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



Table of Contents



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 28, 2009ORo

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 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 checkmark whether the registrants submitted electronically and posted on its corporate Website, if any, every Interactive Data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.) Yes o 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 $950,008,114 (computed using the closing price of a share of Common Stock on December 28, 2008, reported by the New York Stock
Exchange).

There
were 71,215,223 shares of the registrant's common stock, par value $1.00 per share, outstanding on August 24, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its 2009 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission within 120 days after June 28, 2009, are incorporated by reference into Part III hereof.



---





Table of Contents



TABLE OF CONTENTS



PART I

1ITEM 1.    BUSINESS

1ITEM 1A.    RISK FACTORS

12ITEM 1B.    UNRESOLVED STAFF COMMENTS

24ITEM 2.    PROPERTIES

25ITEM 3.    LEGAL PROCEEDINGS

26ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

26PART II

28ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES

28ITEM 6.    SELECTED FINANCIAL DATA

30ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

32ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

58ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

60REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMERNST & YOUNG LLP

61REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPRICEWATERHOUSECOPPERS LLP

62CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 28, 2009, JUNE 29, 2008, AND JULY 1, 2007

63CONSOLIDATED BALANCE SHEETS AS OF JUNE 28, 2009 AND JUNE 29, 2008

64CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE FISCAL YEARS ENDED JUNE 28, 2009, JUNE 29, 2008, and
JULY 1, 2007

65CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 28, 2009, JUNE 29, 2008, and JULY 1, 2007

66NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

67ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

131ITEM 9A.    CONTROLS AND PROCEDURES

131ITEM 9B.    OTHER INFORMATION

136PART III

137ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

137ITEM 11.    EXECUTIVE COMPENSATION

137ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

137ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

138ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

138PART IV

139ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

139SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS ENDED JUNE 28, 2009, JUNE 29, 2008, AND JULY 1, 2007

155


---





Table of Contents

EXPLANATORY NOTE

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 bipolar transistors ("IGBTs"), high reliability DC-DC converters, Automotive Products 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

HiRelTelecommunications


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, appliances, military aircraft, and hybrid cars. According to iSuppli Corporation ("iSuppli"), a semiconductor industry market research company, the market for power management
semiconductors

1

---



Table of Contents

for
calendar year 2009 is approximately $18.7 billion, primarily in three areas: voltage regulation, power switching transistors and ICs.

The
information technology, industrial, consumer, HiRel 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 telecommunications
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 product offerings. Our mission has been and continues to be providing 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 that align our products with our customers' product and technology development roadmaps. 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 evolving 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 for power management semiconductors. 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.

2

---



Table of Contents

During
fiscal year 2009, we initiated a number of actions to align our operating expense structure with our reduced revenue levels. These actions include plans to consolidate our
manufacturing operations, including our Newport, Wales wafer fabrication facilities. As a result of a significant increase in demand beginning during the last half of the fourth quarter of fiscal year
2009, we have revised our plan and will utilize a portion of the space previously designated for closure. We previously estimated that this action would result in cost savings of $7.9 million
per year beginning in calendar year 2010. However, as a result of the revised plan, our current estimate of cost savings is approximately $3.6 million per year beginning in the June 2009
quarter. We also began actions to close our El Segundo, California wafer fabrication facility during fiscal year 2009 and estimate that this action will be completed by the end of calendar year 2010
with estimated annual savings of $12.7 million beginning in calendar year 2011.

In
addition to reducing our manufacturing costs, we are continuing our efforts to align our operating expense structure with our revenue levels. Although we plan to reduce selling,
general and administrative costs in the near term, we expect to maintain our investment levels in new product development in order to meet our longer term revenue goals. During the second fiscal
quarter, we announced that we planned to reduce our worldwide workforce by about 850 employees for the fiscal year ended June 28, 2009 compared to the fiscal year ended June 29, 2008.
Through the fiscal year ended June 28, 2009, we have decreased our workforce by almost 80% of our planned 850 reduction. We did not reduce our headcount by the full planned amount because of an
increase in demand beginning in the last half of the fiscal quarter ended June 28, 2009 which required us to retain more direct manufacturing employees. With the headcount reductions we
completed during the fiscal year, we expect to save about $24.0 million on an annualized basis. We incurred severance related costs for the 2009 fiscal year of about $14.0 million
associated with these reductions.

Segments

At the beginning of the first quarter of fiscal year 2009, our Chief Executive Officer ("CEO"), who is the chief operating decision
maker, refined the definition of our Company's business segments by renaming our Aerospace and Defense ("A&D") segment as our HiRel segment, combining our previously identified PS segment with our
Enterprise Power ("EP") segment and creating a new Automotive Products ("AP") segment which was previously reported within the Energy-Savings Products ("ESP") and Power Management Devices ("PMD")
segments. Furthermore, some products that were previously reported under the EP segment are now reported under the PMD segment. Consequently, the Company now reports in six segments: EP, PMD, ESP,
HiRel, AP, and Intellectual Property ("IP"). Additionally, we have reported the ongoing work for Vishay Intertechnology, Inc. ("Vishay") under a transition product services agreement ("TPSA"),
which had previously been part of our power control systems ("PCS") business ("PCS Business") as Transition Services ("TS"), separate from our ongoing segments. This work declined substantially during
the quarter, and the small amount of remaining sales to Vishay will be incorporated into our PMD segments beginning in the first quarter of fiscal year 2010. Prior year segment presentation has been
recast to conform to our current year presentation.

Below
is a description of our reportable segments:



3

---



Table of Contents



4

---



Table of Contents



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 transition services provided to Vishay related to our April 2007 divestiture of our PCS
Business (the "Divestiture") and royalties from patent licensing and technology claim settlements, respectively.

Power Management
Devices

Energy-Saving
Products

HiRel

Enterprise Power

Automotive ProductsRevenues2009

$234.9 million

$151.1 million

$148.3 million

$87.5 million

$52.9 million2008

$330.0 million

$166.3 million

$152.9 million

$160.4 million

$85.2 million2007

$373.0 million

$188.7 million

$157.0 million

$169.6 million

$82.0 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.

Provide high performance and energy saving solutions for a broad variety of automotive systems, ranging from typical 12V power net applications up to 1200V hybrid electric vehicle power management
solutions.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, MER ICs, High Voltage DirectFET®s, IGBTs,

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

Low voltage ICs, DirectFET®s, SupIRBuck, XPhase® , iPOWIR integrated Power Stages, Low-Voltage DirectFET® Power MOSFETs

HVICs, intelligent power switch ICs, power MOSFETs including DirectFET® and IGBTs


5

---



Table of Contents

Power Management
Devices

Energy-Saving
Products

HiRel

Enterprise Power

Automotive ProductsEnd applications

Power supply, data processing, and industrial and commercial battery-powered

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, high reliability devices in heavy industry and
biomedical

Servers, storage networks, routers, and switches, infrastructure equipment, notebooks, graphic cards, gaming consoles

AC and DC motor drives of all power classes, actuator drivers, automotive lighting (such as high intensity discharge lamps), direct fuel injection in diesel and gasoline engines, hybrid electric vehicle power train and
peripheral systems in micro, mild, full and plug-in hybrids or electric vehicles, as well as for body electronic systems like glow plugs, PTC heater, electric power steering, fuel pumps, HVAC and rear wipersMajor original equipment manufacturers

Delta, Flextronics, Samsung, Emerson, and Schneider MFG

Samsung, LG, Kimball, Midea, Delta, and Diehl

Lockheed Martin, Raytheon, GE, TYCO, Panatronic Japan Inc., Space System Loral, L-3 Communications, BAE, Boeing, Honeywell, Astrium and Northrop- Grumman

IBM, Delta, Sony, Lite-On, and Flextronics

Delphi, Nagares, Continental Auto, Bosch, TRW, Honda, and Alcoa


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

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.

6

---



Table of Contents

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 outside of the
United States. Assembly operations for products used in the HiRel 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 outside of the United States.
Our Mesa, Arizona facility provides specialty silicon epitaxial services both in-house and to third parties.

As
discussed previously in this section, we initiated actions to consolidate certain of our manufacturing operations during fiscal year 2009. We made the decision to consolidate our
Newport, Wales wafer fabrication facilities and estimate that this action will result in cost savings of approximately $3.6 million per year beginning in calendar year 2010. During fiscal 2009,
we also began actions to close our El Segundo, California wafer fabrication facility and estimate that this action will be completed by the end of calendar year 2010 with estimated annual savings of
$12.7 million beginning in calendar year 2011.

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 who's larger sales force, account network, inventory programs and
logistics services provide our customers with additional distribution options. In the fiscal year ended June 28, 2009, we derived 44.4 percent, 40.7 percent and 6.0 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.

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 9, "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 28, 2009. The majority of our products in our ongoing
business segments, including those in the PMD, ESP, HR, EP

7

---



Table of Contents

and
AP segments, are sold directly to OEM customers or distributors. No single customer accounted for more than ten percent of our net revenues.

The
transition services provided to Vishay related to the Divestiture amounted to approximately 5.1 percent of our total consolidated revenue in fiscal year 2009.

Our
major distributors, based on revenue, include Arrow Electronics, Avnet, Future Electronics, Weikeng, WT Micro and Zenitron for the fiscal year ended June 28, 2009. Our major
contract manufacturers included Celestica, Kimball Flextronics, Jabil, Sanmina-SCI and Solectron for the fiscal year ended June 28, 2009. Our major OEMs by revenue for our
ongoing product segments for the fiscal year ended June 28, 2009 are as follows:

Segment:

CustomersPower Management Devices

Delta, Samsung, Flextronics, Emerson, and Schneider MFGEnergy-Saving Products

Samsung, LG, Kimball, Midea, Delta, and DiehlHiRel

Lockheed Martin, Raytheon, GE, TYCO, Panatronic Japan Inc., Space System Loral, L-3 Communications, BAE, Boeing, Honeywell, Astrium and
Northrop-GrummanEnterprise Power

IBM, Delta, Sony, Lite-On, and FlextronicsAutomotive Products

Delphi, Nagares, Continental Auto, Bosch, TRW, Honda, and Alcoa


For
financial information about geographic areas, please see Part I, Item 8, Note 9, "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).

Our
major competitors for fiscal year ended June 28, 2009 were as follows:

Segment:

CompetitorsPower Management Devices

Fairchild, STMicroelectronics, ON Semiconductor, Vishay and InfineonEnergy-Saving Products

STMicroelectronics, Infineon, NXP, IXYS, Fairchild, Renesas, Toshiba, MitsubishiHiRel

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

Intersil, ON Semiconductor, IXYS, Renesas, Volterra, InfineonAutomotive Products

Vishay, STMicroelectronics, Infineon, NXP, and Fairchild


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

8

---



Table of Contents

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 2009, 2008 and 2007, we spent $98.2 million (13.3 percent of revenue), $105.8 million
(10.7 percent of revenue), and $122.8 million (10.2 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 2009, 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 199 patents
worldwide. We have approximately 612 issued unexpired U.S. patents and over 668 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.

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 expenses of our
patent licensing and settlements of claims brought against third parties. In the fiscal years 2009, 2008 and 2007, we derived $27.7 million, $30.5 million and $44.2 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"). Many of the MOSFET patents that have generated royalties and
settlements expired, with the broadest of them having expired 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 stream 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.

9

---



Table of Contents

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 it uses 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
the our results of operations, financial position or cash flows, as could any failure by or violation of us to comply with any prior, current or future environmental laws and regulations.

As
part of the environmental review process, we have in prior years provided certain disclosures of potential permit violations and other matters to local environmental authorities,
including the South Coast Air Quality Management District ("SCAQMD") with respect to the Company's Temecula, California facility. We have taken steps to correct the alleged deficiencies. However, in
October 2008, we received a notification of additional permit violations at such facility. We have not yet been assessed any penalties with respect to the disclosures made for alleged violations at
that facility. In December 2008, the enforcement division for the SCAQMD requested information from us for the purposes of determining what further action to take with respect to alleged violations
asserted prior to the SCAQMD October 2008 notification. In April 2009, we received a similar request with respect to alleged violations set forth in the SCAQMD October 2008 notification. We have
responded to both the December 2008 and April 2009 requests, and have not received further notices from the SCAQMD regarding the alleged violations.

In
June 2009, we received a Notice of Violation and Request for Information ("NOV") pursuant to 3007(a) of the Resource Conservation Recovery Act ("RCRA") from Region IX of the U.S.
Environmental Protection Agency ("EPA") as a result of an inspection conducted by the EPA at the Company's Temecula, California facility in January 2009. We have responded to the EPA with respect to
the NOV, have corrected certain deficiencies identified during the referenced inspection and are in the process of correcting certain others.

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 has not received any further reply to its inquiries since the Company's initial communications with the governmental authorities. There are no current orders
or directives on the matter outstanding from the governmental authorities against the Company.

IR
and Rachelle Laboratories, Inc. ("Rachelle"), a 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 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 IR, 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 IR relating to 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.

10

---



Table of Contents

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. In addition, Rachelle operated as an independent corporation and we do not believe that a complaining party would
be successful in reaching the assets of IR even if it could prevail on a claim against Rachelle. Because Rachelle has not been sued, none of our insurers has accepted liability, although at least one
of our insurers previously reimbursed IR for defense costs for the lawsuit filed against IR. We have recorded 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 it may have liability
in connection with the claimed contamination. We recorded 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, IR 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 down gradient 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 clean-up the contamination and to recover damages.
The case has been stayed by the court pending the EPA's completion of its remedial investigation. 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 the Company's volumetric share of wastes sent to the Omega Site was in the range of 0.08 percent. 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, one of which has agreed to defend us 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 percent, we do not believe that an adverse judgment against us would be material.

Employees

As of June 28, 2009, we employed approximately 3,939 people, with approximately 1,620 employed in the U.S., 1,492 in Mexico, 528
in Europe and 299 in Asia. As of June 28, 2009, 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.

11

---





Table of Contents

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 ("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 2009 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 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.

Factors That May Affect Future Results

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 2009, and 2008, we have experienced a decline in end-market demand for our products as a result of the sharp corrections in the general economy,

12

---



Table of Contents

financial
markets, 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. When these expenditures fail to materialize, our operating results are 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, HiRel 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 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.

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 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

13

---



Table of Contents

strategy
or that implementing our strategy will sustain or improve our results of operations in the future.

If the demand for our products increases faster than we anticipate, we may not be able to satisfy the higher demand with our planned available capacity, which could limit
our revenue growth potential.

Although we operated with significant excess manufacturing capacity during most of the fiscal year ended June 28, 2009, the
markets in which we operate are very cyclical and subject to large swings in demand. We regularly monitor our end market demand and plan to install capacity to meet our demand forecast. However, since
additional capacity can take up to six months to install, if the demand for our products increases at a rate faster than we anticipate, we may not be able to increase our internal and external
manufacturing capacity fast enough to satisfy the higher demand. As a result, the company's revenue growth may be limited by manufacturing capacity constraints.

Our ongoing protection and reliance on our IP assets expose us to risks and 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. Many of our key MOSFET patents expired, with the broadest having expired in calendar year 2008. Certain of our MOSFET patents will remain in effect through 2010. 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 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 the level of our future royalty income. Decreases 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 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 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

14

---



Table of Contents

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. 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 Note 14, Litigation, to our Consolidated Financial Statements set forth in Part II, Item 8) 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.

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, and 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. Also, our operating results have been and continue to 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 lead frames, on a timely basis from third parties. Our results of operations could be adversely affected if we were unable to obtain adequate supplies of

15

---



Table of Contents

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 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 HiRel 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.

16

---



Table of Contents

We
have an existing dispute with one of our subcontractors over quality matters involving assembled product and commercial disputes with others, 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.

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.

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 HiRel 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 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 market demand 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 results of operations.

17

---



Table of Contents

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.

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 calendar year 2008, including the appointment of a new CEO, and a new CFO. While we have tried to
ensure continuity of management in crucial areas we cannot guaranty that these efforts will be successful in all 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. 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.

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 an investigation previously conducted by our Audit Committee and following its completion, our representatives met
with representatives of the SEC, the Internal Revenue Service

18

---



Table of Contents

("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 Note 14, "Litigation," to our Consolidated Financial Statements set forth in Part II, Item 8 for a more detailed description of
these proceedings.

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 28,
2009. 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 necessary to record
financial transactions, the lack of integrated financial systems, the significant turnover of our finance organization personnel, and use of outside consultants to augment our accounting staff, there
is a risk of additional errors not being prevented or detected, which could result in 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 2010. 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 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 Note 14, "Litigation," to our

19

---



Table of Contents

Consolidated
Financial Statements set forth in Part II, Item 8. While we have reached an agreement in principle to settle certain of these lawsuits and others have been dismissed, other
lawsuits and proceedings remain. 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). In
connection with certain of these lawsuits, we have agreed to pay material settlement amounts. 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.

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.

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 against which we have not previously provided 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, 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 or other comprehensive income, as applicable.

Our HiRel segment is subject to governmental regulation that exposes us to additional risks.

Our HiRel segment manufactures and sells certain products that are subject to U.S. export control laws and regulations. The HiRel
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,

20

---



Table of Contents

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 effect on our financial results.

Quality
control and similar standards are applicable to our facilities and the facilities of our contractors in which certain products of our HiRel 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 HiRel segment may experience production constraints and its revenues may be materially reduced.

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.

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.

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. Despite our monitoring and procedures, from time to time, especially in the current economic situation, we may find that, despite our efforts,

21

---



Table of Contents

one
or more of our customers become insolvent or face bankruptcy proceedings. 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.

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 results of operation
and financial condition.

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. Additionally, in certain jurisdictions where we use third party
contractors, the legal systems do not provide effective remedies to us when the contractor has breached its obligations.

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.

22

---





Table of Contents

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,



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 be affected by 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, United States generally accepted
accounting principle (U.S GAAP or GAAP).

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.

23

---



Table of Contents

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 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.

24

---



Table of Contents

ITEM 2.    PROPERTIES

We maintain manufacturing and office facilities around the world. Our manufacturing facilities, design centers and business offices as
of June 28, 2009, 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

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

X

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



X

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



X





XTijuana, Mexico

X





XOxted, England (U.K.)

X







XReigate, England (U.K.)



X







XNewport, Wales (U.K.)

X



X

X



XSkovlunde, Denmark



X





XProvence, France



X





XNeu Isenburg, Germany



X







XPavia, Italy



X





XSingapore



X







XBeijing, China



X







XShanghai, China

X

X





X

XShenzhen, China



X







XHong Kong, China



X







XSeoul, Korea



X







XOsaka, Japan



X







XNagoya, Japan



X







XTokyo, Japan



X





X

X


Our
manufacturing facilities in Santa Clara, California and Leominster, Massachusetts are dedicated for use by the HiRel 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, HR, EP, and AP 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 28, 2009, we operated at
approximately 61 percent, down from over 74 percent at the end of the June 29, 2008 fiscal year, of our worldwide in-house wafer fabrication and assembly manufacturing
capacities, without considering subcontract or foundry capacity. The decline in operating activity primarily reflects the build up of distributor 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

25

---



Table of Contents

these
two facilities to be completed by the end of the second quarter of fiscal year 2010 (See Note 8, "Asset Impairment, Restructuring and Other Charges").

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

ITEM 3.    LEGAL PROCEEDINGS

Our disclosures regarding the matters set forth in Note 12, "Environmental Matters," and Note 14, "Litigation," to our
consolidated financial statements set forth in Part II, Item 8, herein, are incorporated herein by reference.

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

Not applicable.

Additional Item. Executive Officers of the Registrant

The independent 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


58

Chairman of the BoardOleg Khaykin


44

President and Chief Executive OfficerIlan Daskal


44

Executive Vice President and Chief Financial OfficerMichael Barrow


55

Executive Vice President and Chief Operations OfficerTim Bixler


42

Vice President, Secretary and General Counsel


Richard
J. Dahl currently serves as Chairman of the Board and has served in that capacity since May 2008. Mr. Dahl has served on the Board since February 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. Mr. Dahl also has
served as a director of NYSE-listed IdaCorp, Inc. since 2008, 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, Chief Operating Officer and Director from 2004 to 2007. Prior to his work at Dole, Mr. Dahl was President
and Chief Operating Officer of Bank of Hawaii Corporation, where he held positions of increasing responsibility from 1981 to 2002.

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.

Ilan
Daskal joined us in October, 2008 as Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Daskal held senior financial positions with
Infineon Technologies since 2001, most recently serving as Vice President of Finance & Business Administration for Infineon's North American Communications Business Group. Before that,
Mr. Daskal held senior financial

26

---



Table of Contents

management
and strategy positions at several Israeli technology companies, including Savan Communication, a firm that was acquired by Infineon while Mr. Daskal was Chief Financial Officer.

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.

27

---





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 1,331 holders of record of our common stock as of
August 10, 2009. 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" incorporated herein by reference from the Company's proxy statement relating to the Company's 2009
annual meeting of stockholders to be filed within 120 days after June 28, 2009.

As
of our fiscal year ended June 28, 2009, 11.0 million common stock shares are reserved for issuance under our stock option plans, of which 8.6 million stock
options and restricted stock units are outstanding and approximately 2.4 million are available for future grants. As of the fiscal year ended June 28, 2009, 5.2 million stock
option and restricted stock units are exercisable at an average exercise price of $38.48.

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. However; 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.

Stock Prices

The following table contains stock sales prices for each quarter of fiscal years 2009 and 2008:

2010

2009

2008Fiscal Quarter

High

Low

High

Low

High

Low1st

$
17.22
*
$
14.03
*
$
23.00

$
16.43

$
39.90

$
30.472nd








19.95


9.27


36.80


31.203rd








15.77


11.45


34.39


20.344th








18.00


12.82


25.32


19.37


---

28

---



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 July 4, 2004 in our common stock and in each of the foregoing indices and the reinvestment of dividends through fiscal year ended June 28, 2009. The stock
price performance on the following graph is not necessarily indicative of future stock price performance.

GRAPHIC

End of Fiscal Year2004

2005

2006

2007

2008

2009International Rectifier

$
100

$
126

$
104

$
99

$
52

$
39S&P 500 Index


100


106


113


134


114


82S&P 500 Index Information Technology


100


98


99


123


114


91


Recent Sales of Unregistered Securities

None.

29

---



Table of Contents

Purchase of Equity Securities

The following provides information on a monthly basis for the quarter ended June 28, 2009 with respect to the Company's
purchases of equity securities:

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs(1)

Maximum Number
(or Approximate
Dollar Value) of Shares
that May Yet be
Purchased Under the
Plans or ProgramsMarch 30, 2009 to April 26, 2009











April 27, 2009 to May 24, 2009


403,100

$
13.71


403,100

$
79,124,292May 25, 2009 to June 28, 2009


175,469

$
15.38


175,469

$
76,425,267


---

ITEM 6.    SELECTED FINANCIAL DATA

The following tables include selected summary financial data for each of our last five fiscal years. The historical consolidated
financial data as of and for our fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 are derived from our audited Consolidated Financial Statements, contained in
Part II, Item 8, "Financial Statements and Supplementary Data," of this report. The historical consolidated financial data as of July 2, 2006, and July 3, 2005 are derived
from our audited Consolidated Financial Statements, which are not included in this report. This information should be read in conjunction with our audited Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of Operations. Operating results for fiscal years 2008, 2007, 2006, and 2005 have been adjusted to conform to the current
presentation with regard to the Company's change in method of accounting for patent-related costs, see Note 1, "Business, Basis of

30

---



Table of Contents

Presentation
and Summary of Significant Accounting Policies" in the notes to the consolidated financial statements.

Fiscal Year EndedStatements of Operations Data

June 28,
2009

June 29,
2008

July 1,
2007

July 2,
2006

July 3,
2005(In thousands, except per share data)Revenues

$
740,419

$
984,830

$
1,202,469

$
1,014,800

$
1,050,514Cost of sales


515,563


662,007


741,111


588,934


568,538Gross profit


224,856


322,823


461,358


425,866


481,976Selling, general and administrative expense


262,068


287,830


212,541


197,384


175,179Research and development expense


98,211


105,812


122,794


104,102


99,399Impairment of goodwill


23,867


32,624








Amortization of acquisition-related intangible assets


4,408


4,656


1,889


3,330


3,976Asset impairment, restructuring and other charges (credits)


56,493


3,080


10,398


87


(1,964
)Gain on divestiture


(96,136
)










Gain on royalty settlement














(2,650
)Operating (loss) income


(124,055
)

(111,179
)

113,736


120,963


208,036Other expense (income), net


39,717


19,423


(6,257
)

(15,786
)

(1,581
)Interest (income) expense, net


(11,694
)

(29,093
)

(16,036
)

(6,784
)

1,194(Loss) income from continuing operations before income taxes


(152,078
)

(101,509
)

136,029


143,533


208,423(Benefit from) provision for income taxes


95,339


(42,268
)

62,889


93,784


103,909(Loss) income from continuing operations

$
(247,417
)
$
(59,241
)
$
73,140

$
49,749

$
104,514Net (loss) income per common share:Basic:(Loss) income from continuing operations

$
(3.42
)
$
(0.81
)
$
1.01

$
0.70

$
1.55Diluted:(Loss) income from continuing operations

$
(3.42
)
$
(0.81
)
$
1.00

$
0.69

$
1.47Balance Sheet DataTotal cash, cash equivalents, restricted cash and investments

$
604,441

$
745,236

$
1,317,528

$
1,092,628

$
940,720Total assets


1,401,307


1,868,398


2,637,490


2,500,893


2,212,848Long-term debt, less current maturities











617,540


547,259


---

Notes:



31

---







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

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our
consolidated results of operations and financial condition. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes for the year ended
June 28, 2009. The discussion includes:



We
revised our reporting segments during the first quarter of fiscal 2009 to reflect how our chief decision maker, our CEO, manages our business. Prior period results have been adjusted
to reflect the changes in our reportable segments. Prior periods have also been adjusted to reflect a change in the method of accounting for patent-related costs. See Note 1, "Business, Basis
of Presentation and Summary of Significant Accounting Policies," in the notes to the consolidated financial statements.

Overview

Fiscal 2009 Developments

Significant
events during fiscal 2009 include:



32

---



Table of Contents



This
has been a challenging year for the industry and our Company, with relatively sharp swings in demand as customers react to market conditions and channel inventories fluctuate. We
experienced sequential quarterly revenue declines during the first three quarters of our fiscal year along with the overall market's decline. However, after experiencing these declines, our ongoing
segment customer revenue grew 16.2% during the fourth quarter of fiscal 2009 compared to the third quarter. In addition, we are experiencing strong orders for the first fiscal quarter of 2010 and
expect total quarterly revenue to grow to between $165.0 million and $175.0 million for the first quarter of fiscal year 2010.

Although
we saw strong sequential revenue growth during the fourth fiscal quarter, our ongoing customer segment gross margins were negatively impacted as we shipped higher unit cost
inventory that was produced in prior periods when our manufacturing costs were higher due to low utilization rates.

Throughout
the year, we continued our efforts to reduce inventory. Reduced manufacturing production combined with our revenue growth during the fourth quarter allowed us to reduce our
inventory levels to $151.1 million, our lowest level since the Divestiture two years ago. During the quarter ended June 28, 2009, we saw our demand visibility improve throughout the
quarter.

If
revenue grows over the next few quarters as our current visibility indicates, we anticipate that our gross margins would improve significantly as we consume our excess capacity and
reduce the high costs
associated with low factory utilization. In order to support our revenue growth, we will need to increase our inventory levels, although we plan to closely manage this investment through controlling
the number of weeks of inventory on hand.

During
fiscal year 2009, we have made what we believe to be good progress on our overall strategic roadmap, particularly in light of the current economic environment, and we are
continuing to drive toward our three year overall plan. In particular, we have continued to (i) rebuild our executive management team, (ii) implement targeted cost reductions,
(iii) optimize our distribution channels, (iv) focus on accelerating near-term revenue opportunities and (v) look to find and implement additional operational
efficiencies. We have also made initial efforts to streamline our operational and manufacturing efforts, including (i) changing the way we plan and schedule production at our factories and with
subcontractors, (ii) implementing a new demand forecasting model, (iii) launching broad initiatives to improve our asset productivity and (iv) commencing rationalization and
consolidation of subcontract manufacturing firms. We have also seen initial success in revenue acceleration measures through the capture of high volume MOSFET and IGBT business, which we believe is
important to our ability to regain operational efficiencies and economies of scale.

