees who were part of the PCS Business, but ultimately not hired by Vishay. As part of the employee terminations, the Company recorded $5.0 million in
restructuring-related severance charges for the fiscal year ended June 30, 2007. The following illustrates the charges the Company recorded in the fiscal years ended June 30, 2007 and
2006 related to its PCS restructuring initiative (in thousands):

Fiscal Year Ended
June 30,2008

2007

2006Reported in cost of sales

$


$


$
526Reported in asset impairment, restructuring and other charges:Asset impairment

$


$
5,878

$
Severance





4,962


240Other charges





158


457Total asset impairment, restructuring and other charges

$


$
10,998

$
697


The
Company recorded $5.9 million in asset impairment charges during fiscal year 2007 relating to certain property, plant and equipment not acquired by Vishay in connection with
the Divestiture.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Asset Impairment, Restructuring and Other Charges (Continued)

Other Activities and Charges

From time to time, the Company also undertakes and executes other smaller scale restructuring initiatives at its local sites. In the
third quarter of fiscal year 2008, the Company adopted a plan for the closure of its Oxted, England facility and its El Segundo, California R&D fabrication facility. The costs associated with closing
and exiting these facilities and severance costs are expected to total approximately $13.8 million. Of this amount, approximately $12.2 million represents the cash outlay related to this
initiative in future periods. In fiscal year 2008, severance charges consisted of $1.2 million related to the closure of its Oxted facility and $1.5 million related to its El Segundo
facility. The Company expects the closure and exiting of these two facilities to be completed by the end of the second quarter of fiscal year 2010.

The
following illustrates the charges (credits) the Company recorded in the fiscal years ended June 30, 2008, 2007 and 2006 related to its other restructuring activities (in
thousands):

Fiscal Year Ended June 30,2008

2007

2006Reported in cost of sales

$


$


$
Reported in asset impairment, restructuring and other charges (credits):Asset impairment

$


$


$
306Severance


2,670





2Other charges (credits)


410


(13
)

238Total asset impairment, restructuring and other charges (credits)

$
3,080

$
(13
)
$
546


Changes
in the Company's accrued severance balance for the fiscal years ended June 30, 2008, 2007 and 2006 are as follows (in thousands):

Accrued severance, June 30, 2005

$
6,319Charged to operating expenses


2,554Costs paid


(7,195
)Foreign exchange losses


6Credited to asset impairments, restructuring and other charges


(693
)Accrued severance, June 30, 2006


991Charged to operating expenses


3,393Costs paid


(8,620
)Foreign exchange gains


(11
)Charged to asset impairments, restructuring and other charges


5,073Accrued severance, June 30, 2007


826Charged to operating expenses


5,674Costs paid


(8,095
)Foreign exchange gains


16Charged to asset impairments, restructuring and other charges


2,670Accrued severance, June 30, 2008

$
1,091


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Segment Information

As previously described in Note 2, "Discontinued Operations and the Divestiture," the Company sold its PCS Business to Vishay on April 1, 2007. Subsequent to the
Divestiture, the Company's Chief Operating Decision Maker, who is the Company's Chief Executive Officer ("CEO") in the fourth quarter of the Company's fiscal year ended June 30, 2007, redefined
the Company's business segments to better focus on the two key power management challenges, energy savings and energy efficiency. As a consequence, beginning in the fourth fiscal quarter ended
June 30, 2007, the Company has reported its financial segments based on how its CEO reviewed and allocated resources for the business and assessed the performance of its business managers. The
Company now reports in seven segments: Enterprise Power ("EP"), PMD, PS, Energy-Saving Products ("ESP"), A&D, Intellectual Property ("IP") and TS segments.

As
part of the PCS Business sale to Vishay, the Company agreed to provide certain manufacturing and support services for up to three years following the closing date of the Divestiture,
which are reported separately in the TS segment. The results of the PCS Business through the Divestiture date were reported in the CP and NAP segments, consistent with prior years and in line with the
Company's business segment reporting prior to its reorganization and the redefinition of its business segments by the CEO. For the fiscal year ended June 30, 2007, the financial results of NAP
segment were included in discontinued operations and prior period results were correspondingly reclassified to conform to current period presentation. Financial results of the CP segment were not
included in discontinued operations, as the Company expects to have significant ongoing involvement based on the significance of the cash flows to be derived from the PCS transition services.

In
addition, as part of the Company's reorganization, whereas previously, power management MOSFETs were reported based on end market applications within the ESP segment and previously
reported Computing and Communication segment (which is now separated into EP, PMD and PS segments), they are now reported within the PMD segment.

Below
is a description of the Company's reportable segments:



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Segment Information (Continued)



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.

The
accounting policies of the segments are the same as those described in Note 1, "Business, Basis of Presentation and Summary of Significant Accounting Policies." The Company's
wafer manufacturing facilities fabricate ICs for all business units as necessary and their operating costs are

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Segment Information (Continued)

reflected
in the segments' cost of revenues on the basis of product costs. General manufacturing overhead and variances are allocated to the segments based on their percentage of total revenues.
Because operating segments are generally defined by the products they design and sell, they do not make sales to each other. Depreciation and amortization related to the manufacturing of goods is
included in gross profit for the segments. 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. The Company does not discretely allocate assets to its operating segments, nor does the CEO evaluate operating segments using discrete asset information.

Revenue
and gross margin by reportable segments are as follows (in thousands, except percentages):

June 30, 2008

June 30, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
373,947


38.0
%

21.2
%
$
416,464


34.6
%

33.7
%Energy-Saving Products


202,239


20.5


37.1


225,250


18.7


47.7Aerospace and Defense


152,855


15.5


50.4


157,008


13.1


51.2Enterprise Power


102,484


10.4


43.5


87,535


7.3


52.0PowerStage


63,197


6.4


25.4


84,070


7.0


15.5Intellectual Property


30,490


3.1


100.0


44,171


3.7


100.0Ongoing segments total


925,212


93.9


34.9


1,014,498


84.4


42.5Transition Services


59,618


6.1


0.4


18,730


1.6


7.5Commodity Products











169,241


14.0


17.1Consolidated total

$
984,830


100.0
%

32.8
%
$
1,202,469


100.0
%

38.4
%




June 30, 2006Business Segment

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
369,974


36.5
%

36.6
%Energy-Saving Products


200,607


19.8


52.5Aerospace and Defense


131,062


12.9


48.1Enterprise Power


68,280


6.7


54.4PowerStage


7,962


0.8


36.0Intellectual Property


38,839


3.8


100.0Ongoing segments total


816,724


80.5


46.8Commodity Products


198,076


19.5


21.9Consolidated total

$
1,014,800


100.0
%

42.0
%


Revenues
from unaffiliated customers are based on the location in which the sale originated. The Company includes in long-lived assets, all long-term assets
excluding long-term investments, restricted

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Segment Information (Continued)

cash,
long-term deferred income taxes, goodwill and acquisition-related intangibles. Geographic information for the fiscal years ended June 30, 2008, 2007 and 2006 is presented
below (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Revenues from Unaffiliated CustomersThe United States

$
272,928

$
329,741

$
273,543Asia


484,516


599,576


499,790Europe


196,896


228,981


202,628Subtotal


954,340


1,158,298


975,961Royalties (unallocated)


30,490


44,171


38,839Total

$
984,830

$
1,202,469

$
1,014,800Long-lived AssetsThe United States

$
296,487

$
351,515

$
352,397Asia


37,528


38,751


45,061Europe


252,734


268,642


274,284Total

$
586,749

$
658,908

$
671,742


No
single customer accounted for more than ten percent of the Company's consolidated revenue for the fiscal years ended June 30, 2008, 2007 or 2006. However, for the fiscal year
ended June 30, 2008, approximately 5.9 percent of the Company's consolidated revenue was associated with the shipment of one product directly to or through the Company's distributors to
one original equipment manufacturer.

9. Income Taxes

On July 1, 2007, the Company adopted the provisions of FIN 48. Under FIN 48, differences between the amounts recognized in the consolidated financial statements
prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained earnings. The adoption of
FIN 48 had no material impact on the consolidated financial statements. Consistent with the provisions of FIN 48, the Company has reclassified $21.1 million
of income tax liabilities (including interest and penalties) from accrued income taxes to other long-term liabilities in the consolidated balance sheet during the fourth quarter of fiscal year 2008
because it was determined that payment of cash is not anticipated within one year of the balance sheet date.

During
preparation for the adoption of FIN 48, the Company identified various accounting errors related to its accounting for income taxes for the fiscal years 2001 through 2006. Most
significantly, the Company determined that its transfer pricing methodology for fiscal years 2001 through 2006 could not be sustained. In addition, the Company has corrected its accounting for certain
types of foreign-earned income that are subject to taxation currently, rather than deferred until the earnings are remitted. This determination also impacted prior distributions made by the Company's
foreign subsidiaries as well as the Company's U.S. federal foreign tax credit claims. The Company also corrected errors related to the tax accounting for certain foreign currency gains and losses and
U.S. export tax incentives. The Company reviewed its deferred tax accounts, and corrected its accounting for temporary differences,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

primarily
related to property, plant and equipment, intangible assets and various nondeductible reserves and accruals. The Company also identified and corrected for other unrecorded foreign tax
liabilities. The Company has also corrected the application of certain SFAS No. 109 provisions related to tax effecting the elimination of profit-in-ending inventory.

In
connection with matters described above, the Company prepared and filed in September 2007 amended U.S. federal tax returns for the fiscal years 2004 through 2006. In
conjunction with the filing of these amended tax returns and extensions related to U.S. federal and state income tax returns for the fiscal year ended June 30, 2007, the Company remitted income
taxes and interest in the aggregate amount of $74.0 million to the Internal Revenue Service and state taxing agencies. Upon filing the amended returns and paying the interest due on the
indicated underpayment of tax, the Company released during the first fiscal quarter of 2008, from accrued income taxes, $15.8 million of accrued penalty and related interest for the
underpayment of income taxes due for the fiscal years 2004 to 2006 that the Company determined would have been payable in those years and paid approximately $44.3 million in taxes and
$4.2 million for accrued interest and penalties on those taxes. The Company also paid, in the first quarter of fiscal year 2008, the Internal Revenue Service and state taxing agencies
approximately $25.5 million upon the filing of fiscal year 2007 extensions. Additionally, during fiscal year 2008 the Company filed Forms 3115 to correct certain tax accounting methods with
respect to the fiscal years ended June 30, 2001 through June 30, 2006. As a consequence of filing the Forms 3115, the Company reversed, throughout fiscal year 2008, approximately
$1.2 million of accrued penalties and related interest for the fiscal years ended June 30, 2001 through June 30, 2006.

The
Company is pursuing refunds for income taxes it believes to have overpaid in certain jurisdictions and has recorded in the financial statements a $15.2 million tax benefit. In
certain other jurisdictions, the Company cannot determine that the realization of the tax refunds of $59.3 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 $49.0 million of income taxes (which is included in the $59.3 million) in Singapore as a result of errors in its
transfer pricing of intercompany transactions. As a result of this determination, the Company has filed amended income tax returns in Singapore for fiscal year 2004 through fiscal year 2006 claiming a
tax refund and asserted a claim for tax refunds for fiscal year 2001
and fiscal year 2003. 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 tax and Singapore income tax and Japanese income taxes with respect to these fiscal years, thereby significantly increasing the Company's effective tax rate.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

A
reconciliation of unrecognized tax benefits from July 1, 2007 to June 30, 2008 is as follows (in thousands):

Unrecognized tax benefits at July 1, 2007(1)

$
125,725Increases for positions taken in current year


865Increases for positions taken in a prior year


3,741Decreases for positions taken in a prior year


Decreases for settlements with taxing authorities


(44,674
)Decreases for lapses in the applicable statute of limitation


Unrecognized tax benefits at June 30, 2008

$
85,657






As
of June 30, 2008, the liability for income tax associated with uncertain tax positions was $85.7 million. If recognized, the liability associated with uncertain tax
positions would result in a benefit to income taxes on the consolidated statement of operations of $53.3 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. At adoption of FIN 48, the
Company had accrued $48.7 million of interest and penalties related to uncertain tax positions. The accrued interest at adoption of FIN 48 includes the tax benefit of the interest
deduction of $4.7 million and also includes an adjustment of $1.2 million related to a change in estimate for fiscal year 2007. As of June 30, 2008, the Company had accrued
interest and penalties of $31.4 million. The decrease in interest and penalties from the date of adoption is primarily the result of filing amended U.S. federal tax returns for fiscal years
2004 to 2006 which included the payment of interest of approximately $4.2 million and the reversal of approximately $15.8 million of penalties and related interest that were partially
offset by the accrual of additional interest and penalties of $2.6 million.

The
uncertain tax positions are expected to decrease from June 30, 2008 by approximately $42.4 million over the next twelve months primarily due to the filing of amended
returns, offset by small increases in uncertain tax positions in certain foreign tax jurisdictions.

The
Company anticipates that there will be other changes to the unrecognized tax benefit associated with uncertain tax positions due to the expiration of statutes of limitation, payment
of tax on amended returns, audit settlements and other changes in reserves. However, due to the uncertainty regarding the timing of these events, a current estimate of the range of other changes that
may occur within the next twelve months cannot be made.

The
Company has determined that in fiscal year 2009 it will file amended U.S. federal income tax returns and will pay approximately $14.2 million in taxes and $13.2 million
in related interest and penalties to the Internal Revenue Service in connection with uncertain tax positions recorded for fiscal years 2001 through 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

The
Company's major tax jurisdictions are U.S. Federal, California, Japan, United Kingdom, Singapore, Germany, Hong Kong and Mexico. In the ordinary course of business, the Company is
subject to examination by taxing authorities. As of June 30, 2008, the Company is no longer subject to U.S. federal income tax examinations for years before fiscal year ended July 1,
2001; California income tax examinations before fiscal year ended July 5, 1998; Japan income tax examinations before fiscal year ended June 30, 2002; United Kingdom and Germany tax
examinations before fiscal year ended June 30, 2002; Singapore and Mexico tax examination for assessment year ended December 31, 2001; and Hong Kong profits tax examinations before
assessment year ended March 31, 2003.

The
Company is currently under tax examination by the following tax jurisdictions: California for fiscal years ended July 4, 2004 and July 3, 2005; and Germany for fiscal
years ended June 30, 2002 through July 3, 2005.

(Loss)
income from continuing operations before income taxes for the fiscal years ended June 30, 2008, 2007 and 2006 is as follows (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Domestic

$
(159,962
)
$
75,814

$
91,244Foreign


53,115


60,668


52,907Total pretax (loss) income

$
(106,847
)
$
136,482

$
144,151


The
(benefit from) provision for income taxes from continuing operations for the fiscal years ended June 30, 2008, 2007 and 2006 is as follows (in thousands):

Fiscal Year Ended June 30,2008

2007

2006Current income taxes:Domestic

$
(41,020
)
$
98,113

$
59,747Foreign


17,112


23,934


27,348(23,908
)

122,047


87,095Deferred income taxes:Domestic


(18,069
)

(54,335
)

4,402Foreign


(2,228
)

(4,717
)

2,490(20,297
)

(59,052
)

6,892Total (benefit) provision

$
(44,205
)
$
62,995

$
93,987


The
tax benefit from options exercised reduced current income taxes payable for the fiscal years ended June 30, 2008, 2007 and 2006 by $0.1 million, $3.7 million and
$11.8 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

The
Company's effective tax rate on pretax (loss) income from continuing operations differs from the U.S. federal statutory tax rate for the fiscal years ended June 30, 2008, 2007
and 2006, as follows:

Fiscal Year Ended June 30,2008

2007

2006Statutory tax rate


(35.0
)%

35.0
%

35.0
%State taxes, net of federal benefit


(3.1
)%

2.7
%

1.1
%Export tax incentive


0.0
%

(2.4
)%

(1.9
)%Multijurisdiction taxation


(2.5
)%

2.8
%

13.4
%Actual and deemed foreign dividends


6.8
%

9.1
%

22.4
%Foreign tax credit


(2.4
)%

(2.5
)%

(11.8
)%Research and development credit


(2.1
)%

(0.1
)%

(2.7
)%Penalties and interest


(11.1
)%

4.0
%

10.0
%Goodwill impairment


7.1
%

0.0
%

0.0
%Divestituredifference in book and tax basis


0.0
%

(3.6
)%

0.0
%Other, net


0.9
%

1.1
%

(0.3
)%Effective tax rate


(41.4
)%

46.1
%

65.2
%


The
major components of the net deferred tax assets (liabilities) as of June 30, 2008 and 2007 are as follows (in thousands):

June 30,2008

2007Deferred tax liabilities:Unrealized gain on securities

$


$
(9,503
)Unrealized gain on functional currency


(97
)

(720
)Other


(11,527
)

(11,618
)Total deferred tax liabilities


(11,624
)

(21,841
)Deferred tax assets:Accrued expenses


34,062


30,079Accrued compensation


17,885


11,624Property, plant and equipment


40,768


41,972Deferred gain on Divestiture


44,823


44,179Unrealized gain on securities


905


Net operating loss carryforward


6,469


4,442Research and experimental credits


33,753


29,036Other tax credits


533


476Other


6,122


3,837Total deferred tax assets


185,320


165,645Valuation allowance


(78,142
)

(68,228
)Net deferred tax assets

$
95,554

$
75,576


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

As
of June 30, 2008, before valuation allowances of $20.4 million, the Company has $31.5 million in state R&D tax credits that carry forward indefinitely.

Pursuant
to Sections 382 and 383 of the U.S. Internal Revenue Code, the utilization of operating loss carryforward and other tax attributes may be subject to limitations if
certain ownership changes occur during a three-year testing period (as defined). The Company does not believe an ownership change has occurred as of June 30, 2008 that would limit
the Company's utilization of any operating loss carryforward or other tax attributes.

Realization
of deferred tax assets is dependent upon generating sufficient taxable income, carryback of losses, offsetting deferred tax liabilities, and the availability of tax planning
strategies. The Company believes that there is a risk that certain deferred tax assets, including state R&D credits and capital losses, may result in no benefit and, accordingly, has established a
valuation allowance of $78.1 million against them. Of this amount approximately $5.1 million will reduce additional paid in capital when released. Although realization is not assured for
the remaining deferred tax assets, the Company believes it is more likely than not that the net deferred tax assets will be realized through future taxable earnings or alternative tax strategies. The
Company released its valuation allowance with respect to its United Kingdom deferred tax assets in fiscal year 2007 in the amount of $41.1 million with $26.6 million reducing goodwill
and $5.8 million reducing deferred income tax expense. The Company has determined that it is more likely than not that such deferred tax assets are realizable after the Divestiture transaction
with Vishay on April 1, 2007. During fiscal year 2008, the Company reduced its
remaining United Kingdom valuation allowance in the amount of $2.9 million and its valuation allowance at IR Germany of $0.4 million, reducing deferred income tax expense.

For
fiscal year 2008, deferred tax benefits recognized in other comprehensive income as a result of unrealized losses for foreign currency contracts and securities held for sale required
the recording of a corresponding valuation allowance because the Company believes that their realization is not assured.

The
American Jobs Creation Act ("AJCA") was signed into law on October 22, 2004. Among its various provisions, AJCA created a temporary incentive for U.S. corporations to
repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. In addition, the provisions
require that certain foreign tax credits and other deductions associated with the dividend payments be reduced commensurate with the level of tax benefit received by U.S. corporations from the
85 percent deduction. During the fourth fiscal quarter ended June 30, 2006, the Company's Board of Directors approved a domestic reinvestment plan as required by the AJCA with respect to
repatriated dividends. The Company repatriated $67.6 million in foreign earnings during its fourth fiscal quarter ended June 30, 2006 which included $13.7 million under the AJCA.
The Company's tax expense as a consequence of the repatriation of the accumulated foreign earnings under the AJCA is 5.25 percent of pre-tax book earnings which was taxed at
$0.7 million and $18.9 million through the non-AJCA repatriation of earnings.

As
of June 30, 2008, U.S. income taxes have not been provided on approximately $79.3 million of undistributed earnings of foreign subsidiaries since the Company considers
these earnings 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Income Taxes (Continued)

As
a matter of course, the Company is regularly audited by various taxing authorities. Unfavorable settlement of any particular issue would require the use of cash. Favorable resolution
would be recognized as a reduction to the effective tax rate in the year of resolution or a reduction of goodwill if it relates to purchased tax liabilities. The Company's interest and penalties
associated with income taxes are included in accrued income taxes. While it is often difficult to predict the final outcome or the timing of the resolution of any particular tax matter, the Company
does not expect the results of these audits to have a material impact on its financial position or results of operations.

