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

FORM 10-Q

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended September 30,
2007            
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 1-7935

International Rectifier Corporation(Exact Name of Registrant as Specified in Its Charter)

|Delaware(State or Other Jurisdiction of Incorporation or Organization)           |  | 95-1528961(I.R.S. Employer Identification No.)
|-------------------------------------------------------------------------------- |  | ----------------------------------------------
|233 Kansas Street
El Segundo, California(Address of Principal Executive Offices) |  | 90245(Zip Code)                               
|Registrant's Telephone Number, Including Area Code:(310) 726-8000               

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes o    No 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
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 o |  | Non-accelerated filer o (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

There were 72,826,406 shares of the registrant's common stock, par value $1.00 per share, outstanding on July 25, 2008.



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TABLE OF CONTENTS



|                                        |                       |                                                                                                                           | Page
|--------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------- | ----
|EXPLANATORY NOTE REGARDING RESTATEMENTS |                       | 3                                                                                                                        
|PART I.                                 | FINANCIAL INFORMATION |                                                                                                                           | 4   
|                                        | Item 1.               | Financial Statements                                                                                                      |     
|                                        |                       | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006                      |     
|                                        |                       | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006 |     
|                                        |                       | UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30 AND JUNE 30, 2007                                      |     
|                                        |                       | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006          |     
|                                        |                       | NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                            |     
|                                        | Item 2.               | Management's Discussion And Analysis Of Financial Condition and Results Of Operations                                     |     
|                                        | Item 3.               | Quantitative And Qualitative Disclosures About Market Risk                                                                |     
|                                        | Item 4.               | Controls And Procedures                                                                                                   |     
|PART II.                                | OTHER INFORMATION     |                                                                                                                           | 63  
|                                        | Item 1.               | Legal Proceedings                                                                                                         |     
|                                        | Item 1A.              | Risk Factors                                                                                                              |     
|                                        | Item 6.               | Exhibits                                                                                                                  |     

2

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EXPLANATORY NOTE REGARDING RESTATEMENTS

The filing of our quarterly reports for the first, second and third quarters of fiscal year ending June 30, 2008 were delayed due to questions raised in an
investigation into certain accounting irregularities and related matters conducted by independent legal counsel engaged by the Audit Committee of our Board of Directors. As a result of information
discovered during this investigation, certain accounts had to be reconstructed and errors and irregularities, including issues identified in additional accounting reviews and procedures conducted by
management relative to those periods, required correction. The investigation and the resulting restatements are more fully described in our 2007 Annual Report on Form 10-K filed
concurrently herewith.

3

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PART I.    FINANCIAL INFORMATION

ITEM 1.    Financial Statements

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

|                                                            |                                                                               | Three Months Ended
September 30, |        
|----------------------------------------------------------- | ----------------------------------------------------------------------------- | -------------------------------- | -------
|
|Revenues                                                    |                                                                               | $                                | 266,194
|Cost of sales                                               |                                                                               |                                  | 168,809
|                                                            |                                                                               |                                  |        
|                                                            | Gross profit                                                                  |                                  |        
|Selling and administrative expense                          |                                                                               |                                  | 66,806 
|Research and development expense                            |                                                                               |                                  | 27,896 
|Amortization of acquisition-related intangible assets       |                                                                               |                                  | 380    
|Asset impairment, restructuring and other charges (Note 13) |                                                                               |                                  | 35     
|                                                            |                                                                               |                                  |        
|                                                            | Operating income                                                              |                                  |        
|Other expense (income), net                                 |                                                                               |                                  | 6,129  
|Interest income, net                                        |                                                                               |                                  | (7,893 
|                                                            |                                                                               |                                  |        
|Income from continuing operations before income taxes       |                                                                               |                                  | 4,032  
|(Benefit from) provision for income taxes                   |                                                                               |                                  | (6,381 
|                                                            |                                                                               |                                  |        
|                                                            | Income from continuing operations                                             |                                  |        
|                                                            | Loss from discontinued operations, net of taxes (Note 3)                      |                                  |        
|                                                            |                                                                               |                                  |        
|                                                            | Net income                                                                    |                                  | $      
|                                                            |                                                                               |                                  |        
|Net income per common share:                                |                                                                               |                                  |        
|Basic:                                                      |                                                                               |                                  |        
|                                                            | Income from continuing operations                                             |                                  | $      
|                                                            | Loss from discontinued operations                                             |                                  |        
|                                                            |                                                                               |                                  |        
|                                                            | Net income per share                                                          |                                  | $      
|                                                            |                                                                               |                                  |        
|Diluted:                                                    |                                                                               |                                  |        
|                                                            | Income from continuing operations                                             |                                  | $      
|                                                            | Loss from discontinued operations                                             |                                  |        
|                                                            |                                                                               |                                  |        
|                                                            | Net income per share                                                          |                                  | $      
|                                                            |                                                                               |                                  |        
|                                                            | Average common shares outstandingbasic                                       |                                  |        
|                                                            |                                                                               |                                  |        
|                                                            | Average common shares and potentially dilutive securities outstandingdiluted |                                  |        
|                                                            |                                                                               |                                  |        

The
accompanying notes are an integral part of these statements.