During
the fiscal year we put our new executive management team in place, and prevailed in a third party proxy contest and unsolicited purchase offer brought by Vishay.

Our
operating cash flow was a use of cash of approximately $41.2 million for fiscal year 2009. Our current view is that our operations will continue to use cash during at least
the first half of fiscal year 2010. We have approximately $600.5 million of cash, cash equivalents and available for sale investments which are available to fund operations as well as other
uses of cash. These uses of cash include our

33

---



Table of Contents

ongoing
$100.0 million share repurchase program of which approximately $23.6 million was utilized in fiscal year 2009, the payment to settle a pending securities class action lawsuit of
$45.0 million, and capital expenditures which we project will be approximately $11.0 million per quarter for fiscal year 2010. The estimated capital expenditures do not include projected
expenditures of approximately $16.0 million for the potential implementation of a new ERP system. We currently have no outstanding long-term debt or credit facilities. Given our
current cash requirements, we believe that we have sufficient cash reserves to finance our operations and fund our growth for at least the next twelve months without the incurrence of debt.

We
are proceeding with our plans to consolidate our manufacturing sites in order to reduce our costs. During the quarter ended December 28, 2008, we decided to reduce the size of
our Newport, Wales wafer fabrication facility, and we estimated that we would achieve savings from this initiative of about $7.9 million per year beginning in third fiscal quarter of fiscal
year 2010. During the quarter ended June 28, 2009, due to a significant increase in demand, we decided to postpone this consolidation initiative by at least six months to at least July 2010 or
when sufficient alternative external capacity comes on-line. Since we already implemented fixed cost reductions associated with this initiative, we anticipate saving $3.6 million on
an annualized basis associated with this initiative
beginning in the June 2009 quarter. During the quarter ended December 28, 2008, we also decided to close our El Segundo, California wafer fabrication facility which we estimate will be
completed by the end of calendar year 2010. We estimate that this factory closure will save us about $12.7 million per year beginning in calendar year 2011.

In
addition to reducing our manufacturing costs, we are continuing our efforts to align our operating expense structure with our reduced revenue levels. Although we plan to reduce
selling, general and administrative costs in the near term, we expect to maintain our investment levels in new product development in order to meet our longer term revenue goals. During the second
quarter, we announced that we planned to reduce our worldwide workforce by about 850 employees for the fiscal year ended June 28, 2009 compared to the fiscal year ended June 29, 2008.
Through the fiscal year ended June 28, 2009, we have decreased our workforce by almost 80% of our planned 850 reduction. We did not reduce our headcount by the full planned amount since we saw
an increase in demand during the fiscal quarter ended June 28, 2009 which required us to retain more direct manufacturing employees. With the headcount reductions we completed during the fiscal
year, we expect to save about $24.0 million on an annualized basis. We incurred severance related costs for the 2009 fiscal year of about $14.0 million associated with these reductions.

Vishay Settlement/Securities Class Action Settlement.Additionally, on June 25, 2009 we entered into various agreements with
Vishay
(collectively the "Settlement Agreement") which resolved disputes between the parties related to the sale of our PCS Business to Vishay in fiscal year 2007. The Settlement Agreement resolved all
outstanding claims between the parties related to the sale of our PCS Business and clarified certain terms of the non-compete agreement between the parties related to the sale of the PCS
Business. These clarifications will allow us flexibility in designing solutions for our customers as well as additional options for developing new products. As a result of resolving the outstanding
claims between the parties we recognized a previously deferred gain of $96.1 million related to the sale of Commodity Products portion of the PCS Business. Additionally, effective
April 30, 2009, Vishay terminated most elements of the TPSA under which we provided certain manufacturing services to Vishay during the period the PCS Business was transitioned to Vishay's
facilities, causing the loss of most remaining Transition Services revenue during the quarter. We estimate that revenue from sales to Vishay for fiscal year 2010 will be less than $1.0 million
per quarter.

Following
the close of the quarter, we and the other participants in the pending securities class action lawsuit agreed in principle to settle the pending securities class action lawsuit
in which we are a defendant. This settlement will require us to make a $45.0 million cash payment in the near future. The proposed settlement is subject to negotiation and execution of a formal
settlement agreement and is

34

---



Table of Contents

dependent
upon final approval by the United States District Court for the Central District of California. (See Note 14, Litigation, to our Consolidated Financial Statements set forth in
Part II, Item 8.). Pursuant to Financial Accounting Standards Board Statement No. 5, Accounting for Contingencies, because we consider it probable we will make this payment, the
amount is estimable, and the events giving rise to the settlement occurred prior to June 28, 2009, we have recorded a charge
for this pending settlement of $45.0 million on our statement of operations for the fiscal year ended June 28, 2009.

Segment Reporting

At the beginning of the first quarter of fiscal year 2009, the Company's CEO, who is the chief operating decision maker, refined the
definition of the Company's business segments by renaming its A&D segment its HiRel segment, combining its previously identified PS segment with its EP segment and creating a new AP segment which was
previously reported within the ESP and PMD segments. Furthermore, some products that were previously reported under the EP segment are now reported under the PMD segment. Consequently, the Company now
reports in six segments: EP, PMD, ESP, HiRel, AP, and IP. Additionally, we have reported the ongoing work for Vishay under the TPSA (which had previously been reported as part of the PCS Business) as
Transition Services, separate from our ongoing segments. This work declined substantially during the quarter, and the small amount of remaining sales to Vishay will be incorporated into our ongoing
segments beginning in the first quarter of fiscal year 2010. For the description of the Company's reportable segments, see Note 9, "Segment Information".

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 EndedJune 28, 2009

June 29, 2008

July 1, 2007Revenues

$
740.4


100.0
%
$
984.8


100.0
%
$
1,202.5


100.0
%Cost of sales


515.5


69.6


662.0


67.2


741.1


61.6Gross profit


224.9


30.4


322.8


32.8


461.4


38.4Selling, general and administrative expense


262.1


35.4


287.8


29.2


212.5


17.7Research and development expense


98.2


13.3


105.8


10.7


122.8


10.2Impairment of goodwill


23.9


3.2


32.6


3.3





Amortization of acquisition-related intangible assets


4.4


0.6


4.7


0.5


1.9


0.2Asset impairment, restructuring and other charges


56.5


7.6


3.1


0.4


10.4


0.9Gain on divestiture


(96.1
)

(13.0
)










Operating (loss) income


(124.1
)

(16.8
)

(111.2
)

(11.3
)

113.8


9.5Other expense (income), net


39.7


5.4


19.4


2.0


(6.3
)

(0.5
)Interest income, net


(11.7
)

(1.6
)

(29.1
)

(3.0
)

(16.0
)

(1.3
)(Loss) income from continuing operations before income taxes


(152.1
)

(20.5
)

(101.5
)

(10.3
)

136.1


11.3(Benefit from) provision for income taxes


95.3


12.9


(42.3
)

(4.3
)

63.0


5.2(Loss) income from continuing operations


(247.4
)

(33.4
)

(59.2
)

(6.0
)

73.1


6.1Income (loss) from discontinued operations, net of taxes














4.3


0.4Net (loss) income

$
(247.4
)

(33.4
)%
$
(59.2
)

(6.0
)%
$
77.4


6.5
%


35

---



Table of Contents

Revenue and Gross Margin

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Ongoing SegmentsRevenues

$
702,300




$
925,212




$
1,014,498





(24.1
)%

(8.8
)%Gross Margin

$
229,181




$
322,605




$
430,802





(29.0
)%

(25.1
)%Gross Margin %


32.6
%




34.9
%




42.5
%




(2.3) ppt


(7.6) pptAbnormal Utilization Costs(1)

$
16,898


2.4
%
$
5,051


0.5
%
$




%

1.9 ppt


0.5 pptInventory Write-down Costs(2)

$
9,349


1.3
%
$
26,588


2.9
%
$
30,055


3.0
%

(1.6) ppt


(0.1) pptFactory Consolidation Costs(3)

$
3,977


0.6
%
$




%
$




%

0.6 ppt


ppt




Revenue for our ongoing segments, which includes all of our operating segments except the TS segment, declined 24.1 percent for the fiscal
year ended June 28, 2009 due primarily to (1) a slowdown in the economy; (2) customer draw down of inventories, and (3) lower sales of our game station related products
compared to the prior period.

During
fiscal 2009, the Company experienced unfavorable production cost variances of $16.6 million which were incurred as a result of abnormally low factory utilization. The
abnormally low factory utilization resulted in excess capacity costs which were recognized in costs of goods sold as period costs.
The abnormally low utilization and excess capacity were a direct result of our efforts to reduce current inventory to an appropriate level in light of the decreased demand and downturn in the
macro-economic environment that the Company experienced during fiscal 2009. The low factory utilization and unfavorable production cost variances were the primary drivers of our ongoing segments
margin decline from 34.9% in 2008 to 32.6% in 2009. The decline in our gross margin for our ongoing segments of 2.3 percentage points for fiscal year 2009 was due to the unfavorable impact on
gross margin from (1) an increase of approximately $11.5 million due to abnormally low capacity utilization during fiscal year 2009 (see table above); (2) facility consolidation
costs of $3.9 million reported in cost of sales related to the initiatives at our Newport, Wales and El Segundo, California fabrication facilities and (3) the 24.1 percent decline
in our ongoing segment revenue which increased our fixed manufacturing costs as a percentage of revenue. In addition, during fiscal quarter ended June 28, 2009 the Company refined the
methodology used for accounting for production cost variances to better reflect the current economic environment which resulted in demand volatility, abnormally low factory utilization, excess
capacity costs and slower inventory turns during the year. Also, during the fiscal quarter ended June 28, 2009, the Company adjusted its product return accrual to respond to recent changes in
actual returns during the quarter. The net impact of these two items further contributed to our margin decline. These increases were partially offset by $17.3 million increase in gross margin,
compared to the prior year, due to a lower level of inventory write-downs in the fiscal year ended June 28, 2009 (see table above).

The
8.8 percent decline in ongoing segments revenue from fiscal year 2007 to fiscal year 2008 was mostly due to the expiration of our broadest royalty-producing patents in the
fourth quarter of fiscal year 2008 and reduction of our distributors' inventories particularly during the last quarter of the fiscal year. Since we recognize revenue upon sales to our distributors,
their decisions to reduce their inventories levels impact our revenues.

36

---



Table of Contents

The
7.6 percentage point decline in gross margin from fiscal year 2007 and 2008 was due to lower factory utilization as production volumes declined as a result of planned
inventory reductions and lower revenues from sales into the distribution channel. Furthermore the PCS Business Divestiture resulted in a lower revenue base over which to absorb indirect manufacturing
costs, and we did not complete a commensurate reduction in these costs.

During
the fiscal year ended June 28, 2009, we incurred manufacturing employee severance expenses of $4.3 million associated with the lower production levels. During the
fiscal years ended June 29, 2008 and July 1, 2007, we did not incur a material amount of manufacturing employee severance expense.

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

Fiscal Year Ended(Dollars in thousands)

June 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07Power Management Devices (PMD)Revenues

$
234,937




$
330,016




$
373,042





(28.8
)%

(11.5
)%Gross Margin

$
25,939




$
72,318




$
128,082





(64.1
)%

(43.5
)%Gross Margin %


11.0
%




21.9
%




34.3
%




(10.9) ppt


(12.4) pptAbnormal Utilization Costs

$
9,876


4.2
%
$
2,434


0.7
%
$




%

3.5 ppt


0.7 pptInventory Write-down Costs

$
3,577


1.5
%
$
7,084


2.1
%
$
4,675


1.3
%

(0.6) ppt


0.8 pptFactory Consolidation Costs

$
1,008


0.4
%
$




%
$




%

0.4 ppt


ppt


The 28.8 percent revenue decrease for the fiscal year ended June 28, 2009 for PMD was due to a slowdown in the market, a decline in
demand for notebooks and other consumer related products as well as a decline in demand for our previous generation products. The year-over-year decrease of
10.9 percentage points in gross margin was primarily driven by the 28.8 percent drop in revenue as we were not able to reduce our fixed manufacturing costs at the same rate as the
revenue decline. Gross margin, as noted in the table above, was also unfavorably impacted by lower average selling price for fiscal year 2009 compared to the prior period. These unfavorable impacts on
gross margin were partially offset by lower inventory write-down costs compared to the prior period.

The
11.5 percent revenue decrease in PMD segment revenue for the fiscal year ended June 29, 2008 was due to reductions in distributors' inventories and softening in the
general market. The gross margin for the PMD segment declined for the fiscal year ended June 29, 2008 was primarily due to lower average selling price, lower factory utilization from lower
revenue and lower manufacturing overhead absorption due to the PCS Business Divestiture.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Energy Saving Products (ESP)Revenues

$
151,086




$
166,316




$
188,664





(9.2
)%

(11.8
)%Gross Margin

$
55,428




$
57,645




$
88,296





(3.8
)%

(34.7
)%Gross Margin %


36.7
%




34.7
%




46.8
%




2.0 ppt


(12.1) pptAbnormal Utilization Costs

$
2,556


1.7
%
$
947


0.6
%
$




%

1.1 ppt


0.6 pptInventory Write-down Costs

$
1,902


1.3
%
$
5,583


3.4
%
$
4,887


2.6
%

(2.1) ppt


0.8 pptFactory Consolidation Costs

$
2,304


1.5
%
$




%
$




%

1.5 ppt


ppt


The 9.2 percent revenue decrease for the fiscal year ended June 28, 2009 for ESP was due to a continued slowdown in the market and a
decline in our industrial and consumer appliance related products. The 2.0 percentage point improvement in gross margin for the year ended June 28, 2009 was primarily driven by improved
mix on higher margin products shipped to support consumer appliances in Asia, and lower inventory write-downs which offset an increase in abnormally low utilization costs as a result of lower than
normal capacity utilization (see the table above).

37

---



Table of Contents

The
11.8 percent revenue decrease for the fiscal year ended June 29, 2008 was caused by a decline in sales of general purpose of High Voltage Integrated Circuits, due to a
reduction of inventory levels at distributors and general softening of market demand. The large volume decline in general purpose ICs reduced factory utilization and negatively impacted gross margin
in fiscal year 2008. In addition, production costs in fiscal year 2008 were higher due to lower manufacturing overhead absorption due to the PCS Business Divestiture.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)HiRelRevenues

$
148,266




$
152,855




$
157,008





(3.0
)%

(2.6
)%Gross Margin

$
76,601




$
77,053




$
80,451





(0.6
)%

(4.2
)%Gross Margin %


51.7
%




50.4
%




51.2
%




1.3 ppt


(0.8) pptAbnormal Utilization Costs

$
52



%
$




%
$




%

ppt


pptInventory Write-down Costs

$
1,070


0.7
%
$
4,113


2.7
%
$
4,290


2.7
%

(2.0) ppt


pptFactory Consolidation Costs

$




%
$




%
$




%

ppt


ppt


The 3.0 percent revenue decrease for the fiscal year ended June 28, 2009 for HiRel was primarily due to lower sales of satellite
related products and our fiber-optic communications products, partially offset by stronger sales through our distributor network. The 1.3 percentage point improvement in gross margin for the
year ended June 28, 2009 was primarily driven by a reduction in inventory write-down costs.

The
2.6 percent revenue decrease for the fiscal year ended June 29, 2008 was driven by a reduction in purchases from distributors as they drew down their inventories and
also due to 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. The 0.8 percentage point gross margin decrease for the fiscal year ended June 29, 2008 was due to the draw down in our distributors' inventories impacting overall gross
margins as these products were higher than average margin products.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Automotive Products (AP)Revenues

$
52,861




$
85,170




$
82,001





(37.9
)%

3.9
%Gross Margin

$
11,075




$
27,002




$
33,981





(59.0
)%

(20.5
)%Gross Margin %


21.0
%




31.7
%




41.4
%




(10.7) ppt


(9.7) pptAbnormal Utilization Costs

$
1,596


3.0
%
$
494


0.6
%
$




%

2.4 ppt


0.6 pptInventory Write-down Costs

$
1,134


2.2
%
$
1,891


2.2
%
$
1,881


2.3
%

ppt


(0.1) pptFactory Consolidation Costs

$
566


1.1
%
$




%
$




%

1.1 ppt


ppt


The 37.9 percent revenue decrease for the fiscal year ended June 28, 2009 for AP was due to a slowdown in the automotive industry
and production cuts in the U.S. market. The 10.7 percentage point decrease in gross margin was driven by (1) the 37.9 percent decline in revenue as we were not able to reduce our
fixed manufacturing costs at the same rate as our revenue declined, (2) factory consolidation costs, and (3) the impact of lower average selling price for the fiscal year ended
June 28, 2009 compared with the fiscal year ended June 29, 2008. These unfavorable gross margin impacts were partially offset by the favorable impact from the reduction in inventory
write-down costs compared to the prior period (see the table above).

The
3.9 percent increase in AP segment revenue for the fiscal year ended June 29, 2008 was due to an increase in sales of automotive High Voltage Integrated Circuits. The
gross margin for the AP segment declined for the fiscal year ended June 29, 2008 primarily due to lower average selling price,

38

---



Table of Contents

lower
factory utilization and lower manufacturing overhead absorption due to the PCS Business Divestiture.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Enterprise Power (EP)Revenues

$
87,477




$
160,365




$
169,612





(45.5
)%

(5.5
)%Gross Margin

$
32,464




$
58,099




$
56,125





(44.1
)%

3.5
%Gross Margin %


37.1
%




36.2
%




33.1
%




0.9 ppt


3.1 pptAbnormal Utilization Costs

$
2,818


3.2
%
$
1,176


0.7
%
$




%

2.5 ppt


0.7 pptInventory Write-down Costs

$
1,666


1.9
%
$
7,918


4.9
%
$
14,321


8.4
%

(3.0) ppt


(3.5) pptFactory Consolidation Costs

$
99


0.1
%
$




%
$




%

0.1 ppt


ppt


The 45.5 percent revenue decrease for the year ended June 28, 2009 for EP was driven by lower sales of our game station related
products, reduced content in our newer game station parts and lower sales to enterprise server customers. The improvement in the gross margin was due to the favorable impact of lower inventory related
costs and a change in the product mix as higher margin server business increased as a percentage of sales and lower margin game station related products decreased as a percentage of sales. These
favorable impacts to the gross margin were partially offset by an increase in abnormal utilization costs and factory consolidation costs (see table above).

The
5.5 percent revenue decrease for the year ended June 29, 2008 for EP was primarily due to lower sales of our game station related products, partially offset by an
increase in demand for data center-related products, including enterprise servers and workstations. The gross margin improvement of 3.1 percentage points was driven by the $6.3 million
favorable impact of lower inventory write-down costs partially offset by an increase in abnormally low utilization costs.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Intellectual Property (IP)Revenues

$
27,673




$
30,490




$
44,171





(9.2
)%

(31.0
)%Gross Margin

$
27,673




$
30,490




$
44,171





(9.2
)%

(31.0
)%Gross Margin %


100.0
%




100.0
%




100.0
%





%


%


The 9.2 percent decline in IP revenue for the fiscal year ended June 28, 2009 was due to the expiration of our broadest MOSFET
patents at the end of the prior year, offset by a single $18.7 million one-time amendment of a patent license agreement with one of our principal licensees that was recorded in
fiscal year 2009. As a result of the expiration of these patents we expect our quarterly royalty revenue will be approximately $1.0 million to $3.0 million in each of the next several
quarters absent the consummation of additional license agreements.

The
31.0 percent decline in IP revenue for the fiscal year ended June 29, 2008 was due to a decline in royalty revenues arising from the expiration of our broadest MOSFET
patents in the fourth quarter of fiscal year 2008.

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Transition Services (TS)Revenues

$
38,119




$
59,618




$
18,730





(36.1
)%

218.3
%Gross Margin

$
(4,325
)



$
215




$
1,396





(2,111.6
)%

(84.6
)%Gross Margin %


(11.3
)%




0.4
%




7.5
%




(11.7) ppt


(7.1) pptAbnormal Utilization Costs

$
990


2.6
%
$




%
$




%

2.6 ppt


ppt


39

---



Table of Contents

The 36.1 percent revenue decline in TS for the fiscal year ended June 28, 2009 was due to ongoing transfer of production capacity to
Vishay under the TPSA, entered into with Vishay as part of the PCS Business Divestiture, and ultimately, termination of wafer processing services for Vishay effective April 30, 2009. The
revenue received by us from such terminated services represents a majority of the revenue reported under our TS segment. Effective with the quarter ending September 2009, TS revenue will be an
immaterial amount and will be reported within the PMD segment. The 11.7 percentage point gross margin decrease was primarily driven by a $2.3 million adjustment related to the deferred
gain of the PCS Business Divestiture and a significant drop in revenue in the fourth quarter as we were not able to reduce our fixed manufacturing costs at the same rate as our revenue decline.

The
218.3 percent revenue increase for the fiscal year ended June 29, 2008 was due to having four quarters of TS revenue in fiscal year 2008 compared to one quarter of
revenue in the prior year. TS revenue consisted of manufacturing and related services provided to Vishay. As part of the transaction agreements related to the PCS Business Divestiture, we supplied
manufacturing services to Vishay at approximately our cost.

Selling, General and Administrative Expense

Fiscal Year Ended(Dollars in thousands)

June 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07Selling, General and AdministrativeRevenues

$
740,419




$
984,830




$
1,202,469





(24.8
)%

(18.1
)%Selling, general and administrative expenses

$
262,068


35.4
%
$
287,830


29.2
%
$
212,541


17.7
%

6.2 ppt


11.5 pptProxy contest and filing costs

$
15,470


2.1
%
$




%
$






2.1 ppt


pptInvestigation and Filing Support

$
22,027


3.0
%
$
96,190


9.8
%
$
8,647


0.7
%

(6.8) ppt


9.1 pptSecurities Litigation Reserve

$
45,000


6.1
%
$




%
$




%

6.1 ppt


ppt


Selling, general and administrative expense was $262.1 million (35.4 percent of revenue) and $287.8 million
(29.2 percent of revenue) for the years ended June 28, 2009 and June 29, 2008, respectively. The year-over-year decrease in selling, general and
administrative expense was due primarily to the $74.2 million reduction of investigation and filing support costs, partially offset by $15.5 million of proxy filing costs and a
$45.0 million charge related to the pending settlement of the securities class action litigation. See Note 14, Litigation, "International Rectifier Securities
Litigation", in the notes to the consolidated financial statements. The investigation and filing support costs related to the prior Audit Committee-led
investigation ("Investigation") including legal, audit and consulting fees and costs associated with the Investigation, reconstruction of the financial results at our Japan subsidiary, and restatement
of multiple periods of consolidated financial statements. The $15.5 million proxy filing cost relates to costs incurred in the year ended June 28, 2009, in connection with our delayed
2007 annual meeting and the unsolicited proposal, tender offer, the Delaware legal action and the annual meeting actions initiated by Vishay (See Note 14, Litigation, "Litigation Arising from Vishay
Proposal"and"Vishay Offer").

Excluding
the above mentioned costs, selling, general and administrative expense decreased by $12.1 million to $179.6 million in the current fiscal year as compared to the
prior fiscal ended June 29, 2008. These cost decreases were primarily due to lower salary related expenses as a result of reduced headcount.

For
the fiscal year ended June 29, 2008, selling, general and administrative expense was $287.8 million (29.2 percent of revenue), compared to $212.5 million
(17.7 percent of revenue) in the prior fiscal year ended July 1, 2007. Fiscal year 2008 selling, general and administrative expense included an increase of $87.6 million of legal,
audit and consulting costs associated with the Audit

40

---



Table of Contents

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 continued through fiscal year 2008 and as of June 29, 2008, these costs totaled $104.8 million with
$96.2 million recorded in fiscal year 2008 and $8.6 million recorded in fiscal year 2007.

Excluding
costs associated with the Audit Committee-led Investigation, there was a $12.2 million decrease in selling, general and administrative expense from fiscal
years 2007 to 2008. This decrease in selling, general and administrative expenses is mainly due to cost reductions following the Divestiture.

Research and Development Expense

Fiscal Year EndedJune 28,
2009

% of
Revenue

June 29,
2008

% of
Revenue

July 1,
2007

% of
Revenue

Change
FY09 to
FY08

Change
FY08 to
FY07(Dollars in thousands)Research and DevelopmentRevenues

$
740,419




$
984,830




$
1,202,469





(24.8
)%

(18.1
)%Research and Development costs


98,211


13.3
%

105,812


10.7
%

122,794


10.2
%

2.6 ppt


0.5 ppt


Research and development ("R&D") expense was $98.2 million (13.3 percent of revenue) and $105.8 million (10.7 percent
of revenue) for the years ended June 28, 2009 and June 29, 2008, respectively. The year-over-year decrease of $7.6 million in R&D expenses was mainly due
to our initiatives to size the organization to be in accord with our lower revenue level as well as savings related to the closure of two R&D facilities in El Segundo, California and Oxted, England.
Costs related to these facility closures were $3.1 million of which $2.4 million was recorded as R&D expense and $0.7 million as restructuring expense in year ended
June 28, 2009, and $5.0 million of which $2.0 million was recorded as R&D expense and $3.0 million as restructuring expense in year ended June 29, 2008. Despite
these actions, we continue to devote significant resources to our R&D activities. We concentrate our R&D activities on developing new platform technologies, such as our recently announced Gallium
Nitride ("GaN") technology, as well as our power management ICs and the advancement and diversification of our HEXFET®, power MOSFET and insulated gate bipolar transistor
("IGBT") product lines.

For
the fiscal years ended June 29, 2008 and July 1, 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

During the second and third quarter of fiscal year 2009, we performed interim impairment tests of the goodwill associated with our
reporting units which we have determined to be our reporting

41

---



Table of Contents

segments.
In reaching a decision to perform an interim impairment test of the goodwill associated with our reporting units we considered a number of factors. These factors included the decline in our
market capitalization, our worsening financial performance against plan and the outlook for our businesses and industry in general. Based on the results of the test during the second quarter, no
impairment losses were identified.

Based
on the results of the interim goodwill impairment test at the end of the third quarter of fiscal year 2009, we concluded that for the Automotive Products and Intellectual Property
reporting units the carrying amount of goodwill exceeded their fair value determined using a discounted cash flow analysis. As a result, we recorded a goodwill impairment charge of
$23.9 million during the third quarter of fiscal year 2009. As a result of this impairment, the Automotive Products and Intellectual Property segments carry no goodwill as of June 28,
2009.

During
the fourth quarter of fiscal year 2009, we completed our annual goodwill impairment tests. Based on the results of these tests, no further impairment losses were identified.

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 PMD and former PS segments was
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 there was no goodwill impairment. We recorded
goodwill impairment charges of $28.7 million relating to PMD and $3.9 million relating to PS.

Asset Impairment, Restructuring and Other Charges

Asset impairment, restructuring and other charges reflect the impact of cost reduction programs initiated during fiscal year 2009 and
2008 as well as work force reduction actions undertaken as a result of the termination of the wafer services portion of the TPSA. These programs and initiatives include the closing of facilities, the
relocation of equipment and employees, the termination of employees and other related activities.

The
following table summarizes restructuring charges incurred related to the restructuring initiatives discussed below. These charges were recorded in asset impairment, restructuring and
other charges (in thousands):

Fiscal Years EndedJune 28, 2009

June 29, 2008

July 1, 2007Reported in asset impairment, restructuring and other chargesAsset Impairment

$
48,885

$


$
5,878Severance and workforce reduction costs


6,648


2,670


5,073Other Charges


960


410


620Subtotal

$
56,493


3,080


11,571Discontinued operations








(1,173
)Total asset impairment, restructuring and other charges

$
56,493

$
3,080

$
10,398


42

---



Table of Contents

In addition to the amounts in the table above, $0.7 million of workforce reduction expense related to retention bonuses was recorded in cost of sales
during the fiscal year 2009 related to the restructuring initiatives.