10. Net Income per Common Share

The reconciliation of the numerator and denominator of the net income per common sharebasic and diluted determined in accordance with SFAS No. 128 for the fiscal
years ended June 30, 2008, 2007 and 2006 (in thousands, except per share data) is as follows:

Fiscal Year Ended June 30, 2008Income
(Numerator)

Shares
(Denominator)

Per Share DataNet loss per common sharebasic:Loss from continuing operations

$
(62,642
)

72,819

$
(0.86
)Loss from discontinued operations, net of taxes





72,819


Net loss

$
(62,642
)

72,819

$
(0.86
)Effect of dilutive securities:Stock options and restricted stock units:Income from continuing operations







$
Income from discontinued operations, net of taxes








Net income







$
Net loss per common sharediluted:Loss from continuing operations

$
(62,642
)

72,819

$
(0.86
)Income from discontinued operations, net of taxes





72,819


Net loss

$
(62,642
)

72,819

$
(0.86
)


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Net Income per Common Share (Continued)



Fiscal Year Ended June 30, 2007Income
(Numerator)

Shares
(Denominator)

Per Share DataNet income per common sharebasic:Income from continuing operations

$
73,487


72,421

$
1.01Income from discontinued operations, net of taxes


4,255


72,421


0.06Net income

$
77,742


72,421

$
1.07Effect of dilutive securities:Stock options and restricted stock units:Income from continuing operations





512

$
Income from discontinued operations, net of taxes





512


Net income





512

$
Net income per common sharediluted:Income from continuing operations

$
73,487


72,933

$
1.01Income from discontinued operations, net of taxes


4,255


72,933


0.06Net income

$
77,742


72,933

$
1.07




Fiscal Year Ended June 30, 2006Income
(Numerator)

Shares
(Denominator)

Per Share DataNet income per common sharebasic:Income from continuing operations

$
50,164


70,914

$
0.71Loss from discontinued operations, net of taxes


(13,654
)

70,914


(0.20
)Net income

$
36,510


70,914

$
0.51Effect of dilutive securities:Stock options and restricted stock units:Income from continuing operations





839

$
(0.01
)Loss from discontinued operations, net of taxes





839


0.01Net income





839

$
Net income per common sharediluted:Income from continuing operations

$
50,164


71,753

$
0.70Loss from discontinued operations, net of taxes


(13,654
)

71,753


(0.19
)Net income

$
36,510


71,753

$
0.51


The
Company utilizes income or loss from operations as the "control number" in determining whether potential common shares are dilutive or anti-dilutive.

On
July 16, 2007, the Company repaid the Notes, which matured on July 16, 2007. As such, there will no longer be the dilutive effect from the 7,439,000 shares convertible
under the Notes on a prospective basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Environmental Matters

Federal, state, local and foreign laws and regulations impose various restrictions and controls on the storage, use and discharge of certain materials, chemicals and gases used in
semiconductor manufacturing processes, and on the operation of the Company's facilities and equipment. The Company believes it uses reasonable efforts to maintain a system of compliance and controls
for these laws and regulations. Despite its efforts and controls, from time to time, issues may arise with respect to these matters. However, the Company does not believe that general compliance with
such laws and
regulations as now in effect will have a material adverse effect on its results of operations, financial position or cash flows.

Additionally,
under some of these laws and regulations, the Company could be held financially responsible for remedial measures if properties are contaminated or if waste is sent to a
landfill or recycling facility that becomes contaminated. Also, the Company may be subject to common law claims if released substances damage or harm third parties. The Company cannot make assurances
that changes in environmental laws and regulations will not require additional investments in capital equipment and the implementation of additional compliance programs in the future, which could have
a material adverse effect on the Company's results of operations, financial position or cash flows, as could any failure by the Company to comply with environmental laws and regulations.

As
part of the environmental review process, the Company has provided certain disclosures of potential permit violations and other matters to local environmental authorities with respect
to the Company's Mesa, Arizona and Temecula, California facilities. The Company has taken steps to correct the alleged deficiencies. However, during the fiscal quarter ended September 30, 2007,
the Company received a notification of proposed penalty in Mesa, Arizona from local environmental authorities in the amount of approximately $2.4 million, which the Company settled for $98,500
in December 2007. The Company has not yet been assessed any penalties with respect to the disclosures made for its Temecula, California facility. Additionally, during negotiations for the Divestiture,
chemical compounds were discovered in the groundwater underneath one of the Company's former manufacturing plants in Italy. The Company has advised appropriate governmental authorities and is awaiting
further reply to its inquiries, with no current orders or directives on the matter outstanding from the governmental authorities.

IR
and Rachelle Laboratories, Inc. ("Rachelle"), a former operating subsidiary of the Company that discontinued operations in 1986, were each named a potentially responsible party
("PRP") in connection with the investigation by the United States Environmental Protection Agency ("EPA") of the disposal of allegedly hazardous substances at a major superfund site in Monterey Park,
California ("OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 against a number of other PRPs, including the Company, for
cost recovery and contribution under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). The Company has settled all outstanding claims that have
arisen against it out of the OII Site. No claims against Rachelle have been settled. The Company has taken the position that none of the wastes generated by Rachelle were hazardous.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Environmental Matters (Continued)

It
remains the position of Rachelle that its wastes were not hazardous. The Company's insurer has not accepted liability, although it has made payments for defense costs for the lawsuit
against the Company. The Company has made no accrual for potential loss, if any; however, an adverse outcome could have a material adverse effect on the Company's results of operations or cash flows.

The
Company received a letter in June 2001 from a law firm representing UDT Sensors, Inc. ("UDT") relating to environmental contamination (chlorinated solvents such as
trichlorethene) purportedly found in UDT's properties in Hawthorne, California. The letter alleges that the Company operated a manufacturing business at that location in the 1970's and/or 1980's and
that it may have liability in connection with the claimed contamination. The Company has made no accrual for any potential losses since there has been no assertion of specific facts on which to form
the basis for determination of liability.

In
November 2007, the Company was named as one of approximately 100 defendants inAngeles Chemical Company, Inc. et al. v. Omega Chemical PRP
Group, LLC et al., No. EDCV07-1471 (TJH)(JWJx) (C.D. Cal.) (the "Angeles Case"). Angeles Chemical Company, Inc. and related entities ("Plaintiffs") own or
operate a facility (the "Angeles Facility") which is located approximately one and a half miles downgradient of the Omega Chemical Superfund Site (the "Omega Site") in Whittier, California. Numerous
parties, including the Company, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that contaminants from the Omega Site migrated in groundwater from the Omega Site to the Angeles
Facility, thereby causing damage to the Angeles Facility. In addition, they claim that the EPA considers them to be responsible for the groundwater plume near the Angeles Facility which Plaintiffs
contend was caused by disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA, nuisance and trespass and also seek declaratory relief. Plaintiffs seek to require the defendants
to investigate and cleanup the contamination and to recover damages. The Company previously entered into a settlement with other parties associated with the Omega Site pursuant to which the Company
paid those entities money in exchange for an agreement to defend and indemnify the Company with regard to certain environmental claims (the "Omega Indemnification"). In that agreement, it was
estimated that the Company's volumetric share of wastes sent to the Omega Site was in the range of 0.08%. The Company believes that much, if not all of the risks associated with the Angeles Case
should be covered by the Omega Indemnification. In addition, the Company has tendered the complaint to several of its insurance carriers who have agreed to defend under a reservation of rights.
Therefore, the Company does not expect its out-of-pocket defense costs to be significant. In addition, in light of the Omega Indemnification, the potential for insurance
coverage, and the fact that its volumetric share of Omega Site wastes was less than 0.1%, the Company does not believe that an adverse judgment against the Company would be material.

12. Commitments and Contingencies

As of June 30, 2008, the future minimum lease commitments under non-cancelable operating leases of equipment and real property are as follows: fiscal year 2009:
$8.1 million; fiscal year 2010: $6.6 million; fiscal year 2011: $5.4 million; fiscal year 2012: $1.9 million; fiscal year 2013: $1.3 million; thereafter:
$1.1 million. There were no capital lease obligations as of June 30, 2008.

Total
rental expense on all operating leases totaled $11.1 million, $11.2 million and $10.5 million in the fiscal years ended June 30, 2008, 2007 and 2006,
respectively. The Company had outstanding purchase commitments for capital expenditures of approximately $3.3 million at June 30, 2008.

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12. Commitments and Contingencies (Continued)

In
connection with the Divestiture, in fiscal year 2007, the Company recorded a provision of $18.6 million for certain tax obligations with respect to divested entities. In fiscal
year 2008, the divested entities' tax obligations increased to $20.7 million due to the impact of foreign currency translation on the underlying obligation partially offset by a decrease in the
obligation resulting from the lapsing of a statute of limitation in a foreign tax jurisdiction.

Following
the Divestiture, the Company commenced discussions with Vishay regarding the application of the net working capital adjustment formula in accordance with the terms of the
definitive documents related to the Divestiture. However, the Company did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and
Vishay has taken the position that the discussion should be deferred pending the disclosure of the results of the Company's prior Audit Committee-led Investigation. As of the date of this
report, Vishay continues to assert a net working capital adjustment in its favor of approximately $20.0 million, and the Company maintains that the proper application of the contractual formula
results in no adjustment to net
working capital. The Company does not believe that Vishay's assertions have merit and intends to vigorously defend its position.

On
June 9, 2008, Vishay asserted that it believes certain forecasts it received from the Company during the Divestiture negotiations related to the Automotive Systems Business
Unit ("ASBU") of the PCS Business were "materially overstated" and "based upon assumptions that the management of the Company at the time knew to be unfounded and unsupportable." As part of its claim,
Vishay also alleged that non-disclosure and concealment of future prospects related to the ASBU business caused Vishay to suffer damages in excess of $50.0 million attributable to,
among other things, the purchase price for ASBU, subsequent operational losses and the costs incurred by Vishay in connection with the later divestment of the ASBU business. The Company does not
believe that Vishay's assertions have merit and intend to vigorously defend its position.

Vishay
has also advised the Company of certain other potential claims, including, but not limited to, certain product quality claims related to PCS products transferred to Vishay but
manufactured prior to the consummation of the Divestiture and a claim regarding certain chemicals found in the ground water at its former manufacturing plant in Borgaro, Italy. The Company is
currently in the process of assessing these claims. The Company believes that these claims will not have a material adverse effect on its business or prospects, and it intends to vigorously defend its
rights and position.

Subsequent
to the Company's fiscal year ended June 30, 2008, on August 15, 2008, and concurrently with making an unsolicited non-binding proposal to acquire all
of the outstanding shares of the Company for $21.22 per share in cash, Vishay re-asserted its claims against the Company arising from the Divestiture and included an additional claim for
rescission of the prior transaction. The Company has rejected Vishay's offer, and as stated above, the Company does not believe that Vishay's assertions have merit and intend to vigorously defend its
position.

On
September 10, 2008, Vishay made an unsolicited proposal to acquire all outstanding shares of the Company at a price of $23.00 per share, and announced its intention to
commence a tender offer to purchase all of the Company's shares. In addition, it gave notice of its intention: (a) to nominate three individuals for election as Class I directors at the
2007 Annual Meeting scheduled for October 10, 2008 ("2007 Annual Meeting"), and (b) to present at that meeting proposals to amend the Company's Bylaws. Vishay's proposed Bylaw amendments
provide: (x) that the meeting to elect the Company's Class II directors be held by December 21, 2008; (y) that any adjournment of a

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12. Commitments and Contingencies (Continued)

stockholders'
meeting at which a quorum is present must be approved by a majority of the shares present at the meeting in person or by proxy; and (z) for an amendment to the Bylaws to repeal
any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29, 2008 and the 2007 Annual Meeting unless approved by the holders of a majority of the outstanding
shares of the Company.

On
the same date, Vishay also commenced an action in the Delaware court of Chancery (the "Delaware Action") against the Company and its current directors seeking, among other things:
(a) to compel a meeting of shareholders on or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a
declaration that proposed amendments to the Company's Bylaws are valid under Delaware law and the Company's Certificate of Incorporation; and (c) a mandatory injunction requiring the Company to
present such proposed amendments for a vote at the 2007 Annual Meeting. The Delaware Action does not seek damages against the Company. The Company believes that the Delaware Action is without merit
and intends to oppose it vigorously.

13. Litigation

International Rectifier Securities Litigation.Following the Company's disclosure on April 9, 2007 that the Company's Audit Committee was conducting the
internal Investigation into certain revenue recognition matters, a series of putative class action lawsuits was filed against IR in the United States District Court for the Central District of
California. The complaints were filed on behalf of a putative class of purchasers of the Company's stock from October 27, 2005 through April 9, 2007 ("Original Class Period"), and named
as defendants the Company and certain of its present and former officers and directors. The complaints alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
arising out of alleged accounting irregularities at the Company's Japan subsidiary. On July 22, 2007, the court consolidated all of the actions under the captionIn re
International Rectifier Corporation Securities Litigation, No. CV 07-02544-JFW (VBKx) (C.D. Cal.), and appointed the Massachusetts Laborers'
Pension Fund and the General Retirement System of the City of Detroit (together, "Lead Plaintiffs") as co-lead plaintiffs.

On
January 14, 2008, Lead Plaintiffs filed a Consolidated Class Action Complaint ("CAC"). The CAC purported to extend the Original Class Period by nearly two years, from
July 31, 2003 to August 29, 2007, and added claims based upon its disclosures that certain former officers improperly allocated operating expenses as restructuring charges, improperly
assigned tax liability from higher to lower tax jurisdictions and improperly accounted for tax benefits associated with the granting of stock options.
The CAC named as defendants several of the Company's former officers, but did not name any of the Company's past or present directors except Eric Lidow and Alex Lidow. On March 6, 2008,
defendants filed motions to dismiss the CAC. On May 23, 2008, the Court issued an order granting defendants' motions to dismiss, without prejudice, on the ground that Lead Plaintiffs failed to
plead detailed facts sufficient to give rise to a strong inference of defendants' scienter. The Court has permitted Lead Plaintiffs to file an amended complaint on or before October 17, 2008.

Derivative Litigation.On August 1, 2008, a partial derivative lawsuit captionedMayers v. Lidow, No.
BC395652, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint asserts derivative claims, purportedly on behalf of the Company, against certain of
the Company's former officers, and current and former directors, alleging breach of fiduciary duty, unjust enrichment and violations of Section 25402 of the California Corporations Code in
connection

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13. Litigation (Continued)

with
the matters reported in the Company's recent public filings with the SEC. The derivative claims seek damages, disgorgement and imposition of a constructive trust against the individual defendants
purportedly for the benefit of the Company. The complaint also seeks injunctive relief against the current Board of Directors under a provision of Delaware law that permits shareholders to ask the
Court of Chancery to require, in its discretion, a company to hold an annual shareholders' meeting. The complaint does not seek monetary relief against the Company. The Company intends to move for
dismissal of these claims on the grounds that plaintiff does not have standing to proceed derivatively on the behalf of the corporation.

Litigation Arising from Vishay Proposal.On August 15, 2008, shortly after the Company's disclosure that Vishay had made an unsolicited,
non-binding proposal to acquire all outstanding shares of the Company for $21.22 per share in cash, a purported class action complaint captionedHui Zhao v.
International Rectifier Corporation, No. BC396461, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint names as defendants
the Company and all current directors and alleges that the Vishay proposal is unfair and that the Company's directors breached their fiduciary duties in connection with the proposed acquisition by
failing to properly value the Company and, if they accept the offer, by failing to maximize the Company's value through steps such as the solicitation of alternate offers. The action seeks to enjoin
defendants from agreeing to the Vishay proposal or, alternatively, to rescind a merger with Vishay if it were ultimately consummated, as well as an award of attorneys' fees and costs. Five other
substantively identical complaints seeking the same relief also have been filed in the same court:United Union of Roofers, Waterproofers & Allied Workers Local Union
No. 8 v. International Rectifier Corp., No. BC396490 (filed Aug. 19, 2008);Gerber v. International Rectifier
Corporation, No. BC 396678 (filed Aug. 20, 2008);Hay Ly v. International Rectifier Corporation, No. BC 396679 (filed
Aug. 20, 2008);Soyugenc v. International Rectifier Corp., No. BC396855 (filed Aug. 22, 2008); andGuttman v.
International Rectifier Corp., No. BC396818 (filed Aug. 22, 2008). The lawyers that filed theZhaocomplaint also filed
the complaints inGerber, Ly,andSoyugenc. On August 22, 2008, United Union of Roofers,
Waterproofers & Allied Workers Local Union No. 8 ("United Union") filed a motion for consolidation and for appointment as lead plaintiff. In support of its motion, United Union argues
that each action asserts similar claims, that United Union
is the only institutional plaintiff, and that United Union's attorneys are qualified to serve as lead counsel for the class. The Company expects to join United Union's motion for consolidation but
likely will take no position as to the appointment of lead plaintiff.

On
August 29, 2008, within hours of the Company's announcement that it had rejected the August 15, 2008 proposal made by Vishay to purchase all outstanding shares of the
Company, a partial derivative complaint captionedCity of Sterling Heights Police Fire Retirement System v. Dahl, No. BC397326, was filed
in the Superior Court of the State of California for the County of Los Angeles. The complaint names as defendants all of IR's current directors and alleges that the directors breached their fiduciary
duties by rejecting the Vishay offer and by failing to negotiate a higher price in connection with that offer. In addition to the claim for breach of fiduciary duty, which plaintiff brings both
derivatively and purportedly on behalf of a class of investors, plaintiff also alleges derivative claims for abuse of control, gross mismanagement, and waste. The complaint seeks an injunction
requiring the Board of Directors to appoint a committee of independent directors to consider strategic alternatives for the Company and invalidating any defensive measures the Board of Directors might
take in connection with this or any other offer.

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13. Litigation (Continued)

None
of these actions seeks damages against the Company. The Company believes that the actions are without merit. The Company expects to seek to consolidate the actions and intends to
oppose them vigorously.

On
September 10, 2008, Vishay made an unsolicited proposal to acquire all outstanding shares of the Company at a price of $23.00 per share, and announced its intention to
commence a tender offer to purchase all of the Company's shares. In addition, it gave notice of its intention: (a) to nominate three individuals for election as Class I directors at the
2007 Annual Meeting, and (b) to present at that meeting proposals to amend the Company's Bylaws. Vishay's proposed Bylaw amendments provide: (x) that the meeting to elect the Company's
Class II directors be held by December 21, 2008; (y) that any adjournment of a stockholders' meeting at which a quorum is present must be approved by a majority of the shares
present at the meeting in person or by proxy; and (z) for an amendment to the Bylaws to repeal any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29,
2008 and the 2007 Annual Meeting unless approved by the holders of a majority of the outstanding shares of the Company.

On
the same date, Vishay also commenced the "Delaware Action against the Company and its current directors seeking, among other things: (a) to compel a meeting of shareholders on
or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a declaration that proposed amendments to the Company's
Bylaws are valid under Delaware law and the Company's Certificate of Incorporation; and (c) a mandatory injunction requiring the Company to present such proposed amendments for a vote at the
2007 Annual Meeting. The Delaware Action
does not seek damages against the Company. The Company believes that the Delaware Action is without merit and intends to oppose it vigorously.

Governmental Investigations.The Company is cooperating fully with investigators from the SEC Division of Enforcement, the Internal Revenue Service and the U.S.
Attorneys' Office regarding matters relating to the Audit Committee-led Investigation and other matters described in Note 2, "Restatements of Consolidated Financial Statements," of our Annual
Report on Form 10-K for fiscal year 2007 filed with the SEC on August 1, 2008. The Company has responded to subpoenas for records from the SEC; and the Company will continue to cooperate with
these investigators regarding their investigation into these matters.

IXYS Litigation.On June 22, 2000, the Company filedInternational Rectifier Corporation v. IXYS
Corporation, Case No. CV-00-06756-R, in the United States District Court for the Central District of California. The Company's
complaint alleges that certain IXYS Corporation ("IXYS") MOSFET products infringe the Company's U.S. Patent Nos. 4,959,699, 5,008,725 and 5,130,767. On August 17, 2000, IXYS filed an
answer and counterclaim, and, on February 14, 2001, amended its answer and counterclaim, denying infringement and alleging patent invalidity and unenforceability. After proceedings, including a
jury trial on damages, in the District Court and an initial appeal, a jury trial on infringement and damages was held commencing September 6, 2005. The jury found that IXYS was infringing
certain claims of Patent No. 4,959,699 and awarded IR $6.2 million in damages through September 30, 2005. On September 14, 2006, the District Court entered the final
judgment and permanent injunction based on the jury verdict. IXYS again appealed (with a notice of appeal filed after the deadline for doing so). The Federal Circuit lifted its temporary stay, and the
permanent injunction was in effect until it terminated with the expiration of the '699 patent in September 2007. The matter was argued to the Federal Circuit on January 7, 2008. In an opinion
issued February 11,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Litigation (Continued)

2008,
the Federal Circuit ruled against IR and reversed the judgment. The proceedings are now at an end, subject only to the possibility that the Supreme Court will review the case on writ of certiorari. The
Company filed a petition for such a writ in July 2008.

Angeles. v. Omega.See Note 11, "Environmental Matters."

In
addition to the above, the Company is involved in certain legal matters that arise in the ordinary course of business. Based on information currently available, management does not
believe that the ultimate resolution of such ordinary course matters have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows. However, because of the nature and inherent uncertainties of litigation, should the outcome of these actions be unfavorable, the
Company's business, financial condition, results of operations or cash flows could be materially and adversely affected.