4

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF  COMPREHENSIVE INCOME (LOSS)        (In thousands)

|                                         |                                                                                                                            | Three Months Ended
September 30, |       
|---------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ------
|
|Net income                               |                                                                                                                            | $                                | 10,413
|                                         |                                                                                                                            |                                  |       
|Other comprehensive (loss) income:       |                                                                                                                            |                                  |       
|                                         | Foreign currency translation adjustments                                                                                   |                                  |       
|Unrealized (losses) gains on securities: |                                                                                                                            |                                  |       
|                                         | Unrealized holding (losses) gains on available-for-sale securities, net of tax effect of $(72) and $(2,305), respectively  |                                  |       
|                                         | Unrealized holding (losses) gains on foreign currency, forward contract net of tax effect of $0 and $(1,375), respectively |                                  |       
|                                         | Reclassification adjustments of net losses on available-on-sale securities and foreign currency forward contract           |                                  |       
|                                         |                                                                                                                            |                                  |       
|                                         | Other comprehensive (loss) income                                                                                          |                                  |       
|                                         |                                                                                                                            |                                  |       
|Comprehensive (loss) income              |                                                                                                                            | $                                | (6,359
|                                         |                                                                                                                            |                                  |       

The
accompanying notes are an integral part of these statements.

5

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS        (In thousands)

|                                                    |                                                      | September 30,
2007                         |         | June 30,
2007
|--------------------------------------------------- | ---------------------------------------------------- | ------------------------------------------ | ------- | -------------
|Assets                                              |                                                      |                                            |         |              
|Current assets:                                     |                                                      |                                            |         |              
|                                                    | Cash and cash equivalents                            |                                            | $       | 306,383      
|                                                    | Restricted cash                                      |                                            |         | 4,341        
|                                                    | Short-term investments                               |                                            |         | 58,335       
|                                                    | Trade accounts receivable, net                       |                                            |         | 140,088      
|                                                    | Inventories                                          |                                            |         | 199,354      
|                                                    | Current deferred tax assets                          |                                            |         | 11,087       
|                                                    | Prepaid expenses and other receivables               |                                            |         | 46,836       
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total current assets                       |         |              
|Restricted cash                                     |                                                      |                                            | 14,748  |              
|Long-term investments                               |                                                      |                                            | 342,516 |              
|Property, plant and equipment, net                  |                                                      |                                            | 571,400 |              
|Goodwill                                            |                                                      |                                            | 131,446 |              
|Acquisition-related intangible assets, net          |                                                      |                                            | 19,827  |              
|Long-term deferred tax assets                       |                                                      |                                            | 73,019  |              
|Other assets                                        |                                                      |                                            | 64,183  |              
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total assets                               |         | $            
|                                                    |                                                      |                                            |         |              
|Liabilities and Stockholders' Equity                |                                                      |                                            |         |              
|Current liabilities:                                |                                                      |                                            |         |              
|                                                    | Bank loans                                           |                                            | $       |             
|                                                    | Long-term debt, due within one year                  |                                            |         | 432          
|                                                    | Accounts payable                                     |                                            |         | 75,768       
|                                                    | Accrued salaries, wages and commissions              |                                            |         | 37,719       
|                                                    | Accrued income taxes                                 |                                            |         | 10,235       
|                                                    | Current deferred tax liabilities                     |                                            |         | 2,883        
|                                                    | Other accrued expenses                               |                                            |         | 99,403       
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total current liabilities                  |         |              
|Long-term accrued income taxes                      |                                                      |                                            | 70,765  |              
|Long-term deferred tax liabilities                  |                                                      |                                            |        |              
|Other long-term liabilities                         |                                                      |                                            | 41,102  |              
|Deferred gain on Divestiture (Note 11)              |                                                      |                                            | 116,059 |              
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total liabilities                          |         |              
|                                                    |                                                      |                                            |         |              
|Commitments and contingencies (Notes 17, 18 and 19) |                                                      |                                            |         |              
|Stockholders' equity:                               |                                                      |                                            |         |              
|                                                    | Common shares                                        |                                            |         | 72,811       
|                                                    | Capital contributed in excess of par value of shares |                                            |         | 960,713      
|                                                    | Retained earnings                                    |                                            |         | 412,001      
|                                                    | Accumulated other comprehensive income               |                                            |         | 83,672       
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total stockholders' equity                 |         |              
|                                                    |                                                      |                                            |         |              
|                                                    |                                                      | Total liabilities and stockholders' equity |         | $            
|                                                    |                                                      |                                            |         |              

The
accompanying notes are an integral part of these statements.