The
following table summarizes changes in our restructuring related accruals for fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 which are included
in other accrued expenses on the balance sheet (in thousands):

Newport,
Wales

El
Segundo

All Other
(1)Accrued severance and workforce reduction costs, July 2, 2006

$


$


$
991Charged to asset impairment, restructuring and other charges








5,073Charged to operating expenses








3,393Costs paid








(8,620
)Foreign exchange gains








(11
)Accrued severance and workforce reduction costs, July 1, 2007








826Charged to asset impairment, restructuring and other charges








2,670Charged to operating expenses








5,674Costs paid








(8,095
)Foreign exchange gains








16Accrued severance and workforce reduction costs, June 29, 2008








1,091Charged to asset impairment, restructuring and other charges


1,815


3,610


1,678Charged to operating expenses





468


238Costs paid


(1,574
)

(504
)

(2,216
)Foreign exchange gains


118





1Change in provision





(39
)

(416
)Accrued severance and workforce reduction costs, June 28, 2009

$
359

$
3,535

$
376


---

43

---



Table of Contents

The
following table summarizes the total asset impairment, restructuring and other charges by initiative for the fiscal years 2009, 2008, and 2007:

Newport,
Wales

El
Segundo

Research &
Development
Facility

Other
Activities &
Charges

PCS
Divestiture

December
2002
Initiative

TotalFiscal 2007 reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$


$
5,878

$


$
5,878Severance and workforce reduction costs














4,962


111


5,073Other charges











(13
)

158


475


620Total fiscal 2007 asset impairment, restructuring and other charges(1)

$


$


$


$
(13
)
$
10,998

$
586

$
11,571Fiscal 2008 reported in asset impairment, restructuring and other chargesSeverance and workforce reduction costs

$


$


$
2,670

$


$


$


$
2,670Other charges








410











410Fiscal 2008 total asset impairment, restructuring and other charges

$


$


$
3,080

$


$


$


$
3,080Fiscal 2009 reported in asset impairment, restructuring and other chargesAsset impairment

$
48,885

$


$


$


$


$


$
48,885Severance and workforce reduction costs


1,815


3,571


381


881








6,648Other charges


33


654


273











960Fiscal 2009 total asset impairment, restructuring and other charges

$
50,733

$
4,225

$
654

$
881

$


$


$
56,493


---

Newport, Wales Fabrication Facility Consolidation Initiative

We adopted a plan during the second quarter of fiscal year 2009 to consolidate our wafer manufacturing operations in Newport, Wales to
reduce manufacturing costs and reduce capacity as a result of a decline in market demand. A portion of a lower efficiency wafer fabrication facility at the Newport, Wales location was selected for
closure under this plan. When we adopted this plan market demand had fallen precipitously during the second quarter of fiscal year 2009 and we did not foresee a significant recovery in demand in the
foreseeable future. However, subsequent to initiating the plan and exiting certain portions of the facility, there has been a significant recovery in demand during the second half of fiscal year 2009.
To service this unforeseen demand, we plan to utilize for wafer fabrication approximately 40% of the space previously designated for closure as part of this initiative through the second half of
fiscal year 2010 and possibly beyond, to provide necessary wafer production capacity. The total pre-tax cost of the consolidation plan is approximately $52.4 million of which $48.9
is non-cash charges. These charges consist of severance and other workforce reduction costs of $1.8 million, asset impairment charges of $48.9 and other costs incurred to close or
consolidate the facilities of $1.7 million.

As
a result of the adoption of this plan, we recorded a $48.9 million asset impairment charge during fiscal year 2009 and $1.8 million of severance and other workforce
reduction costs.

44

---



Table of Contents

As
a result of the changes to the plan, estimated cost savings have been revised and are now projected to be approximately $3.6 million annually beginning in the fourth quarter of
fiscal year 2009. Previously, we had estimated cost savings of $2.0 million, $7.0 million and $7.9 million for fiscal years 2009, 2010, and thereafter. We do not anticipate these
cost savings will be offset by additional costs incurred in other locations. Cash payments for this initiative were approximately $3.2 million during fiscal year 2009 and are estimated to be
$0.3 million during fiscal year 2010.

El Segundo, California Facility Closure Initiative

We adopted a plan for the closure of our El Segundo, California fabrication facility during the fiscal year 2009. The plan will be
carried out during fiscal years 2009 and 2010 with an estimated total pre-tax cost of $11.4 million of which approximately $0.8 million will be non-cash charges.
These charges consist of severance and other workforce reduction costs of $5.4 million and other costs incurred to close or consolidate the facilities of $6.0 million. The restructuring
charge recorded during fiscal year 2009 includes $3.6 million of severance costs and other workforce reduction costs and $3.0 million of other charges of which $2.5 million were
recorded in cost of sales.

Cash
payments for this initiative were approximately $3.5 million during fiscal year 2009, and are estimated to be approximately $4.7 million and $3.2 million during
fiscal year 2010 and thereafter, respectively. We estimate cost savings from the El Segundo, California fabrication facility closure initiative of approximately $12.7 million per year beginning
in calendar year 2011. These costs savings will result in reduced manufacturing overhead costs, which will impact cost of sales. We do not anticipate these cost savings to be offset by additional
costs incurred in other locations.

Research and Development Facility Closure Initiative

In the third quarter of fiscal year 2008, we adopted a plan for the closure of our Oxted, England facility and our El Segundo,
California R&D fabrication facility. The costs associated with closing and exiting these facilities and severance costs are estimated to total approximately $9.6 million. Of this amount,
approximately $6.7 million represents the cash outlay related to this initiative. We estimate that the closure and exiting of these two facilities will be completed by
the end of the fourth quarter of fiscal year 2011. Restructuring related cash payments were $1.7 million for fiscal year 2009, of which $1.4 million related to severance expense, and are
estimated to be $2.0 million and $0.1 million during fiscal year 2010, and thereafter, respectively.

This
restructuring initiative resulted in cost savings of approximately $6.3 million in fiscal year 2009, and is expected to provide cost savings of approximately
$7.1 million in fiscal year 2010 and thereafter. These savings will come from reduced salaries and facility overhead reductions and will impact research and development expense. We do not
anticipate these cost savings to be offset by additional costs incurred at other locations.

Other Activities and Charges

On January 15, 2009, we received written notification from Vishay terminating certain wafer processing services under the TPSA
effective April 30, 2009. As a result, we recorded a charge for severance related to the partial termination of the contract during the third quarter of fiscal year 2009 of $0.9 million.
We estimate total cost related to the partial termination of the contract to be $0.9 million, all of which will be cash charges. Actions related to the partial termination of the contract were
completed by the end of fiscal year 2009. The charges recorded in fiscal year 2008 relate to other smaller scale restructuring initiatives undertaken at local sites.

45

---



Table of Contents

PCS Business Divestiture Initiative

During fiscal year 2007, in connection with the Divestiture, we terminated approximately 100 former PCS Business employees. We also
terminated other operating and support personnel to streamline the organization in connection with the Divestiture.

Other Impairment Charges

In addition to the Newport facility asset impairment of $48.9 million, during fiscal year 2009, we recorded asset impairment
charges of $2.8 million related to assets removed from service mainly in our Tijuana, Mexico facility as well as at certain contract manufacturing facilities and other facilities. Since the
decision to remove these assets from service was in response to a reduction in demand and not related to an exit activity, the associated asset impairment charges were recorded in cost of sales, not
in asset impairment, restructuring and other charges.

Gain on Divestiture

In June, 2009, we entered into the Settlement Agreement with Vishay and, as a result, resolved certain disputes related to the
Divestiture of the PCS Business in fiscal year 2007. The Settlement Agreement resolved the contingencies related to the gain from the Divestiture which had been deferred since the divestiture in
fiscal year 2007. As a result we reported a gain from the Divestiture of $96.1 million for fiscal year 2009. See Note 2, "Discontinued Operations and the Divestiture," in the notes to
the consolidated financial statements for further discussion of the gain on Divestiture.

Other Income and Expense

Other expense (income) primarily includes foreign currency fluctuations, dividend income from our equity investments and investment
impairments. Other expense (income), net was $39.7 million and $19.4 million for the fiscal years ended June 28, 2009 and June 29, 2008, respectively. The increase in
expense is due to investment impairment charges of $39.2 million during fiscal year 2009. Other expense (income) primarily includes foreign currency fluctuations, dividend income from our
equity investments and investment impairments.

In
the fiscal year ended June 28, 2009, we recognized foreign currency exchange gains of $1.3 million compared to a minimal loss of $(0.03) million in the fiscal year ended
June 29, 2008.

Other
expense (income) was $19.4 million and $(6.3) million for the fiscal years ended June 29, 2008 and July 1, 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 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.

Interest Income and Expense

Interest income was $13.0 million and $31.8 million for the fiscal years ended June 28, 2009 and June 29,
2008, respectively, reflecting net realized losses on the sale of securities and lower prevailing interest rates on lower average cash and investment balances during fiscal year 2009.

Interest
expense was $1.3 million and $2.7 million for the fiscal years ended June 28, 2009 and June 29, 2008, respectively, primarily reflecting lower
interest expense due to the termination of our credit line early in fiscal year 2009.

46

---



Table of Contents

Interest
income was $31.8 million and $53.5 million for the fiscal years ended June 29, 2008 and July 1, 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 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 $2.7 million and $37.5 million for the fiscal years ended June 29, 2008 and 2007, respectively, primarily reflecting a lower interest expense
due to the repayment of the $550 million convertible subordinated notes ("Notes") on July 16, 2007.

Income Taxes

The rate of tax expense (benefit) from continuing operations was 62.7 percent and (41.6) percent for the fiscal years
ended June 28, 2009 and June 29, 2008, respectively. The expense rate for the fiscal year ended June 28, 2009 was higher than the expected U.S. federal statutory tax rate of
35 percent primarily due to the increase in our deferred tax asset valuation allowance, the inability to benefit from state taxes, deemed foreign distributions, and the non deductibility of a
portion of the impairment of goodwill, which were partially offset by the release of contingent liabilities related to uncertain tax positions and lower statutory rates in certain foreign
jurisdictions. The rate for the fiscal year ended June 29, 2008 was higher than the expected U.S. federal statutory rate of 35 percent primarily from the availability of operating loss
carrying backs, the release of tax contingencies largely related to certain penalties; R&D and foreign tax credits; and lower statutory tax rates in certain jurisdictions, which were partially offset
by the impairment of non deductible goodwill, deemed foreign distributions, and an increase in tax contingencies. Tax rates that are higher than the statutory rate during a year incurring of operating
losses, such as fiscal year ended June 29, 2008, results in an overall beneficial tax rate.

The
rate of tax from continuing operations was (41.6) percent and 46.2 percent for the fiscal years ended June 29, 2008 and July 1, 2007, respectively. Tax
rates that are higher than the statutory rate during a year incurring operating losses, such as fiscal year ended June 29, 2008, results in an overall beneficial tax rate. The rate for the
fiscal year ended June 29, 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
non deductible goodwill, deemed foreign distributions, and an increase in tax contingencies. Tax rates that are higher than the statutory rate during a year generating income, such as fiscal
year ended July 1, 2007, results in an overall detrimental tax rate. The rate for the fiscal year ended July 1, 2007, was higher than the expected U.S. federal statutory 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.

47

---



Table of Contents

Liquidity and Capital Resources

Cash Requirements

Contractual Obligations

Our contractual obligations described below, as of the fiscal year ended June 28, 2009 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 &
ThereafterOperating leases(1)

$
17,611

$
9,035

$
5,862

$
1,581

$
869

$
133

$
131Purchase commitments:Capital purchase obligations


3,917


3,917














Foundry and inventory purchase obligations


16,380


4,680


4,680


4,680


2,340





Other purchase obligations


10,999


2,615


2,488


2,488


2,488


622


298Total contractual obligations

$
48,907

$
20,247

$
13,030

$
8,749

$
5,697

$
755

$
429




Amount of Commitment by Expiration PeriodCommercial commitments

Total

2010

2011

2012

2013

ThereafterBank guarantees and letters of credit(1)

$
2,925

$
2,925

$


$


$


$
$
2,925

$
2,925

$


$


$


$



---

The
table above does not include reserves recorded in fiscal year 2007 for indemnifications provided to Vishay related to certain tax obligations for divested entities or for liabilities
related to unrecognized tax benefits as we are unable to reasonably estimate the timing of settlement for these liabilities. As of June 28, 2009, we have reserves of $7.3 million in
other long-term liabilities for the indemnifications liability and $66.2 million for non-current liabilities related to unrecognized tax benefits.

Other
purchase obligations in the table above represent agreements with suppliers to supply inputs to the wafer manufacturing process including ultra pure water and certain gases as well
as waste water treatment services.

Other
cash commitments include planned cash outflow related to cost reduction plans initiated at our Newport, Wales and El Segundo and Temecula, California wafer fabrication facilities
during fiscal year 2009. We estimate that cash out flows for these initiatives will be approximately $5.0 million and $3.2 million during fiscal years 2010 and thereafter, respectively.
For all other initiatives, estimated cash
outflows are $2.0 million and $0.1 million for fiscal years 2010 and thereafter, respectively. Cash payments related to all initiatives were $9.4 million for fiscal year 2009.

On
July 29, 2009, we reached an agreement in principle to settle a securities class action lawsuit (See Note 14, Litigation, "International
Rectifier Securities Litigation"). The settlement is subject to a final agreement between the parties and the approval of the US District Court. We recorded a charge of
$45.0 million related to this tentative settlement and expect the approval process and subsequent payment will be completed by the end of calendar year 2009.

In
addition and as previously disclosed on October 27, 2008 our Board of Directors authorized a stock repurchase program of up to $100.0 million. Repurchases of our shares
of common stock under this program may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depends on market conditions and
other factors. The stock repurchase program may be suspended at any time without prior notice. During fiscal year 2009 we repurchased approximately 1.9 million shares for $23.6 million.

48

---



Table of Contents

In November, 2008, we terminated our lender's commitments under our five-year $150.0 million multi-currency revolving credit facility. We also
canceled or let expire four accounts receivable financing facilities in Japan during fiscal year 2008. We currently have no outstanding credit facilities.

Off-Balance Sheet Arrangements

In the normal course of business, we enter into various operating leases for buildings and equipment. In addition, we provide standby
letters of credit or other guarantees as required for certain transactions. We currently provide cash collateral for outstanding letters of credit as we do not have a revolving credit agreement to
provide security or support for these letters of credit.

Sources and Uses of Cash

We require cash to fund our operating expense and working capital requirements which include capital expenditures, research and
development costs and restructuring costs and funds to repurchase our common stock under our stock repurchase program. Our primary sources for funding these requirements are cash and investments on
hand and, historically, cash from operations. While we currently have no outstanding long-term debt or credit facilities we may need to borrow additional funds if we are unable to generate
sufficient cash from operations to meet our capital requirements. As such, we may evaluate, from time to time, opportunities to sell debt securities or obtain credit facilities to provide additional
liquidity. Our general corporate credit rating by Standard & Poor's as of June 28, 2009 was BB-.

As
of June 28, 2009, we had $600.5 million of total cash (excluding 3.9 million of restricted cash), cash equivalents and short-term and
long-term investments, consisting of available-for-sale fixed income and investment-grade securities, a decrease of $125.4 million from June 29, 2008.
The decrease in our cash and investments was the result of funding working capital needs, other-than-temporary impairments of investment securities of $39.2 million,
capital equipment expenditures of $20.8 million and purchases of our outstanding common stock under our stock repurchase program of $23.6 million. These decreases were partially offset
by interest income from the short-term and long-term investments. The need to fund working capital was the result of an operating cash outflow for fiscal year 2009 of
$41.2 million.

Included
in long-term investments were mortgaged-backed and asset-backed securities with a fair market value of $39.2 million (6.5 percent of cash and cash
equivalents, short-term and long-term investments) and $168.2 million (23.2 percent of cash and cash equivalents, short-term and long-term
investments) as of June 28, 2009 and June 29, 2008, respectively (see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" for discussions about
our investment strategy.)

The
markets for mortgage-backed and asset-back securities have been severely impacted by the subprime mortgage and other ensuing credit crises. As a result we made a decision
to reduce our positions in these securities during the second quarter of fiscal year 2009. As we did not have the intent to hold these securities until maturity we have recorded cumulative charges of
$39.2 million during fiscal year 2009 for other-than-temporary impairments to reduce the carrying value of these securities to their fair value. During fiscal year 2008,
we recorded an $8.4 million charge for other-than-temporary impairments relating to certain available-for-sale securities as a result of declines
in their fair market values.

49

---



Table of Contents

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

Fiscal Year EndedJune 28,
2009

June 29,
2008Cash and cash equivalents

$
365,761

$
320,464Investments


234,755


405,419Total cash, cash equivalents, and investments

$
600,516

$
725,883


Our
outlook for fiscal 2010 is that our operating cash flow will continue to be a net outflow during at least the first half of the fiscal year. However, we believe that our existing
cash and cash equivalents will be sufficient to meet operating requirements and satisfy our existing balance sheet liability obligations for at least the next twelve to twenty-four months.
Our cash and cash equivalents are available to fund continuing operating losses, capital expenditures, and our stock repurchase program.

Cash Flow

Our cash flows were as follows (in thousands):

Fiscal Year EndedJune 28,
2009

June 29,
2008

July 1,
2007Cash flows (used in) provided by operating activities

$
(41,211
)
$
36,400

$
185,418Cash flows provided by (used in) investing activities


109,608


(12,687
)

271,792Cash flows (used in) provided by financing activities


(19,690
)

(554,950
)

(90,507
)Effect of exchange rates


(3,410
)

(1,339
)

3,430Net increase (decrease) in cash and cash equivalents

$
45,297

$
(532,576
)
$
370,133


Non-cash
adjustments to cash flow used in operations during the fiscal year ended June 28, 2009 included $64.0 million of depreciation and amortization,
$51.7 million for impairment of equipment, $39.2 million for impairment of long-term investments, $23.9 million of goodwill impairment, $10.7 million in
inventory write-downs, and $7.4 million of stock compensation expense. Changes in operating assets and liabilities reduced operating cash flow by $5.6 million, primarily attributed to
decreases in accrued income taxes payable and other accrued expenses, partially offset by decreases in trade accounts receivable, prepaid expenses and inventories and an increase in accounts payable.

Cash
provided by investing activities during the fiscal year ended June 28, 2009 was the result of proceeds from the sale or maturities of investments of $435.1 million and
cash released from restriction of $14.0 million partially offset by a $30 million payment to Vishay to settle disputes related to the sale of the PCS Business and $20.8 million of
capital equipment purchases. As of June 28, 2009, we had purchase commitments for capital expenditures of approximately $3.9 million.

Cash
used in financing activities during fiscal year 2009 of $19.7 million was primarily the result of stock repurchases under the stock repurchase plan and the net settlement of
restricted stock units which were partially offset by proceeds from the exercise of stock options and a reduction in restricted cash. For fiscal year 2008 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

50

---



Table of Contents

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").

Working Capital

Our working capital is dependent on demand and our ability to manage accounts receivable and inventory. Other factors which may result
in changes to our working capital levels are restructuring initiative, investment impairments and share repurchases. Our working capital, excluding cash and cash equivalents and restricted cash, at
June 28, 2009 was $183.2 million.

The
changes in working capital during fiscal year 2009 were as follows:

June 28,
2009

June 29,
2008

ChangeCurrent AssetsCash and cash equivalents

$
365.8

$
320.5

$
45.3Restricted cash


3.9


4.3


(0.4
)Short-term investments


113.2


101.7


11.5Trade accounts receivable, net


97.6


105.4


(7.8
)Inventories


151.1


175.8


(24.7
)Current deferred tax assets


1.2


13.1


(11.9
)Prepaid expenses and other receivables


28.6


44.0


(15.4
)Total current assets


761.4

$
764.8


(3.4
)Current LiabilitiesAccounts payable


62.6


77.6


(15.0
)Accrued income taxes


6.8


30.9


(24.1
)Accrued salaries, wages and commissions


22.3


33.0


(10.7
)Current deferred tax liabilities


2.8


2.3


0.5Other accrued expenses


114.0


103.4


10.6Total current liabilities


208.5


247.2


(38.7
)Net working capital

$
552.9

$
517.6

$
35.3


The
increase in cash and cash equivalents of $45.3 million is due primarily to rebalancing our investment portfolio during fiscal year 2009 as we focused on preserving investment
principal as a result of volatility in the financial markets. The increase in short-term investments of $11.5 million is also due primarily to rebalancing our investment portfolio
during fiscal year 2009 with a focus on increased liquidity of our short-term investments as a result of volatility in the financial markets.

The
decrease in net trade accounts receivable of $7.8 million does not mirror the decrease in revenue due to the volume of shipments in the latter part of the fourth quarter as
the result of an increase in demand and subsequent orders during the fourth quarter of fiscal year 2009.

The
decrease in inventory of $24.7 million reflects the efforts to size our manufacturing capacity to the reduced sales levels. All categories of inventory decreased on a year
over year basis with these decreases partially offset by a corresponding decrease in the rate of excess and obsolete inventory reserves.

51

---



Table of Contents

The
decrease in current deferred tax assets of $11.9 million was due to valuation allowances recorded to reduce the deferred tax assets to what management believes is more likely
than not their realizable value.

The
decrease in accounts payable of $15.0 million was primarily due to a reduction in accounting, legal and advisory fees payable to professional services firms for services
provided related to the restatement of prior period financial statements and the fiscal year 2007 annual meeting and proxy contest and filing.

During
fiscal year 2009, we determined that a significant portion of the accrued income taxes balance for fiscal year 2008 should be classified as long-term uncertain tax
position reserves. These amounts were reclassified in fiscal 2009 and were the primary reason for the decrease of $24.1 million.

The
decrease in accrued salaries, wages and commissions of $10.7 million is due to the impact of the restructuring initiatives as well as the headcount reduction initiative during
fiscal year 2009. In addition , no voluntary profit sharing contributions were made during the fiscal year 2009 and this also reduced accrued salaries, wages and commissions.

The
increase in other accrued expenses of $10.6 million is due to an increase in accrued accounting and legal expense of $51.0 million primarily as a result of the
settlement of the class action securities litigation for which we recorded a reserve of $45.0 million and an increase in the current severance liability of $4.1 million as a result of
the restructuring initiatives. These increases were partially offset by a decrease in sales return reserves of $19.8 million due to the decline in revenue in fiscal year 2009 from the prior
fiscal year, the release of $6.7 million of the reserve for under market contracts related to the Transition Services provided to Vishay as well as a decrease in accrued compensation.

Other

In connection with certain tax matters described in Part II, Item 8, Note 10, "Income Taxes," we are pursuing
refunds for income taxes we believe to have overpaid in certain
jurisdictions. In these jurisdictions, we cannot determine that the realization of the tax refunds of $55.8 million is probable and as such, we have not recognized them as income tax benefits
in our financial statements. We have determined we overpaid $52.3 million of income taxes (which is included in the $55.8 million) in Singapore as a result of errors in our transfer
pricing of intercompany transactions. We are also seeking refunds in Japan and Finland for $2.3 million and $1.2 million, respectively. We have determined our claim for a refund of tax
is not probable and have not recognized a benefit for such refund claims. Consequently, we have recorded both U.S. federal income taxes and Singapore income taxes with respect to certain fiscal years.
We received notice of assessment for the Singapore tax authority due to the late filing of the Singapore subsidiary's fiscal year 2007 income tax return. The assessment of approximately
$15.1 million was based upon our transfer pricing methodology prior to fiscal year 2007. We have determined that collection on this assessment is not probable as it is more likely than not that
our current transfer pricing methodology will be sustained.

During
fiscal 2009 we filed amended U.S. federal income tax returns and we claimed a refund, which we have not benefitted to the financial statements, that we anticipate will range from
$25.0 million to $30.0 million depending upon potential interest associated with the refund. The U.S. federal income tax returns for fiscal years 2004 to 2007 are currently under
administrative review for submission to the Joint Committee on Taxation. We cannot at this time determine the timing of the completion of the administrative review and eventual review by the Joint
Committee on Taxation.

52

---



Table of Contents

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 discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of consolidated financial statements in accordance with U.S. GAAP
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the
disclosure of contingent assets and liabilities. The U.S. Securities and Exchange Commission has defined critical accounting policies as those that "are both most important to the portrayal of the
company's financial condition and results, and they require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters
that are inherently uncertain." As such, we have identified the following policies as our critical accounting policies: Revenue recognition and allowances for sales returns and price concessions, fair
value of financial instruments, inventory valuation, impairment of long-lived assets, other than temporary impairments intangibles and goodwill and income taxes.

The
judgments and estimates we make in applying the accounting principles generally accepted in the U.S. affect the amounts of assets and liabilities reported, disclosures, and reported
amounts of revenues and expenses. As such, we evaluate the judgments and estimates underlying all of our accounting policies, including those noted above, on an ongoing basis. We have based our
estimates on the latest available historical information as well as known or foreseen trends; however, we cannot guarantee that we will continue to experience the same patterns 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.

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 upon shipment or upon delivery,
depending on specific contractual terms and/or shipping terms with the customer. If title transfer and risk of loss are addressed explicitly in a customer contract or by reference to the standard
terms and conditions, those stated terms determine whether the recognition of revenue on product sales to that customer shall be upon either shipment or delivery. If the contract is silent and lacks
reference to our Company's standard terms and conditions, and barring other contrary information, transfer of title and risk of loss will follow the historical shipping terms for that customer. If
revenue is to be recognized upon delivery, such delivery date is tracked through information provided by the third party shipping company used by us to deliver the product to the customer.

Generally,
we recognize revenue on sales to distributors, using the "sell in" method (i.e. when product is sold to the distributor) rather than the "sell through" method
(i.e. when the product is sold by the distributor to the end user). Certain distributors and other customers have limited rights of return (including stock rotation rights) and/or are entitled
to price protection, where a rebate credit may be provided to the customer if our Company lowers its price on products held in the distributor's inventory. Additionally, in certain limited cases, we
may pre-approve a credit to a distributor to facilitate a particular sale by the distributor to an end customer. Our Company estimates and

53

---



Table of Contents

establishes
allowances for expected future product returns and credits in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return
Exists." We record a reduction in revenue for estimated future product returns and future credits to be issued to the customer in the period in which revenues are recognized, and for future credits to
be issued in relation to price protection at the time we make changes to our distributor price book. The estimate of future returns and credits is based on historical sales returns, analysis of credit
memo data, and other factors known at the time of revenue recognition. We monitor product returns and potential price adjustments on an ongoing basis.

Revenue
on sales to distributors that act only as fulfillment houses (agents) is deferred until the inventory is sold through to the end customer. We also maintain consignment inventory
arrangements with certain of our customers. Pursuant to these arrangements, our Company delivers products to a customer or a designated third party warehouse based upon the customer's projected needs,
but does not recognize revenue unless and until the customer reports that it has removed the product from the warehouse to incorporate into its end products, and all the other revenue recognition
criteria under SAB 104 are met.

We
recognize royalty revenue in accordance with agreed upon terms when performance obligations are satisfied, the amount is fixed or determinable, and collectability is reasonably
assured. The amount of royalties recognized is often calculated based on the licensees' periodic reporting to us. Any upfront payments are recognized as revenue only if there is no continuing
performance obligation when the license commenced and collectability is reasonably assured. Otherwise, revenue is amortized over the life of the license or according to performance obligations
outlined in the license agreement.

Fair Value of Financial Instruments

In the current market environment, some of our financial assets are more difficult to value or are subject to complex valuation
techniques. SFAS No. 157, "Fair Value Measurements" ("SFAS 157") establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands
on required disclosures about fair value measurement. Under SFAS 157, fair value is defined as the exit price, or the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. SFAS 157 also establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market
participants would use in valuing the asset or liability developed based on market data obtained from sources independent from us. Unobservable inputs are inputs that reflect our assumptions about the
factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels (with Level 3 being the
lowest) defined as follows:



54

---







Table of Contents



Certain
financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar techniques and where at least one significant
model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there is limited market activity where the
determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain mortgage-backed securities and
asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At June 28, 2009, these securities were valued primarily using independent
valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit valuation
adjustments of marketplace participants at June 28, 2009.