14. Related Party Transactions

As discussed in Note 3, "Investments," the Company holds as strategic investment common stock of Nihon, a related party. During the fiscal year ended June 30, 2006, the
Company sold 2.6 million shares in Nihon for net proceeds of $19.1 million and recognized $13.6 million of pretax gains recorded in other income. At June 30, 2008 and 2007,
the Company owned approximately 9.2 percent of the outstanding shares of Nihon. As previously reported, the Company's former Chief Financial Officer was the Chairman of the Board and a director
of Nihon until June 28, 2005. In addition, the former general manager of the Company's Japan subsidiary was a director of Nihon until about October 2007 and another member of the Company's
Japan subsidiary was a director from June 28, 2005 through June 30, 2008.

During
the fiscal years ended June 30, 2008, 2007 and 2006, the Company recorded royalties of approximately $0.1 million, $0.5 million and $0.1 million and
revenues of approximately $0.8 million, $1.1 million and $0.5 million, respectively, in connection with its license agreements with Nihon.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Quarterly Financial Data (Unaudited)

The following table sets forth a summary of the Company's quarterly financial information for each of the four quarters in the fiscal year ended June 30, 2008 (in thousands,
except per share data):

Three Months EndedYear Ended June 30, 2008

September 30,
2007(1)

December 31,
2007(1)

March 31,
2008(1)

June 30,
2008

Year Ended
June 30,
2008Revenues

$
266,194

$
262,736

$
252,224

$
203,676

$
984,830Cost of sales


168,809


170,683


185,694


136,821


662,007Gross profit


97,385


92,053


66,530


66,855


322,823Selling and administrative expense


66,806


69,778


76,060


80,524


293,168Research and development expense


27,219


28,083


25,957


24,553


105,812Impairment of goodwill











32,624


32,624Amortization of acquisition-related intangible assets


1,057


1,053


1,054


1,492


4,656Asset impairment, restructuring and other charges


35


7


1,916


1,122


3,080Operating income (loss)


2,268


(6,868
)

(38,457
)

(73,460
)

(116,517
)Other expense, net


6,129


1,305


3,846


8,143


19,423Interest income, net


(7,893
)

(7,829
)

(6,841
)

(6,530
)

(29,093
)Income (loss) from continuing operations before income taxes


4,032


(344
)

(35,462
)

(75,073
)

(106,847
)Benefit from income taxes


(6,381
)

(657
)

(13,895
)

(23,272
)

(44,205
)Income (loss) from continuing operations


10,413


313


(21,567
)

(51,801
)

(62,642
)Income from discontinued operations, net of taxes














Net income (loss)

$
10,413

$
313

$
(21,567
)
$
(51,801
)
$
(62,642
)Net income (loss) per common share:Basic:Income (loss) from continuing operations

$
0.14

$
0.00

$
(0.30
)
$
(0.71
)
$
(0.86
)Income from discontinued operations














Net income (loss) per share

$
0.14

$
0.00

$
(0.30
)
$
(0.71
)
$
(0.86
)Diluted:Income (loss) from continuing operations

$
0.14

$
0.00

$
(0.30
)
$
(0.71
)
$
(0.86
)Income from discontinued operations














Net income (loss) per share

$
0.14

$
0.00

$
(0.30
)
$
(0.71
)
$
(0.86
)Average common shares outstandingbasic


72,811


72,814


72,826


72,826


72,819Average common shares and potentially dilutive securities outstandingdiluted


73,257


73,151


72,826


72,826


72,819


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Quarterly Financial Data (Unaudited) (Continued)

The
following table sets forth a summary of the Company's quarterly financial information for each of the four quarters in the fiscal year ended June 30, 2007 (in thousands,
except per share data):

Three Months EndedYear Ended June 30, 2007

September 30,
2006

December 31,
2006

March 31,
2007

June 30,
2007

Year Ended
June 30,
2007Revenues

$
288,700

$
345,631

$
291,278

$
276,860

$
1,202,469Cost of sales


167,192


209,556


186,677


177,686


741,111Gross profit


121,508


136,075


104,601


99,174


461,358Selling and administrative expense


56,847


53,194


55,330


46,717


212,088Research and development expense


28,600


31,792


31,754


30,648


122,794Amortization of acquisition-related intangible assets


435


413


394


647


1,889Asset impairment, restructuring and other charges


1,961


206


8,155


76


10,398Operating income


33,665


50,470


8,968


21,086


114,189Other income, net


(81
)

(1,696
)

(3,647
)

(833
)

(6,257
)Interest income, net


(2,525
)

(1,843
)

(4,619
)

(7,049
)

(16,036
)Income from continuing operations before income taxes


36,271


54,009


17,234


28,968


136,482Provision for income taxes


18,682


16,210


12,307


15,796


62,995Income from continuing operations


17,589


37,799


4,927


13,172


73,487(Loss) income from discontinued operations, net of taxes


(1,317
)

8,415


(2,843
)




4,255Net income

$
16,272

$
46,214

$
2,084

$
13,172

$
77,742Net income per common share:Basic:Income from continuing operations

$
0.24

$
0.52

$
0.07

$
0.18

$
1.01(Loss) income from discontinued operations


(0.01
)

0.12


(0.04
)




0.06Net income per share

$
0.23

$
0.64

$
0.03

$
0.18

$
1.07Diluted:Income from continuing operations

$
0.24

$
0.52

$
0.07

$
0.18

$
1.01(Loss) income from discontinued operations


(0.02
)

0.11


(0.04
)




0.06Net income per share

$
0.22

$
0.63

$
0.03

$
0.18

$
1.07Average common shares outstandingbasic


72,052


72,204


72,618


72,811


72,421Average common shares and potentially dilutive securities outstandingdiluted


72,630


72,854


73,269


73,272


72,933


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16. Subsequent Events

Patent License Agreement.Subsequent to June 30, 2008, the Company extended, in August 2008, a patent license agreement with one of its principal licensees
for fixed payments of $2.0 million per quarter, over ten quarters beginning September 30, 2008.

Vishay.As previously announced by the Company, on August 15, 2008, the Company issued a press release acknowledging receipt of an unsolicited, non-binding
proposal from Vishay to acquire all of the outstanding shares of the Company for $21.22 per share in cash. On August 29, 2008, the Company announced that its Board of Directors rejected the
Vishay proposal. A number of lawsuits have been filed in conjunction with Vishay's proposal and the Company's rejection of the proposal (see Note 13, "LitigationLitigation Arising
from Vishay Proposal").

On
September 10, 2008, Vishay made an unsolicited proposal to acquire all outstanding shares of the Company at a price of $23.00 per share, and announced its intention to
commence a tender offer to purchase all of the Company's shares. In addition, it gave notice of its intention: (a) to nominate three individuals for election as Class I directors at the
2007 Annual Meeting, and (b) to present at that meeting proposals to amend the Company's Bylaws. Vishay's proposed Bylaw amendments provide: (x) that the meeting to elect the Company's
Class II directors be held by December 21, 2008; (y) that any adjournment of a stockholders' meeting at which a quorum is present must be approved by a majority of the shares
present at the meeting in person or by proxy; and (z) for an amendment to the Bylaws to repeal any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29,
2008 and the 2007 Annual Meeting unless approved by the holders of a majority of the outstanding shares of the Company.

On
the same date, Vishay also commenced the "Delaware Action against the Company and its current directors seeking, among other things: (a) to compel a meeting of shareholders on
or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a declaration that proposed amendments to the Company's
Bylaws are valid under Delaware law and the Company's Certificate of Incorporation; and (c) a mandatory injunction requiring the Company to present such proposed amendments for a vote at the
2007 Annual Meeting. The Delaware Action does not seek damages against the Company. The Company believes that the Delaware Action is without merit and intends to oppose it vigorously.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

This report includes the certifications attached as Exhibits 31.1 and 31.2 of our CEO and Acting CFO required by
Rule 13a-14 of the Exchange Act. This Item 9A includes information concerning the controls and control evaluations referred to in those certifications.

Background

During fiscal year 2008, our Audit Committee completed the Investigation into certain accounting and financial reporting matters. As a
result of the issues identified in the Investigation, as well as issues identified in additional reviews and procedures conducted by management with the assistance of external advisors, the Audit
Committee determined that neither our financial statements for the fiscal quarters ended September 30, 2003 through December 31, 2006 and for the fiscal years ended June 30, 2004
through June 30, 2006 nor management's reports on internal control over financial reporting for the fiscal years ended June 30, 2005 and 2006 should be relied upon because of certain
accounting errors and irregularities in those financial statements and reports on internal control over financial reporting. Accordingly, we restated our previously issued financial statements for
those periods. Restated financial information is presented in our Annual Report on Form 10-K for the fiscal year ended June 30, 2007, filed with the SEC on August 1,
2008, which also contains a description of the Investigation, the accounting errors and irregularities identified and the adjustments made as a result of the restatement.

As
a result of management's review of the Investigation findings and its other internal reviews described above, we identified several deficiencies in our internal control over financial
reporting, including our control environment and period-end financial reporting process. The control deficiencies failed to prevent or detect a number of accounting errors and
irregularities, which led to the restatement described above. The identified control deficiencies represented material weaknesses in our internal control over financial reporting as of June 30,
2007. As a result of management's internal review, we have identified material weaknesses in our internal control over financial reporting that require corrective and remedial actions as described
below and certain of those material weaknesses have been remediated as of June 30, 2008. In areas where we continue to have material weaknesses in internal control over financial reporting, we
have employed additional procedures with the assistance of external accounting and tax advisors and performed additional procedures designed to ensure the reliability of our financial reporting. We
believe that because of these additional procedures performed by management and the ongoing efforts to remediate the material weaknesses in internal control over financial reporting described below,
the consolidated financial statements for the periods covered by and included in this report are fairly stated in all material respects.

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 Acting CFO, to allow timely decisions regarding required
disclosures.

Our
management, under the supervision and with the participation of our CEO and Acting CFO, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of

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June 30,
2008. Based on our evaluation and the identification of the material weaknesses in internal control over financial reporting described below, our CEO and Acting CFO concluded that, as
of June 30, 2008, our disclosure controls and procedures were not effective.

Management's Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles ("GAAP"). Internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our
receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under
the supervision and with the participation of our management, including our CEO and Acting CFO, we conducted an assessment of our internal control over financial reporting as of
June 30, 2008. In making this assessment, management used the criteria set forth inInternal Control-Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission (the "COSO Framework").

A
material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management's assessment of our internal control over
financial reporting described above, 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 June 30, 2008:



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The
control environment material weaknesses described above contributed to the material weaknesses set forth below.



Because
of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of June 30,
2008. The effectiveness of our internal controls over financial reporting as of June 30, 2008 has been audited by PricewaterhouseCoopers LLP, our independent registered public
accounting firm, as stated in their report which appears herein.

Plans for Remediation of Material Weaknesses

Substantial management changes have taken place at our Company. At the end of our fiscal year 2007, our CFO was terminated, our
Executive Vice President of Sales and Marketing resigned and, in October 2007, our CEO resigned. The Chairman of our Board retired on May 1, 2008. We appointed our General Counsel as acting CEO
and commenced an executive search process for a new CEO. During fiscal year 2008, we made additional management changes and put in place a Special Committee of the Board which was led by an
Independent Lead Director, to assist in providing corporate oversight and to support the acting CEO. In February 2008, we named our new CEO, who brings extensive global experience in semiconductor
operations, strategy and business development. We also appointed a new Acting CFO, designated a Chief Administrative Officer to oversee compliance

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and
legal matters, appointed a new Vice President General Counsel, hired a new Vice President of Compliance who reports directly to the Audit Committee, elected three independent directors and
appointed an independent Chairman of the Board.

We
are in the process of 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:



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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 described above and as required,
perform additional procedures prescribed by management 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

Management does 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.

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Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended June 30, 2008, we appointed Richard Dahl as Chairman of the Board of Directors; elected
Mary B. Cranston to our Board of Directors as an independent outside Director; appointed a Chief Financial Officer (Acting); hired a Vice President of Compliance; and hired a permanent
Controller to oversee Japan. In June 2008, we also trained employees on our ethics and integrity policy and communicated to all employees the importance of high ethical standards. Aside from these
events, there were no additional changes in internal control over financial reporting during the fiscal quarter ended June 30, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information Concerning Members of the Board of Directors

Dr. Jack Vance (age 83). Dr. Vance has served on IR's Board of Directors since 1988. From May 18, 2007, until May
2008, Dr. Vance served as lead outside director of IR. Dr. Vance is the Managing Director of Management Research, Inc., a management consulting firm, which he founded in 1989.
From 1973 to 1989, he was the Managing Partner of the Los Angeles office of McKinsey & Company and served on the Executive Committee of that firm's board of directors from 1962 to 1989.
Dr. Vance serves as a member of the board of several private companies, including King's Fish Company. Dr. Vance received a BS from the University of Louisville, an MBA from the Wharton
School of Commerce and Finance at the University of Pennsylvania, and a Ph.D. from Southwest University. Dr. Vance is a member of this Class I term of the Board, with a term expiring at
our next annual meeting.

Tom
Lacey (age 50). Mr. Lacey has served on IR's Board of Directors since March 2008. Mr. Lacey most recently served as President of Flextronics International's
("Flextronics") Components Division, now Vista Point Technologies, from 2006 until his retirement in late 2007. Prior to Flextronics, Mr. Lacey was Chairman and CEO of International Display
Works, a liquid crystal display company, since 2004. Mr. Lacey ultimately led the sale of the company to Flextronics in 2006. Prior to International Display Works, Mr. Lacey spent
13 years at Intel in various positions including serving as Vice President and General Manager of Intel's Flash Products Group. During his tenure at Intel, Mr. Lacey also served as
President of Intel Americas/Vice President of Sales and Marketing from 1998 to 2003. Mr. Lacey holds a Masters Business Administration degree from the Leavy School of Business at Santa Clara
University and a BA in Computer Science at the University of California at Berkeley. Mr. Lacey is a member of the Class I term of the Board, with a term expiring at our next annual
meeting.

Mary
B. Cranston (age 60). Ms. Cranston has served on IR's Board of Directors since May 2008. Ms. Cranston is currently the firm Senior Partner and Chair Emeritus of
Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"), a Global 100 international law firm. Ms. Cranston was the CEO of Pillsbury from 1998 through April 2006, and Chair of that firm from
1998 through December 2006. Prior to becoming the Chair and CEO, Ms. Cranston was the litigation practice leader for the firm. Ms. Cranston began her career at Pillsbury in 1975.
Ms. Cranston is a member of the Board of Directors of Visa Inc., Juniper Networks Inc. and GrafTech International, and has served in these capacities since October 2007, November
2007, and January 2000, respectively. Ms. Cranston is a member of the Class I term of the Board, with a term expiring at our next annual meeting.

Dr. Rochus
E. Vogt (age 78). Dr. Vogt has served on IR's Board since 1984. Dr. Vogt is the R. Stanton Avery Distinguished Service Professor and Professor of
Physics, Emeritus, at California Institute of Technology. He is a member of the Science and Technology Committee of the Board of Governors of Los Alamos National Security LLC and Lawrence Livermore
National Security LLC. Dr. Vogt previously served as Chief Scientist of JPL and Provost of California Institute of Technology. Dr. Vogt is a member of the Class II term of the
Board, with a term expiring at our 2008 annual meeting.

Richard
J. Dahl (age 57). Mr. Dahl currently serves as Chairman of the Board of IR and served in that capacity since May 2008. Mr. Dahl has served on IR's Board of
Directors since February 2008. Since 2004, Mr. Dahl has served as a Director of DineEquity, Inc. (formerly IHOP Corporation) where he presides as Chairman of the Audit Committee. From 2002 to
2007, he was employed by Dole. He held various executive level positions with Dole including President, Chief Operating Officer and Director from 2004 to 2007 and Senior Vice President, CFO and
Director positions from 2002 to 2004.

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Prior
to his work at Dole, Mr. Dahl was President and Chief Operating Officer of the Bank of Hawaii Corporation where he held positions of increasing responsibilities from 1981 to 2002. Prior
to Bank of Hawaii Corporation, Mr. Dahl spent 8 years with international Certified Public Accounting firm Ernst & Young. Mr. Dahl is a member of the Class II term of
the Board, with a term expiring at our 2008 annual meeting.

Dr. James
D. Plummer (age 63). Dr. Plummer has served on IR's Board of Directors since 1994. Dr. Plummer is the Dean of the School of Engineering and the
John M. Fluke Professor of Electrical Engineering at Stanford University. Dr. Plummer's research interests are in silicon integrated circuit devices and technology. Dr. Plummer is
also a director of Intel Corporation and Leadis Technology Inc. Dr. Plummer is a member of the Class III term of the Board, with a term expiring at our 2009 annual meeting.

Robert
S. Attiyeh (age 74). Mr. Attiyeh has served on IR's Board of Directors since 2003. He is a principal in the real estate investment firms of Beacon Hill
Properties LLC and Yarlung LLC. He previously served pharmaceutical leader Amgen from 1994 to 1998 as Senior Vice President, Finance and Corporate Development and as CFO. Prior to
joining Amgen, Mr. Attiyeh was a director of McKinsey and Company from 1967 to 1994. He was a Director of the Federal Reserve Bank of San Francisco from 1987 - 1992
and served as Chairman of the Audit Committee of the Bank's Board from 1988 - 1992. He is currently on the Board of Myriad Genetics, Inc. of Salt Lake City, Utah,
where he is Chairman of the Board's Audit Committee. Mr. Attiyeh holds a masters degree in business administration from Harvard University and an electrical engineering degree from Cornell
University. Mr. Attiyeh is a member of the Class III term of the Board, with a term expiring at our 2009 annual meeting.

Oleg
Khaykin (age 43). Mr. Khaykin has served as a Director, President and CEO of IR since March 2008. Mr. Khaykin served most recently as the Chief Operating Officer of
Amkor Technology, Inc., a leading provider of semiconductor assembly and test services. Prior to joining Amkor Technology, Inc. as Executive Vice President of Strategy and Business Development
in 2003, Mr. Khaykin was Vice President of Strategy and Business Development at Conexant and its spin-off, Mindspeed Technologies Inc., where he held positions of increasing
responsibilities from 1999 to 2003. Prior to Conexant, he was with the Boston Consulting Group, a leading international strategy and general management consulting firm, where he worked with many
European and U.S. firms on a broad range of business and management issues, including revenue growth strategies, operational improvement, mergers and acquisitions, divestitures, and turnaround and
restructuring. Mr. Khaykin holds a BSEE with University Honors from Carnegie-Mellon University and MBA from the J.L. Kellogg Graduate School of Management. Mr. Khaykin is, and has
been since November 2007, a member of the
Board of Directors of Zarlink Semiconductor Inc. Mr. Khaykin is a member of the Class III term of the Board, with a term expiring at our 2009 annual meeting.

None
of the directors, nominees for director or executive officers were selected pursuant to any arrangement or understanding, other than with the directors and executive officers of the
Company acting within their capacity as such. There are no family relationships among directors or executive officers of the Company and other than as set forth above, as of the date hereof, no
directorships are held by any director in a company which has a class of securities registered pursuant to Section 12 of the Exchange Act, or subject to the requirements of Section 15(d)
of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Officers serve at the discretion of the Board.

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Information Concerning Executive Officers

The information required by this item relating to our executive officers is incorporated by reference to "Additional Item. Executive
Officers of the Registrant" set forth in Part I, Item 4 of this report.

Section 16(a) Beneficial Ownership Report Compliance

Under Section 16(a) of the Exchange Act, the Company's directors, executive officers and any person holding ten percent or more
of the Common Stock are required to report their ownership of Common Stock and any changes in that ownership to the SEC and to furnish the Company with copies of such reports. Specific due dates for
these reports have been established and the Company is required to report in this Proxy Statement any failure to file on a timely basis by such persons. Based solely upon a review of copies of reports
filed with the SEC, each person subject to the reporting requirements of Section 16(a) has filed timely all reports required to be filed in fiscal year 2008.

Code of Ethics for Chief Executive and Senior Financial Officers.

The Board has adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer and
principal accounting officer, as required by the SEC. The Code of Ethics for the CEO and Senior Financial Officers can be found on the Corporate Governance portion of the Investor Relations section of
our website,http://www.irf.com, and is also available at no charge upon written request to the Corporate Secretary, International Rectifier
Corporation, 101 North Sepulveda Boulevard, El Segundo, CA 90245.

Policies on Business Conduct.

The Board has adopted a code of business conduct and ethics for directors, officers and employees. IR's Policies on Business Conduct
can be found on the Corporate Governance portion of the Investor Relations section of our website,http://www.irf.comand are also available at no
charge upon written request to the Corporate Secretary, International Rectifier Corporation, 101 North Sepulveda Boulevard, El Segundo, CA 90245.

Audit Committee Financial Experts.