Impairment of Long-Lived Assets, Intangibles and Goodwill

We evaluate the carrying value of long-lived assets, including goodwill on an ongoing basis and whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.

As
required by SFAS No. 142, "Goodwill and Other Intangible Assets," we evaluate the carrying value annually during the fourth quarter of each fiscal year and more frequently if
we believe indicators of impairment exist. In evaluating goodwill, a two-step goodwill impairment test is applied to each reporting unit. 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 goodwill to the carrying amount of that goodwill and if less we write down the carrying amount of the goodwill to its implied fair value.

The
fair value of our reporting units is determined using a combination of the income approach, which estimates fair value of our reporting units based on a discounted cash flow
approach, and the market approach which estimates the fair value of our reporting units based on comparable market multiples. The comparable companies utilized in our evaluation are primarily our
major competitors as listed in Item 1. The discount rates we considered for determining discounted cash flows ranged from approximately 11.9% to 14.2% and based upon our assessment of the risks
associated with the projected cash flows and market based estimates of capital costs we used a rate in the middle of this range.

The
determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions include estimates of future revenue
and expense growth rates, capital expenditures and the depreciation and amortization, changes in working capital, discount rates, selection of appropriate peer group companies, and the selection of
appropriate control premiums. Due to the inherent uncertainty involved in making these estimates, actual future results related to assumed variables could differ from these estimates. Changes in
assumptions regarding future results or other underling assumptions would have a significant impact on either the fair value of the reporting unit or the amount of goodwill impairment charge.

During
our third fiscal quarter of fiscal year 2009 we concluded that events and changes in circumstances, including our performance against business plan and the outlook for our
business and industry, warranted an interim impairment analysis of goodwill. Based on the results of this interim goodwill impairment test, we concluded that the Automotive Products and Intellectual
Property reporting units' carrying value exceeded their fair value. As a result we recorded a goodwill impairment

55

---



Table of Contents

charge
of $23.9 million during the third quarter of fiscal 2009. In addition and based on our annual impairment test in the fourth quarter for fiscal year 2008, we determined that goodwill was
impaired as of the fiscal year ended June 29, 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.

We
evaluate all other long-lived assets and intangible assets for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Factors we consider include:



We
evaluate long-lived assets based upon an estimate of future undiscounted cash flows. Recoverability of these assets is measured by comparing the carrying value to the
future net undiscounted cash flows expected to be generated by the asset. Future net undiscounted cash flows include estimates of future revenues and expenses which are based on projected growth
rates. During fiscal year 2009 we performed an impairment review of long-lived assets during the second and third fiscal quarters and recorded a combined impairment charge of
$51.7 million for long-lived assets determined to have been impaired.

Other-Than-Temporary Impairments

Subsequent to the determination of fair value we evaluate securities for other-than-temporary impairment.
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 our intent and ability to retain the security in order to allow for an
anticipated recovery in fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a
loss is recognized through earnings. Other-than-temporary impairments relating to certain available-for-sale securities, for the fiscal year ended
June 28, 2009 and June 29, 2008 were $39.2 million and $8.4 million, respectively, and were included in other expense. As of June 28, 2009, we had no cumulative
unrealized losses related to debt instruments classified as available-for-sale and unrealized losses on equity investments of approximately $1.8 million. These
unrecognized losses could be recognized in the future if our other-than-temporary assessment changes.

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, or cost associated with abnormally low capacity
levels, excessive spoilage, double freight, and re-handling costs are charged to 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 current period production, including materials, labor and overhead costs differ significantly
from our normal capacity utilization, our gross margin and inventory may be materially impacted.

56

---



Table of Contents

Income Taxes

Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities
using enacted rates in effect during the year in which the differences are expected to reverse. 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 been established, the related portion of the valuation allowance will be released to reduce income tax expense or goodwill, credit other comprehensive income, 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 the corresponding liability of accrued income taxes or long term income taxes payable.

Valuation
allowances have been established for most of our U.S. deferred tax assets, which we believe do not meet the "more likely than not" realization criteria established by SFAS
No. 109. We examined the four sources of taxable income which allow the realization of deferred tax assets. They are: carrybacks, reversals of existing temporary differences, tax planning
strategies, and future taxable income exclusive of reversals of existing temporary differences. In fiscal year 2009, we established a valuation allowance against most of our net U.S. deferred tax
assets in the amount of $102.2 million and a full valuation allowance against our net U.K. Newport subsidiary's deferred tax assets in the amount of $68.3 million.

As
cumulative pre-tax losses for the current and prior two years in the Company's U.S. federal consolidated group constitute significant negative evidence, positive evidence
of equal or greater significance is needed at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. As to
positive evidence which would outweigh the foregoing negative evidence, expectations as to future taxable income are generally considered insufficient to overcome the negative evidence of recent
cumulative losses, even if supported by detailed forecasts and projections. This would have resulted in a complete valuation allowance on all U.S. deferred tax assets. However, we were able to
recognize $2.6 million of deferred tax assets based upon a tax reasonable planning strategy.

In
our U.K. Newport subsidiary cumulative pre-tax losses for the current and prior two years constitute significant negative evidence. Therefore, we require positive evidence
of equal or greater significance at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. In evaluating the
positive evidence available in this situation, expectations as to future taxable income are generally considered insufficient to overcome the negative evidence of recent cumulative losses, even if
supported by detailed forecasts and projections.

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

57

---



Table of Contents

due,
in accordance with Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109"
("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 28, 2009, U.S. income taxes have not been provided on approximately $17.4 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.

Out-of-Period Adjustments

Included in the result for the fiscal year 2009 are a number of corrections of prior period errors, some of which increased and some of
which decreased net loss. Based on our current financial condition and results of operations, management has determined that these corrections are immaterial to the financial statements in each
applicable prior period and the current periods to date, both individually and in the aggregate.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

Our exposure to interest rate risk is primarily through our investment portfolio. The objectives of our investments in debt securities
are to preserve principal and maintain liquidity while maximizing returns. To achieve these objectives, the returns on our investments in short-term fixed-rate debt securities
will be generally compared to yields on money market instruments such as industrial commercial paper, LIBOR or Treasury Bills. Investments in longer term fixed rate debt will be generally compared to
yields on comparable maturity high grade Government or high grade corporate instruments with an equivalent credit rating. Based on our investment portfolio and interest rates at June 28, 2009,
a 100 basis point increase or decrease in interest rates would result in an annualized change of approximately $2.9 million in the fair value of the investment portfolio. Changes in interest
rates may affect the fair value of the investment portfolio; however, unrealized gains or losses are not recognized in net income unless the investments are sold or the gains or losses are considered
to be other than temporary.

Foreign Currency Exchange Rates

We hedge the risks of foreign currency denominated repetitive working capital positions with offsetting foreign currency denominated
exchange transactions, currency forward contracts or currency swaps. Exchange gains and losses on these foreign currency denominated working capital positions are generally offset by corresponding
gains and losses on the related hedging instruments, usually resulting in negligible net exposure.

A
significant amount of our revenue, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies. At various times, we have currency
exposure related to the British Pound Sterling, the Euro and the Japanese Yen. For example, in the United Kingdom, we have a sales office and a Semiconductor Fabrication Facility with revenues
primarily in U.S. Dollars and Euro and expenses in British Pound Sterling. To protect against exposure to currency exchange rate fluctuations, we have established cash flow and balance sheet
translation risk hedging programs. Currency forward contract hedges have generally been utilized in these risk management programs. Our hedging programs seek to reduce, but do not always entirely
eliminate, the impact of currency exchange rate movements.

58

---



Table of Contents

In
May 2006, we entered into a forward contract for the purpose of reducing the effect of exchange rate fluctuations on forecasted inter-company 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. In December 2007, we terminated the forward contract and received $2.8 million of cash as part of the settlement. In accordance with
SFAS 133, the net gain at the forward contract's termination date will continue to be reported in accumulated other comprehensive income and recognized over the originally specified time period
through March 2011, unless it is probable that the forecasted transactions will not occur.

In
October 2004, our Japan subsidiary entered into a currency swap agreement to hedge intercompany payments in U.S. Dollars. The transaction commencement date was March, 2005 and the
termination date is April, 2011. Each month, we exchange JPY 9,540,000 for $100,000. When the applicable currency exchange rate is less than or equal to 95.40, we exchange JPY 18,984,600 for $199,000.

We
had approximately $26.2 million and $39.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS 133 at June 28,
2009 and June 29, 2008, respectively. Net realized and unrealized foreign-currency gains(losses) recognized in earnings, as a component of other expense, were $2.3 million, $(0.03)
million and $3.8 million for the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007, respectively.

In
the normal course of business, we also face risks that are either non-financial or non-quantifiable. Such risks principally include country risk, credit risk
and legal risk and are not discussed or quantified in the preceding analysis.

Market Value Risk

We carry certain assets at fair value. Generally, for assets that are reported at fair value, we use quoted market prices or valuation
models that utilize market data inputs to estimate fair value. In certain cases quoted market prices or market data inputs may not be readily available or availability could be diminished due to
market conditions. In these cases, our estimate of fair value is based on best available information or other estimates determined by management.

At
June 28, 2009, we had $600.5 million of total cash, cash equivalents and investments, consisting of available-for-sale fixed income securities.
We manage our total portfolio to encompass a diversified pool of investment-grade securities. The average credit rating of our investment portfolio is A/A2. Our investment policy is to manage our
total cash and investment balances to preserve principal and maintain liquidity while maximizing the returns. To the extent that our portfolio of investments continues to have strategic value, we
typically do not attempt to reduce or eliminate our market exposure. For securities that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing
of disposal. We may or may not enter into transactions to reduce or eliminate the market risks of our investments. During fiscal year ended June 28, 2009, the fair values of certain of our
investments declined and we recognized $39.2 million in other-than-temporary impairment relating to certain available-for-sale securities. See
Part II, Item 1A, "Risk FactorsOur investments in certain securities expose us to market risks", set forth in this Annual Report on Form 10-K for the
fiscal year ended June 28, 2009.

59

---





Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements and Financial Statement Schedule



PageReport of Independent Registered Public Accounting Firm-Ernst & Young LLP


61Report of Independent Registered Public Accounting Firm- PricewaterhouseCoopers LLP


62Financial StatementsConsolidated Statements of Operations for the Fiscal Years Ended June 28, 2009, June 29, 2008
and July 1, 2007


63Consolidated Balance Sheets as of June 28, 2009 and June 29, 2008


64Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Loss) for the Fiscal Years Ended June 28, 2009, June 29, 2008, and July 1, 2007


65Consolidated Statements of Cash Flows for the Fiscal Years Ended June 28, 2009, June 29, 2008,
and July 1, 2007


66Notes to Consolidated Financial Statements


67Supporting Financial Statement Schedule:Schedule No.

PageII. Valuation and Qualifying Accounts and Reserves for the Fiscal Years
Ended June 28, 2009, June 29, 2008, and July 1, 2007


155


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.

60

---





Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders
International Rectifier Corporation

We
have audited the accompanying consolidated balance sheet of International Rectifier Corporation and Subsidiaries as of June 28, 2009, and the related consolidated statements of
operations, stockholders' equity and comprehensive income (loss), and cash flows for the year ended June 28, 2009. Our audit also included the financial statement schedule for the year ended
June 28, 2009 listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Rectifier Corporation and
Subsidiaries at June 28, 2009, and the consolidated results of their operations and their cash flows for the year ended June 28, 2009, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement schedule for the year ended June 28, 2009, when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly in all material respects the information set forth therein.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), International Rectifier Corporation and Subsidiaries' internal
control over financial reporting as of June 28, 2009, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated August 27, 2009 expressed an adverse opinion thereon.

/s/ Ernst & Young LLPLos Angeles, California
August 27, 2009


61

---



Table of Contents



Report of Independent Registered Public Accounting Firm

To
Board of Directors and Stockholders of International Rectifier Corporation:

In
our opinion, the consolidated balance sheet as of June 29, 2008 and the related consolidated statements of operations, of cash flows and of stockholders' equity and
comprehensive income (loss) present fairly, in all material respects, the financial position of International Rectifier Corporation and its subsidiaries at June 29, 2008, and the results of
their operations and their cash flows for each of the two years in the period ended June 29, 2008, in conformity with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule for each of the two years in the period ended June 29, 2008 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/
PricewaterhouseCoopers LLP
Los Angeles, California
September 15, 2008, except with respect to our opinion on the consolidated financial statements insofar as it relates to the effects of the change in accounting principle for patent-related
costs discussed in Note 1 and the change in reportable segments discussed in Note 9, as to which the date is August 26, 2009

62

---





Table of Contents



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share data)

Fiscal Year EndedJune 28,
2009

June 29,
2008

July 1,
2007Revenues

$
740,419

$
984,830

$
1,202,469Cost of sales


515,563


662,007


741,111Gross profit


224,856


322,823


461,358Selling, general and administrative expense


262,068


287,830


212,541Research and development expense


98,211


105,812


122,794Impairment of goodwill


23,867


32,624


Amortization of acquisition-related intangible assets


4,408


4,656


1,889Asset impairment, restructuring and other charges


56,493


3,080


10,398Gain on divestiture


(96,136
)




Operating (loss) income


(124,055
)

(111,179
)

113,736Other expense (income), net


39,717


19,423


(6,257
)Interest income, net


(11,694
)

(29,093
)

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


(152,078
)

(101,509
)

136,029Provision for (benefit from) income taxes


95,339


(42,268
)

62,889(Loss) income from continuing operations


(247,417
)

(59,241
)

73,140Income from discontinued operations, net of taxes








4,255Net (loss) income

$
(247,417
)
$
(59,241
)
$
77,395Net (loss) income per common share:Basic:(Loss) income from continuing operations

$
(3.42
)
$
(0.81
)
$
1.01Income from discontinued operations








0.06Net (loss) income per share

$
(3.42
)
$
(0.81
)
$
1.07Diluted:(Loss) income from continuing operations

$
(3.42
)
$
(0.81
)
$
1.00Income from discontinued operations








0.06Net (loss) income per share

$
(3.42
)
$
(0.81
)
$
1.06Average common shares outstandingbasic


72,295


72,819


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


72,295


72,819


72,933


The
accompanying notes are an integral part of this statement.

63

---





Table of Contents



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands, except share and per share data)

June 28,
2009

June 29,
2008ASSETSCurrent assets:Cash and cash equivalents

$
365,761

$
320,464Restricted cash


3,925


4,341Short-term investments


113,247


101,739Trade accounts receivable, net of allowances of $5,102 for 2009 and $6,525 for 2008


97,572


105,384Inventories


151,121


175,856Current deferred tax assets


1,223


13,072Prepaid expenses and other receivables


28,556


43,993Total current assets


761,405


764,849Restricted cash





15,012Long-term investments


121,508


303,680Property, plant and equipment, at cost, net


369,713


516,629Goodwill


74,955


98,822Acquisition-related intangible assets, net


11,821


16,225Long-term deferred tax assets


7,994


93,460Other assets


53,911


59,721Total assets

$
1,401,307

$
1,868,398LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities:Accounts payable

$
62,570

$
77,653Accrued income taxes


6,830


30,943Accrued salaries, wages and commissions


22,325


33,022Current deferred tax liabilities


2,793


2,266Other accrued expenses


114,043


103,355Total current liabilities


208,561


247,239Long-term deferred tax liabilities


4,439


4,828Deferred gain on divestiture





112,609Other long-term liabilities


53,055


59,285Total liabilities


266,055


423,961Commitments and contingenciesStockholders' equity:Common shares, $1 par value, authorized: 330,000,000; issued and outstanding: 71,192,390 shares in 2009 and 72,826,406 shares in 2008


73,101


72,826Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in 2009 and 2008





Capital contributed in excess of par value


981,786


971,920Treasury stock, at cost


(23,632
)

Retained earnings


85,015


332,432Accumulated other comprehensive income


18,982


67,259Total stockholders' equity


1,135,252


1,444,437Total liabilities and stockholders' equity

$
1,401,307

$
1,868,398


The accompanying notes are an integral part of this statement.

64

---



Table of Contents



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

Treasury
Stock, at
Cost

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Comprehensive
Income (Loss)

TotalBalance, July 2, 2006 as previously reported

$
71,988

$
924,718

$


$
323,846

$
64,526

$


$
1,385,078Adjustments to opening stockholders' equity(1)











(9,568
)







(9,568
)Balance, July 2, 2006


71,988


924,718





314,278


64,526





1,375,510Net income for the year ended July 1, 2007











77,395





77,395


77,395Other 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

















113,313


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 expense





10,682














10,682Balance, July 1, 2007


72,811


958,417





391,673


100,444





1,523,345Net loss for the year ended June 29, 2008











(59,241
)




(59,241
)

(59,241
)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

















(92,425
)

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


15


174














189Tax charge from exercise of stock options





(1,019
)













(1,019
)Stock-based compensation expense





14,348














14,348Balance, June 29, 2008


72,826


971,920





332,432


67,259





1,444,437Net loss for the year ended June 28, 2009











(247,417
)




(247,417
)

(247,417
)Other comprehensive loss:Foreign currency translation adjustments

















(64,436
)

Net unrealized gains (losses) on available-for-sale securities, net of deferred tax provision of $3,013

















14,221


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

















1,938


Other comprehensive loss














(48,277
)

(48,277
)

(48,277
)Comprehensive loss

















(295,694
)

Issuance of common shares:Exercise of stock options and vesting of RSU's274,633 shares


275


2,247














2,522Repurchase of common stock1,909,649 shares








(23,632
)










(23,632
)Tax charge from exercise of stock options





(340
)













(340
)Stock-based compensation expense





7,959














7,959Balance, June 28, 2009

$
73,101

$
981,786

$
(23,632
)
$
85,015

$
18,982

$


$
1,135,252


---

The accompanying notes are an integral part of this statement.

65

---



Table of Contents



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Fiscal Year EndedJune 28, 2009

June 29, 2008

July 1, 2007Cash flow from operating activities:Net (loss) income

$
(247,417
)
$
(59,241
)
$
77,395Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Depreciation and amortization


64,003


72,294


72,077Amortization of acquisition-related intangible assets


4,408


4,656


2,209Stock compensation expense


7,405


11,128


14,201Pre-tax loss on Divestiture, discontinued operations








4,262Debt retirement charge





5,659


Goodwill impairment


23,867


32,624


Loss (gain) on sale of investments


3,411


358


(2,070
)Other-than-temporary impairment of investments


39,239


12,023


Provision for bad debt


131


387


6,498Provision for inventory write-downs


10,727


29,825


36,622Asset impairment


51,709





5,878Unrealized gains on derivatives


(1,220
)




(2,244
)Divestiture gain


(96,136
)




Deferred revenue


559


(16,449
)

(880
)Deferred income taxes


104,101


(18,360
)

(20,679
)Tax benefit (charge) from exercise of stock options


340


(1,019
)

3,739Excess tax benefit from stock options exercised


(3
)

(81
)

(1,559
)Other


(703
)




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


(5,632
)

(37,404
)

(10,031
)Net cash (used in) provided by operating activities


(41,211
)

36,400


185,418Cash flow from investing activities:Additions to property, plant and equipment


(20,793
)

(41,780
)

(120,539
)Proceeds from sale of property, plant and equipment


576


837


1,055Acquisition of technologies








(1,000
)Proceeds from Divestiture








339,615Cash conveyed as part of Divestiture


(30,000
)




(56,964
)Cost associated with Divestiture





(1,800
)

(28,762
)Sale or maturities of investments


435,146


342,329


564,139Purchase of investments


(289,333
)

(311,075
)

(398,797
)Released from (additions to) restricted cash


14,012


(420
)

(14,592
)Other, net





(778
)

(12,363
)Net cash provided by (used in) investing activities


109,608


(12,687
)

271,792Cash flow from financing activities:Repayments of short-term debt





(550,462
)

(29,858
)Repayments of long-term debt








(81,746
)Decrease (increase) in restricted cash


1,416


(4,341
)

Repayments of obligations under capital leases





(417
)

(432
)Proceeds from exercise of stock options and stock participation plan


3,023


189


20,101Excess tax benefit from options exercised


3


81


1,559Purchase of treasury stock


(23,632
)




Net settlement of restricted stock units


(500
)




Other, net








(131
)Net cash used in financing activities


(19,690
)

(554,950
)

(90,507
)Effect of exchange rate changes on cash and cash equivalents


(3,410
)

(1,339
)

3,430Net increase (decrease) in cash and cash equivalents


45,297


(532,576
)

370,133Cash and cash equivalents, beginning of year


320,464


853,040


482,907Cash and cash equivalents, end of year

$
365,761

$
320,464

$
853,040


The accompanying notes are an integral part of this statement.

66

---





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, Automotive Products modules, and DC-DC converter type applications.

Basis of Presentation and Consolidation

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("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.

During
the fourth quarter of fiscal year 2009 the Company changed its method of accounting for third-party costs related to applications for and defense of patents on its technology from
capitalizing such costs and amortizing these costs on a straight-line basis over the economic life of the underlying technology to expensing these costs as incurred. As a result of this
change in accounting method, the Company's prior period consolidated financial statements have been adjusted to reflect this change.

In
the fourth quarter of fiscal year 2009, the Company reclassified investment management fees of $0.7 million from interest expense to interest income to align the reporting of
investment expense with investment income. Approximately $1.2 million and $1.1 million of investment management fees were reclassified for fiscal years 2008 and 2007, respectively, to
conform to current year presentation. In addition, during the fourth quarter of fiscal year 2009, the Company reclassified the spare parts inventory balance of approximately $19.6 million
previously included in property, plant and equipment to other long-term assets. Approximately $17.5 million was reclassified for fiscal year 2008 to conform to current year presentation.

On
April 1, 2007, the Company sold its Power Control Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc ("Vishay") (the "Divestiture"). Subsequent to the
consummation of the Divestiture, a number of matters developed, as discussed in Note 13, "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 as discussed in Note 2, "Discontinued
Operations and the Divestiture," for fiscal years 2007 and 2008. The Company and Vishay, on June 25, 2009, entered into various agreements (collectively the "Settlement Agreement") which
resolved the uncertainties related to the

67

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

determination
of the gain. The gain has been reported in income from continuing operations for fiscal year 2009 (see Note 2, "Discontinued Operations and the Divestiture").

For
the fiscal year ended July 1, 2007, the financial results of the NAP segment were included in discontinued operations. Financial results of the CP segment were not included in
discontinued operations, as the Company had significant ongoing involvement based on the significance of the cash flows derived from certain transition services ("TS") provided to Vishay for up to
three years as part of the Divestiture (see Note 2, "Discontinued Operations and the Divestiture").

Fiscal Year

The Company operates on a 52-53 week fiscal year with the fiscal year ending on the Sunday closest to
June 30th. Fiscal year 2009 consisted of 52 weeks ending June 28, 2009, fiscal year 2008 consisted of 52 weeks ending June 29, 2008, and fiscal year 2007 consisted
of 52 weeks ending July 1, 2007. Fiscal quarters consist of 13 weeks ending on the Sunday closest to the end of the calendar quarter.

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.

Out-of-Period Adjustments

Included in the results of operations for the fiscal year 2009 are a number of corrections of prior period errors, some of which
increased and some of which decreased net loss. Based on the Company's current financial condition and results of operations, the Company has determined that these corrections are immaterial to the
financial statements in each applicable prior period and the current periods to date, both individually and in the aggregate.

Subsequent Events

The Company evaluates events subsequent to fiscal year end through August 27, 2009, the date the financial statements are filed
with the Securities and Exchange Commission for recognition or disclosure in the consolidated financial statements. Events that provide additional evidence about material conditions that existed at
the date of the balance sheet are evaluated for recognition in the consolidated financial statements. Events that provide evidence about conditions that did not exist at the date of the balance sheet
but occurred after the balance sheet date are evaluated for disclosure in the notes to the consolidated financial statements.

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 revenue upon shipment
or upon delivery, depending on specific contractual terms and/or

68

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

shipping
terms with the customer. If title transfer and risk of loss are addressed explicitly in a customer contract or by reference to the standard terms and conditions, those stated terms determine
whether the recognition of revenue on product sales to that customer shall be upon either shipment or delivery. If the contract is silent and lacks reference to the Company's standard terms and
conditions, and barring other contrary information, transfer of title and risk of loss will follow the historical shipping terms for that customer. If revenue is to be recognized upon delivery, such
delivery date is tracked through information provided by the third party shipping company used by the Company to deliver the product to the customer.

Generally,
the Company recognizes revenue on sales to distributors, using the "sell in" method (i.e. when product is sold to the distributor) rather than the "sell through" method
(i.e. when the product is sold by the distributor to the end user). Certain distributors and other customers have limited rights of return (including stock rotation rights) and/or are entitled
to price protection, where a rebate credit may be provided to the customer if the Company lowers its price on products held in the distributor's inventory. Additionally, in certain limited cases, the
Company may pre-approve a credit to a distributor to facilitate a particular sale by the distributor to an end customer. The Company estimates and establishes allowances for expected
future product returns and credits in accordance with Statement of Financial Accounting Standards ("SFAS") No. 48, "Revenue Recognition When Right of Return Exists." The Company records a
reduction in revenue for estimated future product returns and future credits to be issued to the customer in the period in which
revenues are recognized, and for future credits to be issued in relation to price protection at the time the Company makes changes to its distributor price book. The estimate of future returns and
credits is based on historical sales returns, analysis of credit memo data, and other factors known at the time of revenue recognition. The Company monitors product returns and potential price
adjustments on an ongoing basis.

Revenue
on sales to distributors that act only as fulfillment houses (agents) is deferred until the inventory is sold through to the end customer. The Company also maintains consignment
inventory arrangements with certain of its customers. Pursuant to these arrangements, the Company delivers products to a customer or a designated third party warehouse based upon the customer's
projected needs, but does not recognize revenue unless and until the customer reports that it has removed the product from the warehouse to incorporate into its end products, assuming all the other
revenue recognition criteria under SAB 104 are met.

The
Company recognizes royalty revenue in accordance with agreed upon terms when performance obligations are satisfied, the amount is fixed or determinable, and collectability is
reasonably assured. The amount of royalties recognized is often calculated based on the licensees' periodic reporting to the Company. Any upfront payments are recognized as revenue only if there is no
continuing performance obligation when the license commenced and collectability is reasonably assured. Otherwise, revenue is amortized over the life of the license or according to performance
obligations outlined in the license agreement.

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

69

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Taxes
Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement."

Shipping Costs

Outbound customer shipping costs are expensed as incurred and are included in selling, general and administrative expense, research and
development, and costs of sales. The expense for outbound customer shipments for the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 was $6.0 million,
$8.6 million and $11.9 million, respectively.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling, general and administrative expense. Advertising expense for the
fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 was $3.0 million, $2.6 million and $3.6 million, respectively.

Research and Development Costs

Research and development ("R&D") costs, including salaries, 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 28, 2009, June 29, 2008, and July 1, 2007 are as follows
(in thousands):

Fiscal Year EndedJune 28,
2009

June 29,
2008

July 1,
2007Interest income

$
(13,033
)
$
(31,806
)
$
(53,545
)Interest expense


1,339


2,713


37,509Interest income, net

$
(11,694
)
$
(29,093
)
$
(16,036
)


Interest
expense capitalized as part of construction-in-progress for the fiscal year ended July 1, 2007 was $4.6 million. No interest was
capitalized for the fiscal years ended June 28, 2009 and June 29, 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

70

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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 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.

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, credit other
comprehensive income, 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.

As
of June 28, 2009, U.S. income taxes have not been provided on approximately $17.4 million of undistributed earnings of foreign subsidiaries since those earnings are
considered to be invested indefinitely. Determination of the amount of unrecognized deferred tax liabilities for temporary differences related to investments in these non-U.S. subsidiaries
that are essentially permanent in duration is not practicable.