Rules promulgated by the SEC under the Sarbanes-Oxley Act require the Company to disclose annually whether our Audit Committee has one
or more "audit committee financial experts," as defined by the SEC. The Board has determined that each member of the Company's Audit Committee established in accordance with Section 3(a)(58)(A)
of the Exchange Act, Mr. Attiyeh, Mr. Dahl, Mr. Lacey and Dr. Vance, qualify as an audit committee financial expert and is independent, as defined in the NYSE rules.

ITEM 11.    EXECUTIVE COMPENSATION

Processes and Procedures for Determination of Executive and Director Compensation

The Compensation and Stock Options Committee (the "Compensation Committee") is responsible for discharging the Board's responsibilities
relating to the compensation of the Company's executive officers and directors. The Compensation Committee reviews and approves the compensation arrangements, plans, policies and programs that apply
to our executive officers. Pursuant to the Compensation Committee's Charter, its principal compensation related responsibilities, duties and areas of authority include, among other
things:



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The
Compensation Committee's Charter permits it to rely on members of management when performing its duties. The Compensation Committee takes into account our CEO's recommendations
regarding the corporate goals and objectives, performance evaluations and compensatory arrangements for the Company's executive officers other than the CEO. The Compensation Committee also may review
(but does not set) the salaries of other senior level employees who are not executive officers of the Company. The Compensation Committee may form and delegate authority to subcommittees, or delegate
authority to members, when appropriate, provided that such subcommittees will be composed exclusively of members of the Compensation Committee and will operate pursuant to a published charter.

As
indicated above, pursuant to its Charter, the Compensation Committee is authorized to retain compensation consultants to assist it in carrying out its duties. The Compensation
Committee has the authority to approve any compensation consultant's fees and other retention terms. Consistent with the Compensation Committee's past practice, for fiscal year 2008, the Compensation
Committee retained the services of Frederic W. Cook & Co., an independent compensation consulting firm ("FW Cook"), to assist it in assembling and analyzing compensation levels
among peer companies and to prepare compensation analysis and summaries with respect to the Company's executive officers and its non-employee directors.

A
current copy of the Compensation Committee Charter is available on the Company's website athttp://investor.irf.com.

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DIRECTOR COMPENSATION

The following table presents information regarding the compensation paid for services rendered during fiscal year 2008 to individuals
who were members of our Board at any time during fiscal year 2008 and who were not also our employees (referred to herein as "Non-Employee Directors"). The compensation paid to any
director who was also one of our employees during fiscal year 2008 is presented below in the "Summary Compensation Table" and the related explanatory tables. Such employee-directors do not receive
separate compensation for service on the Board.

Name
(a)

Fees Earned or
Paid in Cash ($)
(b)

Option Awards
($)(1)(2)
(d)

All Other
Compensation ($)
(g)

Total ($)
(h)Robert S. Attiyeh


151,000


46,253





197,253Mary B. Cranston


13,251


0





13,251Richard J. Dahl


72,084


0





72,084Thomas Lacey


43,167


0





43,167Philip Neches(3)


32,000


3,829





35,829Jack O. Vance


372,334


46,253





418,587Rochus E. Vogt


170,500


46,253





216,753James D. Plummer


127,500


46,253





173,753


---

Director

Number of Options
OutstandingRobert S. Attiyeh


62,000Mary B. Cranston


Richard J. Dahl


Thomas Lacey


Philip Neches


Jack O. Vance


47,000Rochus E. Vogt


47,000James D. Plummer


47,000


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Director Compensation

Compensation for non-employee directors during fiscal year 2008 generally consisted of an annual cash retainer, additional
fees for attending meetings and for serving on committees, and awards of stock options.

Annual Retainer

The following table sets forth the schedule of annual retainer and meeting fees for each Non-Employee Director in effect
during fiscal year 2008:

Type of Fee

Dollar
AmountAnnual Board Retainer

$$
40,000
50,000
/(1)Additional Attendance Fee per Board Meeting Attended in Person (Other than Chairman of the Board)

$
2,000Additional Attendance Fee per Committee Meeting Attended in Person (Other than Chairman of the Committee)

$
1,000Additional Attendance Fee per Board Meeting or Committee Meeting Attended Telephonically

$
500Additional Attendance Fee (non-telephonic) per Board or Committee Meeting Attended by Chairman

$
4,000






Each
of our Non-Employee Directors is permitted to elect to defer up to 100% of his or her annual retainer fees and meeting fees under the Company's Deferred Compensation
Plan ("DCP"), as more fully described below under "Compensation Discussion and AnalysisCurrent Executive Compensation Program ElementsNon-Qualified Deferred
Compensation Plan." All Non-Employee Directors are also reimbursed for out-of-pocket expenses they incur serving as directors, including the cost of transportation
and other expenses incurred to attend meetings at the Company or otherwise in connection with the Non-Employee Director's service to the Company.

As
noted above, the annual Board retainer fee was increased to $50,000 effective January 1, 2008. The Compensation Committee, after consultation with FW Cook, approved this
change, along with the changes to the equity award practices described below, to bring the Company's Non-Employee Director compensation package in line with current market practices and to
attract and retain its Non-Employee Directors. The per meeting fees, chair fees and all other incidental fees and reimbursement practices in place during fiscal year 2008 for our
Non-Employee Directors were the same as in fiscal year 2007.

Stock Option Awards

The Company has historically made an annual award of 5,500 stock options to its continuing Non-Employee Directors and an
initial award of 5,500 stock options to its newly appointed members. Each stock option may be exercised to purchase one share of our common stock at an exercise price equal to the closing price of the
underlying common stock on the grant date.

Effective
January 1, 2008, the Compensation Committee approved a change to the stock option program for our Non-Employee Directors. The revised program generally
provides for an annual award of 12,000 stock options to each of our Non-Employee Directors who is in office on the date of each annual meeting of stockholders and a one-time
award of 20,000 stock options to each Non-Employee Director who is newly appointed to the Board to be granted on the date he or she is first appointed, in

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each
case with an exercise price equal to the closing price of the underlying common stock on the applicable grant date. However, if the Company is not current in its financial statement reporting
obligations to the SEC on the applicable grant date, then the grant will be made on the third business day following the date on which the Company becomes current in its filings, with the exercise
price per share equal to the closing price per share on that third business day. As described above, the Compensation Committee approved this change to the stock option program in order to bring the
Company's Non-Employee Director compensation package in line with current market practices and to attract and retain its Non-Employee Directors. Because the Company did not become current in its
financial statement reporting obligations to the SEC during fiscal year 2008, no options were granted to our Non-Employee Directors during fiscal year 2008. The annual option awards
contemplated by the revised stock option program for our continuing Non-Employee Directors for fiscal year 2008 are intended to be made on the date of the Company's 2008 annual meeting of
stockholders, with the exercise price per share equal to the closing price per share on that date. The one-time award of options to Messrs. Dahl and Lacey and Ms. Cranston
were made on August 6, 2008, which was the third business day following the date on which the Company again became current in its financial statement reporting obligations to the SEC, with the
exercise price per share equal to the closing price per share on August 6, 2008. Each of Messrs. Dahl's and Lacey's and Ms. Cranston's stock option awards were granted under, and
are subject to the terms of, the Company's 2000 Stock Incentive Plan (the "2000 Plan").

Each
continuing Non-Employee Director's stock option award has a term of five years and, subject to each Non-Employee Director's continued service,
one-third of his stock option award will vest and become exercisable on each of the first three anniversaries of the grant date. If a Non-Employee Director's service terminates
as a result of his voluntary resignation or retirement after five consecutive years of service on the Board, or because of his death or disability, the unvested portion of the stock options that the
director has
held for more than six months will immediately vest. If a Non-Employee Director's service terminates for any other reason, any unvested portion of the Non-Employee Director's
options will automatically terminate. Vested options will generally remain outstanding and exercisable for three years (ninety days if the Non-Employee Director has not served at least
five years) after a director's service terminates or his death. Any vested options that are not exercised within the applicable post-termination of service exercise window will terminate.
Non-Employee Directors are not entitled to any dividend equivalent rights on their stock option award.

Unless
the Board determines otherwise, if the Company undergoes a "change in control event" (as defined in the applicable stock incentive plan) each Non-Employee Director's
stock options will become fully vested and exercisable (with accelerated vesting not applying to options granted within six months of a "change in control event" unless the Board determines
otherwise). Any options that become vested in connection with a corporate transaction described above (including a change in control) generally must be exercised prior to the transaction, or they will
be terminated in connection with the transaction.

Other Compensation

On September 21, 2007, the Compensation Committee approved supplemental cash payments to Dr. Vance, the Chairman of the
Audit Committee, in the amount of $40,000 per calendar quarter as additional compensation for his role as the lead independent director of the Board, commencing on the date that he was appointed as
lead independent director and ending on May 1, 2008, for an aggregate amount of $173,333. The Company approved these special payments in recognition of Mr. Vance's increased
responsibilities in connection with conducting the Company's previously announced investigation of accounting irregularities.

On
May 9, 2008, in connection with Mr. Dahl's appointment as the Chairman of the Board, the Board and the Compensation Committee approved the following supplemental
compensation to

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Mr. Dahl:
(i) an annual retainer of $50,000, to be paid quarterly in arrears, and (ii) a grant of 30,000 options to purchase shares of the Company's common stock, with such grant
to be made on the third business day following the date on which the Company again becomes current in its financial statement reporting obligations to the SEC and with the exercise price per share
equal to the closing price per share on that third business day. The supplemental annual retainer is in addition to the $50,000 annual Board retainer described above and the award of 30,000 options is
in addition to the stock option program described above. The supplemental annual retainer was effective as of the date Mr. Dahl became Chairman. The Company approved the supplemental annual
retainer and the additional option grants in recognition of Mr. Dahl's increased responsibilities as the Chairman of the Board. The Company granted the award of 30,000 options to
Mr. Dahl on August 6, 2008, which was the third business day following the date on which the Company again became current in its financial statement reporting obligations to the SEC,
with the exercise price per share equal to the closing price per share on that date.

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This section discusses each of the material elements of compensation awarded to, earned by or paid to our named executive officers (as
defined below) during fiscal year 2008.

During
the course of the Investigation, substantial changes in the Company's executive group took place. In July 2007, Michael McGee, our former CFO was terminated, Robert Grant, our
former Executive Vice President of Sales and Marketing resigned, and, in October 2007, Alex Lidow, our former CEO resigned. In connection with Mr. Lidow's resignation, we appointed Donald
Dancer, our General Counsel, as acting CEO and commenced an executive search process for a new CEO. In
February 2008, we named Oleg Khaykin as our new CEO. In connection with Mr. McGee's termination, we appointed Linda Pahl as our Acting CFO, and when she resigned in April 2008, we appointed
Peter Knepper as our current Acting CFO. In addition, during fiscal year 2008, Michael Briere, our former Executive Vice President, R&D, resigned, Eric Lidow, our former Chairman of the Board,
retired, and we named Michael Barrow to serve as our Executive Vice President and Chief Operations Officer.

For
fiscal year 2008, our named executive officers were: each individual who served as the Company's principal executive officer at any time during fiscal year 2008, each individual who
served as the Company's principal financial officer at any time during fiscal year 2008, our Executive Vice President and Chief Operations Officer, our former Chairman of the Board and our former
Executive Vice President, Operations. These individuals are referred to as the "2008 Named Officers" in this report.

The Role of the Compensation Committee

The Company's current executive compensation programs are determined and approved by the Compensation Committee. None of the 2008 Named
Officers were or are members of the Compensation Committee. The Compensation Committee takes into account the CEO's recommendations regarding the corporate goals and objectives, performance
evaluations and compensatory arrangements for the Company's executive officers other than the CEO. For example, consistent with the Compensation Committee's past practice, in fiscal year 2008, the
Compensation Committee considered the CEO's recommendations regarding the appropriate base salaries and annual incentive compensation opportunity payouts for the Company's other executive officers for
fiscal year 2008. The other 2008 Named Officers did not and currently do not have any role in determining or recommending the form or amount of compensation paid to our 2008 Named Officers. The
Compensation Committee regularly apprises the Board of its actions and periodically seeks the input of the Board and other committees of the Board as to items it is considering.

Executive Compensation Program Objectives and Overview

The Company's current executive compensation programs are intended to achieve three fundamental objectives: (1) attract,
motivate and retain high caliber talent; (2) create a significant direct relationship between pay and performance; and (3) create proper incentives for the executives to maximize
stockholder value over time. In structuring our current executive compensation programs, we are guided by the following basic philosophies:



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As
described in more detail below, the material elements of our current executive compensation programs for our executive officers include a base salary, a short-term
incentive compensation opportunity, a long-term equity incentive opportunity, a non-qualified deferred compensation plan, 401(k) retirement benefits and perquisites and
severance benefits.

We
believe that each element of our executive compensation program helps us to achieve one or more of our compensation objectives. Base salaries, the non-qualified deferred
compensation plan and 401(k) retirement benefits are all primarily designed to attract and retain high caliber talent. These are elements of our executive compensation program where the value of the
benefit in any given year is not variable. We believe that in order to attract and retain top-caliber executives, we need to provide executives with predictable benefit amounts that reward
the executive's continued service and a mix of fixed longer-term and short-term elements allows us to achieve our dual goals of attracting and retaining executives (with the
longer-term benefits geared toward retention and the short-term awards focused on recruitment).

Our
short-term cash incentive opportunity is primarily intended to hold executives accountable for operating performance, although we also believe it aligns our executive
officers' interests with those of our stockholders and helps us attract, motivate and retain executives. Our long-term equity incentives are primarily intended to align our executive
officers'
interests with those of our stockholders, although we also believe they help hold executives accountable for performance and help us attract, motivate and retain executives. These elements of our
current executive compensation program are designed to reward performance and the creation of stockholder value, and therefore the value of these benefits is dependent on performance. Each executive
officer's short-term incentive opportunity is generally paid out on a semi-annual basis and is designed to reward performance for that period. Long-term equity
incentives are generally paid out or earned on a longer-term basis and are designed to reward performance over one or more years.

The
individual compensation elements are intended to create a total compensation package for each executive officer that we believe achieves our compensation objectives and provides
competitive compensation opportunities relative to companies in our comparative peer group. As indicated above, consistent with the Compensation Committee's past practice, for fiscal year 2008 the
Compensation Committee retained FW Cook to assist in assembling and analyzing compensation levels among peer companies, prepare compensation analysis and summaries with respect to the Company's
executive officers, perform compensation reviews and make recommendations to the Compensation Committee regarding compensation programs and levels.

For
our compensation analysis during fiscal year 2006, which was considered for fiscal year 2007 compensation levels, we evaluated compensation information from a peer group of the
following 18 publicly traded technology and semiconductor companies, as identified by FW Cook in consultation with the Company, which had a revenue and market cap in a similar range as the Company at
the time: Analog Devices, Vishay, Lam Research, LSI Logic, Maxim Integrated Products, National Semiconductor, Xilinx, Atmel, Fairchild Semiconductor International, ON Semiconductor, Cypress
Semiconductor, Altera, Linear Technology, Microchip Technology, Integrated Device Technology, Intersil, Qlogic and Semtech. For our compensation analyses used to determine fiscal year 2008
compensation, we evaluated information from the same peer group except that AMIS Holdings, Microsemi, Silicon Laboratories and Skyworks Solutions were added so that our market cap was in a middle
range relative to our peers, which we believed was necessary in light of the year-over-year change in our market cap since the fiscal year 2007 analyses were completed. The
four additional companies were added to the peer group by the Company in consultation with FW Cook and we believe that they were appropriate for providing relevant comparative compensation data at the
time.

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Further,
in connection with the compensation analysis that was undertaken mid-year, competitive updates were prepared by FW Cook in the middle of fiscal year 2008 using the same peer group
except that Lam Research and Maxim Integrated Products were excluded from the peer group because their SEC filings were not current at that time.

Consistent
with our compensation philosophies described above, our goal for fiscal year 2008 was primarily to provide each 2008 Named Officer with an executive compensation program that
was competitive in light of the compensation paid to comparable executives at our peer group companies. However, in light of the Investigation and restatement of our financial statements and the
significant changes to the executive group that occurred during fiscal year 2007 and early fiscal year 2008, the
Company made certain changes in the structure of its compensation arrangements for fiscal year 2008, which are described below. Retaining certain key executives, such as Mr. Dancer, and
attracting an experienced and high caliber CEO were of critical importance to the Company and the long-term interests of our stockholders. Accordingly, while our practice has generally
been to target the level of each element of compensation at between the 50th and 75th percentile within our peer group of companies assuming target
performance by the Company, we exercised our discretion to set compensation levels at above the 75th percentile in negotiating the new employment arrangement for Mr. Dancer
and the employment agreement for Mr. Khaykin as our new CEO.

Executive Compensation Program Elements

Base Salaries

Each of our 2008 Named Officers (other than 2008 Named Officers who are no longer employed by the Company) is party to an employment
agreement or letter agreement that provides for a fixed base salary, subject to annual review by the Company. The Compensation Committee generally reviews base salaries for each executive officer in
the first quarter of each fiscal year to set salaries and in connection with promotions. The Compensation Committee considers the base salary increases awarded to our other employees, each executive
officer's length of service, our performance and growth, a subjective determination of each executive officer's past performance and expected future contributions, and the base salaries and total cash
compensation and equity awards earned by comparable executives at our peer group companies (based on their published data). In fiscal year 2008, the Company also considered the need to retain and/or
attract key executives in light of the Company's current challenging business environment. As a result, Mr. Dancer's base salary was increased to $450,000 effective August 28, 2007 in
connection with his promotion to Acting CEO, Ms. Pahl's base salary was increased to $270,000 effective July 2, 2007 in connection with her promotion to Acting CFO and
Mr. Rougee's base salary was increased to $330,000 effective October 29, 2007 in connection with his promotion to Executive Vice President, Operations. The base salary level for
Mr. Khaykin, our CEO, is higher than the base salary levels for the other 2008 Named Officers reflecting his responsibility as CEO for the overall operations of the Company. The "Summary
Compensation TableFiscal Year 2008 and Fiscal Year 2007" below shows the base salary paid to each 2008 Named Officer for fiscal year 2008.

Short-Term Incentive Compensation Opportunity

As indicated above, each of our 2008 Named Officers (other than 2008 Named Officers who are no longer employed by the Company) is party
to an employment agreement or offer letter that provides for an annual bonus opportunity with a specified target value.

The
Company's historical practice has been to establish a short-term cash incentive bonus program for the fiscal year that the executive officers were eligible to participate
in and receive incentive compensation opportunities under. Under this program, executive officers were generally eligible to receive two semi-annual incentive opportunities (or annual, in
the case of certain executive officers) for the applicable fiscal year, with the first semi-annual incentive period established with respect to the first

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and
second quarters of the fiscal year and the second semi-annual incentive period established for the third and fourth quarters of the fiscal year. However, as a result of the significant
changes in the executive group and the Company's current challenging business environment the Company did not establish a short-term cash incentive bonus program for fiscal year 2008.
Rather, for fiscal year 2008, the Company determined the bonus opportunities for the 2008 Named Officers on an individual by individual basis. Messrs. Dancer, Knepper and Rougee and
Ms. Pahl were the only 2008 Named Officers who were eligible for performance-based bonus opportunities for fiscal year 2008.

Bonuses
for fiscal year 2008 were determined by the Compensation Committee in its discretion. Following the end of the second quarter of the 2008 fiscal year, the Compensation Committee
approved bonuses for Mr. Dancer and Ms. Pahl with respect to the first and second quarters of the 2008 fiscal year, which were determined based on Mr. Dancer's and
Ms. Pahl's target bonus opportunity of 75% and 50% of base salary, respectively. In the case of Ms. Pahl, the Compensation Committee weighted 50% of her bonus on the Compensation
Committee's subjective assessment of Ms. Pahl's individual performance and 50% on the Compensation Committee's subjective assessment of the Company's overall performance. In the case of
Mr. Dancer, the Compensation Committee determined his bonus based on the Compensation Committee's subjective assessment of Mr. Dancer's individual performance in his role as Acting CEO
and on the Compensation Committee's subjective assessment of the Company's overall performance. The Compensation Committee also approved bonuses for Mr. Dancer and Ms. Pahl with respect
to the third quarter of the 2008 fiscal year, based on the same criterion. No bonus was awarded for performance during the fourth quarter of the 2008 fiscal year. In light of the ongoing restatement
of the Company's financial statements and the Company's challenging business environment, the Compensation Committee decided not to establish detailed performance criteria in advance of each
semi-annual period, but rather to review actual performance and individual contributions over the course of the preceding semi-annual period and approve discretionary bonuses
based on such measures.

The
Compensation Committee established a bonus opportunity for Mr. Knepper for fiscal year 2008 pursuant to which Mr. Knepper would be eligible to receive a cash bonus
equal to 35% of his base salary if the Company were to become current in its financial statement reporting obligations to the SEC by June 16, 2008, a date chosen to correspond with the
Company's goal for completion of its restated financial statements. Because this goal was not achieved, Mr. Knepper was not entitled to a bonus for fiscal year 2008. However, the Compensation
Committee retains the discretion to award Mr. Knepper a bonus based on the Compensation Committee's assessment of his effort in completing the Company's restatements and other factors.