Net (Loss) Income per Common Share

Net (loss) income per common sharebasic is computed by dividing net (loss) 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 (loss) 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
upon the exercise of stock options using the treasury stock method and for the year ended July 1, 2007, 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 net income per share. The

71

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Company's
use of the treasury stock method reduces the 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. For the year ended July 1, 2007, the Company's use of the if-converted method increases reported net (loss) income by the interest expense, net of tax,
related to the convertible subordinated notes when computing net income per common sharediluted. For the year ended July 1, 2007, 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"), since the Effect would
have been anti-dilutive. For the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, 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 (loss) income from discontinued operations
in accordance with SFAS No. 128, "Earnings per Share" ("SFAS No. 128").

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 year ended July 1, 2007, 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 28, 2009, June 29, 2008, and July 1, 2007 were comprised of the following (in thousands):

Fiscal Year EndedJune 28,
2009

June 29,
2008

July 1,
2007Trade accounts receivable

$
2,945

$
48,590

$
(4,904
)Inventories


11,785


16,943


(56,146
)Prepaid expenses and other receivables


14,027


26,497


1,949Accounts payable


(15,078
)

11,572


(8,268
)Accrued salaries, wages and commissions


(9,927
)

(7,866
)

(8,668
)Deferred compensation


(1,117
)

(440
)

3,488Accrued income taxes


(21,638
)

(110,746
)

26,281Other accrued expenses


13,371


(21,954
)

36,237Changes in operating assets and liabilities

$
(5,632
)
$
(37,404
)
$
(10,031
)


Supplemental
disclosures of cash flow information (in thousands):

Fiscal Year EndedJune 28,
2009

June 29,
2008

July 1,
2007Cash paid during the year for:Interest

$
4,794

$
28,706

$
46,004Income taxes


7,791


92,192


27,759Non-cash investing activities:Liabilities accrued for property, plant and equipment purchases


2,265


1,207


7,084


72

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Fair Value of Financial Instruments

The Company adopted SFAS 157 effective the first day of fiscal year 2009. SFAS 157 establishes a single authoritative
definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement. Under SFAS 157, fair value is defined as the exit
price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. SFAS 157 also
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be
used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on market data obtained from sources independent of the Company.
Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information
available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. The hierarchy is broken down into three levels (with Level 3 being the lowest) defined as follows:



Certain
financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar techniques and where at least one significant
model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there is limited market activity where the
determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain mortgage-backed securities and
asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At June 28, 2009, these securities were valued primarily using independent
valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit valuation
adjustments of marketplace participants at June 28, 2009.

73

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Other-Than-Temporary Impairments of Investments

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 Company's intent and ability 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 as a component of other expense (income), net.

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 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 any 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.

Cash,
restricted cash, cash equivalents and investments as of June 28, 2009 and June 29, 2008 are summarized as follows (in thousands):

June 28, 2009

June 29, 2008Cash and cash equivalents

$
365,761

$
320,464Short-term investments


113,247


101,739Restricted cash


3,925


19,353Long-term investments


121,508


303,680Total cash, restricted cash, and cash equivalents and investments

$
604,441

$
745,236


74

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Restricted
cash of $1.0 million and $15.0 million at June 28, 2009 and June 29, 2008, respectively, has been 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 holds the funds in escrow and invests 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 is 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. The original Divestiture
agreement noted that any funds remaining in the escrow account 18 months after closing of the Divestiture, unless subject to a dispute with Vishay will be disbursed to the Company. At
18 months following the Divestiture, a dispute with Vishay resulted in no funds being distributed from the escrow account. Pursuant to the settlement agreement with Vishay dated June 25,
2009, (see Note 13, "Commitments and Contingencies"), $14.0 million of the funds held in escrow were released in fiscal year 2009.

In
addition, the Company had $2.9 million in a term deposit account with Bank of America as collateral for outstanding letters of credit at June 28, 2009.

Inventories

Inventories are stated at the lower of cost (generally first-in, first-out) or market. Inventories are reviewed
for excess 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 28, 2009 and June 29, 2008, were comprised of the following (in thousands):

June 28, 2009

June 29, 2008Raw materials

$
32,717

$
34,046Work-in-process


66,613


67,855Finished goods


51,791


73,955Total inventories

$
151,121

$
175,856


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 28, 2009, and June 29, 2008, and July 1, 2007 was
$64.0 million, $82.9 million

75

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

and
$78.5 million, respectively. Property, plant and equipment at June 28, 2009 and June 29, 2008 were comprised of the following (in thousands):

June 28, 2009

June 29, 2008

Range of
Useful LifeBuilding and improvements

$
175,776

$
182,779


3 - 40Equipment


979,685


1,038,323


3 - 15Less: accumulated depreciation and amortization


(813,068
)

(773,285
)342,393


447,817Land


16,440


17,799Construction-in-progress


10,880


51,013Total property, plant and equipment

$
369,713

$
516,629


Amortization
of improvements to leased premises is recorded 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 28, 2009 and June 29, 2008.

Repairs
and maintenance costs are charged to expense as incurred. In the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, repairs and maintenance
expenses were $31.9 million, $38.3 million and $44.3 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").

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.

76

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The
Company evaluates the carrying value of long-lived assets, including goodwill on an ongoing basis and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.

Goodwill and Other Intangible Assets

As required by SFAS No. 142, "Goodwill and Other Intangible Assets," the Company evaluates the carrying value of the goodwill
and other intangible assets annually during the fourth quarter of each fiscal year and more frequently if it believes indicators of impairment exist. In evaluating goodwill, a two-step
goodwill impairment test is applied to each reporting unit. The Company identifies reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units. In the first step of the impairment test, the Company estimates the fair value of the reporting unit. If the fair value
of the reporting unit is less than the carrying value of the reporting unit, the Company performs the second step which compares the implied fair value of the reporting unit with the carrying amount
of that goodwill and writes down the carrying amount of the goodwill to the implied fair value.

The
fair value of the Company's reporting units is determined using a combination of the income approach, which estimates fair value of its reporting units based on a discounted cash
flow approach, and the market approach which estimates the fair value of its reporting units based on comparable market multiples. The comparable companies utilized in the Company's evaluation are
primarily its major competitors. The discount rates the Company considered for determining discounted cash flows ranged from approximately 11.9% to 14.2% and based upon its assessment of the risks
associated with the projected cash flows and market based estimates of capital costs the Company used a rate in the middle of this range.

The
determination of the fair value of the reporting units requires the Company to make significant estimates and assumptions. These estimates and assumptions include estimates of future
revenue and expense growth rates, capital expenditures and the depreciation and amortization, changes in working capital, discount rates, selection of appropriate peer group companies, and the
selection of appropriate control premiums. Due to the inherent uncertainty involved in making these estimates, actual future results related to assumed variables could differ from these estimates.
Changes in assumptions regarding future results or other underlying assumptions would have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment
charge.

During
the third quarter of fiscal year 2009 the Company concluded that events and changes in circumstances, including performance against business plan and the outlook for the business
and industry, warranted an interim impairment analysis of goodwill. Based on the results of this interim goodwill impairment analysis the Company concluded that the Automotive Products and
Intellectual Property reporting units' carrying value exceeded their fair value. As a result the Company recorded a goodwill impairment charge of $23.9 million, $20.1 million of which
related to the IP segment and $3.8 million related to the AP segment, during the third quarter of fiscal 2009. In addition and based on the Company's annual impairment test in the fourth
quarter for fiscal year 2008, the Company determined that goodwill was impaired as of the fiscal year ended June 29, 2008 and recognized an impairment charge of $32.6 million,
$28.7 million of which related to the PMD segment and $3.9 million related to the PS segment.

77

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

At
June 28, 2009 and June 29, 2008, acquisition-related intangible assets are as follows (in thousands):

June 28, 2009Amortization
Periods
(Years)

Gross Carrying
Amount

Accumulated
Amortization

NetCompleted technology


4 - 12

$
29,679

$
(19,593
)
$
10,086Customer lists(1)


5 - 12


5,330


(4,437
)

893Intellectual property and other


5 - 15


7,963


(7,121
)

842Total acquisition-related intangible assets




$
42,972

$
(31,151
)
$
11,821




June 29, 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 - 15


7,963


(6,953
)

1,010Total acquisition-related intangible assets




$
43,088

$
(26,863
)
$
16,225






As
of June 28, 2009, estimated amortization expense for the next five years is as follows: fiscal year 2010: $4.4 million; fiscal year 2011: $4.1 million; fiscal
year 2012: $1.8 million; fiscal year 2013: $0.2 million; and fiscal year 2014: $0.2 million.

The
carrying amount of goodwill by ongoing business segment as of June 28, 2009 and June 29, 2008 was as follows (in thousands):

Business Segments:

June 28, 2009

June 29, 2008Power Management Devices

$


$
Energy-Saving Products


33,190


33,190HiRel


18,959


18,959Enterprise Power


22,806


22,806Automotive Products





3,793Intellectual Property





20,074Total goodwill

$
74,955

$
98,822


As
of June 28, 2009, $69.3 million of goodwill is deductible for income tax purposes for which $3.3 million, $3.3 million and $3.0 million were
deducted in the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, respectively.

78

---





Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The changes in the carrying amount of goodwill for the fiscal years ended June 28, 2009 and June 29, 2008 were as follows (in thousands):

Balance, July 1, 2007

$
131,446Impairment


(32,624
)Balance, June 29, 2008


98,822Impairment


(23,867
)Balance, June 28, 2009

$
74,955


Change in Method of Accounting for Patent-Related Costs

During the fourth quarter of fiscal year 2009, the Company changed its method of accounting for third-party costs related to
applications for patents including third-party legal costs related to the application for and defense of patents on its technology from capitalizing such costs and amortizing these costs on a
straight-line basis over the economic life of the underlying technology to expensing these costs as incurred. While the Company believes that patents and the underlying technology have
continuing value, the pace of technological change and the challenge of estimating the economic life of the underlying technology make it difficult to estimate the benefits to be derived in the
future. The patent-related costs previously capitalized and amortized consist solely of new patent applications and maintenance fees, litigation costs relating to licensed MOSFET patents and related
legal costs incurred in obtaining patents on its internally generated technologies. The Company believes the new practice is more appropriate since the costs it has historically capitalized represent
only a portion of the total costs incurred to develop the underlying technologies and bear no relationship to the fair value of those technologies. The Company also believes the new practice is
consistent with the predominant industry practice.

Consistent
with FASB Statement No. 154, "Accounting Changes and Error Corrections", the effect of the change in accounting method has been made retroactive to the beginning of the
earliest period presented in the accompanying fiscal 2009 consolidated financial statements and the historical quarterly financial statements have been adjusted to reflect the period-specific effects
of applying the new method.

As
a result of the accounting change, the Company's retained earnings as of June 30, 2006 decreased by $9.6 million to $314.3 million.

The
following tables summarize the impact of the change in accounting for patent-related costs on the Company's consolidated balance sheet as of June 29, 2008, and its
consolidated statements of operations and cash flows for the years ended June 29, 2008 and July 1, 2007. Only the line items

79

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

affected
by the change in accounting are reflected in the tables below (all amounts, unaudited, in thousands, except per share data):

Consolidated Balance Sheet

June 29, 2008As originally
reported

As adjustedOther assets(1)

$
70,119

$
59,721Long-term deferred tax asset


89,576


93,460Total assets


1,874,912


1,868,398Retained earnings


338,946


332,432Total stockholders' equity


1,450,951


1,444,437Total liabilities and stockholders' equity

$
1,874,912

$
1,868,398






Consolidated Statement of Operations

Fiscal year ended
June 29, 2008

Fiscal year ended
July 1, 2007As originally
reported

As adjusted

As originally
reported

As adjustedSelling, general and administrative expense

$
293,168

$
287,830

$
212,088

$
212,541(Loss) income from operations


(116,517
)

(111,179
)

114,189


113,736(Loss) income before income taxes


(106,847
)

(101,509
)

136,482


136,029Net (loss) income from continuing operations


(62,642
)

(59,241
)

73,487


73,140Net (loss) income

$
(62,642
)
$
(59,241
)
$
77,742

$
77,395(Loss) income from continuing operations per sharebasic

$
(0.86
)
$
(0.81
)
$
1.01

$
1.01(Loss) income from continuing operations per sharediluted

$
(0.86
)
$
(0.81
)
$
1.01

$
1.00Net (loss) income per sharebasic

$
(0.86
)
$
(0.81
)
$
1.07

$
1.07Net (loss) income per sharediluted

$
(0.86
)
$
(0.81
)
$
1.07

$
1.06


80

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Consolidated Statements of Cash Flows

Fiscal year ended
June 29, 2008

Fiscal year ended
July 1, 2007As originally
reported

As adjusted

As originally
reported

As adjustedNet (loss) income

$
(62,642
)
$
(59,241
)
$
77,742

$
77,395Depreciation and amortization


82,934


72,294


78,491


72,077Deferred tax assets


(20,298
)

(18,360
)

(20,573
)

(20,679
)Changes in operating assets and liabilities


(42,705
)

(37,404
)

(16,898
)

(10,031
)Net cash provided by operating activities

$
36,400

$
36,400

$
185,418

$
185,418


Other Accrued Expenses

Other accrued expenses at June 28, 2009 and June 29, 2008 were comprised of the following (in thousands):

June 28, 2009

June 29, 2008Sales returns

$
21,036

$
40,850Accrued accounting and legal costs(1)


60,713


18,884Deferred revenue


7,885


7,326Accrued compensation


3,995


6,679Transition services contract liability





6,667Accrued Divestiture liability


2,410


3,101Accrued warranty


1,767


2,672Accrued utilities


1,563


2,320Accrued sales and other taxes


1,117


1,583Short-term severance liability


5,234


1,091Accrued interest





76Other


8,323


12,106Total other accrued expenses

$
114,043

$
103,355






Warranty

The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of its
warranty agreements. The specific warranty terms and conditions vary depending upon product sold and the country in which the Company does business. In general, for standard products, the Company will
replace defective parts not meeting the Company's published specifications at no cost to the customers. Factors that affect the liability include historical and anticipated failure rates of products
sold, and cost per claim to satisfy the warranty obligation. If actual

81

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

results
differ from the estimates, the Company revises its estimated warranty liability to reflect such changes.

The
following table details the changes in the Company's warranty reserve for the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, which is
included in other accrued liabilities in the schedule above (in thousands):

Accrued warranty, July 2, 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, July 1, 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 29, 2008


2,672Accruals for warranties issued during the year


3,574Changes in estimates related to pre-existing warranties


1,024Warranty claim settlements


(5,503
)Accrued warranty, June 28, 2009

$
1,767


Other Long-Term Liabilities

Other long-term liabilities at June 28, 2009 and June 29, 2008 were comprised of the following (in
thousands):

June 28, 2009

June 29, 2008Income taxes payable

$
35,197

$
21,147Divested entities' tax obligations


7,283


20,734Deferred compensation


6,543


9,326Transition services contract liability





5,000Other


4,032


3,078Total other long-term liabilities

$
53,055

$
59,285


At
June 28, 2009, the Company had an accrual of $1.6 million for asset retirement obligations, included in other in the table above, during the fiscal year 2009 related to
future obligations to remove leasehold improvements and obligations for the closure of certain owned and leased manufacturing facilities. The initial asset amount related to this obligation was
approximately $1.1 million and was recorded as an addition to buildings and improvements during the fiscal year 2009. The Company recorded a charge of $1.2 million during the fiscal year
for depreciation and accretion expense of which $0.8 million related to fiscal years prior to fiscal year 2009. Of this charge, $1.0 million was recorded in cost of sales and
$0.2 million was recorded in selling, general and administrative expense.

82

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Derivative Financial Instruments

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 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 over the life of the hedge. As of June 28, 2009, the Company had no derivative instruments designated as hedges. As such,
all gains and losses on derivatives for the year ended June 28, 2009 were recognized in earnings.

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 does recognize subsequent gains or losses on the related derivative instrument in income in each period
until the instrument matures, is terminated or is sold.

Foreign Currency Translations

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 therefore translated into U.S. reporting currency using current exchange rates. Revenues denominated in foreign functional currencies 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.

83

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income as of June 28, 2009, June 29, 2008, and July 1, 2007 were
as follows (in thousands):

June 28, 2009

June 29, 2008

July 1, 2007Foreign currency translation adjustments

$
12,710

$
77,146

$
84,117Net unrealized (losses) gains on foreign currency forward contracts


1,565


(373
)

4,787Net unrealized (losses) gains on available-for-sale securities


4,707


(9,514
)

11,540Accumulated other comprehensive income

$
18,982

$
67,259

$
100,444


Stock-Based Compensation

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.

Stock Repurchase Program

On October 27, 2008, the Company announced that its Board of Directors authorized a stock repurchase program of up to
$100.0 million. Stock repurchases under this program may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depend on
market conditions and other factors. The stock repurchase program may be suspended at any time without prior notice. The Company has used and plans to continue to use existing cash to fund the
repurchases. All of the shares repurchased by the Company during the fiscal year to date June 28, 2009 were purchased in open market transactions through this program. For the fiscal year
June 28, 2009, the Company repurchased 1,909,649 shares for $23.6 million. As of June 28,

84

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2009,
the Company had not cancelled the repurchased shares of common stock and as such they are reflected as treasury stock in the June 28, 2009 consolidated balance sheet.

Concentration of Risk

The Company is subject to concentrations of credit risk in their investments, derivatives, and trade accounts receivable. The Company
maintains cash, cash equivalents and other securities with high credit quality financial institutions based upon the Company's analysis of that financial institution's relative credit standing. The
Company's investment policy is designed to limit exposure to any one institution. The Company also is exposed to credit-related losses in the event of non-performance by counterparties to
derivative instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company's exposure
to credit risk with these institutions. This credit risk is generally limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted. The Company
considers the risk of counterparty default to be minimal.

The
Company sells its products to distributors and original equipment manufactures involved in a variety of industries including computing, consumer, communications, automotive and
industrial. The Company has adopted credit policies and standards to accommodate industry growth and inherent risk. The Company performs continuing credit evaluations of its customers' financial
condition and requires
collateral as deemed necessary. Reserves are provided for estimated amounts of accounts receivable that may not be collected. The Company maintains allowances for doubtful accounts and pricing
disputes. These allowances as of fiscal years ended June 28, 2009 and June 29, 2008 were $5.1 million and $6.5 million, respectively.

Adoption of New Accounting Standards

In April 2009, the FASB issued FASB Staff Position Financial Accounting Standard 107-1 and APB 28-1,
"Interim Disclosures about Fair Value of Financial Instruments" ("FSP 107-1 and APB 28-1"). FSP 107-1, and APB 28-1, amends FASB Statement
No. 107, "Disclosures about the Fair Value of Financial Instruments", to require disclosures about fair value of financial instruments in interim financial statements as well as in annual
financial statements. This FSP also amends APB Opinion No. 28, "Interim Financial Reporting", to require those disclosures in all interim financial statements. This FSP is effective for interim
and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 had no material impact on the Company's consolidated
financial statements, and will result in additional disclosures in the Company's interim periodic financial reports.

In
April 2009, the FASB issued FSP 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly", ("FSP 157-4"). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the
volume and level of activity for the asset or liability have significantly decreased. FSP 157-4 also indicates guidance on identifying circumstances that indicate a transaction is not
orderly. The FSP affirmed that fair value, when the market for an asset is not active, is the price that would be received to sell the asset in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement date under current market conditions (that is, in the inactive market). The FSP clarifies and includes additional factors
for

85

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

determining
whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. This FSP requires an entity to base its conclusions about
whether a transaction was not orderly on the weight of the evidence. FSP 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of FSP FAS 157-4 did not have a material impact on the Company's consolidated financial statements.

In
April 2009, the FASB issued FASB Staff Position Financial Accounting Standard No. 115-2, and FAS 124-2, "Recognition and Presentation of
Other-Than-Temporary Impairments". This FSP amends the
other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial statements. Under this FSP, when an entity does not intend to sell the security and it is more
likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary
impairment of a debt security in earnings and the remaining portion in other comprehensive income. This FSP applies only to debt securities. FSP 115-2 is effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of FSP FAS 115-2 did not have a material impact on the Company's consolidated financial statements.

In
September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value Measurements"
("SFAS 157"), which established a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.
In February 2008, the FASB issued FASB Staff Position Financial Accounting Standard 157-2, "Partial Deferral of the Effective Date of Statement 157" ("FSP 157-2"), which
delayed the effective date of SFAS 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15,
2008. FSP 157-2 is effective upon initial adoption of SFAS 157. The Company adopted SFAS 157 at the beginning of the first quarter of fiscal year 2009. The adoption of this
statement resulted in additional disclosures but, did not have a material effect on the Company's consolidated financial statements (see Note 3).

In
October 2008, the FASB issued FASB Staff Position Financial Accounting Standard 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is
Not Active" ("FSP 157-3"). FSP 157-3 clarifies the application of SFAS 157 in cases where a market is not active. The Company has considered the guidance provided by FSP
157-3 in its determination of estimated fair values, and the impact was not material (see Note 3).

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits the Company to
choose to measure certain financial instruments and certain other items at fair value. This statement requires that unrealized gains and losses on items for which the fair value option has been
chosen, be reported in earnings. The Company adopted SFAS 159 at the beginning of the first quarter of fiscal year 2009, and the adoption had no material effect on the Company's consolidated
financial statements as the Company elected not to measure certain financial instruments and certain other items within the scope of SFAS 159 at fair value.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133" ("SFAS 161").
SFAS 161 amends and expands the disclosure requirements of SFAS No. 133, "Accounting for Derivative Instruments and

86

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Hedging
Activities" ("SFAS 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 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. The Company adopted the provisions of SFAS 161 during the third quarter of fiscal year 2009. See Note 5, "Derivative Financial Instruments".

In
May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165"). This statement identifies the general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statement are issued or are available to be issued. In particular, this Statement sets forth: 1) The period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, 2) The circumstances
under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and 3) The disclosures that an entity should make about events
or transactions that occurred after the balance sheet date. This statement shall be effective for interim and annual financial periods ending after June 15, 2009, and shall be applied
prospectively. The adoption of SFAS 165 did not have a material impact on the Company's financial statements.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). Under
SFAS 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 be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition,
acquired in-process research and development ("R&D") is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change the
Company's accounting treatment for business combinations on a prospective basis beginning June 29, 2009.

In
April 2008, the FASB issued FASB Staff Position Financial Accounting Standard 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 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,
"Goodwill and Other Intangible Assets." FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. The Company is still
in the process of evaluating the impact, if any, of FSP 142-3 on its consolidated financial statements, but at this time the Company does not expect the adoption of FSP 142-3
will have a material impact on the Company's consolidated financial statements.

In
June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of the Generally Accepted Accounting Principles" ("SFAS 168").
This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity

87

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

with
generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The objective of this Statement is to replace Statement 162 and to establish the FASB Accounting
Standards Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC
registrants. This Statement shall be effective for financial statements issued for interim and annual periods ending after September 15, 2009.

2. Discontinued Operations and the Divestiture

Sale of PCS Business

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 13, "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 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 had significant ongoing
involvement based on the significance of the cash flows to be derived from the transition services agreements ("TSAs") with Vishay. In fiscal year 2007, the Company recorded a tax benefit of
$18.1 million in connection with the Divestiture transaction, 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


On
June 25, 2009 the Company and Vishay entered into the Settlement Agreement which resolved the parties' disputes related to the Divestiture as well as the uncertainties which
resulted in the deferral of the gain on Divestiture as discussed in Note 13, "Commitments and Contingencies." Pursuant to the Settlement Agreement the Company paid Vishay $30.0 million
to settle certain claims made by Vishay

88

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Discontinued Operations and the Divestiture (Continued)

and
an additional $0.5 million for certain quality claims related to products manufactured by the PCS Business prior to the Closing Date. Approximately $14.0 of the $15.0 million of
restricted cash then held in an escrow account to secure the Company's indemnity obligations related to the Divestiture was released and included in the $30.0 million payment to Vishay. As a
result of the resolution of the uncertainties related to the determination of the gain the Company recognized a gain in continuing operations of $96.1 million in fiscal year 2009.

A
summary of the changes in the deferred gain on Divestiture from July 1, 2007 through June 28, 2009, is as follows (in thousands):

Deferred gain on Divestiture, July 1, 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 29, 2008


112,609Decrease in tax indemnification obligations of divested entities and related currency effects


7,210Correction of a prior period immaterial error related to stock rotation and warranty reserve


2,336Reclassification of reserve as a result of termination of the Transition Product Services Agreement ("TPSA")


5,600Reclassification of asset as a result of termination of the TPSA


(1,117
)Revised purchase price per settlement agreement


(30,000
)Cash received for profit sharing plan contribution


498Less: Liability for indemnification obligation


(1,000
)Gain recognized on Divestiture, June 28, 2009

$
96,136


Under
the terms of the original transaction agreement related to the Divestiture, 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 the Company such other technology. The 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 was to provide to Vishay and $3.4 million for the transition services Vishay was to provide to the Company. As a result of the partial termination of the TPSA
and the settlement agreement with Vishay, the unamortized balances of the fair value of these agreements were reclassified to the gain on Divestiture.

The
following table represents revenues and the components of discontinued operations for NAP segment, net of taxes for the fiscal year ended July 1, 2007. There were no revenues
or expenses

89

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Discontinued Operations and the Divestiture (Continued)

included
in discontinued operations for the TS or NAP operating segments for fiscal years 2009 and 2008. (in thousands):

2007Revenue

$
85,060Operating loss before income taxes


(7,834
)Income tax benefit (expense)


12,089Income (loss) from discontinued operations, net of taxes

$
4,255


3. Fair Value Investments

As discussed in Note 1, "Business, Basis of Presentation and Summary of Significant Accounting Policies," the Company adopted SFAS 157 effective the first day of fiscal
year 2009. SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.
Under SFAS 157, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. SFAS 157 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth, by Level, the Company's financial assets and liabilities that were measured at fair value on a
recurring basis as of June 28, 2009 (in thousands):

Total

(Level 1)

(Level 2)

(Level 3)Financial Assets:U.S. government and agency obligations

$
242,735

$
191,669

$
51,066

$
Corporate debt


685





685


Mortgage-backed securities


20,268








20,268Asset-backed securities


20,562








20,562Notes receivable


2,050


2,050





Equity securities


18,428


18,424





4Employee deferred compensation plan


9,401


9,401





Foreign currency derivatives


1,109





1,109


Total financial assets

$
315,238

$
221,544

$
52,860

$
40,834Fair value as a percentage of total


100.0
%

70.3
%

16.8
%

12.9
%Level 3 as a percentage of total assets











2.8
%Financial Liabilities:Employee deferred compensation plan

$
5,453

$
5,453

$


$
Total financial liabilities

$
5,453

$
5,453

$


$



90

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Investments (Continued)

Financial assets and liabilities measured and recorded at fair value on a recurring basis were presented on the Company's condensed consolidated balance sheet as of June 28, 2009
as follows (in thousands):

Total

(Level 1)

(Level 2)

(Level 3)Assets and Liabilities:Cash and cash equivalents

$
49,493

$
49,493

$


$
Short-term investments


113,247


109,786


1,860


1,601Prepaid expenses and other receivables


1,280





1,280


Long-term investments


121,508


32,388


49,891


39,229Other assets


29,881


29,877





4Other accrued expenses


(171
)




(171
)

Other long-term liabilities


(5,453
)

(5,453
)




Total

$
309,785

$
216,091

$
52,860

$
40,834


Level 3 Valuation Techniques

Certain financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar
techniques, and where at least one significant model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there
is limited market activity where the determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain
mortgage-backed securities and asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At June 28, 2009, these securities were
valued primarily using independent valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as assumptions about
liquidity and credit valuation adjustments of marketplace participants at June 28, 2009.

The
following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable Level 3
inputs for the fiscal year ended June 28, 2009 (in thousands):

Balance at June 29, 2008

$
126,275Total gains (losses), realized and unrealized:Included in earnings


(32,319
)Included in other comprehensive loss


11,244Included in equity


4Purchases, sales and settlements, net


(64,370
)Net transfers in (out) of Level 3


Balance at June 28, 2009

$
40,834


Losses
attributable to financial assets whose fair value is determined by using Level 3 inputs and included in earnings as shown above consist of
other-than-temporary impairments for investments which are included in other expense and realized losses on sale of securities which are included in interest income.