Mr. Rougee
became an executive officer on October 29, 2007. His bonus opportunity for the first semi-annual period of the 2008 fiscal year was determined by
Company management in accordance with Company practices for senior officers. Under this program, Mr. Rougee was entitled to an incentive opportunity, consisting of a bonus target of 70% of his
base salary, weighted 50% on the Company's subjective assessment of Mr. Rougee's individual goals and 50% on the Company's subjective assessment of the Company's overall performance. The
Compensation Committee approved a bonus for Mr. Rougee with respect to the third quarter of the 2008 fiscal year. The Compensation Committee weighted 50% of Mr. Rougee's bonus on the
Compensation Committee's subjective assessment of his individual performance and 50% on the Compensation Committee's subjective assessment of the Company's overall performance. No bonus was awarded
for performance during the fourth quarter of the 2008 fiscal year. In light of the ongoing restatement of the Company's financial statements and the Company's challenging business environment, the
Compensation Committee decided not to establish detailed performance criteria in advance of this semi-annual period, but rather to review actual performance and individual contributions
over the course of the period and approve a discretionary bonus based on such measures.

The
amounts paid to Messrs. Dancer and Rougee and Ms. Pahl under his or her incentive opportunity are presented in Column (d) of the "Summary Compensation
TableFiscal Year 2008 and

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Fiscal
Year 2007" below. In addition to the incentive opportunities described above, Messrs. Dancer and Rougee and Ms. Pahl were awarded retention or other bonuses that are described
below.

Retention and Other Bonuses

The Company entered into a letter agreement with Ms. Pahl on March 6, 2008 to provide her with additional incentives to
reflect her increased responsibilities as Acting CFO in connection with the reconstruction and restatement of the Company's financial statements and other transition matters. This letter agreement
provided, among other incentives, for a bonus payment of $100,000, if Ms. Pahl was an employee in good standing with the Company on June 2, 2008, or if her
employment was terminated by the Company for any reason other than cause prior to June 2, 2008, in each case conditioned upon the Company completing its pending financial restatement by that
time. As an additional retention incentive, the Company provided Ms. Pahl with a guaranteed bonus for each quarter that she continued to serve as the Acting CFO. The quarterly bonus for each of
the first and second quarter of the 2008 fiscal year was $25,000, and the quarterly bonus for the third quarter of the 2008 fiscal year was $35,000. Ms. Pahl resigned prior to the end of the
fourth quarter of the 2008 fiscal year and thus received a pro-rated portion of her $35,000 quarterly bonus for that quarter.

Under
the terms of the letter agreement with Mr. Dancer that the Company entered into on October 29, 2007 in connection with his becoming Acting CEO, Mr. Dancer
received a one-time cash incentive award of $100,000 upon entering into the letter agreement and he was entitled to receive a one-time special cash bonus of $400,000 payable
on, or within ten business days after, March 1, 2008. In addition, when the Company and Mr. Dancer amended the letter agreement on March 6, 2008 in connection with
Mr. Dancer stepping down from his position as Acting CEO, Mr. Dancer became entitled to receive a one-time cash retention payment of $600,000 if he is employed by the Company
on September 1, 2008 and a one-time cash retention payment of $400,000 if he is employed by the Company on March 1, 2009. If Mr. Dancer's employment terminates for any
reason before September 1, 2008, he will receive a prorated portion of the $600,000 retention payment based on the number of days served between March 1, 2008 and September 1,
2008.

In
the first quarter of fiscal year 2008, Mr. Rougee was awarded a bonus of $25,000 in recognition of Mr. Rougee's additional responsibilities undertaken to support the
CEO's role in managing the Company's manufacturing operations while the Company continued its search for a principal officer overseeing worldwide manufacturing. Mr. Rougee was also awarded a
bonus of $25,000 in October 2007 for similar reasons.

The
Company believes that the foregoing retention bonuses and incentives are appropriate in light of the importance of retaining Ms. Pahl, and Messrs. Dancer and Rougee.
Please see the "Compensation of Named OfficersDescription of Base Salary and Bonus AmountsFiscal Year 2008" section below for a description of the material terms of
Ms. Pahl's and Mr. Dancer's letter agreements.

In
connection with Mr. Khaykin entering into an employment agreement with the Company, Mr. Khaykin was entitled to receive a one-time signing bonus equal to
$575,000 less the amount of the fiscal year 2007 bonus he receives from his prior employer. Mr. Khaykin received $567,000 from his prior employer and was therefore entitled to receive $8,000
from the Company on account of the signing bonus.

The
amounts payable under these retention and signing bonus arrangements in fiscal year 2008 are reported in Column (d) of the "Summary Compensation TableFiscal Year
2008 and Fiscal Year 2007" below.

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Long-Term Equity Incentive Awards

The Company's view is that the executive officers' long-term compensation should be directly linked to the value provided
to our stockholders. The Company's general practice has been to make grants of stock options to executive officers and other key employees in the form of two semi-annual awards of
nonqualified stock options, which were typically awarded in the first quarter and the third quarter of each fiscal year, and in connection with promotions or special events. Each award is granted with
an exercise price equal to the closing price of the Company's common stock on the grant date. The Company's view had been that awarding options on a semi-annual basis helped to align
annual awards with long-term stock price performance and permitted the Company to take into consideration the executive's performance on a shorter term basis in setting individual award
levels.

Stock
options are our preferred equity award because the options will not have any value unless the shares of the Company's common stock appreciate in value following the grant date. In
prior fiscal years, we have also granted a small number of restricted stock units as part of the total mix of long-term compensation, but stock options were our primary form of equity
awards. We granted restricted stock units in addition to options to provide stability and to augment retention as a result of the market price volatility of the Company's common stock that is common
in the semiconductor industry. In order to maximize the Company's tax deduction in respect of employee stock options, the Company's policy is currently only to grant nonqualified options where the
"spread" value on exercise is generally deductible by the Company. Stock option grants to our executive officers typically have a term of five years and vest in a series of installments over a
three-year vesting period. This three-year vesting period is intended to provide an incentive for the executive officers to remain in our employ, and also focuses the executive
officers on the long-term performance and business objectives of the Company for the benefit of our stockholders. Restricted stock unit grants to our executive officers also vest in a
series of installments over a three-year period. We believe the three-year vesting period together with semi-annual grants expected to be made in successive years
helps align actual realized compensation delivered with long-term return to our stockholders and strikes an appropriate balance between the interests of the Company, our stockholders and
the individual executive officers in terms of the incentive, value creation and compensatory aspects of these equity awards.

While
the foregoing represents the Company's historical practice and philosophy, as previously disclosed, because the Company was not current in its financial statement reporting
obligations to the SEC at the time grants are usually made, the Compensation Committee determined that it was advisable to delay the annual grants for the 2008 fiscal year, including the
semi-annual
grants and any grants in connection with promotions and special events, until the Company again became current in its reporting obligations to the SEC. In order to provide retention incentives,
however, the Compensation Committee approved binding commitments to grant stock options to certain of our 2008 Named Officers as described below and to selected key employees. These awards were to be
granted on the third business day after the Company again became current in filing its financial reporting obligations to the SEC or, if such date was within 15 days prior to the close of a
fiscal quarter or was subsequent to the close of a fiscal quarter but prior to the filing with the SEC of the Company's periodic or annual report on Form 10-Q or 10-K
for such quarter, then on the third business day following such filing with the SEC (the "Scheduled Grant Date"); provided in each case that the executive is still employed by the Company. The
Scheduled Grant Date did not occur in the 2008 fiscal year or as of the date of this report, and therefore these commitments remain outstanding as of the date of this report.

In
connection with Mr. Khaykin's commencement of employment, the Company agreed to grant Mr. Khaykin an option to purchase 750,000 shares of the Company's common
stock on the third trading day on the NYSE after the Company again became current in its financial reporting obligations to the SEC with a per-share exercise price equal to the closing
market price of a share on such date and an award of 250,000 restricted stock units on such date. The options will vest and become exercisable and the restricted stock units will vest and become
payable in five substantially equal installments on each of the first five anniversaries of March 1, 2008 (the date Mr. Khaykin's

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employment
commenced), subject to his continued employment. If a change in control of the Company were to occur prior to the grant date, Mr. Khaykin's right to the option grant would terminate
and instead his restricted stock unit award would be increased to (i) 375,000 if the change in control were to occur within six months after March 1, 2008 or (ii) 500,000 if the
change in control were to occur on or after the six month anniversary of March 1, 2008 (in each case, in lieu of the 250,000 restricted stock units described above), and the restricted stock
unit award as so increased would be granted upon (or, as may be necessary to give effect to the grant, immediately prior to) the occurrence of the change in control; provided, however, the Company
would have the right at its option to pay Mr. Khaykin a lump sum amount upon or within thirty days after the change in control (in lieu of the restricted stock unit award) equal to the number
of shares subject to such award that would have been vested at the time of the change in control multiplied by the fair market value of a share of the Company's common stock at the time of the change
in control. The Company and Mr. Khaykin agreed that these awards are intended to satisfy the Company's obligation to grant equity awards to Mr. Khaykin for the initial four years of his
employment. The Company believes that the size and mix of the equity awards to Mr. Khaykin were appropriate in order to induce Mr. Khaykin to join the Company at a time when the Company
was experiencing significant business challenges.

In
connection with Mr. Dancer's promotion to acting CEO, the Company agreed to grant Mr. Dancer an option to purchase 75,000 shares of the Company's common stock on
the Scheduled Grant Date. The options will vest and become exercisable in three substantially equal installments on each of the first three anniversaries of October 29, 2007. In addition, the
Company agreed to grant Mr. Dancer an award of a number of restricted stock units determined by dividing $500,000 by the fair market value of a share of the Company's common stock on the
Scheduled Grant Date. The restricted stock units will be fully vested on the grant date. In each case, the award of options and restricted stock units is subject to Mr. Dancer being employed
with the Company on the Scheduled Grant Date.

In
addition, in connection with Ms. Pahl's promotion to acting CFO, the Company agreed to grant Ms. Pahl an option to purchase 20,000 shares of the Company's common
stock and 6,000 restricted stock units on the Scheduled Grant Date, subject to her continued employment. The options will vest and become exercisable in three substantially equal installments on each
of the first three anniversaries of October 29, 2007. Ms. Pahl subsequently forfeited her right to the option award upon her resignation from the Company prior to the Scheduled Grant
Date.

In
connection with Mr. Barrow's commencement of employment, the Company agreed to grant Mr. Barrow an option to purchase 75,000 shares of the Company's common stock
when the Company again became current in its financial reporting obligations to the SEC and restricted stock units covering 25,000 shares of the Company's common stock, subject to his continued
employment. In addition, in connection with Mr. Rougee's promotion to Executive Vice President, Operations, the Company agreed to grant Mr. Rougee an option to purchase
20,000 shares of the Company's common stock on the Scheduled Grant Date, subject to his continued employment. Each of these awards would be subject to the terms and conditions of the Company's
current stock option plan and the Company's standard vesting requirements. The Company determined the number and mix of equity awards as reasonable for the responsibilities to be undertaken by
Mr. Barrow and Mr. Rougee. Mr. Rougee subsequently forfeited his right to the option award upon his resignation from the Company prior to the Scheduled Grant Date.

The
Company has not historically had any program, plan or practice to time the grant of equity-based awards to our executives in coordination with the release of material
non-public information; however, the Company has adopted a practice for future grants to new hires and promotions for the grants to generally be made on the third trading day following the
filing with the SEC of the Company's next periodic report. All equity grants are made under the Company's stock plans approved by the stockholders. The per share exercise price of options cannot be
less than the closing price of the Company's common stock on the date of grant.

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Non-Qualified Deferred Compensation Plan

The Company maintains the DCP for the benefit of its executives and other key employees and its directors. Under the DCP, select
employees who satisfy certain eligibility requirements, including each of the 2008 Named Officers, and members of the Board may make annual irrevocable elections to defer up to 75% of their base
salary, 100% of their bonus, 100% of their cash compensation earned under any Company incentive plan or 100% of their director fees to be earned
during the following calendar year. In addition, the Company may make discretionary contributions, although it did not do so for fiscal year 2008. The Company believes that providing the executive
officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying the income tax event on the compensation
deferred, even though the related deduction for the Company is also deferred. Information with respect to the 2008 Named Officers' participation in the DCP is presented in the
"Non-Qualified Deferred Compensation Plan TableFiscal Year 2008" and the material terms of the DCP are described following the "Non-Qualified Deferred Compensation
Plan TableFiscal Year 2008" below.

401(k) Retirement Benefits

The Company provides retirement benefits to its executive officers under the terms of its tax-qualified 401(k) plan. The
Company's matching contribution is 150% of the first $200 of the participant's contribution, plus 50% of the next $5,400, with the aggregate matching contribution made by the Company, not to exceed
$3,000 per participant in a plan year. In addition to the Company's matching contribution, the Board of Directors can make annual discretionary contributions in the form of cash or Company stock. The
2008 Named Officers participate in the plan on substantially the same terms as the other participating employees.

Perquisites

The Company provides certain perquisites and personal benefits to the executive officers. The nature and amount of these perquisites
vary among the executive officers and generally include one or more of the following: automobile allowance, patent award compensation, personal storage, relocation benefits, tax planning and personal
driver services. We believe that perquisites and personal benefits are often a tax-advantaged way to provide the executive officers with additional annual compensation that supplements
their other compensation opportunities, and therefore treat perquisites as another component of annual compensation that is merely paid in a different form. The perquisites and personal benefits paid
to each 2008 Named Officer in fiscal year 2008 are reported in the "Summary Compensation TableFiscal Year 2008 and Fiscal Year 2007" below, and are explained in more detail in
footnote (3) thereto.

Severance and Other Benefits

At the beginning of fiscal year 2008, none of the executive officers of the Company were parties to any contract, plan or arrangement
that provided the executive officers with any severance or other payments at, following or in connection with a termination of employment with the Company. During fiscal year 2008, in order to support
our compensation objective of attracting, retaining and motivating qualified executives and in light of the Company's circumstances during fiscal year 2008, the Company determined that it was in the
best interests of the Company and our stockholders to provide our executive officers with severance protections upon certain types of termination. Accordingly, the Company provides such protections
for our 2008 Named Officers and other executive officers. The severance protections are negotiated on an individual-by-individual basis in connection with the negotiation of other employment terms,
typically in connection with the entering into of employment agreements or employment offer letters or separation agreements with each executive officer. The Compensation Committee evaluates the level
of severance benefits, if any, to provide to an executive

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officer
on a case-by-case basis, and in general, the Company considers these severance protections an important part of an executive's compensation.

As
described in more detail below under "Potential Payments Upon a Termination of Change in ControlFiscal Year 2008," the employment agreement for Mr. Khaykin
provides Mr. Khaykin with severance and other benefits upon an actual or constructive termination of employment, with enhanced benefits if such termination occurs in connection with a change in
control of the Company. Mr. Dancer is entitled to severance benefits under his October 29, 2007 letter agreement (as amended by his March 6, 2008 letter agreement) and enhanced
severance benefits under his Severance Agreement with the Company if such termination occurs in connection with a change in control of the Company. The employment offer letter for Mr. Knepper
also provides certain limited severance protections that the Compensation Committee believes reflect the Company's general policies to attract, retain and motivate executive officers. During fiscal
year 2008, Mr. Barrow was not entitled to any severance protections under his agreements with the Company; although the Company had discretion to provide severance benefits in the event of a
termination of employment or other negotiated separation from the Company. The Company entered into separation agreements with each of Linda Pahl, Alex Lidow, Eric Lidow, and Marc Rougee in connection
with their termination of employment that provided for severance and other benefits that were individually negotiated in each case.

Unless
the Board determines otherwise, under the terms of our stock incentive plans, if the Company undergoes a "change in control" (as defined in the applicable stock incentive plan),
then, like all other employees, Named Officers will receive immediate vesting and/or payout of their outstanding long-term incentive compensation awards. Although this vesting will occur
whether or not a Named Officer's employment terminates, we believe it is appropriate to fully vest equity awards
in these change in control situations because such a transaction may effectively end the Named Officers' ability to realize any further value with respect to the equity awards.

Please
see the "Potential Payments Upon Termination or Change in ControlFiscal Year 2008" section below for a description of the potential payments that may be made to the
2008 Named Officers (other than the 2008 Named Officers no longer employed by the Company) in connection with their termination of employment or a change in control and a description of the payments
that have become payable to our 2008 Named Officers who are no longer employed by the Company.

Compensation Committee Actions After Fiscal Year 2008

As described above, on August 6, 2008, the Compensation Committee awarded Mr. Khaykin and Mr. Barrow stock options
and restricted stock unit awards in satisfaction of the Company's obligation to grant such awards in connection with the Company again becoming current in its reporting obligations to the SEC on
August 1, 2008. The material terms of these awards are also described in a Form 8-K filed by the Company with the SEC on August 8, 2008.

On
August 15, 2008, the Compensation Committee established a short-term cash incentive bonus program for the Company's 2009 fiscal year, in which each of the 2008
Named Officers (other than the 2008 Named Officers who are no longer employed by the Company) are eligible to participate. The material terms of the 2009 fiscal year bonus program are described in a
Form 8-K filed by the Company with the SEC on August 21, 2008 (the "August 21 Form 8-K").

On
August 21, 2008, the Company entered into a change in control severance agreement with Michael Barrow, substantially in the same form that the Company previously entered into
with certain of its key officers in November 2007. The material terms of the change in control severance agreement with Mr. Barrow are described in the August 21
Form 8-K. The severance agreement generally provides in the event of a voluntary termination for good reason (as defined therein) or an involuntary termination other than for cause
(as defined therein), following, or in specific contemplation of, a change in control of the Company, for a payment of one times annual salary and target bonus, the acceleration of vesting of all
unvested equity and stock option grants, continuation of COBRA benefits

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for
eighteen months and payment of a modified excise tax gross-up. In addition, on August 21, 2008, the Compensation Committee adopted a general severance policy applicable to the
Company's executive officers in the event that their employment is terminated for reasons other than for cause. The severance policy is not intended to supersede any existing agreement with any
executive officer. The material terms of the severance policy are described in the August 21 Form 8-K.

Section 162(m) Policy

Under current Internal Revenue Service guidance, Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
generally disallows a tax deduction to public corporations for compensation over $1,000,000 paid for any year to the corporation's CEO and other three most highly compensated executive officers (not
including the principal financial officer). However, Section 162(m) exempts qualifying performance-based compensation from the deduction limit if certain other requirements are met. As one of
the factors in its consideration of compensation matters, the Compensation Committee considers the anticipated tax treatment to the Company and to the executives of various payments and benefits.
Action will be taken to qualify most compensation approaches to ensure deductibility, except in those limited cases in which the Compensation Committee believes stockholder interests are best served
by retaining flexibility. In such cases, the Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent reasonably
practicable and to the extent consistent with its other compensation objectives. However, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and
the regulations issued thereunder, no assurance can be given, notwithstanding the Company's efforts, that compensation intended by the Company to satisfy the requirements for deductibility under
Section 162(m) does in fact do so.

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COMPENSATION COMMITTEE  REPORT ON EXECUTIVE COMPENSATION(1)

The Compensation Committee has certain duties and powers as described in its Charter. The Compensation Committee is currently comprised
of the four (4) Non-Employee Directors named at the end of this report, each of whom is independent as defined by the NYSE listing standards.

The
Compensation Committee has reviewed and discussed with management the disclosures contained in the Compensation Discussion and Analysis section of this Form 10-K.
Based upon this review and our discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis ("CD&A") section be included in this
Form 10-K. The CD&A section includes information for the Company's 2008 fiscal year based on the date of the filing of this report. None of the
Company's executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent function) of any other entity, the executive officers of which
served as a director or member of the Compensation Committee during our 2008 fiscal year.

The Compensation Committee of the Board of DirectorsRochus E. Vogt (Chairperson)
Jack O. Vance
Robert S. Attiyeh
Richard J. Dahl


COMPENSATION COMMITTEE  INTERLOCKS AND INSIDER PARTICIPATION

All of the Compensation Committee members whose names appear on the Compensation Committee Report above served as members of the
Compensation Committee during all of our 2008 fiscal year other than Richard J. Dahl, whose service as a member of the Compensation Committee began in February 2008. No current member of the
Compensation Committee is a current or former executive officer or employee of the Company, or had any relationships requiring disclosure by the Company under the SEC's rules requiring disclosure of
certain relationships and related-party transactions. None of the Company's executive officers served as a director or a member of a compensation committee (or other committee serving an equivalent
function) of any other entity, the executive officers of which served as a director or member of the Compensation Committee during our 2008 fiscal year.

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SUMMARY COMPENSATION TABLEFISCAL YEAR 2008 AND FISCAL YEAR 2007

The following table presents information regarding compensation of our 2008 Named Officers for services rendered during fiscal year
2008 and fiscal year 2007.