91

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Fair Value Investments (Continued)

Financial Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

During the fiscal quarter ended June 28, 2009, the Company had no significant measurements of financial assets or liabilities at
fair value on a nonrecurring basis.

4. Investments

Available-for-sale securities as of June 28, 2009 are summarized as follows (in thousands):

Amortized
Costs

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
Gain

Market
ValueShort-Term Investments:Asset-backed securities

$
1,543

$
58

$


$
58

$
1,601U.S. government and agency obligations


111,199


447





447


111,646Total short-term investments

$
112,742

$
505

$


$
505

$
113,247Long-Term Investments:Corporate debt

$
385

$
300

$


$
300

$
685U.S. government and agency obligations


79,024


2,570





2,570


81,594Mortgage-backed securities


18,600


1,668





1,668


20,268Asset-backed securities


17,818


1,143





1,143


18,961Total long-term investments

$
115,827

$
5,681

$


$
5,681

$
121,508Notes receivable

$
2,050

$


$


$


$
2,050Equity securities


16,893


3,301


(1,766
)

1,535


18,428


Available-for-sale
securities as of June 29, 2008 are summarized as follows (in thousands):

Amortized
Costs

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
(Loss)/Gain

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
)
$
303,680Notes receivable

$
2,050

$


$


$


$
2,050Equity securities


22,826


4,365





4,365


27,191


92

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Investments (Continued)

The
Company manages its total portfolio to encompass a diversified pool of investment-grade securities. The investment policy is to manage its total cash and investments balances to
preserve principal and maintain liquidity while maximizing the returns on the investment portfolio.

The
Company holds as strategic investments the common and preferred stock of three publicly traded foreign companies. The common and preferred investments are shown as "Equity
Securities" and "Notes Receivable" in the table above and are included in other assets on the consolidated balance sheets. The stocks are traded on either the Tokyo Stock Exchange or the Taiwan Stock
Exchange. Dividend income from these companies was $0.3 million, $0.6 million, and $0.8 million for the fiscal years ended June 28, 2009, June 29, 2008, and
July 1, 2007, respectively. Although the carrying value of one of
these investments has declined significantly, the Company does not anticipate that it will dispose of this strategic investment 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.
Other-than-temporary impairments relating to certain available-for-sale securities for the fiscal year ended June 28, 2009 and June 29,
2008 were $39.2 million and $8.4 million. There were no other-than-temporary impairments in fiscal year 2007.

The
investments the Company determined were other-than-temporarily impaired were mortgage-backed securities, asset-backed securities, and corporate bonds with
stated maturities ranging from 1 to 27 years (expected maturity from 3 months to 20 years) and an equity investment. As a result, the Company recorded an impairment charge of
$33.3 million related to its investment in mortgage-back securities and asset-backed securities, $5.9 million related to its equity investment during fiscal year 2009 and
$8.4 million related to mortgage-backed and asset backed securities in fiscal year 2008.

As
a result of the Company's third quarter review of its available for sale securities, the Company determined that one of its equity investments was significantly below the original
purchase cost and had been for a prolonged period of time. The Company has the intent and ability to hold this investment indefinitely. However, in the Company's judgment, the security's value may not
recover to its purchase cost. Accordingly, the Company has determined that this investment was other-than-temporarily impaired due to the prolonged downturn in the overall
market and recorded an impairment charge of $5.9 million in fiscal year 2009. In reaching its conclusion, the Company reviewed the financial statements of the issuer investment activity in the
issuer and price trends for the security.

As
of June 28, 2009, the Company had $40.8 million in investment positions in mortgage-backed securities and asset-backed securities that were in a loss position and which
the Company does not

93

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Investments (Continued)

intend
to hold until maturity. These securities were fair valued utilizing a cash flow model which relied upon tranche specific cash flow projections, the benchmark yield, assumed collateral
performance and tranche specific yield. These investments were determined to be other than temporarily impaired due to the expectation of a prolonged economic slowdown weighing on the underlying
assets of these securities. Such opinion is pervasive in the market. The Company does not believe that it is more likely than not prices will recover before these investment positions are sold.
Additional information the Company considered in determining that these securities were other than temporarily impaired included quantitative information regarding the most recent delinquency rate,
foreclosure or real estate-owned rate, current credit rating and the rating date, correlation of price change and benchmark yield change, net credit support, coverage ratio and effective maturity for
these securities. Qualitative analysis considered past impairments, changes in prepayment speed and the magnitude of the unrealized loss.

The
following table summarizes the fair value and gross unrealized losses related to available-for-sale investments, aggregated by type of investment and length
of time that individual securities have been held. The unrealized loss position is measured and determined at each fiscal year end (in thousands):

Securities held
in a loss position
for less than
12 months at
June 28, 2009

Securities held
in a loss position
for 12 months
or more at
June 28, 2009

Total in a loss position
at June 28, 2009Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
LossesEquity Securities

$
18,428

$
(1,766
)
$


$


$
18,428

$
(1,766
)Total

$
18,428

$
(1,766
)
$


$


$
18,428

$
(1,766
)




Securities held
in a loss position
for less than
12 months
at June 29, 2008

Securities held
in a loss position
for 12 months
or more at
June 29, 2008

Total in a loss position
at June 29, 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
)


94

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Investments (Continued)

The amortized cost and estimated fair value of investments at June 28, 2009, by contractual maturity, are as follows (in thousands):

Contractual Maturity(1)

Amortized Cost

Estimated Market ValueDue in 1 year or less

$
112,742

$
113,247Due in 1-2 years


71,134


73,604Due in 2-5 years


10,489


11,245Due after 5 years


34,204


36,659Total investments

$
228,569

$
234,755






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 $5.8 million and $(9.2) million, respectively, for the year ended June 28, 2009. Gross realized gains and (losses) were
$1.0 million and $(1.3) million, respectively, for the year ended June 29, 2008. Gross realized gains and (losses) were $0.4 million and $(2.2) million, respectively, for the year
ended July 1, 2007. The cost of marketable securities sold was determined by the first-in, first-out method.

During
the fiscal year ended June 28, 2009, as a result of sales of available-for-sale securities and recognition of
other-than-temporary impairments on available-for-sale securities, the Company reclassified $37.1 million from accumulated other comprehensive
income to earnings either as a component of interest expense (income) or other expense depending on the nature of the gain (loss).

5. Derivative Financial Instruments

The Company is exposed to financial market risks, including fluctuations in interest rates, foreign currency exchange rates and market value risk related to its investments. The Company
uses derivative financial instruments primarily to mitigate these risks and as part of its strategic investment program. In the normal course of business, the Company also faces risks that are either
non-financial or non-quantifiable. Such risks principally include country risk, credit risk and legal risk and are not discussed or quantified in the following analyses. In
prior periods, the Company has designated certain derivatives as fair value hedges or cash flow hedges qualifying for hedge accounting treatment. However, at June 28, 2009, and June 29,
2008, the Company's only derivatives were currency forward contracts and a foreign currency swap contract which were not designated as accounting hedges.

Interest Rates

The Company is subject to interest rate risk through its investments. The objectives of the Company's investments in debt securities
are to preserve principal and maintain liquidity while maximizing returns. To achieve these objectives, the returns on the Company's investments in short-term fixed-rate debt
will be generally compared to yields on money market instruments such as

95

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Derivative Financial Instruments (Continued)

industrial
commercial paper, LIBOR or Treasury Bills. Investments in longer term fixed rate debt will be generally compared to yields on comparable maturity Government or high grade corporate
securities with an equivalent credit rating.

The
Company had no outstanding interest rate derivatives as of June 28, 2009.

In
December 2001 and April 2004, the Company entered into interest rate swap transactions with JPMorgan Chase Bank ("JPM"), to modify the Company's effective interest payable with
respect to its outstanding convertible debt due on July 16, 2007 (the "Debt") (see Note 6, "Bank Loans and Long-Term Debt"). During the fiscal year ended July 1, 2007,
these arrangements increased interest expense by $7.7 million.

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 Contract had no market value at June 29, 2008 as the LIBOR was below 5.5 percent and this was the last quarter that the Contract option could be elected.
Mark-to-market losses of $0.6 million for fiscal year ended July 1, 2007 were charged to interest expense.

On
July 16, 2007, concurrent with the Debt's maturity, the interest rate swap transactions 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 the risks of foreign currency denominated repetitive working capital positions with offsetting foreign
currency denominated exchange transactions, currency forward contracts or currency swaps. Translation gains and losses on these foreign currency denominated working capital positions are generally
offset by corresponding gains and losses on the related hedging instruments, usually resulting in negligible net exposure.

A
significant amount of the Company's revenue, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies. At various times, the Company
has currency exposure related to the British Pound Sterling, the Euro and the Japanese Yen. For example, in the United Kingdom, the Company has a sales office and a Semiconductor Fabrication Facility
with revenues primarily in U.S. Dollars and Euro and expenses in British Pound Sterling. To protect against exposure to currency exchange rate fluctuations, The Company has established cash flow and
balance sheet translation risk hedging programs. Currency forward contract hedges have generally been utilized in these risk management programs. The Company's hedging programs seek to reduce, but do
not always entirely eliminate, the impact of currency exchange rate movements.

In
May 2006, the Company entered into a forward contract for the purpose of reducing the effect of exchange rate fluctuations on forecasted inter-company purchases by its Japan
subsidiary. The Company had designated the forward contract as a cash flow hedge. Under the terms of the forward contract, the Company was required to exchange 507.5 million Yen for
$5.0 million on a quarterly basis starting in June 2006 and expiring in March 2011. In December 2007, the Company terminated the forward contract and received $2.8 million of cash as
part of the settlement. In accordance with SFAS 133, the net gain at the forward contract's termination date will continue to be reported in

96

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Derivative Financial Instruments (Continued)

accumulated
other comprehensive income and recognized over the originally specified time period through March 2011, unless it is probable that the forecasted transactions will not occur.

In
October 2004, the Company's Japan subsidiary entered into a currency swap agreement to hedge intercompany payments in U.S. Dollars. The transaction commencement date was March, 2005
and the termination date is April, 2011. Each month, the Company exchanges JPY 9,540,000 for $100,000. When the applicable currency exchange rate is less than or equal to 95.40, the Company exchanges
JPY 18,984,600 for $199,000.

The
Company had approximately $26.2 million and $39.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS 133 at
June 28, 2009 and June 29, 2008, respectively. Net realized and unrealized foreign-currency gains(losses) recognized in earnings, as a component of other expense, were
$2.3 million, $(0.03) million and $3.8 million for the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007, respectively.

In
the normal course of business, the Company also faces risks that are either non-financial or non-quantifiable. Such risks principally include country risk,
credit risk and legal risk and are not discussed or quantified in the preceding analysis.

The
Company adopted the provisions of SFAS No. 161 effective for the last two quarters of fiscal year 2009. At June 28, 2009, the fair value carrying amount of the
Company's derivative instruments were as follows:

Derivative Assets
June 28, 2009

Derivative Liabilities
June 28, 2009Derivatives Not Designated
as Hedging Instruments
Under SFAS No. 133

Balance Sheet
Location

Fair
Value

Balance Sheet
Location

Fair
Value(In thousands)Currency forward contracts

Prepaid expenses and other receivables

$
1,280

Other accrued expenses

$
55Forward currency swap contracts

Other assets




Other accrued expenses


116Total



$
1,280



$
171


The
gain or (loss) recognized in earnings during the fiscal year ended June 28, 2009 was:

Derivatives Not Designated as
Hedging Instruments Under
SFAS No. 133

Location of Gain or (Loss)
Recognized in Income on
Derivative

Amount of Gain or (Loss)
Recognized in Income on
Derivative(In thousands)Currency forward contracts

Other income (expense)

$
2,275Foreign currency swap contracts

Other income (expense)


(309
)Total



$
1,966


6. Bank Loans and Long-Term Debt

As of June 28, 2009 and June 29, 2008, the Company had no long-term debt outstanding.

97

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

On
November 6, 2006, the Company entered into a five-year multi-currency revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank, Bank of
America, N.A., HSBC Bank USA, and Deutsche Bank AG (the "Facility"). Considering the Company's liquidity position at the time, the Company terminated the commitments of the lenders to provide further
obligations. In connection therewith, on November 26, 2008, the Company and the lenders entered into a letter agreement providing for the termination of the obligations of each of the parties
under the Facility (except for those obligations which by their terms expressly survive termination) upon the payment by the Company of the outstanding fees under the Facility, and the Facility
terminated on November 28, 2008. The payment of outstanding fees did not include any early termination fees.

During
fiscal year 2009, the Company reduced its outstanding letters of credit from $4.3 million to $2.9 million. At June 28, 2009, the $2.9 million of
outstanding letters of credit were outside the Facility, which terminated November 28, 2008. These letters of credit are secured by cash collateral provided by the Company in an amount equal to
their face amount.

7. Stock-Based Compensation and Employee Benefit Plans

Employee Stock Participation Plan

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. 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 years 2009 and 2008. During fiscal years ended June 28,
2009 and June 29, 2008, no shares were issued. During fiscal year ended July 1, 2007, 18,542 shares were issued at weighted average price per share of $33.90 and 755,542 remained
unissued at June 28, 2009. For the fiscal year ended July 1, 2007, the Company received $0.6 million from shares issued under the stock participation plan.

98

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

Stock Option Plans

For the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 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 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 28, 2009, there were 2,408,209 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 July 1, 2007. In fiscal years 2009 and 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 net credit of $0.6 million for the fiscal year ended June 28,
2009 and recorded a charge of $0.3 million for the fiscal year ended June 29, 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 $0.0 million at June 28, 2009.

The
Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. Such shares are subject to registration under applicable securities laws,
including pursuant to the rules and regulations promulgated by the Securities and Exchange Commission ("SEC"), unless an applicable exemption from there applies. The following table summarizes the
stock option activity for

99

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

the
fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 (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, July 2, 2006


12,075

$
40.35




$
45,981Granted


1,401

$
36.66

$
12.79


Exercised


(797
)
$
24.42




$
12,490Expired or forfeited


(925
)
$
43.80





Outstanding, July 1, 2007


11,754

$
40.72




$
29,921Granted











Exercised


(15
)
$
12.63




$
314Expired or forfeited


(2,379
)
$
41.97





Outstanding, June 29, 2008


9,360

$
40.43




$
2,568Granted


3,151

$
15.16

$
6.38


Exercised


(224
)
$
13.47




$
411Expired or forfeited


(4,039
)
$
42.71





Outstanding, June 28, 2009


8,248

$
30.40




$
3,738


For
the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, the Company received $3.0 million, $0.2 million and
$19.5 million, respectively, for stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.3 million, $0.1 million and
$3.7 million for the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, respectively.

The
following table summarizes the RSU activity for the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 (in thousands, except per share price
data):

Restricted
Stock Units

Weighted
Average Grant
Date Fair Value
Per Share

Aggregate
Intrinsic ValueOutstanding, July 2, 2006


23

$
49.09

$
909Granted


15

$
42.44


Vested


(2
)
$
35.30

$
71Expired or forfeited


(27
)
$
44.45


Outstanding, July 1, 2007


9

$
49.14

$
337Granted








Vested








Expired or forfeited


(8
)
$
49.23


Outstanding, June 29, 2008


1

$
48.10

$
13Granted


446

$
17.39


Vested


(92
)
$
12.06

$
1,111Expired or forfeited








Outstanding, June 28, 2009


355

$
17.84

$
5,215


100

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

The Company's employee stock option plan permits the reduction of a grantee's RSUs for purposes of settling a grantee's income tax obligation. During the fiscal year ended
June 28, 2009, the Company withheld RSUs representing 41,827 shares to fund a grantee's income tax obligations. There were no reduction of a grantee's RSUs for purposes of settling a grantee's
income tax obligation for the fiscal years ending June 29, 2008, and July 1, 2007.

The
following table summarizes the stock options and RSUs outstanding at June 28, 2009, and the related weighted average price and life information (in thousands, except year and
price data):

June 28, 2009Outstanding

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 $12.95


2,142


4.01

$
10.57


230


2.51

$
12.30$13.56 to $18.55


1,458


4.02

$
18.01


201


3.12

$
18.08$19.49 to $35.30


1,521


1.23

$
30.11


1,384


1.10

$
29.90$35.43 to $41.74


1,560


1.56

$
39.78


1,444


1.47

$
39.89$41.87 to $52.29


1,411


1.15

$
45.34


1,409


1.15

$
45.34$53.00 to $63.88


511


1.08

$
58.68


511


1.08

$
58.688,603


2.44

$
29.14


5,179


1.36

$
38.48


Additional
information relating to the stock option plans, including employee stock options and RSUs, at June 28, 2009, June 29, 2008, and July 1, 2007, is as
follows (in thousands):

2009

2008

2007Options exercisable


5,179


8,621


9,855Options and RSUs available for grant


2,408


4,440


2,932Total reserved common stock shares for stock option plans


11,011


13,800


14,695


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 for the majority of the options.

For
the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, stock-based compensation expense associated with the Company's stock options and RSUs, is
as follows (in thousands):

2009

2008

2007Selling, general and administrative expense

$
5,182

$
9,013

$
8,629Research and development expense


1,773


1,762


4,273Cost of sales


450


353


1,299Total stock-based compensation expense

$
7,405

$
11,128

$
14,201


101

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

During
the fiscal year 2009, a one-time $1.8 million decrease in stock option expense was recorded due to a correction of an error in accounting for stock options
issued in prior periods. This one-time decrease primarily affected selling, general and administrative expense.

The
total unrecognized compensation expense for outstanding stock options and RSUs was $22.7 million as of June 28, 2009, and will be recognized, in general, over three
years, except for one stock option award and RSU award made to the CEO. The awards to the CEO (which are included in the awards disclosed above), include an option to purchase 750,000 shares and an
award of RSUs in the amount of 250,000 shares made to the CEO during fiscal year 2008 as provided for under his employment agreement. The Company estimated the value of the option awards for the CEO
by using the Black-Scholes options pricing model with the following assumptions: (i) an expected life of the award of 4.6 years; (ii) risk free rate of 3.2 percent;
(iii) Company stock price volatility of 45.0 percent and (iv) an annual dividend yield on the Company's common stock of 0.0 percent. The total unrecognized compensation
expense for these grants was $8.4 million as of June 28, 2009, and will be recognized over 2.4 years. The weighted average number of years to recognize the total compensation
expense (including that of the CEO) is 1.9 years.

The
fair value of the options associated with the above compensation expense for the fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007, respectively,
was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

2009

2008

2007Expected life

3.8 years

N/A

3.5 yearsRisk free interest rate

1.99%

N/A

4.7%Volatility

55.25%

N/A

40.0.%Dividend yield

0.00%

N/A

0.0%


The
Company applies 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 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.

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. The Company uses market implied volatility of options with similar terms for valuing its stock options. 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.

102

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

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 would 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 was
intended to ensure fair and equitable treatment for all stockholders in the event of unsolicited attempts to acquire the Company.

While
the Plan was in effect, the Rights would 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 would entitle 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) would entitle 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 would have no voting power and
could 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 had acquired 20 percent or more of the Company's voting
power. As of December 15, 1998, the Company amended and restated the Plan to remove the requirement that continuing director's vote in board approvals of certain corporate transactions.

The
original expiration date of the Plan and underlying Rights was August 14, 2006. By a series of amendments over the past three years, most recently on October 12, 2008,
the Company extended the expiration date of the Plan from its original expiration date of August 14, 2006 to February 11, 2009. The Plan is no longer in effect.

Deferred Compensation Plan

The Company has a deferred compensation plan which provides executive management and other key employees with the ability to defer the
receipt of compensation in order to accumulate retirement funds on a tax-free basis. The Company does not make contributions to the deferred compensation plan or guarantee returns on the
investments. Participant deferrals and investment gains and losses remain the Company's assets and are subject to claims of general creditors.

The
assets and liabilities of the deferred compensation plan are recorded at fair value each reporting period with the changes in fair value recorded in other income (expense). As of
June 28, 2009 and June 29, 2008, the fair value of the assets was $9.4 million and $11.1 million, respectively, and the fair value of the liabilities was
$5.5 million and $8.4 million. The Company recorded net changes in fair value for the deferred compensation plan in other income of $0.5, $0.4 and $0.2 for fiscal years 2009, 2008 and
2007, respectively.

103

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Stock-Based Compensation and Employee Benefit Plans (Continued)

401(k) Plan

The Company sponsors a 401(k) plan which provides participating employees with an opportunity to accumulate funds for retirement. The
Company's contributions to the 401(k) plan were $3.0, $3.5, and $3.8 for fiscal years 2009, 2008 and 2007, respectively.

8. 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, research and development or selling, general and administrative expense, depending upon the classification and function of the employee terminated.
Restructuring costs were expensed during the period in which all requirements of recognition were met.

Asset
write-downs are principally related to facilities and equipment that will not be used subsequent to the completion of exit or downsizing activities being implemented, and cannot be
sold for amounts in excess of carrying value. The Company recognizes asset impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"). In determining the asset groups for the purpose of calculating write-downs, the Company groups assets at the lowest level for which identifiable cash flow information is
largely independent of the cash flows of other assets and liabilities. In determining whether an asset was impaired the Company evaluates estimated undiscounted future cash flows and other factors
such as changes in strategy and technology. An indicator of impairment loss exists if the estimated undiscounted future cash flows from the initial analysis are less than the carrying amount of the
asset group. The Company then determines the fair value of the asset group using the present value technique, by applying to the estimated future cash flows a discount rate that is consistent with the
rate used when analyzing potential acquisitions.

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



104

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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



The
following table summarizes restructuring charges incurred during the fiscal year ended June 28, 2009, June 29, 2008 and July 1, 2007 related to the restructuring
initiatives discussed below. These charges were recorded in asset impairment, restructuring and other charges (in thousands):

2009

2008

2007Reported in asset impairment, restructuring and other chargesAsset Impairment

$
48,885

$


$
5,878Severance and workforce reduction costs


6,648


2,670


5,073Other Charges


960


410


620Subtotal


56,493


3,080


11,571Discontinued operations








(1,173
)Total asset impairment, restructuring and other charges

$
56,493

$
3,080

$
10,398


In
addition to the amounts in the table above, $0.7 million of workforce reduction expense related to retention bonuses was recorded in cost of sales during the fiscal year 2009
related to the restructuring initiatives.

The
following table summarizes changes in the Company's restructuring related accruals for fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 which
are included in other accrued expenses on the balance sheet (in thousands):

Newport,
Wales

El
Segundo

All Other(1)Accrued severance and workforce reduction costs, July 2, 2006

$


$


$
991Charged to asset impairment, restructuring and other charges








5,073Charged to operating expenses








3,393Costs paid








(8,620
)Foreign exchange gains








(11
)Accrued severance and workforce reduction costs, July 1, 2007








826Charged to asset impairment, restructuring and other charges








2,670Charged to operating expenses








5,674Costs paid








(8,095
)Foreign exchange gains








16Accrued severance and workforce reduction costs, June 29, 2008








1,091Charged to asset impairment, restructuring and other charges


1,815


3,610


1,678Charged to operating expenses





468


238Costs paid


(1,574
)

(504
)

(2,216
)Foreign exchange gains


118





1Change in provision





(39
)

(416
)Accrued severance and workforce reduction costs, June 28, 2009

$
359

$
3,535

$
376


---

105

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

The
following table summarizes the total asset impairment, restructuring and other charges by initiative for the fiscal years 2009, 2008 and 2007:

Newport,
Wales

El
Segundo

Research &
Development
Facility

Other
Activities &
Charges

PCS
Divestiture

December
2002
Initiative

TotalFiscal 2007 reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$


$
5,878

$


$
5,878Severance and workforce reduction costs














4,962


111


5,073Other charges











(13
)

158


475


620Total fiscal 2007 asset impairment, restructuring and other charges(1)

$


$


$


$
(13
)
$
10,998

$
586

$
11,571Fiscal 2008 reported in asset impairment, restructuring and other chargesSeverance and workforce reduction costs

$


$


$
2,670

$


$


$


$
2,670Other charges








410











410Fiscal 2008 total asset impairment, restructuring and other charges

$


$


$
3,080

$


$


$


$
3,080Fiscal 2009 reported in asset impairment, restructuring and other chargesAsset impairment

$
48,885

$


$


$


$


$


$
48,885Severance and workforce reduction costs


1,815


3,571


381


881








6,648Other charges


33


654


273











960Fiscal 2009 total asset impairment, restructuring and other charges

$
50,733

$
4,225

$
654

$
881

$


$


$
56,493


---

Newport, Wales Fabrication Facility Consolidation Initiative

The Company adopted a plan during the second quarter of fiscal year 2009 to consolidate its wafer manufacturing operations in Newport,
Wales to reduce manufacturing costs and reduce capacity as a result of a decline in market demand. During the quarter ended June 28, 2009, due to a significant increase in demand, the Company
decided to postpone this consolidation initiative, originally projected to be completed by December 2009, for at least six months to July 2010 or when sufficient alternative external capacity
comes on-line. Although the plan was started in fiscal year 2009 and postponed in the

106

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

fourth
fiscal quarter thereof, the Company expects to continue the consolidation plan after fiscal year 2010, with an estimated total pre-tax cost of approximately $52.4 million of
which $48.9 million will be non-cash charges. The total pretax cost consists of severance and other workforce reduction costs of $1.8 million, asset impairment charges of
$48.9 million and other costs incurred to close or consolidate the facilities of $1.7 million. As a result of the adoption of this plan, the Company recorded a $48.9 million asset
impairment charge during the fiscal year 2009 and $1.8 million of severance and other workforce reduction costs.

Cash
payments for this initiative were approximately $3.2 million during fiscal year 2009, and are estimated to be approximately $0.3 million during fiscal year 2010.

El Segundo, California Facility Closure Initiative

The Company adopted a plan for the closure of its El Segundo, California fabrication facility during fiscal year 2009. The plan will be
carried out during fiscal years 2009 and 2010 with an estimated total pre-tax cost of $11.4 million of which approximately $0.8 million will be non-cash charges.
These charges consist of severance and other workforce reduction costs of $5.4 million and other costs incurred to close or consolidate the facilities of $6.0 million. The restructuring
charge recorded during fiscal year 2009 includes $3.6 million of severance costs and other workforce reduction costs and $3.0 million of other charges of which $2.5 million were
recorded in cost of sales.

Cash
payments for this initiative were approximately $3.5 million, and are estimated to be $4.7 million and $3.2 million during fiscal year 2010 and thereafter,
respectively.

Research and Development Facility Closure Initiative

In the third quarter of fiscal year 2008, the Company adopted a plan for the closure of its Oxted, England R&D facility and its El
Segundo, California R&D fabrication facility. The costs associated with closing and exiting these facilities and severance costs are estimated to total approximately $9.6 million. Of this
amount, approximately $6.7 million represents the cash outlay related to this initiative. The Company estimates that the closure and exiting of these two facilities will be completed by the end
of the fourth quarter of fiscal year 2011. Restructuring related cash payments were approximately $1.7 million for fiscal year 2009, of which $1.4 million related to severance expense,
and are estimated to be $2.0 million and $0.1 million during fiscal year 2010, and thereafter, respectively.

Other Activities and Charges

On January 15, 2009, the Company received written notification from Vishay terminating certain wafer processing services under
the TPSA effective April 30, 2009. As a result, the Company recorded a charge for severance related to the partial termination of the contract during the third quarter of fiscal year 2009 of
$0.9 million. The total cost related to the partial termination of the contract was $0.9 million, all of which were cash charges. Actions related to the partial termination of the
contract were completed by the end of fiscal year 2009. The charges recorded in fiscal year 2008 relate to other smaller scale restructuring initiatives undertaken at local sites.

PCS Business Divestiture Initiative

During fiscal year 2007, in connection with the Divestiture, the Company terminated approximately 100 former PCS Business employees.
The Company also terminated other operating and support personnel to streamline the organization in connection with the Divestiture.

107

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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 the second quarter of fiscal year 2007, these restructuring activities were substantially completed.