Name and Principal
Position
(a)

Year
(b)

Salary
($)
(c)

Bonus
($)(1)
(d)

Stock
Awards
($)(2)
(e)

Option
Awards
($)(2)
(f)

Non-Equity
Incentive Plan
Compensation
($)
(g)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(h)

All Other
Compensation
($)(3)
(i)

Total
($)
(j)Oleg Khaykin,
Chief Executive Officer


2008


245,192


8,000


866,525


961,055








42,077


2,122,849Peter Knepper,
Chief Financial Officer (Acting)


2008


154,138

















191,139


345,277Donald R. Dancer


2008


436,809


628,487


460,586


535,011








32,941


2,093,834Executive Vice President and Chief Administrative Officer


2007


362,220


300,000


16,033


278,263


82,661





10,725


1,049,902Michael Barrow,
Executive Vice President and Chief Operations Officer


2008


74,038

















1,743


75,781Alexander Lidow,


2008


206,154








3,748,034








153,071


4,107,259Former Chief Executive Officer(4)


2007


781,538








634,036








16,765


1,432,339Linda Pahl,


2008


486,001


163,882





39,228








257,471


946,582Former Chief Financial Officer(5)


2007


233,231


180,000





43,712


124,937





4,354


586,234Eric Lidow


2008


564,726








525,308








1,633,692


2,723,726Former Chairman of the Board(4)


2007


670,451

















94,080


764,531Marc Rougee,
Former Executive Vice President, Operations(6)


2008


310,262


102,664





125,509








702,286


1,240,721


No
stock options or stock awards were granted in fiscal year 2008. However, for financial statement reporting purposes under SFAS No. 123(R), the Company was required to recognize a
compensation charge in fiscal year 2008 with respect to the stock options and restricted stock unit awards that the Company had committed to grant to Messrs. Khaykin and Dancer under the terms
of their respective employment agreement or letter agreement (as applicable). Even though these stock options and restricted stock units were not granted in fiscal year 2008, the Company was required
to recognize a compensation charge under SFAS No. 123(R) with respect to these awards in fiscal year 2008 because the Company agreed to provide Messrs. Khaykin and Dancer with vesting
credit for their service during fiscal year 2008 on the date the respective awards would be granted. See "Grants of Plan Based Awards In Fiscal Year 2008" below for a description of the vesting terms
of these awards. With respect to Mr. Khaykin's awards, the Company is accounting for the option awards in

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Compensation of 2008 Named Officers

The "Summary Compensation TableFiscal Year 2008 and Fiscal Year 2007" above quantifies the value of the different forms of
compensation earned by or awarded to our Named Officers during our 2008 fiscal year. The primary elements of each 2008 Named Officer's total compensation reported in the table are base salary,
retention bonuses, and an annual incentive compensation opportunity. Named Officers also earned or were paid the other benefits listed in Column (i) of the "Summary Compensation
TableFiscal Year 2008 and Fiscal Year 2007," as further described in footnote (3) to the table.

The
Summary Compensation TableFiscal Year 2008 and Fiscal Year 2007 should be read in conjunction with the tables and narrative descriptions that follow. A description of
the material terms of each 2008 Named Officer's base salary and the retention bonuses received by each 2008 Named Officer, if any, is provided immediately following this paragraph. The Grants of
Plan-Based Awards in Fiscal Year 2008 table, and the description of the 2008 Named Officers' annual incentive compensation opportunity that follows it, provides information regarding the
incentive bonus opportunities awarded to Named Officers during our 2008 fiscal year. The Outstanding Equity Awards at Fiscal Year Ended June 30, 2008 and Option Exercises and Stock Vested in
Fiscal Year 2008 tables provide further information on the 2008 Named Officers' potential realizable value and actual value realized with respect to their equity awards. The discussion of the
potential payments due upon a termination of employment or change in control that follows is intended to further explain the potential future payments that are, or may become, payable to our 2008
Named Officers under certain circumstances.

Description of Employment Agreements, Salary and Bonus Amounts of 2008 Named Officers

The Company has entered into an employment agreement with Mr. Khaykin, and employment letter agreements with each of
Messrs. Dancer, Knepper, Barrow and Rougee and Ms. Pahl. Also, the Company had previously entered into an employment agreement with Mr. Eric Lidow that terminated upon his
retirement and termination of employment. Provisions relating to post-termination of employment benefits are discussed below "Potential Payments upon Termination of Change in
ControlFiscal Year 2008."

Mr. Khaykin.The Company and Mr. Khaykin, the Company's CEO, are parties to an employment agreement dated February 6, 2008, providing for
Mr. Khaykin to become the Company's President and CEO effective March 1, 2008. Mr. Khaykin's agreement generally provides for a three-year term, with annual renewals
for up to four additional years unless either party provides a timely written notice of non-renewal. Mr. Khaykin's agreement provides that Mr. Khaykin's base salary shall be
$750,000 annually, Mr. Khaykin will have a target annual incentive bonus opportunity equal to 100% of his base salary and Mr. Khaykin will receive a one-time signing bonus
equal to $575,000 less the amount of the fiscal year 2007 bonus he receives from his prior employer; Mr. Khaykin received $567,000 from his prior employer and was entitled to receive $8,000
from the Company on account of the signing bonus. Mr. Khaykin also received stock options and restricted stock units granted under the 2000 Plan in such

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amounts
and on such terms set forth in Mr. Khaykin's agreement and described above under "Executive Compensation Program ElementsLong-Term Incentive Awards" on the
third trading day on the NYSE that followed the day on which the Company again became current in its financial reporting obligations to the SEC. Under Mr. Khaykin's agreement, the Company
agreed to appoint Mr. Khaykin to the Company's Board promptly following March 1, 2008. In connection with any expiration of the term of Mr. Khaykin's Board seat during his period
of employment with the Company, the Company has agreed to re-nominate Mr. Khaykin to the Board at the related annual meeting of the Company's stockholders. Mr. Khaykin's
agreement also provides Mr. Khaykin with severance payments and benefits upon his termination of employment. See "Potential Payments upon Termination or Change in ControlFiscal
Year 2008" below for a description of the material terms of these benefits.

Mr. Dancer.On October 29, 2007, the Company and Mr. Dancer entered into a letter agreement in connection with his promotion to Acting CEO and
to reflect Mr. Dancer's new position as Chief Administrative Officer. Under the terms of the letter agreement, which was subsequently amended on March 6, 2008, Mr. Dancer is
provided with a minimum annual base salary of $450,000 effective as of August 28, 2007, which may be increased by the Company from time to time in its discretion, but not be decreased below the
initial amount specified in his letter. His annual target bonus is 75% of his base salary. Mr. Dancer also received a one-time cash incentive award of $100,000 upon entering into
the letter agreement and he received a one-time special cash bonus of $400,000 payable on, or within ten business days after, March 1, 2008. In addition, under the letter agreement
he is entitled to be granted 75,000 options and an award of vested restricted stock units in such amounts and on such terms set forth in Mr. Dancer's letter agreement and described above
under "Executive Compensation Program ElementsLong-Term Incentive Awards" on the third trading day on the NYSE that followed the day on which the Company again became current
in its financial reporting obligations to the SEC or, if such date was within 15 days prior to the close of a fiscal quarter or was subsequent to the close of a fiscal quarter but prior to the
filing with the SEC of the Company's periodic or annual report on Form 10-Q or 10-K for such quarter, then on the third business day following such filing with the SEC.

The
Company and Mr. Dancer amended the letter agreement on March 6, 2008 to supplement its terms in connection with Mr. Dancer stepping down from his position as
Acting CEO when Mr. Khaykin became the Company's President and CEO. Pursuant to the amended letter agreement, in addition to Mr. Dancer's base salary, annual bonus opportunity and the
special cash bonus Mr. Dancer became entitled to receive on March 1, 2008, Mr. Dancer will receive: (i) a one-time cash retention payment of $600,000 if he is
employed by the Company on September 1, 2008 and (ii) a one-time cash retention payment of $400,000 if he is employed by the Company on March 1, 2009. If
Mr. Dancer's employment terminates for any reason before September 1, 2008, he will receive a prorated portion of the $600,000 retention payment based on the number of days served
between March 1, 2008 and September 1, 2008. Further, in addition to the award of stock options and restricted stock units contemplated by the letter agreement, Mr. Dancer will be
entitled to receive equity awards on a basis that is consistent with the level and terms of equity awards provided to other executive officers of the Company, subject to the discretion of the
Compensation Committee. The letter agreement (as amended) also provides Mr. Dancer with severance payments and benefits upon his termination of employment. See "Potential Payments upon
Termination or Change in ControlFiscal Year 2008" below for a description of the material terms of these benefits.

Mr. Knepper.The Company and Mr. Knepper entered into a letter agreement providing for Mr. Knepper to become the Company's Acting CFO
effective April 16, 2008. The offer letter provides that Mr. Knepper's base salary shall be $63,000 per month and Mr. Knepper will have a target annual incentive bonus opportunity
equal to 35% of his base salary. Mr. Knepper's employment with the Company is on an "at will" basis, and can be terminated by the Company or Mr. Knepper for any reason at any time. The
letter agreement also provides Mr. Knepper with severance payments upon his

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termination
of employment in certain circumstances. See "Potential Payments upon Termination or Change in ControlFiscal Year 2008" below for a description of the material terms of these
benefits.

Mr. Barrow.On March 28, 2008, the Company entered into a letter agreement providing for Mr. Barrow to become the Company's Executive Vice
President and Chief Operations Officer effective April 1, 2008. Mr. Barrow's agreement provides that Mr. Barrow's base salary shall be $350,000 annually and Mr. Barrow will
have a target annual incentive bonus opportunity equal to 70% of his base salary. The agreement also provided that Mr. Barrow would receive stock options and restricted stock units under the
2000 Plan in such amounts and on such terms set forth in Mr. Barrow's agreement and described above under "Executive Compensation Program ElementsLong-Term Incentive
Awards" on the third trading day on the NYSE that followed the day on which the Company again became current in its financial statement reporting obligations to the SEC. The stock options and
restricted stock units were granted on August 6, 2008. Mr. Barrow is also entitled to a car allowance and relocation benefits.

Ms. Pahl.On March 6, 2008, the Company entered into a letter agreement with Ms. Pahl to provide her with additional incentives to reflect her
increased responsibilities in connection with the reconstruction and restatement of the Company's financial statements and other transition matters. This letter agreement provides for: (i) a
bonus payment of $100,000, if Ms. Pahl is an employee in good standing with the Company on June 2, 2008, or if her employment is terminated by the Company for any reason other than cause
prior to June 2, 2008, in each case conditioned upon the Company completing its pending financial restatement by that time; (ii) an enhanced severance payment equal to one year's base
pay, in lieu of any other severance benefit from the Company, if Ms. Pahl's employment is terminated following June 2, 2008 for any reason other than by the Company for cause; and
(iii) an increase in Ms. Pahl's quarterly incentive bonus from $25,000 to $35,000 effective February 1, 2008, with the quarterly incentive bonus pro-rated for any
partial quarter Ms. Pahl serves as the Company's Acting CFO. Additionally, the letter agreement provides that if the Company appoints another person to serve as the Company's CFO, the Company
will appoint Ms. Pahl to the position of Senior Vice PresidentFinance rather than return Ms. Pahl's to her position immediately prior to her service as the Company's Acting
CFO. Further, following Ms. Pahl's service as the Company's Acting CFO, Ms. Pahl may elect to become a part-time employee for a minimum of ninety days to assist in any
transition, with compensation to be determined by good faith agreement of the parties at the beginning of any such service. Ms. Pahl resigned from the Company effective April 16, 2008
and entered into a Consulting Agreement with the Company on that date. See "Potential Payments upon Termination or Change in ControlFiscal Year 2008" below for a description of the
material terms of the severance benefits that became payable to Ms. Pahl upon her resignation.

Mr. Eric Lidow.Mr. Eric Lidow was employed by the Company pursuant to the terms of an employment agreement, which terminated upon Mr. Lidow's
retirement on May 1, 2008. The employment agreement for Mr. Eric Lidow provided for a minimum base salary of $500,000. Mr. Lidow entered into a Separation Agreement with the
Company on his retirement date. See "Potential Payments upon Termination or Change in ControlFiscal Year 2008" below for a description of the material terms of the severance benefits that
became payable to Mr. Lidow upon his retirement.

Mr. Alex Lidow.Mr. Alex Lidow was not party to an employment or other agreement with the Company. Mr. Lidow's base salary and bonus
opportunity was determined as described above under "Executive Compensation Program ElementsBase Salary" and "Short Term Incentive Compensation Opportunity." Mr. Lidow
resigned from the Company effective October 2, 2007 and entered into a Separation Agreement with the Company on that date. See "Potential Payments upon Termination or Change in
ControlFiscal Year 2008" below for a description of the material terms of the severance benefits that became payable to Mr. Lidow upon his resignation.

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Mr. Rougee.Mr. Rougee and the Company entered into an offer letter on October 29, 2007 in connection with his promotion to Executive Vice
President, Operations. The offer letter provides that Mr. Rougee's annual base salary shall be $330,000 and Mr. Rougee will have a target annual incentive bonus opportunity for the 2008
fiscal year equal to 70% of his base salary with a maximum of 120% of his base salary. Mr. Rougee was also entitled to receive stock options and restricted stock units under the 2000 Plan in
such amounts and on such terms set forth in Mr. Rougee's agreement and described above under "Executive Compensation Program ElementsLong-Term Incentive Awards" on the
third trading day on the NYSE that followed the day on which the Company again became current in its financial statement reporting obligations to the SEC. In addition, in the first quarter of fiscal
year 2008, Mr. Rougee was awarded a retention bonus of $25,000 in recognition of Mr. Rougee's additional responsibilities undertaken by Mr. Rougee in support of the CEO
functioning as principal manufacturing officer while a search to fill that position was underway and was also awarded a bonus of $25,000 in October 2008 for similar reasons. Mr. Rougee resigned
from the Company effective May 30, 2008 and entered into a Separation Agreement with the Company on that date. See "Potential Payments upon Termination or Change in ControlFiscal
Year 2008" below for a description of the material terms of the severance benefits that became payable to Mr. Rougee upon his resignation.

GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2008

The Company did not grant any "plan-based" awards in fiscal year 2008.

As
discussed above under the heading "Compensation Discussion and AnalysisExecutive Compensation Program Elements," the Compensation Committee did not establish a
short-term incentive program for the 2008 fiscal year. Instead, for the 2008 fiscal year, the Compensation Committee awarded discretionary bonuses for certain of the 2008 Named Officers
based on the factors identified in the "Compensation Discussion and AnalysisExecutive Compensation Program Elements" section under the heading "Short-Term Incentive
Compensation Opportunity."

As
explained above in the "Compensation Discussion and AnalysisExecutive Compensation Program Elements" section under the heading "Long-Term Equity
Incentive Awards," because the Company was not current in its financial statement reporting obligations to the SEC at the time it has historically granted annual equity-based award grants, the
Compensation Committee determined that it was advisable to delay the annual grants for the 2008 fiscal year, including the semi-annual grants and any grants in connection with promotions
and special events, until the Company again became current in its reporting obligations to the SEC. In order to provide retention incentives, however, in fiscal year 2008 the Compensation Committee
approved binding commitments to grant stock options and restricted stock units to certain of our 2008 Named Officers as described below. For Messrs. Khaykin and Barrow, these awards would be
granted on the third trading day on the NYSE after the Company again became current in its financial reporting obligations to the SEC. For the other 2008 Named Officers, these awards would be granted
on the third business day after the Company again became current in its financial reporting obligations to the SEC or, if such date was within 15 days prior to the close of a fiscal quarter or
was subsequent to the close of a fiscal quarter but prior to the filing with the SEC of the Company's periodic or annual report on Form 10-Q or 10-K for such quarter, on
the third business day following such filing with the SEC. Neither of these grant dates occurred in the 2008 fiscal year and these commitments remained outstanding at the 2008 fiscal
year-end. On August 1, 2008, the Company filed its delinquent financial reports with the SEC and as a result became current with its financial reporting obligations to the SEC on
such date. Therefore, the Company granted the awards to Messrs. Khaykin and Barrow on August 6, 2008, in satisfaction of its commitments on this date. However, the Company's commitments to
Mr. Dancer remain outstanding as of the date of this report.

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The
following table sets forth the number of shares of Company common stock subject to the options and restricted stock unit awards the Company committed in fiscal year 2008 to grant to
each of the following 2008 Named Officers on the grant date indicated above:

Name

Number of Options

Number of Restricted Stock UnitsOleg Khaykin(1)


750,000


250,000Donald R. Dancer(2)


75,000



(3)Michael Barrow(4)


75,000


25,000Linda Pahl(5)


20,000


6,000Marc Rougee(5)


20,000









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Table of Contents

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR ENDED JUNE 30, 2008

The following table presents information regarding the outstanding equity awards held by each 2008 Named Officer as of the end of our
2008 fiscal year:

Option Awards

Stock AwardsName
(a)

Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable(1)
(b)

Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(2)
(c)

Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)

Option
Exercise
Price
($)
(e)

Option
Expiration
Date(3)
(f)

Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(4)
(g)

Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(5)
(h)

Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(i)

Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
(j)Oleg Khaykin


0


0





0


0


0


0


0


0Peter Knepper


0


0





0


0


0


0


0


0Donald R. Dancer


31,000
10,000
3,250
30,000
15,000
10,000
6,667
3,334
10,000
11,667
6,667


0
0
0
0
0
0
3,333
1,666
5,000
23,333
13,333





21.74
25.35
19.49
40.10
45.25
43.49
48.10
34.69
41.74
35.30
38.51


8/27/2009
11/24/2009
3/10/2010
8/26/2010
3/8/2011
3/28/2010
8/30/2010
11/20/2010
3/28/2011
8/30/2011
4/2/2012


333


6,580


0


0Michael Barrow


0


0





0


0


0


0


0


0Alexander Lidow


139,000


0





11.375


6/13/2009220,000


0





63.88


8/28/2010150,000


0





34.85


8/21/2011150,000


0





45.79


3/5/2009150,000


0





40.10


8/26/201050,000


0





48.10


8/30/2010115,000


0





35.30


8/30/2011


0


0


0


0Linda Pahl


800


0





41.875


2/28/20102,000


0





54.125


6/26/20104,000


0





59.35


6/10/20115,775


0





45.79


3/5/20093,334


0





41.53


4/9/20111,334


0





35.30


8/30/20111,234


0





38.51


4/2/2012


0


0


0


0Eric Lidow


94,000


0





12.625


7/6/2009200,000


0





33.875


1/27/2010100,000


0





63.88


8/28/2010100,000


0





34.85


8/21/2011100,000


0





45.79


3/5/2009100,000


0





40.10


8/26/2010


0


0


0


0Marc Rougee


20,000


0





19.69


4/22/20109,000


0





40.10


8/26/20105,000


0





45.25


3/8/20117,000


0





43.49


3/28/20104,000


0





48.10


8/30/20104,000


0





41.74


3/28/20112,000


0





35.30


8/30/20111,667


0





38.51


4/2/2012


0


0


0


0


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Table of Contents

OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2008

The following table presents information regarding the exercise of stock options by the 2008 Named Officers during our 2008 fiscal
year, and on the vesting during our 2008 fiscal year of restricted stock unit awards held by the 2008 Named Officers.

Option Awards

Stock and Unit AwardsName
(a)

Number of Shares
Acquired on Exercise
(#)
(b)

Value Realized on
Exercise
($)(1)
(c)

Number of Shares
Acquired on Vesting
(#)
(d)

Value Realized on Vesting
($)(2)
(e)Oleg Khaykin


0


0


0


0Peter Knepper


0


0


0


0Donald R. Dancer


0


0


333
(3)

0Michael Barrow


0


0


0


0Alexander Lidow


0


0


0


0Linda Pahl


0


0


0


0Eric Lidow


0


0


0


0Marc Rougee


0


0


0


0


---

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Table of Contents

NON-QUALIFIED DEFERRED COMPENSATION PLAN TABLEFISCAL YEAR 2008

The following table sets forth summary information regarding contributions to and account balances under the Company's DCP for and as
of the last day of the 2008 fiscal year.

Name

Executive
Contributions in
Last FY ($)(1)

Registrant
Contributions in
Last FY ($)(2)

Aggregate
Earnings in Last
FY ($)

Aggregate
Withdrawals/
Distributions ($)(2)

Aggregate Balance
at Last FYE ($)Oleg Khaykin














Peter Knepper














Donald R. Dancer














Michael Barrow














Alexander Lidow














Linda Pahl


6,000


6,000


110


6,110


0Eric Lidow














Marc Rougee

















---

The
Company maintains the DCP which became effective July 5, 2004. Under the DCP, select employees who satisfy certain eligibility requirements, including each of the 2008 Named
Officers, and members of the Board may make annual irrevocable elections to defer up to 75% of their base salary, 100% of their bonus, 100% of their cash compensation earned under any Company
incentive plans or 100% of their director fees to be earned during the following fiscal year. In addition, the Company may make discretionary contributions.

Account
balances are credited with income, gains and losses based on the performance of investment funds selected by the participant from a list of funds designated by the Company.
Participants are at all times 100% vested in the amounts credited to their deferral accounts with respect to their deferrals. Amounts credited with respect to discretionary Company contributions are
subject to vesting requirements, if any, imposed on such amounts by the Company. Participants will be eligible to receive distributions of the amounts credited to their accounts at or after their
termination of employment, retirement, disability, death, change in control of the Company or upon another previously determined scheduled distribution date, in a lump sum or installments pursuant to
elections made under the rules of the DCP. For the 2008 Named Officers, Section 409A of the Internal Revenue Code of 1986, as amended ("Code"); requires that distributions may not occur earlier
than six months following the 2008 Named Officer's termination of employment. The DCP is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the
amounts due under the DCP. The Company has purchased corporate-owned life insurance to offset this liability. The Company did not make any discretionary contributions under the DCP during fiscal year
2008.

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROLFISCAL YEAR 2008

The following section describes the benefits that may become payable to the 2008 Named Officers who were employed by the Company on the
last day of the 2008 fiscal year in connection with certain terminations of their employment with the Company and/or a change in control of the Company. For

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Alex
Lidow, Linda Pahl, Eric Lidow and Marc Rougee, the following section describes the benefits that have become payable to each executive in connection with their termination of employment with the
Company on October 9, 2007, April 16, 2008, May 1, 2008, and May 30, 2008, respectively.

In
addition to the termination benefits described below, outstanding equity based-awards held by our 2008 Named Officers may also be subject to accelerated vesting in connection with
certain changes in control of the Company under the terms of the Company's equity incentive plans. For purposes of this section, for the 2008 Named Officers we have calculated the value of any option
or restricted stock or unit award that may be accelerated in connection with a change in control of the Company to be the full value of such award (i.e., the full "spread" value for option
awards and the full price per share of the common stock for stock and unit awards on June 27, 2008, which was the last trading day of the 2008 fiscal year).

In
addition to the benefits described below, upon a 2008 Named Officer's retirement or other termination of employment or certain changes on control of the Company, the 2008 Named
Officer may receive a payout of his or her nonqualified deferred compensation balance under the Company's DCP (unless the officer has elected to receive his account balance in installments). Please
see the "Non-Qualified Deferred CompensationFiscal Year 2008" table above and related discussion of the Company's DCP for a description of these deferred compensation
payments.

2008 Named Officers Employed at 2008 Fiscal Year End

Mr. Khaykin.Under the terms of Mr. Khaykin's employment agreement, if the Company terminates Mr. Khaykin's employment other than for "cause"
or in the event Mr. Khaykin terminates employment for "good reason" (as these terms are used in the employment agreement), Mr. Khaykin will be entitled to a severance benefit from the
Company equal to one and one-half times the sum of his annual base salary and annual target bonus paid in a series of installment payments over 18 months, 18 months'
accelerated vesting of his stock option and restricted stock unit awards (with vesting calculated on a monthly as opposed to annual basis), the maximum of one year following his termination date to
exercise his vested stock options, and 18 months' continued medical plan coverage. If such a termination of employment occurs within two months prior to or two years after a change in control
of the Company, the cash severance benefit will increase to two times the sum of Mr. Khaykin's annual base salary and annual target bonus and his stock options and restricted stock units will
vest in full. A change in control also results in the cash severance being paid in a lump sum instead of installment payments. If a change in control of the Company occurred prior to the grant date of
Mr. Khaykin's options, Mr. Khaykin's right to the option grant would have terminated and instead his restricted stock unit award of 250,000 restricted stock units would have increased to
(i) 375,000 if the change in control occurred within six months after March 1, 2008 or (ii) 500,000 if the change in control occurred on or after the six month anniversary of
March 1, 2008 (in each case, in lieu of the 250,000 restricted stock units described above), and the restricted stock unit award as so increased would have been granted upon (or, as may be
necessary to give effect to the grant, immediately prior to) the occurrence of the change in control; provided, however, the Company would have had the right at its option to pay Mr. Khaykin a
lump sum amount upon or within thirty days after the change in control (in lieu of the restricted stock unit award) equal to the number of shares subject to such award that would have been vested at
the time of the change in control multiplied by the fair market value of a share of the Company's common stock at the time of the change in control. However, because the grant date occurred on
August 6, 2008, the foregoing change in control provision with respect to his restricted stock units is no longer applicable. In addition, the Company will provide a tax "gross-up"
benefit for Mr. Khaykin in the event any benefits he is entitled to receive are subject to excise taxes under Sections 280G and/or 4999 of the Code in connection with a change in control
of the Company to put Mr. Khaykin in the same position as though those benefits had not been subject to those excise taxes, unless a reduction in his benefits by an amount up to 15% of the
total benefits would avoid such

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excise
taxes. Mr. Khaykin will be required to provide a release of claims in order to receive any severance benefits in connection with a termination of his employment. Mr. Khaykin is
also subject to confidentiality, non-solicitation and non-competition restrictive covenants under his employment agreement.

Mr. Dancer.On October 29, 2007, the Company entered into a change in control severance agreement with Mr. Dancer (the "Severance Agreement").
Under the terms of the Severance Agreement, if Mr. Dancer's employment is terminated by the Company without "cause" (and other than due to his death or disability) or by Mr. Dancer for
"good reason" (each as defined in the Severance Agreement) and such termination occurs in connection with an impending "change in control" (as defined in the Severance Agreement) of the Company or at
any time during the two-year period after a "change in control" of the Company, Mr. Dancer will generally be entitled to receive the following benefits: (i) a
cash payment equal to two times the sum of the Mr. Dancer's annual rate of base salary and Mr. Dancer's target bonus for the fiscal year in which the termination occurred, (ii) a
cash payment equal to the pro-rata portion of Mr. Dancer's target bonus for the fiscal year in which the termination occurred (based on the number of whole months Mr. Dancer
was employed during the fiscal year of the termination divided by twelve), (iii) continued medical coverage for up to 18 months at the same expense to Mr. Dancer as before the
termination, (iv) accelerated vesting of the time-based vesting portion of all then-outstanding equity awards and deferred compensation, nonqualified retirement benefits
or similar plans of the Company in which Mr. Dancer participates, and Mr. Dancer will have up to six months to exercise his then-vested options (subject to any merger or
other agreement related to the change in control that provides for the awards to terminate upon the consummation of the transaction), and (v) reimbursement for outplacement services obtained
within up to a nine month period following Mr. Dancer's termination, up to a maximum of $50,000. In order to receive the forgoing severance benefits, Mr. Dancer must agree to release the
Company from all claims arising out of his or her employment relationship. Amounts under clauses (i) and (ii) are payable to Mr. Dancer in a lump sum within ten days after the
release becomes effective. Payments are also subject to any required delay imposed under Section 409A of the Code. In addition, the Company will provide a tax "gross-up" benefit for
Mr. Dancer in the event any of his benefits are subject to excise taxes under Sections 280G and/or 4999 of the Code in connection with a change in control of the Company to put
Mr. Dancer in the same position as though those benefits had not been subject to those excise taxes; provided however, that if the present value of his total benefits is less than 345% of his
applicable "base amount" (as defined under Section 280G), his total benefits will be reduced by the minimum amount required to avoid such excise taxes. The Company will also provide a tax
"gross-up" benefit for Mr. Dancer in the event any of his benefits under his letter agreement are subject to excise taxes under Section 409A Code. In each case,
Mr. Dancer's gross-up payments under Section 280G and 409A of the Code are subject to an aggregate excise tax payment limit of $3.0 million. Mr. Dancer is also
subject to confidentiality, non-solicitation and non-competition restrictive covenants under the applicable Severance Agreement.

In
addition to the severance benefits under the Severance Agreement, Mr. Dancer is also entitled to the following benefits under the terms of his letter agreement entered into
between the Company and Mr. Dancer on October 29, 2007, as amended on March 6, 2008. Under the terms of the letter agreement, if Mr. Dancer's employment with the Company is
terminated for any reason other than by the Company with "cause" (as defined in his Severance Agreement) and the termination would not entitle Mr. Dancer to receive severance benefits under his
Severance Agreement, Mr. Dancer will receive a cash amount equal to the sum of one times his annual rate of base salary and target bonus for the fiscal year in which the termination occurred
and he would be entitled to twelve months' continued medical plan coverage. Additionally, Mr. Dancer will have the later of (i) one year following his termination date, and
(ii) the date that is 90 days after the Company again became current in its financial statement reporting obligations with the SEC in order to exercise his vested stock options. In
addition, if Mr. Dancer's employment is terminated by the Company other than for "cause" or by

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Mr. Dancer
for "good reason" before the restricted stock unit award contemplated by his letter agreement is granted, he will also receive a cash payment of $500,000 in lieu of the restricted
stock unit award. Mr. Dancer will be required to provide a release of claims in order to receive any of the foregoing benefits. If Mr. Dancer's employment by the Company is terminated
for any reason other than by the Company with cause and such termination would entitle Mr. Dancer to receive severance benefits under his Severance Agreement, Mr. Dancer will only be
entitled to the severance benefits provided under his Severance Agreement and not any additional severance benefits under the letter agreement.

Mr. Knepper.Pursuant to the terms of the Offer Letter between Mr. Knepper and the Company, if the Company terminates Mr. Knepper's employment
without providing at least thirty days of written notice, Mr. Knepper will be entitled to a severance benefit equal to 30 days of base salary.

Mr. Barrow.As of the last day of fiscal year 2008, Mr. Barrow was not entitled to any severance or change in control benefits under his agreements
with the Company.

Estimated Severance and Change in Control Benefits

The following chart presents the Company's estimate of the amount of benefits to which Messrs. Khaykin and Dancer would have
been entitled had his employment terminated or a change in control occurred on June 29, 2008 under scenarios set forth below. Messrs. Knepper and Barrow are not included in the chart
below because neither of them held any equity awards with respect to the Company's common stock and were not entitled to any severance benefits as of June 29,
2008, either alone or in connection with a change in control (expect for Mr. Knepper, who would be entitled to 30 days' base pay as severance if the Company does not give him
30 days' prior notice of a termination).

Name

Triggering Event

Cash Severance ($)(1)

Medical Benefit ($)(2)

Equity Acceleration ($)(3)

Excise Tax Gross-Up ($)(4)

Other (5)

TotalOleg Khaykin

Resign without Good Reason

















Resign for Good Reason


2,250,000


26,346


2,717,000








4,993,346Termination without Cause


2,250,000


26,346


2,717,000








4,993,346Change of Control (no termination)








7,410,000


3,471,852





10,881,852Change of Control and Termination without Cause or Resign for Good Reason


3,000,000


26,346


7,410,000


5,043,571





15,479,917Donald R. Dancer

Resign without Good Reason


1,149,456


12,367











1,161,823Resign for Good Reason


1,149,456


12,367











1,161,823Termination without Cause


1,787,500


12,367











1,799,867Change of Control (no termination)

















Change of Control and Termination without Cause or Resign for Good Reason


1,912,500


18,551


500,000


1,034,487


50,000


3,515,538


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2008 Named Officers Not Employed at 2008 Fiscal Year End

Ms. Pahl.In connection with Ms. Pahl's resignation from the Company on April 16, 2008, the Company entered into a separation agreement dated
April 16, 2008. Under the separation agreement, subject to the execution of a release of claims (with negotiated exclusions) Ms. Pahl was entitled to receive all earned salary, vacation
and bonus payments pro-rated to the date of her departure and a severance payment equal to the sum of $40,000 plus one year's base pay. Ms. Pahl is also entitled to additional
severance pay equal to 50% of one year's base pay if Ms. Pahl remains available as a consultant to the Company until the completion and filing with the SEC of the Company's contemplated
restatement and related reports. In addition, she was entitled to receive two months' COBRA premiums at Company expense and certain outplacement assistance in accordance with Company practices. As of
April 16, 2008, all unvested equity awards held by Ms. Pahl were cancelled, but Ms. Pahl will be entitled to exercise her vested options to purchase shares of the Company's common
stock until the later of one year from her date of resignation or ninety days following the date on which the Company became current in its periodic reports with the SEC. Ms. Pahl's separation
agreement expressly terminated her prior severance agreement (described above) and the letter agreement, dated March 6, 2008, entered into between Ms. Pahl and the Company (described
above under "Description of Employment Agreements, Salary and Bonus Amounts of 2008 Named Officers"). In addition, the Company entered into a consulting agreement dated April 16, 2008 between
the Company and Pahl Consulting, Inc. (of which Ms. Pahl is the principal) pursuant to which Pahl Consulting, Inc. agrees to provide the Company with the consulting services of
Ms. Pahl relating to the financial reconstruction and restatement activities of the Company for a fee of $3,000 per day and a term of up to six months.

Ms. Pahl
was also a party to Separation Agreement with the Company dated October 20, 2007 on the same terms as the Separation Agreement entered into between
Mr. Dancer and the Company on the same date. However, she was not eligible for benefits under this Separation Agreement upon her resignation from the Company. Ms. Pahl was also not
eligible for the retention bonus payment under the terms of her March 6, 2008 letter agreement with the Company, which is described above under "Summary Compensation TableFiscal
Year 2008 and Fiscal Year 2007Description of Employment Agreements, Salary and Bonus Amounts."

Mr. Alex Lidow.In connection with Mr. Alex Lidow's termination of employment, the Company entered into a separation agreement with Mr. Lidow
on October 2, 2007. Under the separation agreement, all of his options to purchase common stock that had not already been as of the date of the agreement became vested, and Mr. Lidow
will be entitled to exercise his vested options until the later of eighteen months from the date of his resignation or ninety days following the date on which the Company became current in its
periodic financial reports with the SEC. In addition, the Company will also pay or reimburse Mr. Lidow for the premiums charged to continue medical coverage pursuant to COBRA, at the same or
reasonably equivalent medical coverage for him (and, if applicable, his eligible spouse and dependents) as in effect immediately prior to his termination, for up to 18 months.

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Mr. Eric Lidow.In connection with Mr. Eric Lidow's retirement from the Company and his resignation from his position as Chairman of the Board and as
a member of the Board effective May 1, 2008, the Company entered into a letter of understanding that provides Mr. Lidow with certain office, secretarial and transportation assistance for
life, and will provide Mr. Lidow and his spouse with medical and life insurance benefits for the remainder of their lives equal to those presently provided to them by the Company. In addition,
all of Mr. Lidow's options to purchase common stock that had not already been as of the date of his retirement became vested and he will be entitled to exercise his vested options until the
later of eighteen months from the effective date of his resignation or sixty days following the date on which the Company became current in its periodic reports with the SEC.

Mr. Rougee.In connection with Mr. Rougee's resignation from the Company on June 13, 2008, the Company entered into a severance agreement and
general release dated May 30, 2008. Under this agreement, subject to the execution of a release of claims, Mr. Rougee was entitled to receive all earned salary and vacation and a
severance payment equal to the $660,000, payable in lump sum on or before thirty (30) days after his resignation date. Mr. Rougee was also a party to Separation Agreement with the
Company dated October 20, 2007 on the substantially the same terms as the Separation Agreement entered into between Mr. Dancer and the Company on the same date. However, he was not
eligible for benefits under this Separation Agreement upon his resignation from the Company.

Actual Severance Benefits

The following chart presents the amount of benefits to which Ms. Pahl and Messrs. Alex Lidow, Eric Lidow and Rougee were
entitled to receive upon their termination of employment during fiscal year 2008.

Name

Triggering
Event

Cash
Severance
($)

Medical
Benefit
($)(1)

Other
($)(2)

Total ($)Linda Pahl

Resign


316,500


2,762


480,500


799,762Alex Lidow

Resign











Eric Lidow

Retire





553,256


877,930


1,431,186Marc Rougee

Resign


660,000








660,000






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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of June 30, 2008 about the Company's Common Stock that may be issued upon the
exercise of options granted to employees or members of the Company's Board of Directors under the Company's existing Equity Compensation Plans.

EQUITY COMPENSATION PLAN INFORMATION

Plan category

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)

Weighted-average
exercise price of
outstanding
options, warrants
and rights
(b)

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)Equity compensation plans approved by security holders


9,462,762

$
40.44
(1)

4,695,534
(2)Equity compensation plans not approved by security holders








Total


9,462,762

$
40.44


4,695,534


---

Security Ownership of Principal Stockholders and Management

The following table sets forth as of September 11, 2008 information relating to the ownership of the Common Stock by (i) each
person known by the Company to be the beneficial owner of more than five percent of the outstanding shares of the Common Stock (other than depositories), (ii) each of the Company's directors,
(iii) each of the 2008 Named Officers (as each is defined in Part III, Item 11 hereof) and (iv) all of the Company's current executive officers and directors as a group.

Name and Address(1)

Number of
Shares of
Common Stock
Beneficially
Owned(2)



Percent(3)Invesco Ltd.
1360 Peachtree Street NE
Atlanta, GA 30309


9,069,727

(3a)

12.5%Neuberger Berman, LLC
605 Third Avenue
New York NY 10158.


5,006,792

(3b)

6.9%Harris Associates L.P.
Two North LaSalle Street
Suite 500
Chicago, IL 60602-3790


4,510,582

(3c)

6.2%Earnest Partners, LLC
1180 Peachtree Street NE
Suite 2300
Atlanta, GA 30309


3,744,062

(3d)

5.2%


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Table of Contents

Name and Address(1)

Number of
Shares of
Common Stock
Beneficially
Owned(2)



Percent(3)2008 Named Officers:Oleg Khaykin


0



*Peter Knepper


0



*Donald Dancer


158,001

(6)

*Michael Barrow


0



*Alexander Lidow


2,317,772

(4)(5)(6)(7)(8)(9)

3.2Linda Pahl


18,919

(6)(9)

*Eric Lidow


2,113,994

(4)(5)(6)(9)

2.9Marc Rougee


53,493

(8)

*Current Directors:Robert S. Attiyeh


59,501

(6)

*James D. Plummer


53,501

(6)

*Jack O. Vance


155,401

(6)

*Rochus E. Vogt


106,501

(6)

*Oleg Khaykin


0



*Richard Dahl


0



*Thomas Lacey


0



*Mary B. Cranston


0



*All current directors and executive officers as a group (11 persons)


532,905

(9)

0.7


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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships and Related Transactions

The Company paid expenses in the amount of $150,000 in fiscal year 2007 for consulting services related to semiconductor market
activities provided to the Company by iSuppli Corporation, whose President and CEO is Derek Lidow, son of Eric Lidow, who was Chairman of the Board through May 1, 2008. Additionally, the
Company has contracted with iSuppli for additional consulting services in the amount of approximately $280,000 payable in the Company's 2008 fiscal year.

Related Party Transaction Policy

The Company has adopted a written Related Party Transactions Policy (the "Policy"). The purpose of the Policy is to ensure full review
of the impact of any transactions between the Company and any of its related parties. The Company's policy requres that the Company's General Counsel and CFO review related party transactions
involving, among other things, the sale, purchase or other transfer of products, the providing of services or intellectual property agreements. In addition to the review by the Company's General
Counsel and CFO, related party transactions involving more than $500,000 and certain related party transactions involving the providing of services by executive officers are also reviewed by the Audit
Committee or Compensation Committee. The reviews are intended to ensure that the transactions are in the best interest of the Company.

Independent Directors

The NYSE rules require listed companies to have a board of directors with at least a majority of independent directors. The Company's
Board of Directors has now, and has had for many years, a majority of independent directors.

Under
the NYSE rules, a director qualifies as "independent" upon the Board affirmatively determining that he or she has no other material relationship with the Company (either directly
or as a partner, stockholder or officer of an organization that has a relationship with the Company). Based upon a review of the directors' backgrounds and business activities, the Board has
determined that directors Robert S. Attiyeh, Richard J. Dahl, Thomas Lacey, James D. Plummer, Mary B. Cranston, Jack O. Vance, and Rochus E. Vogt have no other
material relationship with the Company and therefore that they qualify as independent.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

PricewaterhouseCoopers LLP is a registered public accounting firm and has been our independent registered auditor since 1998 and
for many years prior as Coopers & Lybrand LLP. In addition to retaining PricewaterhouseCoopers LLP to audit our financial statements, we engage the firm from time to time to
perform other services. The following table sets forth all fees we were billed in connection

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with
professional services rendered by PricewaterhouseCoopers LLP during each of the last three fiscal years (in thousands):

Fee Type

2008

2007

2006Audit Fees(1)

$
14,954

$
3,104

$
2,221Audit Related Fees(2)


96


2,370


774Tax Fees(3)


233


103


205All Other Fees(4)


26


9


30Total

$
15,309

$
5,586

$
3,230


---

All
fiscal year 2008, 2007 and 2006 audit and non-audit services were pre-approved by the Audit Committee. In approving non-audit services, the Audit
Committee considers whether the engagement could compromise the independence of PricewaterhouseCoopers LLP, and whether for reasons of efficiency or convenience it is in the best interest of
the Company to engage its independent registered public accounting firm to perform the services. The Audit Committee, in reliance on management and the independent registered public accounting firm,
has determined that the provision of the non-audit services described in notes (3) and (4) above were compatible with maintaining the independence of
PricewaterhouseCoopers LLP.