Other Impairment Charges

In addition to the Newport facility asset impairment of $48.9 million, during fiscal year 2009, the Company recorded an asset
impairment of $2.8 million related to assets removed from service in its Tijuana, Mexico facility and certain contract manufacturing facilities and other facilities. Since the decision to
remove these assets from service was in response to a reduction in demand and not related to an exit activity, the associated asset impairment charge was recorded in cost of sales, not in asset
impairment, restructuring and other charges.

9. Segment Information

At the beginning of the first quarter of fiscal year 2009, the Company's Chief Executive Officer ("CEO"), who is the chief operating decision maker, refined the definition of the
Company's business segments by renaming its Aerospace and Defense ("A&D") segment as its HiRel segment, combining its previously identified PS segment with its Enterprise Power ("EP") segment and
creating a new Automotive Products ("AP") segment which was previously reported within the Energy-Savings
Products ("ESP") and Power Management Devices ("PMD") segments. Furthermore, some products that were previously reported under the EP segment are now reported under the PMD segment. Consequently, the
Company now reports in six segments: EP, PMD, ESP, HiRel, AP, and IP. Additionally, the Company reported the ongoing work for Vishay under the TPSA (which had previously been reported as part of the
PCS Business) as Transition Services ("TS"), separate from the Company's ongoing segments. This work declined substantially during the fourth quarter, and the small amount of remaining sales to Vishay
will be incorporated into the Company's PMD segments beginning in the first quarter of fiscal year 2010. Prior year segment presentation has been recast to conform to the Company's current year
presentation.

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



108

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Segment Information (Continued)



109

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. 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.

Because
operating segments are generally defined by the products they design and sell, they do not make sales to each other. The Company does not directly allocate assets to its
operating segments, nor does the CEO evaluate operating segments using discrete asset information. However, depreciation and amortization related to the manufacturing of goods is included in gross
profit for the segments as part of manufacturing overhead. Due to the Company's methodology for cost build up at the product level, it is impractical to determine the amount of depreciation and
amortization included in each segment's gross profit.

For
the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007, revenue and gross margin by reportable segments were as follows (in thousands, except
percentages):

June 28, 2009

June 29, 2008Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
234,937


31.7
%

11.0
%
$
330,016


33.5
%

21.9
%Energy-Saving Products


151,086


20.4


36.7


166,316


16.9


34.7HiRel


148,266


20.0


51.7


152,855


15.5


50.4Automotive Products


52,861


7.1


21.0


85,170


8.6


31.7Enterprise Power


87,477


11.8


37.1


160,365


16.3


36.2Ongoing customer segments total


674,627


91.1


29.9


894,722


90.8


32.6Intellectual Property


27,673


3.7


100.0


30,490


3.1


100.0Ongoing segments total


702,300


94.9


32.6


925,212


93.9


34.9Transition Services


38,119


5.1


(11.3
)

59,618


6.1


0.4Consolidated total

$
740,419


100.0
%

30.4
%
$
984,830


100.0
%

32.8
%


110

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Segment Information (Continued)



July 1, 2007Business Segment

Revenues(1)

Percentage
of Total

Gross
MarginPower Management Devices

$
373,042


31.0
%

34.3
%Energy-Saving Products


188,664


15.7


46.8HiRel


157,008


13.1


51.2Automotive Products


82,001


6.8


41.4Enterprise Power


169,612


14.1


33.1Ongoing customer segments total


970,327


80.7


40.7Intellectual Property


44,171


3.7


100.0Ongoing segments total


1,014,498


84.4


42.5Transition Services


18,730


1.6


7.5Commodity Products


169,241


14.0


17.1Consolidated total

$
1,202,469


100.0
%

38.4
%


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 cash, long-term deferred income taxes, goodwill and acquisition-related intangibles. Geographic information for the fiscal years
ended June 28, 2009, June 29, 2008 and July 1, 2007 is presented below (in thousands):

2009

2008

2007Revenues from Unaffiliated CustomersThe United States

$
218,781

$
272,928

$
329,741Asia


364,795


484,516


599,576Europe


129,169


196,896


228,981Subtotal


712,745


954,340


1,158,298Royalties (unallocated)


27,674


30,490


44,171Total

$
740,419

$
984,830

$
1,202,469Long-lived AssetsThe United States

$
247,546

$
286,088

$
335,779Asia


30,388


37,528


38,751Europe


145,690


252,734


268,642Total

$
423,624

$
576,350

$
643,172


No
single customer accounted for more than ten percent of the Company's consolidated revenue for the fiscal years ended June 28, 2009, June 29, 2008, and July 1,
2007.

111

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Income Taxes

(Loss) income from continuing operations before income taxes for the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007 is as follows (in thousands):

Fiscal Year Ended June 30,2009

2008

2007Domestic

$
(130,566
)
$
(154,624
)
$
75,361Foreign


(21,512
)

53,115


60,668Total (loss) income from continuing operations before income taxes

$
(152,078
)
$
(101,509
)
$
136,029


The
(benefit from) provision for income taxes from continuing operations for the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007 is as follows (in
thousands):

Fiscal Year Ended June 30,2009

2008

2007Current income taxes:Domestic

$
(15,008
)
$
(41,020
)
$
98,113Foreign


6,246


17,112


23,934$
(8,762
)

(23,908
)

122,047Deferred income taxes:Domestic


78,117


(16,132
)

(54,441
)Foreign


25,984


(2,228
)

(4,717
)104,101


(18,360
)

(59,158
)Total (benefit) provision

$
95,339

$
(42,268
)
$
62,889


The
tax benefit from options exercised reduced current income taxes payable for the fiscal years ended June 28, 2009, June 29, 2008 and July 1, 2007 by
$0.3 million, $0.1 million and $3.7 million, respectively.

112

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. 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 28, 2009,
June 29, 2008 and July 1, 2007, as follows:

Fiscal Year Ended June 30,2009

2008

2007Statutory tax rate


35.0
%

35.0
%

35.0
%State taxes, net of federal benefit





3.1


2.7Export tax incentive








(2.4
)Change in valuation allowance


(105.1
)

1.2


0.7Multijurisdiction taxation


4.7


2.5


2.8Actual and deemed foreign dividends


(23.9
)

(6.8
)

9.1Foreign tax credit


12.3


2.4


(2.5
)Research and development credit


3.1


2.1


(0.1
)Penalties and interest


14.6


11.1


4.0Goodwill impairment


(3.6
)

(7.1
)

Divestituredifference in book and tax basis








(3.6
)Other, net


0.2


(1.9
)

0.5Effective tax rate


(62.7
)%

41.6
%

46.2
%


The
major components of the net deferred tax assets (liabilities) as of June 28, 2009 and June 29, 2008 are as follows (in thousands):

June 30,2009

2008Deferred tax assets:Accrued expenses


47,394


34,062Accrued compensation


16,768


17,885Property, plant and equipment


64,093


40,768Deferred gain on Divestiture





44,823Unrealized loss on securities





905Net operating loss carryforward


23,605


6,469Research and experimental credits


39,043


33,753Other tax credits


19,031


533Other


45,795


10,006Total deferred tax assets


255,729


189,204Valuation allowance


(248,666
)

(78,142
)Deferred tax liabilities:Unrealized gain on securities

$
(2,905
)
$
Unrealized gain on functional currency


(230
)

(97
)Other


(1,943
)

(11,527
)Total deferred tax liabilities


(5,078
)

(11,624
)Net deferred tax assets

$
1,985

$
99,438


113

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Income Taxes (Continued)

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. In fiscal year 2009, the Company recorded a charge of $170.5 million related to establishing valuation allowances against its current deferred tax assets in the U.S. and the U.K. In
accordance with SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109), the Company evaluated its deferred income taxes quarterly to determine if valuation allowances are required.
SFAS No. 109 requires that companies
assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence using a "more likely than not" standard.

As
cumulative pre-tax losses for the current and prior two years in the Company's U.S. federal consolidated group constitute significant negative evidence, positive evidence
of equal or greater significance is needed at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. Similarly, as
cumulative pre-tax losses for the current and prior two years in the Company's Newport subsidiary constitute significant negative evidence, positive evidence of equal or greater
significance is needed at a minimum to overcome that negative evidence before a tax benefit is recognized for deductible temporary differences and loss carryforwards. In evaluating the positive
evidence available, expectations as to future taxable income are generally considered insufficient to overcome the negative evidence of recent cumulative losses, even if supported by detailed
forecasts and projections. The Company did examine the four sources which allow the realization of deferred tax assets. They are: carrybacks, reversals of existing temporary differences, tax planning
strategies, and future taxable income exclusive of reversals of existing temporary differences. Of the four sources, loss carrybacks were the only meaningful one available to support the Company's
ability to realize the tax benefit of its remaining U.S. federal current deferred tax assets. The Company determined that it would not carryback this taxable loss. However, the Company determined that
it could avail itself of a tax planning strategy. Therefore, $2.6 million of deferred tax assets is recognized. A valuation allowance, therefore, was recorded on the remaining net U.S. deferred
tax assets.

With
regards to the Company's Newport subsidiary, of the four sources of taxable income, there are no sources available to support the Company's ability to realize the tax benefit as
U.K. tax law only allows the carryback of net operating losses one year. No taxes would be refundable from that carryback; accordingly no benefit to tax expense would be realized. Therefore, the
Company recorded a full valuation allowance on the net U.K. deferred tax assets.

The
Company has federal, state and foreign net operating loss carryforwards. The federal net operating loss of $10.9 million will expire in 2030 and the foreign net operating
losses of $44.1 million have no expiration. The California net operating loss of $57.9 million will expire in 2029 and 2030. The Company has a foreign tax credit of $18.7 million
that will expire in 2020. The Company also has federal research credits of $4.8 million that will expire in 2030 and California research credits of $43.7 million that have no expiration.
The Company has $1.6 million California Manufacturing Investment Credits that will expire in 2012.

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 28, 2009 that would limit
the Company's utilization of any operating loss carryforward or other tax attributes.

114

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Income Taxes (Continued)

A
reconciliation of unrecognized tax benefits from July 1, 2007 to June 28, 2009 is as follows (in thousands):

Beginning balances of July 1, 2007(1) (date of adoption)

$
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 29, 2008

$
85,657Increases for positions taken in current year

$
1,399Increases for positions taken in a prior year


45,424Decreases for positions taken in a prior year


(59,984
)Decreases for settlements with taxing authorities


(629
)Decreases for lapses in the applicable statute of limitation


(5,643
)Unrecognized tax benefits at June 28, 2009

$
66,224






As
of June 28, 2009, the liability for income tax associated with uncertain tax positions was $66.2 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 $44.1 million which would reduce the Company's future effective tax rate.

The
Company's continuing practice is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of June 29, 2008, the Company
had accrued $31.4 million of interest and penalties related to uncertain tax positions. As of June 28, 2009, the Company had accrued interest and penalties of $22.0 million. The
decrease in interest and penalties during fiscal year 2008 was 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. In fiscal year 2009, the decrease in tax, interest and penalties is primarily due to the filing of U.S. federal amended returns for fiscal years 2001 to 2007 and the
lapsing of certain U.S. and foreign jurisdictions' statute of limitations.

The
uncertain tax positions are expected to decrease from June 28, 2009 by approximately $7.0 million over the next twelve months primarily due to changes in positions
taken and lapses in certain statutes of limitation, 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.

115

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Income Taxes (Continued)

The
Company has determined that in fiscal year 2010 it will file amended U.S. state income tax returns and will pay approximately $2.1 million in taxes and $1.1 in related
interest and penalties to various U.S. state taxing authorities in connection with uncertain tax positions recorded for fiscal years 2001 through 2007.

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 28, 2009, the Company is no longer subject to U.S. federal income tax examinations for years before fiscal year ended July 4,
2004; California income tax examinations before fiscal year ended June 30, 2001; Japan income tax examinations before fiscal year ended June 30, 2002; United Kingdom before fiscal year
ended June 30, 2003; Germany tax examinations before fiscal year ended July 2, 2006; 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 concluded its tax examination for Germany for fiscal years ended June 30, 2002 through July 3, 2005. The Company is currently under tax examination in
California for fiscal years ended June 30, 2001 through July 3, 2005, which is an expansion of the audit from fiscal years ended July 4, 2004 and July 3, 2005.

The
Company is pursuing refunds for income taxes it believes to have overpaid in certain jurisdictions. In these jurisdictions, the Company cannot determine that the realization of the
tax refunds of $55.8 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
$52.3 million of income taxes (which is included in the $55.8 million) in Singapore as a result of errors in its transfer pricing of intercompany transactions. The Company is also
seeking refunds in Japan and Finland for $2.3 million and $1.2 million, respectively. The Company has determined its claim for a refund of tax is not probable and has not recognized
benefit for such refund claims. Consequently, the Company has recorded both U.S. federal income taxes and Singapore income taxes with respect to certain fiscal years.

The
Company received notice of assessment from the Singapore tax authority due to the late filing of the Singapore subsidiary's fiscal year 2007 income tax return. The assessment of
approximately $15.1 million was based upon the Company's transfer pricing methodology prior to fiscal year 2007. The Company has determined that collection on this assessment is not probable as
it is more likely than not that its current transfer pricing methodology will be sustained.

During
fiscal 2009 the Company filed amended U.S. federal income tax returns and claimed a refund which the Company has not benefitted to the financial statements that the Company
anticipates will range from $25.0 million to $30.0 million depending upon potential interest associated with the refund. The U.S. federal income tax returns for fiscal years 2004 to 2007
are currently under administrative review for submission to the Joint Committee on Taxation. The Company cannot at this time determine the timing of the completion of the administrative review and
eventual review by the Joint Committee on Taxation.

As
of June 28, 2009, U.S. income taxes have not been provided on approximately $17.4 million of undistributed earnings of foreign subsidiaries since the Company considers
these earnings to be invested indefinitely. Determination of the amount of unrecognized deferred tax liabilities for

116

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Income Taxes (Continued)

temporary
differences related to investments in these non-U.S. subsidiaries that are essentially permanent in duration is not practicable.

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 both accrued income taxes and long-term income taxes payable, as appropriate. 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.

11. Net Income per Common Share

The reconciliation of the numerator and denominator of the net (loss) income per common sharebasic and diluted determined in accordance with SFAS No. 128 for the
fiscal years ended June 28, 2009, June 29, 2008, and July 1, 2007 (in thousands, except per share data) is as follows:

Fiscal Year Ended June 28, 2009Income
(Numerator)

Shares
(Denominator)

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

$
(247,417
)

72,295

$
(3.42
)Loss from discontinued operations, net of taxes





72,295Net loss

$
(247,417
)

72,295

$
(3.42
)Net loss per common sharediluted:Loss from continuing operations

$
(247,417
)

72,295

$
(3.42
)Income from discontinued operations, net of taxes





72,295


Net loss

$
(247,417
)

72,295

$
(3.42
)




Fiscal Year Ended June 29, 2008Income
(Numerator)

Shares
(Denominator)

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

$
(59,241
)

72,819

$
(0.81
)Income from discontinued operations, net of taxes





72,819


Net loss

$
(59,241
)

72,819

$
(0.81
)Net loss per common sharediluted:Loss from continuing operations

$
(59,241
)

72,819

$
(0.81
)Loss from discontinued operations, net of taxes





72,819


Net loss

$
(59,241
)

72,819

$
(0.81
)


117

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Net Income per Common Share (Continued)



Fiscal Year Ended July 1, 2007Income
(Numerator)

Shares
(Denominator)

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

$
73,140


72,421

$
1.01Loss from discontinued operations, net of taxes


4,255


72,421


0.06Net income

$
77,395


72,421

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





512

$
Loss from discontinued operations, net of taxes





512


Net income





512

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

$
73,140


72,933

$
1.00Loss from discontinued operations, net of taxes


4,255


72,933


0.06Net income

$
77,395


72,933

$
1.06


As
a result of the net loss for fiscal years ended June 28, 2009 and June 29, 2008, 8,144,217 and 8,040,342 of common stock equivalents were antidilutive
and were not included in the computation of diluted earnings per share for these periods, respectively. The computation of diluted earnings per share for the fiscal year ended July 1, 2007 did
not include 8,994,284 of stock options which were
antidilutive, as their exercise price was greater than the average market price of the common stock of the Company during this period.

12. 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 or violation of the Company to comply with any prior, current or future
environmental laws and regulations.

118

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Environmental Matters (Continued)

As
part of the environmental review process, the Company has in prior years provided certain disclosures of potential permit violations and other matters to local environmental
authorities, including the South Coast Air Quality Management District ("SCAQMD") with respect to the Company's Temecula, California facility. The Company has taken steps to correct the alleged
deficiencies. However, in October 2008, the Company received a notification of additional permit violations at such facility. The Company has not yet been assessed any penalties with respect to the
disclosures made for alleged violations at that facility. In December 2008, the enforcement division for the SCAQMD requested information from the Company for the purposes of determining what further
action to take with respect to alleged violations asserted prior to the District's October 2008 notification. In April 2009, the Company received a similar request with respect to alleged violations
set forth in the District's October 2008 notification. The Company has responded to both the December 2008 and April 2009 requests, and have not received further notices from the SCAQMD regarding the
alleged violations.

In
June 2009, the Company received a Notice of Violation and Request for Information Pursuant to 3007(a) of the Resource Conservation Recovery Act ("RCRA") from Region IX of the U.S.
Environmental Protection Agency ("EPA") as a result of an inspection conducted by the EPA at the Company's Temecula, California facility in January 2009. The Company has responded to the EPA with
respect to the NOV, has corrected certain deficiencies identified during the referenced inspection and is in the process of correcting certain others.

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 has not received any further reply to its inquiries since the Company's initial communications with the governmental authorities. There are no current
orders or directives on the matter outstanding from the governmental authorities against the Company.

IR
and Rachelle Laboratories, Inc. ("Rachelle"), a 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 IR, 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 IR
relating to 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.

It
remains the position of Rachelle that its wastes were not hazardous. In addition, Rachelle operated as an independent corporation and we do not believe that a complaining party would
be successful in reaching the assets of IR even if it could prevail on a claim against Rachelle. Because Rachelle has not been sued, none of our insurers has accepted liability, although at least one
of our insurers previously reimburse IR for defense costs for the lawsuit filed against IR. The Company has

119

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Environmental Matters (Continued)

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 down gradient 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 clean-up the contamination and to recover damages. The case has been stayed by the court pending the Environmental Protection Agency's completion of its
remedial investigation. 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 percent. 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, one of which has 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 percent, the Company does not believe that an adverse judgment against the Company would be material.

13. Commitments and Contingencies

The Company has operating leases for the use of certain real estate and equipment. Substantially all operating leases are non-cancelable or cancelable only by the payment of
penalties. All lease payments are based on the lapse of time but include, in some cases, payments for insurance, maintenance and property taxes. There are no purchase options on operating leases at
favorable terms, but most real estate leases have one or more renewal options. Certain leases on real estate are subject to annual escalations for increases in utilities and property taxes. Total
rental expense on all operating leases totaled $11.5 million, $11.1 million and $11.2 million in the fiscal years ended June 28, 2009, June 29, 2008, and
July 1, 2007, respectively. The Company had outstanding purchase commitments for capital expenditures of approximately $3.9 million at June 28, 2009. In addition, there were no
capital lease obligations as of June 28, 2009.

120

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Commitments and Contingencies (Continued)

As of June 28, 2009, minimum fixed rentals required for the next five years and thereafter under operating leases are as follows:

Fiscal Year

Minimum Fixed
Rentals2010

$
9.02011


5.92012


1.62013


0.92014


0.1Thereafter


0.1Total

$
17.6


During
the fiscal year 2009 the Company entered into an amended foundry services agreement with one of its foundry suppliers, under which the Company is entitled to purchase up to 1,000
silicon wafers per week. Under the terms of the agreement, the Company may be required to advance funds or transfer equipment against future processing charges if the Company does not purchase minimum
required amounts of dies or wafers determined on a quarterly basis. The maximum amount the Company would be required to advance under the agreement is $5.5 million of cash and equipment, at
fair market value, with cash advances limited to a maximum of $2.5 million. If future purchases exceed a minimum level, a portion of the purchase price of these purchases will be credited
against the advance. As of June 28, 2009, the Company had advanced $1.4 million to the foundry which was recorded in other assets as a long-term receivable on the balance
sheet at June 28, 2009. As of June 28, 2009, the Company believes that the advances will be recovered through future purchases under the agreement.

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. In fiscal year 2009, the divested entities tax obligations decreased to $7.3 million due to
settlement of tax audits, lapsing of statute of limitations, and the decrease in foreign currency translation on the underlying obligation partially offset by an increase in adjustments arising from
the filing of amended tax returns.

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. Vishay also advised the Company that it believed 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 attributable
to, among other things, the purchase price for ASBU, subsequent operational losses and the costs incurred by Vishay in connection with its subsequent divestment of the ASBU business. In addition,
Vishay advised the Company of certain other potential claims, including, but not limited to, certain product quality claims

121

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Commitments and Contingencies (Continued)

related
to PCS Business 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.

On
June 25, 2009 the Company and Vishay entered into the Settlement Agreement which resolved certain claims made by Vishay related to the sale of the PCS Business and provides for
the release of the Company and certain related parties from all past, present and future claims, liabilities or obligations related to the Divestiture except for certain specified claims. Pursuant to
the Settlement Agreement the Company paid Vishay $30.0 million to settle these claims and an additional $0.5 million to settle certain quality claims relating to products of the PCS
Business manufactured prior to the Divestiture. These amounts were recorded as a reduction of the gain on divestiture. The Settlement Agreement also provides for the release to the Company of all
funds held in an escrow account established in connection with the sales of the PCS Business except for $1.0 million which will be retained in the escrow account until June 2010 for the purpose
of securing future indemnification obligations of the Company.

In
addition to settling claims related to the sale of the PCS Business the Settlement Agreement amended the covenant not to compete such that the Company is not prohibited from
designing, developing and manufacturing or selling certain MOSFETs and diodes which may have been prohibited under the original covenant not to compete. Certain other product quality claims and the
environmental claim regarding the Borgaro, Italy location were excluded from the release provided by Vishay.

14. Litigation

International Rectifier Securities Litigation.Following the Company's disclosure on April 9, 2007, that its Audit Committee was
conducting an
Internal Investigation into certain revenue recognition matters, a series of putative class action lawsuits was filed against the Company 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 Company stock from October 27, 2005 through April 9, 2007, 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 (formerly Edward R. Koller v. International Rectifier Corporation, et., al.), 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, which named as defendants several of the Company's former officers, but did not name any of its
past or present directors except Eric Lidow and Alex Lidow. 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.

On
October 17, 2008, Lead Plaintiffs filed a second amended consolidated class action complaint ("SACC") alleging causes of action for securities fraud and control person
liability against the Company, Alex Lidow, Michael P. McGee, and Robert Grant, and, for control person liability only, against Eric Lidow and purporting to bring suit on behalf of a putative class of
investors who purchased

122

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Litigation (Continued)

Company
securities between July 31, 2003 and February 11, 2008. On November 10, 2008, the Company filed a motion to dismiss the SACC on the grounds that plaintiffs had failed to
plead with particularity facts raising a strong inference that the individuals who spoke on the Company's behalf during the putative class period knew, or were reckless in not knowing, that the
Company's financial statements were inaccurate. On December 31, 2008 the District Court issued an order granting the Company's motion to dismiss plaintiffs' claim for control person liability
and granting, in its entirety, defendant Robert Grant's motion to dismiss. These dismissals were with prejudice. The District Court denied the Company's motion to dismiss the securities fraud count
and denied in their entirety motions to dismiss brought by defendants Alex Lidow, McGee, and Eric Lidow.

On
January 7, 2009 the Court issued orders referring the matter for mediation, setting September 1, 2009 as the last day for a settlement conference, October 26,
2009 as the discovery cutoff, and January 12, 2010 as the first day of trial. On March 17, 2009 plaintiffs filed a motion for certification of the putative class, which was set for
hearing on August 10, 2009.

On
July 29, 2009, an agreement in principle was reached to settle the action. The proposed settlement is subject to negotiation and execution of a formal settlement agreement and
is dependent upon final approval by the United States District Court for the Central District of California. The proposed settlement would resolve all class members' claims against the Company and
certain of its former officers and directors. It would provide for a payment to the plaintiffs of $90 million, of which $45.0 million is to be paid by the Company's insurance carriers
and $45.0 million by the Company. Class members will receive notice and have a right to object to and/or opt out of the settlement. Final consummation of the settlement will occur upon the
entry of final judgment by the court approving the settlement as fair to all class members. The timing of approval process is dependent upon the court's calendar. However, the Company expects that the
approval process will be completed before the end of the calendar year 2009. The parties have agreed to suspend all discovery and other litigation activity in this case while the settlement papers are
being prepared. The Company has accrued a reserve of $45.0 million in fiscal year 2009 for this settlement.

International Rectifier 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 (insider trading) in connection 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 under a provision of Delaware law that permits
shareholders to apply to the Court of Chancery for a summary order requiring the company to hold an annual shareholders' meeting. The complaint does not seek monetary relief against the Company.

On
November 13, 2008, plaintiff filed a request for dismissal of Count IV of the complaint (which sought an order under Delaware law requiring IR to hold its 2007 shareholder
meeting) and as to defendants Oleg Khaykin, Richard J. Dahl, Mary B. Cranston, and Tom Lacey, each of whom previously was named only in connection with Count IV.

123

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Litigation (Continued)

IR
demurred to plaintiff's complaint on December 22, 2008 and the matter was set for hearing on March 17, 2009. On March 4, 2009, plaintiff notified the Court that
he intended to file an amended complaint in lieu of seeking to further oppose IR's demurrer. That same day, the Court issued an order vacating the March 17, 2009 hearing on demurrer, requiring
plaintiff to file an amended complaint no later than April 3, 2009, and requesting that the parties file a further status update by no later than April 17, 2009. On
March 3, 2009 plaintiff filed an amended complaint. The amended complaint is brought solely as a derivative action and alleges substantially the same causes of action as were alleged
derivatively in the complaint filed August 1, 2008. The Company demurred to the amended complaint on the ground that plaintiff lacks standing to bring this action. On August 13, 2009,
the Court sustained the Company's demurrer to the amended complaint with prejudice. On August 14, 2009, the Company filed a proposed final judgment of dismissal of the action with prejudice.
The Court directed plaintiff to file any objections to the proposed judgment within ten days. Plaintiff will have an opportunity to appeal the judgment of dismissal.

Litigation Arising from Vishay Proposal.On August 15, 2008, shortly after the Company's disclosure that Vishay Intertechnology,
 Inc.
("Vishay") had made an unsolicited, non-binding proposal to acquire all outstanding shares of the Company, 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 named as defendants
the Company and all current directors and alleged that the Vishay proposal was unfair and that acceptance of the offer would constitute a breach of fiduciary duty by the board. Five other
substantively identical complaints seeking the same relief were filed in the same court and, on October 3, 2008, were consolidated under the caption of the lead case. On October 28,
2008, plaintiffs filed a consolidated amended complaint purporting to allege claims for breach of fiduciary duty on behalf of a putative class of investors based on the theory that the board breached
its fiduciary duty by rejecting the Vishay proposal.

Also
pending before the same court is a related case captionedCity of Sterling Heights Police Fire Retirement System v. Dahl, No.
BC397326. The City of Sterling complaint, filed August 29, 2008, alleges substantively identical causes of action but is brought nominally on the Company's behalf as a derivative action.

Briefing
on both complaints was coordinated pursuant to a scheduling order issued by the Court on October 15, 2008. On November 21, 2008, defendants demurred to the
complaints on the grounds that plaintiffs in both cases have failed to plead a claim and lack standing to bring the claims on behalf of the Company. In support of the demurrer in Zhao, defendants
further assert that plaintiffs' claims are derivative, not direct, and that because plaintiffs already have filed with the Court
pleadings in which they allege that the Vishay offer was undervalued, they are now estopped from alleging the opposite. Defendants also brought a motion pursuant to California Corporations Code
§800 requiring plaintiff City of Sterling to post a bond before continuing with litigation on the Company's behalf. On December 19, 2008 plaintiffs in both actions filed oppositions
to defendants' demurrers. In its opposition, plaintiff City of Sterling noted that it intended to withdraw its complaint and file an amended complaint after the hearing on the Company's demurrers and
motion for bond. On April 16, 2009, the Court sustained defendants' demurrer to the consolidated amended complaint inZhao, and ordered the Zhaoaction to be dismissed with prejudice. Also on April 16, 2009, the Court granted defendants' motion pursuant to California Corporations Code
§800 requiring plaintiff City of Sterling to post a bond in the amount of $50,000 no later than June 2, 2009, or face dismissal of its action.