Prior
to engagement, the Audit Committee pre-approves all services to be provided by our independent registered public accounting firm. The fees are budgeted and the Audit
Committee requires the independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. In cases when it
may become necessary to engage the independent registered public accounting firm for additional services not covered by the Audit Committee's original pre-approval categories, a designated
member of the Audit Committee has the delegated authority to pre-approve the provision of services, and such pre-approvals are then communicated to the full Audit Committee at
its next scheduled meeting.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



EXHIBIT INDEX

Incorporated By Reference:

Exhibit No.

Item

Document3(a)

Certificate of Incorporation of the Company, as amended to date

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 19, 2004, Registration No. 333-117489.
(Exhibit 3.1)3(b)

Amended and Restated Bylaws of the Company

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on July 19, 2004, Registration No. 333-117489.
(Exhibit 3.2)4(a)

Amended and Restated Rights Agreement between International Rectifier Corporation and Chase Mellon Shareholder Services, LLC, dated as of
December 15, 1998

Form 10-KAnnual Report for fiscal year ended June 30, 1999, filed with the Securities and Exchange Commission on October 1,
1999. (Exhibit 4(a))4(b)

Indenture, dated as of July 19, 2000, between International Rectifier Corporation and Wells Fargo Bank Minnesota, National Association, as
Trustee, including the form of 41/4 Percent Convertible Subordinated Note Due 2007 as Exhibit A thereto

Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2000. (Exhibit 4.1)4(c)

Registration Rights Agreement, dated as of July 19, 2000, by and among International Rectifier Corporation, as Issuer, and Morgan
Stanley & Co. Incorporated, J.P. Morgan & Co. and Banc of America Securities LLC

Current Report on Form 8-K filed with the Securities and Exchange Commission on July 28, 2000. (Exhibit 4.1)10(a)*

Amendment to International Rectifier Corporation 1984 Stock Participation Plan

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 12, 1994, Registration No. 33-53589.
(Exhibit 4.1)10(b)*

Executive Employment Agreement dated May 15, 1991 between International Rectifier Corporation and Eric Lidow

Form 10-KAnnual Report for fiscal year ended June 30, 1998, filed with the Securities Exchange Commission on September 30,
1998. (Exhibit 10(ab))


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Table of Contents

Exhibit No.

Item

Document10(c)*

Amendment to the Executive Employment Agreement between International Rectifier and Eric Lidow, dated April 12, 1995

Form 10-KAnnual Report for fiscal year ended June 30, 1995. (Exhibit 10(r))10(d)*

Amendment dated April 12, 1995 to the Executive Employment Agreement dated May 15, 1991 between International Rectifier Corporation and
Eric Lidow

Form 10-KAnnual Report for fiscal year ended June 30, 1995 filed with the Securities and Exchange Commission on August 25,
1995. (Exhibit 10(r))10(e)*

International Rectifier Corporation Grantor Trust for Retirement Benefits for Eric Lidow dated October 24, 1995 and amended as of
February 22, 1996

Form 10-KAnnual Report for fiscal year ended June 30, 1996, filed with the Securities and Exchange Commission on September 25,
 1996.(Exhibit 10(p))10(f)*

International Rectifier Corporation 1997 Employee Stock Incentive Plan

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 26, 1998, Registration
No. 33-46901. (Exhibit 4.1)10(g)*

Amendment to International Rectifier Corporation 1997 Employee Stock Incentive Plan, dated October 1, 2001

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 1, 2001, Registration
No. 333-70560. (Exhibit 4.2)10(h)*

International Rectifier Corporation Amended and Restated Stock Incentive Plan of 1992

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on December 2, 1997, Registration
No. 33-41363. (Exhibit 4.1)10(i)*

International Rectifier Corporation Retirement Savings Plan

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 24, 1998, Registration No. 33-57575.
(Exhibits 4.1, 4.2 and 4.3)10(j)*

Amendment to Executive Employment Agreement dated May 15, 1991 between International Rectifier Corporation and Eric Lidow amended as of
June 22, 1998

Form 10-KAnnual Report for fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission on September 30,
 1998. (Exhibit 10(ab))10(k)*

First Amendment to International Rectifier Corporation Grantor Trust for Retirement Benefits for Eric Lidow, dated October 25, 1995 and
amended as of February 22, 1996 and June 22, 1998

Form 10-KAnnual Report for fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission on September 30,
 1998. (Exhibit 10(ac))10(l)*

Second Amendment to International Rectifier Corporation Grantor Trust for Retirement Benefits for Eric Lidow, dated October 25, 1995 and
amended as of February 22, 1996, June 22, 1998, and August 5, 1998

Form 10-KAnnual Report for fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission on September 30,
 1998. (Exhibit 10(ad))


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Table of Contents

Exhibit No.

Item

Document10(m)*

Amendment to Executive Employment Agreement dated May 15, 1991 between International Rectifier Corporation and Eric Lidow amended as of June 22, 1998
and August 5, 1998

Form 10-KAnnual Report for fiscal year ended June 30, 1998, filed with the Securities and Exchange Commission on September 30, 1998.
(Exhibit 10(ae))10(n)*

First Amendment dated September 29, 1999, to Consulting, Nondisclosure, Severance and Resignation Agreement between Derek Lidow and
International Rectifier Corporation, dated as of May 10, 1999

Form 10-KAnnual Report for fiscal year ended June 30, 1999, filed with the Securities and Exchange Commission on October 1,
1999. (Exhibit 10(ag))10(o)*

International Rectifier Corporation 2000 Stock Incentive Plan

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 18, 2000, Registration
Number 333-37308. (Exhibit 4)10(p)*

International Rectifier Corporation 1997 Stock Incentive Plan

Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 1, 2001, Registration
Number 333-41904. (Exhibit 4.1)10(q)*

International Rectifier Corporation 2000 Incentive Plan (Amended and Restated as of September 28, 2000)

Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 12, 2000. (Annex to Proxy Statement)10(s)*

International Rectifier Corporation Restated 1984 Stock Participation Plan

Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on October 10, 2003. (Annex A)10(t)*

Amendment to International Rectifier Corporation Amended and Restated Stock Incentive Plan of 1992 effective as of February 20,
2002

Form 10-Qfor the quarterly period ended March 31, 2001, filed with the Securities and Exchange Commission on May 16, 2001.
(Exhibit 2)10(u)*

Amendment, dated as of March 22, 2001, to ISDA Master Agreement dated as of July 1, 1999, between International Rectifier and BNP
Paribas

Form 10-Qfor the quarterly period ended March 31, 2001, filed with the Securities and Exchange Commission on May 16, 2001.
(Exhibit 3)10(v)

Executive Agreement date June 28, 2001 between International Rectifier Corporation and Gerald Koris

Form 10-KAnnual Report for fiscal year ended June 30, 2002, filed with the Securities and Exchange Commission on September 30,
 2002. (Exhibit 10(ao))10(w)*

Amended and Restated International Rectifier Corporation 2000 Stock Incentive Plan, effective as of November 24, 2004.

Form 8-K dated November 24, 2004, filed with the Securities and Exchange Commission. (Exhibit 99.1)


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Table of Contents

Exhibit No.

Item

Document10(x)*

International Rectifier Corporation Deferred Compensation Plan

Form 10-Qfor the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 12, 2004.
(Exhibit 10.1)10(y)*

Master Trust Agreement, effective as of November 11, 2004, between International Rectifier Corporation, a Delaware corporation, and
Wilmington Trust Company, a Delaware corporation, as trustee, to evidence the master trust to be established pursuant to the International Rectifier Corporation Deferred Compensation Plan

Form 10-Qfor the quarterly period ended September 30, 2004, filed with the Securities and Exchange Commission on November 12,
2004. (Exhibit 10.2)10(z)*

Amended and Restated 1984 Stock Participation Plan, Effective as of November 21, 2005

Form 8-K dated November 21, 2005, filed with the Securities and Exchange Commission on November 21, 2005. (Exhibit 99.1)10(aa)*

Credit Agreement, Dated June 27, 2006, Between International Rectifier Southeast Asia Pte. Ltd., and Bank of America, N.A. as
Administrative Agent and Sole Initial Lender

Form 8-K dated July 3, 2006, filed with Securities Exchange Commission. (Exhibit 10.1)10(bb)

The First Amendment to the Amended and Restated Rights Agreement dated August 11, 2006

Form 10-KAnnual Report for fiscal year ended June 30, 2006, dated September 15, 2006, filed with the Securities and Exchange
Commission. (Exhibit 10.1)10(cc)

May 8, 2006 Confirmation between BNP Paribas Paris and International Rectifier Corp. Dated as of July 1, 1999, as Amended

Form 10-KAnnual Report for fiscal year ended June 30, 2006, dated September 15, 2006, filed with the Securities and Exchange
Commission. (Exhibit 10.2)10(dd)

Credit Agreement, dated November 6, 2006, by and among the Company, the lenders described therein, Bank of America, N.A., as syndication
agent, and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents

Form 8-K, dated November 9, 2006, filed with Securities and Exchange Commission. (Exhibit 99.1)10(ee)

Guaranty, Dated June 27, 2006, Executed by International Rectifier Corporation in Favor of Bank of America, N.A.

Form 8-K dated July 3, 2006, filed with Securities Exchange Commission. (Exhibit 10.2)10(ff)

Transition and General Release Agreement, dated October 9, 2006, by and between Walter Lifsey and International Rectifier
Corporation

Form 8-K, dated October 12, 2006, filed with the Securities Exchange Commission. (Exhibit 99.1)


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Table of Contents

Exhibit No.

Item

Document10(gg)*

Master Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to
all outstanding capital stock of the Target Companies and certain of the assets of International Rectifier Corporation

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.1)10(hh)

Asset Purchase Agreement, dated November 8, 2006, by and among International Rectifier Corporation, International Rectifier Southeast Asia
Pte, Ltd. and Vishay Intertechnology, Inc. with respect to certain assets of its Power Control Systems Business

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.2)10(ii)

Stock Purchase Agreement dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc.
with respect to all outstanding capital stock of International Rectifier Electronic Motion Systems Ltd.

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.3)10(jj)

Stock Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc.
with respect to all outstanding capital stock of International Rectifier Canada Limited

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.4)10(kk)

Stock Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc.
with respect to all outstanding capital stock of IR Germany Holdings

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.5)10(ll)

Stock Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc.
with respect to all outstanding capital stock of International Rectifier (India) Limited

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.6)


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Table of Contents

Exhibit No.

Item

Document10(mm)

Stock Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to
all outstanding capital stock of International Rectifier Corporation Italiana S.p.A.

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.7)10(nn)

Stock Purchase Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc.
with respect to all outstanding capital stock of Xi'an IR Micro-Electronics Co., Ltd.

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 2.8)10(oo)

Transition Services Agreement, dated November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology,
 Inc.

Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission. (Exhibit 99.1)10(pp)

First Amendment to Master Purchase Agreement and Stock Purchase Agreement, dated January 23, 2007, by and between International Rectifier
Corporation and Vishay International, Inc.

Form 10-Qfor the quarterly period ended December 31, 2006, dated February 9, 2007, filed with the Securities and Exchange
Commission. (Exhibit 10.1)10(qq)

Second Amendment to the Amended and Restated Rights Agreement, dated November 20, 2006, by and between International Rectifier Corporation
and Mellon Investor Services

Form 10-Qfor the quarterly period ended December 31, 2006, dated February 9, 2007, filed with the Securities and Exchange
Commission. (Exhibit 10.2)10(rr)

Amendment and Waiver Agreement, dated March 30, 2007, by and among Vishay Intertechnology, Inc., Siliconix Inc., V.I.E.C.,
 Ltd., Vishay Europe GmbH, Siliconix Semiconductor, Inc., acting in its function (hoedanigheid) as managing partner (beherend vennoot) of the
limited partnership (commanditaire vennootschap), Siliconix Technology C.V., Vishay Americas, Inc., Vishay Asia Logistics Pte. Ltd., International Rectifier Corporation, International Rectifier
Southeast Asia Pte, Ltd. and IR International Holdings China, Inc.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 2.1)10(ss)

Technology License Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology,
 Inc.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)


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Table of Contents

Exhibit No.

Item

Document10(tt)

Technology License Back Agreement, dated April 1, 2007, by and between Vishay Intertechnology, Inc. and International Rectifier Corporation

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.2)10(uu)

Trademark License Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology,
 Inc.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.3)10(vv)

IR Trademark License Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology,
 Inc.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.4)10(ww)

Amended and Restated Transition Services Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay
Intertechnology, Inc.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.5)10(xx)

Transition Product Services Agreement, dated April 1, 2007, by and among International Rectifier Corporation, International Rectifier
Southeast Asia Pte. Ltd., Vishay Intertechnology and Vishay Asia Logistics Pte Ltd.

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.6)10(yy)

Transition Buy Back Die Supply Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay
Intertechnology

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.7)10(zz)

Transition IGBT/Auto Die Supply Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay
Intertechnology

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.8)10(aaa)

Indemnification Escrow Agreement, dated April 1, 2007, by and among Vishay Intertechnology, Inc., International Rectifier Corporation
and Union Bank of California, N.A., as escrow agent

Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.9)


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Table of Contents

Exhibit No.

Item

Document10(bbb)

Amendment No. 1, dated May 4, 2007, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase Bank, National
Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, by and among IRC, the lenders described therein, Bank of America, N.A., as syndication agent, and HSBC
Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents, and JPMorgan Chase Bank, National Association, as administrative agent

Form 8-K, dated May 8, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(ccc)

Amendment No. 1, dated May 4, 2007, by and between International Rectifier Corporation, a Delaware corporation ("IRC"), and Bank of
America, N.A., as administrative agent, with respect to that certain Continuing Guaranty, dated June 27, 2006, executed by IRC in favor of Bank of America, N.A. and the other lenders in connection with that certain Credit Agreement, dated
June 27, 2006, by and among International Rectifier Southeast Asia Pte. Ltd., a company organized under the laws of Singapore, Bank of America, N.A., as administrative agent, and the lenders party thereto

Form 8-K, dated May 8, 2007, filed with the Securities Exchange Commission. (Exhibit 99.2)10(ddd)

Amendment No. 2, dated June 27, 2007, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase
Bank, National Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, by and among IRC, the lenders described therein, Bank of America, N.A., as syndication
agent, and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents, and JPMorgan Chase Bank, National Association, as administrative agent

Form 8-K, dated July 2, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)


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Table of Contents

Exhibit No.

Item

Document10(eee)

Amendment No. 3, dated September 13, 2007, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase Bank,
National Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, as amended, by and among IRC, the lenders described therein, Bank of America, N.A., as
syndication agent, and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents, and JPMorgan Chase Bank, National Association, as administrative agent

Form 8-K, dated September 19, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(fff)

Separation Agreement, dated October 2, 2007, by and between International Rectifier Corporation and Alex Lidow

Form 8-K, dated October 2, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(ggg)*

Form of Option Grant Commitment Letter

Form 8-K, dated October 23, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(hhh)*

Donald R. Dancer Severance Agreement, dated October 29, 2007

Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.1)10(iii)*

Linda J. Pahl Severance Agreement, dated October 29, 2007

Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.2)10(jjj)*

Form of Executive Officer Severance Agreement

Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.3)10(kkk)*

Form of Key Employee Severance Agreement

Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.4)10(lll)*

Donald R. Dancer Compensation Agreement, dated October 29, 2007

Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.5)10(mmm)*

Third Amendment to the Amended and Restated Rights Agreement, dated November 14, 2007, by and between International Rectifier Corporation and
Mellon Investor Services LLC (f/k/a ChaseMellon Shareholder Services, LLC)

Form 8-K, dated November 16, 2007, filed with the Securities Exchange Commission. (Exhibit 10.1)


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Table of Contents

Exhibit No.

Item

Document10(nnn)

Amendment No. 4, dated December 14, 2007, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase Bank,
National Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, as amended, by and among IRC, the lenders described therein, Bank of America, N.A., as
syndication agent, and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents, and JPMorgan Chase Bank, National Association, as administrative agent

Form 8-K, dated December 17, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(ooo)

Employment Agreement, dated February 6, 2008, by and between International Rectifier Corporation and Oleg Khaykin

Form 8-K, dated February 11, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)10(ppp)*

Letter Agreement, dated March 6, 2008, by and between International Rectifier Corporation and Donald R. Dancer

Form 8-K, dated March 12, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)10(qqq)*

Letter Agreement, dated March 6, 2008, by and between International Rectifier Corporation and Linda J. Pahl

Form 8-K, dated March 12, 2008, filed with the Securities Exchange Commission. (Exhibit 10.2)10(rrr)*

Amendment No. 5, dated March 17, 2008, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase
Bank, National Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, as amended, by and among IRC, the lenders described therein, Bank of America, N.A., as
syndication agent, and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch, as co-documentation agents, and JPMorgan Chase Bank, National Association, as administrative agent

Form 8-K, dated March 21, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)10(sss)

Offer Letter, dated March 31, 2008, by and between International Rectifier Corporation and Michael Barrow

Form 8-K, dated April 3, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)


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Table of Contents

Exhibit No.

Item

Document10(ttt)*

Agreement, dated April 17, 2008, by and between International Rectifier Corporation and Eric Lidow

Form 8-K, dated April 21, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)10(uuu)*

Separation Agreement, dated April 16, 2008, by and between International Rectifier Corporation and Linda J. Pahl

Form 8-K, dated April 21, 2008, filed with the Securities Exchange Commission. (Exhibit 10.2)10(vvv)*

Consulting Agreement, dated April 16, 2008, by and between International Rectifier Corporation and Pahl Consulting, Inc.

Form 8-K, dated April 21, 2008, filed with the Securities Exchange Commission. (Exhibit 10.3)10(www)*

Letter Agreement, dated April 16, 2008, by and between International Rectifier Corporation and Peter B. Knepper

Form 8-K, dated April 21, 2008, filed with the Securities Exchange Commission. (Exhibit 10.4)10(xxx)*

Form of Severance and General Release Agreement, dated May 30, 2008, between International Rectifier Corporation and Marc Rougee

Form 8-K, dated June 12, 2008, filed with the Securities Exchange Commission. (Exhibit 99.1)14

Code of Ethics

Form 8-K, filed with the Securities and Exchange Commission on November 18, 2005. (Exhibit 99.1)


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Table of Contents

Submitted Herewith:

See page 58 for an index of Financial Statements and Financial Statement Schedule being filed as part of this report.

3(c)

Amendment to Bylaws adopted February 29, 2008.10(yyy)*

Form of 2000 Incentive Plan Non-Qualified Stock Option Agreement10(zzz)*

Form of 2000 Incentive Plan Restricted Stock Unit Award Agreement10(aaaa)*

Form of 2000 Incentive Plan Non-Employee Director Nonqualified Stock Option Agreement21

List of Subsidiaries23

Consent of Independent Registered Public Accounting Firm24

Power of Attorney31.1

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 200231.2

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 200232.1

Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2

Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNATIONAL RECTIFIER CORPORATION(Registrant)By:

/s/PETER B. KNEPPERDate: September 15, 2008



Peter B. Knepper Chief Financial Officer (Acting)
(Duly Authorized Officer and Principal Financial
and Accounting Officer)


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signatures

Title

Date/s/RICHARD J. DAHL*Richard J. Dahl

Chairman of the Board

September 15, 2008/s/JACK O. VANCE*Jack O. Vance

Director

September 15, 2008/s/ROCHUS E. VOGT*Rochus E. Vogt

Director

September 15, 2008/s/JAMES D. PLUMMER*James D. Plummer

Director

September 15, 2008/s/ROBERT ATTIYEH*Robert Attiyeh

Director

September 15, 2008/s/THOMAS A. LACEY*Thomas A. Lacey

Director

September 15, 2008/s/MARY B. CRANSTON*Mary B. Cranston

Director

September 15, 2008


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Table of Contents

Signatures

Title

Date/s/OLEG KHAYKIN*Oleg Khaykin

Director and Chief Executive Officer
(Principal Executive Officer)

September 15, 2008*by

/s/PETER B. KNEPPERPeter B. Knepper
Attorney-in-Fact



September 15, 2008


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Table of Contents

SCHEDULE II

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  For the Fiscal Years Ended June 30, 2008, 2007 and 2006  (In thousands)

Balance at
beginning of
year

Additions
(reductions)
charged to costs
and expenses(1)

Deductions
(2)(3)

Balance at end
of year2008Accounts receivable reserve

$
8,401

$
387

$
(2,263
)
$
6,525Inventory valuation reserve


71,655


49,984


(32,271
)

89,368Deferred income tax valuation allowance


68,228


14,155


(4,241
)

78,1422007Accounts receivable reserve


2,672


5,729





8,401Inventory valuation reserve


42,576


33,579


(4,500
)

71,655Deferred income tax valuation allowance


73,445


55,076


(60,293
)

68,2282006Accounts receivable reserve


1,177


1,495





2,672Inventory valuation reserve


17,776


32,580


(7,780
)

42,576Deferred income tax valuation allowance


65,060


11,142


(2,757
)

73,445


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