124

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Litigation (Continued)

On
May 26, 2009, the Court entered a final judgment inZhaodismissing the action with prejudice. On June 24, 2009,
plaintiffs inZhaofiled a notice of appeal from the final judgment of dismissal. The Company intends to continue to defend against the claims asserted
against it in this action vigorously.

On
or about July 20, 2009, plaintiff inCity of Sterlingand the Company entered into a memorandum of understanding regarding
settlement of theCity of Sterlingaction, pursuant to which,inter alia, the derivative claims asserted
in the action will be dismissed with prejudice and the Company will pay to plaintiffs' counsel $60,000 in attorneys' fees.

Vishay Offer.On September 10, 2008, Vishay made an additional 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, 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 (collectively, "Annual Meeting Actions"). On October 13, 2008, following
the 2007 annual meeting, Vishay withdrew its tender offer.

On
September 10, 2008, 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. On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its proposal and filed a Notice of Voluntary
Dismissal of its complaint.

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 the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 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.In June 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 "IXYS IP
Action"). The Company's complaint alleged that certain IXYS Corporation ("IXYS") MOSFET products infringed certain of the Company's patents. 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 in September 2005, with the jury finding that IXYS was infringing certain claims of Patent
No. 4,959,699 and awarding IR $6.2 million in damages through September

125

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Litigation (Continued)

2005.
In September 2006, the District Court entered the final judgment and permanent injunction based on the jury verdict. IXYS again appealed. In an opinion issued in February 2008, the Federal
Circuit ruled against IR and reversed the judgment. In July 2008, the Company filed a petition with the Supreme Court of the United States for a writ of certiorari, which was denied in October 2008.
The proceedings are now at an end. The Company gave Notice of Satisfaction of Judgment in favor of IXYS on February 19, 2009. On March 24, 2009, IXYS filed a lawsuit in the Superior
Court of the State
of California, County of Santa Clara, Case No. 109CV138093, naming the Company and certain others as defendants and alleging malicious prosecution regarding the IXYS IP Action. The complaint
seeks damages, including without limitation, punitive and exemplary damages. The Company has been served with the Complaint and filed a Special Motion to Strike the Complaint (an
anti-SLAPP motion) pursuant to California Code of Civil Procedure Section 425.16. On July 30, 2009, the Court granted the anti-SLAPP motion, thereby striking the
complaint and dismissing the action. Plaintiff has the right to appeal the decision; if the dismissal is appealed, the Company intends to defend against the appeal vigorously.

EPC/Alex Lidow Litigation.In September 2008, the Company filed suit in the U.S. District Court for the Central District of California
against
Efficient Power Conversion Corp. ("EPC"), certain of EPC's employees and other defendants (including Alex Lidow, a former chief executive officer and director of the Company, and now a principal of
EPC) alleging improper and unauthorized use and/or misappropriation of certain Company confidential information, trade secrets and technology related to the Company's Gallium Nitride development
program. The complaint also alleged breach of contract and civil racketeering. In response to the suit, one of the defendants, Aixtron AG, filed a parallel action against the Company in a German civil
court in Aachen, Germany. Judgment in the action in Germany was entered in favor of Aixtron AG and against the Company. In addition, certain of the defendants in the EPC case filed motions in the U.S.
District Court. On February 6, 2009, the U.S. District Court dismissed the EPC case, granting leave to amend the suit and re-file. On March 16, 2009, the Company refiled the
suit in the Los Angeles Superior Court, Case No. BC409749, and intends to vigorously pursue its claims in that action. On March 16, 2009, Alex Lidow and EPC filed suit in the Los Angeles
Superior Court, Case No. BC409750, against the Company alleging claims arising out of Lidow's employment with and separation from the Company, and for violations of the California Labor Code and
California Business and Professions Code, and alleging the Company unfairly competed and interfered with EPC. The Company filed a demurrer to the breach of express contract claim and the Business and Professions
Codeclaim which the Court granted with leave to amend on July 22, 2009. Lidow and EPC did not amend the complaint and
the Company has now answered the complaint. The Company intends to vigorously defend against that action.

Angeles. v. Omega.See Note 12, "Environmental Matters."

In
addition to the above, the Company is involved in certain legal matters that arise in the ordinary course of business including without limitation, litigation involving two of its
subcontractor assemblers. The Company intends to pursue its rights and defend against any claims brought by third parties vigorously. 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.

126

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

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 28, 2009 (in thousands,
except per share data):

Three Months EndedYear Ended June 28, 2009

September 28,
2008(1)

December 28,
2008(1)

March 29,
2009(1)

June 28,
2009(2)(3)

Year Ended
June 28,
2009Revenues

$
244,474

$
189,746

$
146,642

$
159,557

$
740,419Cost of sales


148,082


125,403


115,706


126,372


515,563Gross profit


96,392


64,343


30,936


33,185


224,856Selling, general and administrative expense


64,877


61,528


52,704


82,959


262,068Research and development expense


24,717


24,901


22,379


26,214


98,211Impairment of goodwill








23,867





23,867Amortization of acquisition-related intangible assets


1,097


1,098


1,096


1,117


4,408Asset impairment, restructuring and other charges


471


48,976


7,117


(71
)

56,493Gain on divestiture











(96,136
)

(96,136
)Operating income (loss)


5,230


(72,160
)

(76,227
)

19,102


(124,055
)Other expense, net


14,582


10,626


11,599


2,910


39,717Interest (income) loss, net


(5,060
)

769


(4,091
)

(3,312
)

(11,694
)Income (loss) from continuing operations before income taxes


(4,292
)

(83,555
)

(83,735
)

19,504


(152,078
)Benefit (provision) from income taxes


(106
)

106,197


(1,163
)

(9,589
)

95,339Net income (loss)

$
(4,186
)
$
(189,752
)
$
(82,572
)
$
29,093

$
(247,417
)Net income (loss) per common share:Basic:Net income (loss) per share

$
(0.06
)
$
(2.61
)
$
(1.15
)
$
0.41

$
(3.42
)Diluted:Net income (loss) per share

$
(0.06
)
$
(2.61
)
$
(1.15
)
$
0.41

$
(3.42
)Average common shares outstandingbasic


72,843


72,692


72,102


71,538


72,295Average common shares and potentially dilutive securities outstandingdiluted


73,843


72,692


72,102


71,596


72,295


---

127

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Quarterly Financial Data (Unaudited) (Continued)



Three Months September 28, 2008As reported

Adjustment

As adjustedNet cash (used in) provided by operating activities


(19,890
)

3,759


(16,131
)Net cash (used in) investing activities


(1,140
)




(1,140
)Net cash provided by financing activities


852





852Effect of exchange rate changes on cash and equivalents


2,496


(3,759
)

(1,263
)Net (decrease) in cash and cash equivalents


(17,682
)




(17,682
)




Six Months December 28, 2008As reported

Adjustment

As adjustedNet cash (used in) provided by operating activities


(10,456
)

6,358


(4,098
)Net cash provided by investing activities


92,165





92,165Net cash (used in) financing activities


(4,877
)




(4,877
)Effect of exchange rate changes on cash and equivalents


2,094


(6,358
)

(4,264
)Net increase in cash and cash equivalents


78,926





78,926




Nine Months March 29, 2009As reported

Adjustment

As adjustedNet cash (used in) provided by operating activities


(39,523
)

7,696


(31,827
)Net cash provided by investing activities


101,111





101,111Net cash (used in) financing activities


(11,546
)




(11,546
)Effect of exchange rate changes on cash and equivalents


2,989


(7,696
)

(4,707
)Net increase in cash and cash equivalents


53,031





53,031


128

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

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 29, 2008 (in thousands,
except per share data):

Three Months EndedYear Ended June 29, 2008

September 30,
2007(1)

December 30,
2007(1)

March 30,
2008(1)

June 29,
2008(1)

Year Ended
June 29,
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, general and administrative expense


66,000


69,211


74,285


78,334


287,830Research 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)


3,074


(6,301
)

(36,682
)

(71,270
)

(111,179
)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


4,838


223


(33,687
)

(72,883
)

(101,509
)Benefit from income taxes


(6,080
)

(445
)

(13,232
)

(22,511
)

(42,268
)Net income (loss)

$
10,918

$
668

$
(20,455
)
$
(50,372
)
$
(59,241
)Net income (loss) per common share:Basic:Net income (loss) per share

$
0.15

$
0.01

$
(0.28
)
$
(0.69
)
$
(0.81
)Diluted:Net income (loss) per share

$
0.15

$
0.01

$
(0.28
)
$
(0.69
)
$
(0.81
)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


---

129

---



Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Subsequent Events

On July 29, 2009, the Company reached an agreement in principle to settle the securities class action lawsuit pending against the Company and certain of its former officers or
directors, entitled,In re International Rectifier Corporation Securities Litigation (formerly Edward R. Koller v. International Rectifier Corporation, et.,
al.),Civil Action No. 07-02544-JFW (VBKx), in the United States District Court for the Central District of California. The settlement is subject
to negotiation and execution of a formal settlement agreement and is dependent upon final approval by the United States District Court for the Central District of California. The proposed settlement
would resolve all class members' claims against the Company and certain of its former officers and directors. It would provide for a payment to the plaintiffs of $90.0 million, of which
$45.0 million is to be paid by the Company's insurance carriers and $45.0 million by the Company. Class members will receive notice and have a right to object to and/or opt out of the
settlement. Final consummation of the settlement will occur upon the entry of final judgment by the court approving the settlement as fair to all class members. The timing of approval process is
dependent on the court's calendar. However, the Company expects that the approval process will be completed before the end of the calendar year 2009. Litigation of the case has been suspended pending
court approval of the proposed settlement. The Company has accrued a reserve of $45.0 million in fiscal year 2009. See Note 14, "Litigation, International Rectifier Securities
Litigation."

130

---





Table of Contents

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

None.

ITEM 9A.    CONTROLS AND PROCEDURES

This Report includes the certifications of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") required by
Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 9A includes information concerning the
controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including the CEO and CFO, to allow timely decisions regarding required disclosures.

Our
management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as
of June 28, 2009. Based on our evaluation and the identification of the material weaknesses in our internal controls over financial reporting, our CEO and CFO concluded that, as of
June 28, 2009, our disclosure controls and procedures were not effective.

Management's 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 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 CFO, we conducted an assessment of our internal control over financial reporting as of
June 28, 2009. 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 the

131

---



Table of Contents

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 28, 2009:



Because
of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of June 28, 2009. Ernst & Young LLP,
our independent registered public accounting firm, has issued an attestation report on our internal control over financial reporting which is included below.

Plans for Remediation of Material Weaknesses

We have engaged in and are continuing to engage in substantial efforts to improve our internal control over financial reporting and
disclosure controls and procedures related to the preparation of our financial statements and disclosures. We have begun the implementation of some of the measures described below and are in the
process of developing and implementing remediation plans to address our material weaknesses. Our remediation plans include many actions that are in various stages of completion and designed to
strengthen our internal controls over financial reporting. They include the following:



132

---



Table of Contents



Our
remediation efforts are continuing and we expect to make additional changes to our control environment and accounting and income tax reporting processes that we believe will
strengthen our internal control over financial reporting. We have dedicated considerable resources to the design, implementation, documentation, and testing of our internal controls and although we
believe the steps taken to date have improved the effectiveness of our internal control over financial reporting, we have not completed all the corrective processes and procedures we believe
necessary. Accordingly, we will continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses and as required, perform
additional procedures, including the use

133

---



Table of Contents

of
manual procedures and utilization of external technical advisors to ensure that our financial statements continue to be fairly stated in all material respects.

Inherent Limitations Over Internal Controls

We do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect
all errors. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a
control system must acknowledge the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities
that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the deliberate acts of one or more persons. The
design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error may occur and not be detected.

Changes in Internal Control Over Financial Reporting

During the fiscal year 2009, specific actions by us to improve our internal control over financial reporting and remediate our material
weaknesses previously reported included: hiring key executive management team members; conducting training on various compliance programs; implementing improved review procedures over accrual
accounting, foreign currency exchange rate calculation, and journal entry preparation and support; implementing improved controls to monitor proper revenue recognition; and finally, improving our
records retention program. There were no other changes in internal control over financial reporting during the fiscal year ended June 28, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

134

---



Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Stockholders
International Rectifier Corporation

We
have audited International Rectifier Corporation and Subsidiaries' internal control over financial reporting as of June 28, 2009, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). International Rectifier Corporation and Subsidiaries'
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our
audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.

A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in
management's assessment. Management has identified material weaknesses in controls related to the company's IT general control environment; completeness and accuracy of its period end financial
reporting processes for certain transactions; preparation, review, presentation and disclosure of its Consolidated Statement of Cash Flows; and accounting for income taxes. These material weaknesses
were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2009 financial statements and this report does not affect our report dated August 27,
2009 on those financial statements.

In
our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, International Rectifier Corporation and
Subsidiaries have not maintained effective internal control over financial reporting as of June 28, 2009, based on the COSO criteria.

/s/ERNST & YOUNG LLP


Los
Angeles, California
August 27, 2009

135

---



Table of Contents

ITEM 9B.    OTHER INFORMATION

None.

136

---





Table of Contents

PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated
herein by reference to the definitive proxy statement with respect to our 2009 Annual Meeting of Stockholders (the "Proxy Statement"), which we will file with the Securities and Exchange Commission no
later than 120 days after the end of the fiscal year covered by this Report.

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information
regarding executive officers of the Company is included in Part I under the caption "Executive Officers of the Registrant." Other
information required by this Item
will appear in the Proxy Statement under the headings "Proposal No. 1-Election of Directors"; Additional Information-Section 16(a) Beneficial Ownership Reporting Compliance;
"Corporate Governance"; "Additional Information for 2010 Annual Meeting", which sections are incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

Information
required by this Item will appear in the Proxy Statement under the headings "Executive Compensation," "Compensation Discussion and Analysis,"
"Compensation Committee Report," and "Corporate Governance," which sections are incorporated herein by reference.

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 28, 2009 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


8,247,617

$
30.40
(1)

2,408,209
(2)Equity compensation plans not approved by security holders








Total


8,247,617

$
30.40


2,408,209


---

Other
information required by this Item will appear in the Proxy Statement under the heading "Security Ownership of Principal Stockholders and Management," which section is incorporated
herein by reference.

137

---



Table of Contents

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this Item will appear in the Proxy Statement under the headings "Corporate Governance," "Related Policy
Transition Policy" and "Certain Relationships and Related Transactions," which sections are incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item will appear in the Proxy Statement under the heading "Proposal No. 3-Ratification
of Appointment of Independent Registered Public Accounting Firm," "Independent Auditor," and "Independent Auditor Fees" which sections are incorporated herein by reference.

138

---





Table of Contents

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



EXHIBIT INDEX

Incorporated By Reference:

Exhibit No.

Item

Document3(a)

Certificate of Incorporation of International Rectifier Corporation, 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 International Rectifier Corporation

Form 10-Qfor the quarterly period ended September 30, 2005, filed with the Securities and Exchange Commission
on November 14, 2005. (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, dated July 19, 2000, filed with the Securities and Exchange Commission.
(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, dated July 19, 2000, filed with the Securities and Exchange Commission.
(Exhibit 4.2)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))


139

---



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))


140

---



Table of Contents

Exhibit No.

Item

Document10(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))10(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)


141

---



Table of Contents

Exhibit No.

Item

Document10(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.

Current Report on Form 8-K dated, November 24, 2004, filed with the Securities and Exchange Commission.
(Exhibit 99.1)10(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

Current Report on Form 8-K, dated November 21, 2005, filed with the Securities and Exchange Commission.
(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

Current Report on Form 8-K, dated July 3, 2006, filed with Securities Exchange Commission. (Exhibit 10.1)10(bb)

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)


142

---



Table of Contents

Exhibit No.

Item

Document10(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

Current Report on 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.

Current Report on 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

Current Report on Form 8-K, dated October 12, 2006, filed with the Securities Exchange Commission.
(Exhibit 99.1)10(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

Current Report on 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

Current Report on 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.

Current Report on 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

Current Report on Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission.
(Exhibit 2.4)


143

---



Table of Contents

Exhibit No.

Item

Document10(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

Current Report on 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

Current Report on Form 8-K, dated November 14, 2006, filed with the Securities Exchange Commission.
(Exhibit 2.6)10(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.

Current Report on 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.

Current Report on 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.

Current Report on 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, filed with the Securities and Exchange Commission
on February 9, 2007. (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, filed with the Securities and Exchange Commission
on February 9, 2007. (Exhibit 10.2)


144

---



Table of Contents

Exhibit No.

Item

Document10(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.

Current Report on 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.

Current Report on Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(tt)

Technology License Back Agreement, dated April 1, 2007, by and between Vishay Intertechnology, Inc. and
International Rectifier Corporation

Current Report on 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.

Current Report on 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.

Current Report on 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.

Current Report on 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.

Current Report on 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

Current Report on Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.7)


145

---



Table of Contents

Exhibit No.

Item

Document10(zz)

Transition IGBT/Auto Die Supply Agreement, dated April 1, 2007, by and between International Rectifier Corporation and Vishay
Intertechnology

Current Report on 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

Current Report on Form 8-K, dated April 9, 2007, filed with the Securities Exchange Commission. (Exhibit 99.9)10(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

Current Report on 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

Current Report on Form 8-K, dated May 8, 2007, filed with the Securities Exchange Commission. (Exhibit 99.2)


146

---



Table of Contents

Exhibit No.

Item

Document10(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

Current Report on Form 8-K, dated July 2, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(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

Current Report on 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

Current Report on Form 8-K, dated October 2, 2007, filed with the Securities Exchange Commission. (Exhibit 99.1)10(ggg)*

Form of Option Grant Commitment Letter

Current Report on Form 8-K, dated October 23, 2007, filed with the Securities Exchange Commission.
(Exhibit 99.1)10(hhh)*

Severance Agreement, dated October 29, 2007, between International Rectifier Corporation and Donald R.
Dancer

Current Report on Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission.
(Exhibit 10.1)


147

---



Table of Contents

Exhibit No.

Item

Document10(iii)*

Severance Agreement, dated October 29, 2007, between International Rectifier Corporation and Linda J. Pahl

Current Report on Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission. (Exhibit 10.2)10(jjj)*

Form of Executive Officer Severance Agreement

Current Report on Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission.
(Exhibit 10.3)10(kkk)*

Form of Key Employee Severance Agreement

Current Report on Form 8-K, dated November 2, 2007, filed with the Securities Exchange Commission.
(Exhibit 10.4)10(lll)*

Compensation Agreement Letter, dated October 29, 2007, between International Rectifier Corporation and Donald R.
Dancer

Current Report on 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)

Current Report on Form 8-K, dated November 16, 2007, filed with the Securities Exchange Commission.
(Exhibit 10.1)10(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

Current Report on 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

Current Report on Form 8-K, dated February 11, 2008, filed with the Securities Exchange Commission.
(Exhibit 10.1)


148

---



Table of Contents

Exhibit No.

Item

Document10(ppp)*

Letter Agreement, dated March 6, 2008, by and between International Rectifier Corporation and Donald R. Dancer

Current Report on 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

Current Report on 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

Current Report on 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

Current Report on Form 8-K, dated April 3, 2008, filed with the Securities Exchange Commission. (Exhibit 10.1)10(ttt)*

Agreement, dated April 17, 2008, by and between International Rectifier Corporation and Eric Lidow

Current Report on 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

Current Report on 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.

Current Report on 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

Current Report on 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

Current Report on Form 8-K, dated June 12, 2008, filed with the Securities Exchange Commission. (Exhibit 99.1)


149

---



Table of Contents

Exhibit No.

Item

Document10(yyy)

Form of Indemnification Agreement approved for directors and executive officers of International Rectifier Corporation

Current Report on Form 8-K, dated September 15, 2008, filed with the Securities and Exchange Commission. (Exhibit 10.1)10(zzz)*

Offer Letter executed September 21, 2008 between International Rectifier Corporation and Ilan Daskal

Current Report on Form 8-K, dated September 21, 2008, filed with the Securities and Exchange Commission.
(Exhibit 10.1)10(aaaa)*

Severance Agreement executed September 21, 2008 between International Rectifier Corporation and Ilan Daskal

Current Report on Form 8-K, dated September 21, 2008, filed with the Securities and Exchange Commission.
(Exhibit 10.2)10(bbbb)*

Fourth Amendment to the Amended and Restated Rights Agreement, dated as of October 12, 2008, by and between International
Rectifier Corporation and Mellon Investor Services LLC (f/k/a/ ChaseMellon Shareholder Services, LLC)

Current Report on Form 8-K, dated October 12, 2008, filed with the Securities and Exchange Commission.
(Exhibit 4.1)10(cccc)*

Amendment to Letter Agreement, executed October 22, 2008, between International Rectifier Corporation and Peter B.
Knepper

Current Report on Form 8-K, dated October 16, 2008, filed with the Securities and Exchange Commission.
(Exhibit 10.1)10(dddd)*

Amendment No. 1 to Consulting Agreement dated October 16, 2008, between International Rectifier Corporation and Pahl
Consulting, Inc.

Current Report on Form 8-K, dated October 16, 2008, filed with the Securities and Exchange Commission.
(Exhibit 10.2)10(eeee)*

Form of Non-Employee Director Option Agreement

Form 10-Qfor the quarterly period ended September 30, 2008, filed with the Securities and Exchange Commission
on November 6, 2008. (Exhibit 10.6)10(ffff)*

Amendment to Employment Agreement, dated December 29, 2008, entered into between International Rectifier Corporation and
Oleg Khaykin

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.6)10(gggg)*

RSU Award Agreement, dated August 6, 2008, entered into between International Rectifier Corporation and Oleg
Khaykin

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.7)10(hhhh)*

Option Award Agreement, dated August 6, 2008, entered into between International Rectifier Corporation and Oleg
Khaykin

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.8)


150

---



Table of Contents

Exhibit No.

Item

Document10(iiii)*

Amendment to Offer Letter, dated December 26, 2008, entered into between International Rectifier Corporation and Ilan Daskal

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission on
February 6, 2009. (Exhibit 10.9)10(jjjj)*

Amendment to Severance Agreement, dated December 26, 2008, entered into between International Rectifier Corporation and
Ilan Daskal

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.10)10(kkkk)*

Amendment to Compensation Agreement Letter, dated December 29, 2008, entered into between International Rectifier
Corporation and Donald R. Dancer

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.11)10(llll)*

Amendment to Severance Agreement, dated December 29, 2008, entered into between International Rectifier Corporation and
Donald R. Dancer

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.12)10(mmmm)*

Amendment to Offer Letter, dated December 26, 2008, entered into between International Rectifier Corporation and Michael
Barrow

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.13)10(nnnn)*

Amendment to Severance Agreement, dated December 26, 2008, entered into between International Rectifier Corporation and
Michael Barrow

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.14)10(oooo)*

Revised form of RSU Award Agreement under International Rectifier Corporation's 2000 Incentive Plan (Amended and Restated as
of November 22, 2004)

Form 10-Qfor the quarterly period ended December 31, 2008, filed with the Securities and Exchange Commission
on February 6, 2009. (Exhibit 10.15)10(pppp)*

Amendment to Employment Agreement, dated as of February 17, 2009, by and between International Rectifier Corporation and
Donald R. Dancer

Current Report on Form 8-K, dated February 17, 2009, filed with the Securities and Exchange Commission.
(Exhibit 10.1)10(qqqq)*

2000 Incentive Plan Revised Non Employee Director Option Form

Form 10-Qfor the quarterly period ended March 29, 2009, filed with the Securities and Exchange Commission on
May 8, 2009. (Exhibit 10.9)10(rrrr)*

International Rectifier Corporation Deferred Compensation Plan, Amended and Restated as of January 1, 2009

Form 10-Qfor the quarterly period ended March 29, 2009, filed with the Securities and Exchange Commission on
May 8, 2009. (Exhibit 10.10)


151

---



Table of Contents

Exhibit No.

Item

Document10(ssss)*

Amendment No. 2 to Consulting Agreement, dated as of April 21, 2009, by and between International Rectifier Corporation and Pahl
Consulting, Inc.

Form 10-Qfor the quarterly period ended March 29, 2009, filed with the Securities and Exchange Commission on May 8, 2009.
(Exhibit 10.11)10(tttt)*

Project Work Agreement, dated as of May 6, 2009, by and between International Rectifier Corporation and Tatum,
 LLC

Form 10-Qfor the quarterly period ended March 29, 2009, filed with the Securities and Exchange Commission on
May 8, 2009. (Exhibit 10.12)10(uuuu)

Confidential Settlement Agreement and Release, Amendment No. 1 to Transition Buy Back Die Supply Agreement, Amendment
No. 2 to Technology License Agreement, Amendment No. 7 to Master Purchase Agreement, and Amendment No. 3 to Asset Purchase Agreement, dated June 25, 2009, by and between Vishay Intertechnology, Inc. and International
Rectifier Corporation

Current Report on Form 8-K/A, dated June 25, 2009, filed with the Securities and Exchange Commission.
(Exhibit 10.1)14

Code of Ethics

Current Report on Form 8-K, dated November 28, 2005 filed with the Securities and Exchange Commission.
(Exhibit 99.1)


---

152

---



Table of Contents

Submitted Herewith:

See page 60 for an index of Financial Statements and Financial Statement Schedule being filed as part of this report.

10.1

Offer Letter Agreement, dated May 16, 2008, between International Rectifier Corporation and Timothy Bixler*10.2

Severance Agreement, dated June 8, 2008, between International Rectifier Corporation and Timothy Bixler*10.3

Amendment to Offer Letter, dated December 26, 2008, between International Rectifier Corporation and Timothy
Bixler*10.4

Amendment to Severance Agreement, dated December 26, 2008, between International Rectifier Corporation and Timothy
Bixler18.1

Letter Regarding Change in Accounting Principle21

List of Subsidiaries23.1

Consent of Independent Registered Public Accounting Firm-Ernst & Young LLP23.2

Consent of Independent Registered Public Accounting Firm-PricewaterhouseCoopers LLP24

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


---

153

---





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/ ILAN DASKALDate: August 27, 2009



Ilan Daskal Chief Financial Officer
(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

August 27, 2009/s/ JACK O. VANCE* Jack O. Vance

Director

August 27, 2009/s/ ROCHUS E. VOGT* Rochus E. Vogt

Director

August 27, 2009/s/ JAMES D. PLUMMER* James D. Plummer

Director

August 27, 2009/s/ ROBERT ATTIYEH* Robert Attiyeh

Director

August 27, 2009/s/ THOMAS A. LACEY* Thomas A. Lacey

Director

August 27, 2009/s/ MARY B. CRANSTON* Mary B. Cranston

Director

August 27, 2009/s/ OLEG KHAYKIN* Oleg Khaykin

Director and Chief Executive Officer
(Principal Executive Officer)

August 27, 2009


*By:

/s/ ILAN DASKAL Ilan Daskal Attorney- in- fact



August 27, 2009


154

---





Table of Contents

SCHEDULE II



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  For the Fiscal Years Ended June 28, 2009, June 29, 2008, and July 1, 2007  (In thousands)

Balance at
beginning of year

Additions
(reductions)
charged to costs
and expenses(1)

Deductions
(2)(3)

Balance at end
of year2009Accounts receivable reserve

$
6,525

$
6,660

$
(8,083
)
$
5,102Inventory valuation reserve


89,368


(7,191
)

(19,136
)

63,041Deferred income tax valuation allowance


78,142


184,333


(13,809
)

248,6662008Accounts 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
)

68,228


---

155

---