6

---





INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                             |                                                                                   | Three Months Ended
September 30,                      |         
|------------------------------------------------------------ | --------------------------------------------------------------------------------- | ----------------------------------------------------- | --------
|
|Cash flow from operating activities:                         |                                                                                   |                                                       |         
|                                                             | Net income                                                                        |                                                       | $       
|                                                             | Adjustments to reconcile net income to net cash provided by operating activities: |                                                       |         
|                                                             |                                                                                   | Depreciation and amortization                         |         
|                                                             |                                                                                   | Amortization of acquisition-related intangible assets |         
|                                                             |                                                                                   | Stock compensation expense                            |         
|                                                             |                                                                                   | (Recovery of) provision for bad debt                  |         
|                                                             |                                                                                   | Provision for inventory write-downs                   |         
|                                                             |                                                                                   | Debt retirement charge                                |         
|                                                             |                                                                                   | Unrealized gain on derivatives                        |         
|                                                             |                                                                                   | Deferred revenue                                      |         
|                                                             |                                                                                   | Deferred income taxes                                 |         
|                                                             |                                                                                   | Tax benefit from options exercised                    |         
|                                                             |                                                                                   | Excess tax benefit from options exercised             |         
|                                                             |                                                                                   | Write-down of investments                             |         
|                                                             |                                                                                   | Loss on sale of investments                           |         
|                                                             |                                                                                   | Change in operating assets and liabilities, net       |         
|                                                             |                                                                                   |                                                       |         
|Net cash (used in) provided by operating activities          |                                                                                   |                                                       | (24,159 
|                                                             |                                                                                   |                                                       |         
|Cash flow from investing activities:                         |                                                                                   |                                                       |         
|                                                             | Additions to property, plant and equipment                                        |                                                       |         
|                                                             | Proceeds from sale of property, plant and equipment                               |                                                       |         
|                                                             | Additions to restricted cash                                                      |                                                       |         
|                                                             | Sale or maturities of investments                                                 |                                                       |         
|                                                             | Purchase of investments                                                           |                                                       |         
|                                                             | Other, net                                                                        |                                                       |         
|                                                             |                                                                                   |                                                       |         
|Net cash provided by (used in) investing activities          |                                                                                   |                                                       | 36,366  
|                                                             |                                                                                   |                                                       |         
|Cash flow from financing activities:                         |                                                                                   |                                                       |         
|                                                             | (Repayments of) proceeds from short-term debt                                     |                                                       |         
|                                                             | Repayments of obligations under capital leases                                    |                                                       |         
|                                                             | Proceeds from exercise of stock options and stock participation plan              |                                                       |         
|                                                             | Excess tax benefit from options exercised                                         |                                                       |         
|                                                             | Additions to restricted cash                                                      |                                                       |         
|                                                             | Other, net                                                                        |                                                       |         
|                                                             |                                                                                   |                                                       |         
|Net cash (used in) provided by financing activities          |                                                                                   |                                                       | (559,040
|                                                             |                                                                                   |                                                       |         
|Effect of exchange rate changes on cash and cash equivalents |                                                                                   |                                                       | 176     
|                                                             |                                                                                   |                                                       |         
|Net decrease in cash and cash equivalents                    |                                                                                   |                                                       | (546,657
|Cash and cash equivalents, beginning of period               |                                                                                   |                                                       | 853,040 
|                                                             |                                                                                   |                                                       |         
|Cash and cash equivalents, end of period                     |                                                                                   | $                                                     | 306,383 
|                                                             |                                                                                   |                                                       |         

The accompanying notes are an integral part of these statements.

7

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        September 30, 2007

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, low voltage analog and mixed signal integrated circuits ("ICs"), digital ICs, radiation-resistant ("RAD-Hard") power MOSFETs, insulated gate
bipolar transistors ("IGBTs"), high reliability DC-DC converters, PowerStage ("PS") modules, and DC-DC converter type applications.

Basis of Presentation

The condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") and therefore do not include all information and notes normally provided in audited financial statements prepared in accordance with
generally accepted accounting principles ("GAAP"). The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, which are located in North America, Europe
and Asia. Intercompany balances and transactions have been eliminated in consolidation.

In
the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation have been included. The results
of operations for any interim period are not necessarily indicative, nor comparable to the results of operations for any other interim period or for a full fiscal year. These condensed consolidated
financial statements and the accompanying notes should be read in conjunction with the Company's annual consolidated financial statements and the notes thereto for the year ended June 30, 2007
included in the 2007 Annual Report on Form 10-K filed with the SEC concurrently herewith (the "2007 Annual Report").

Reclassification

Certain reclassifications have been made to previously reported amounts to conform to the current year presentation. Certain reclassifications have been made to
the Unaudited Condensed Consolidated Statement of Income for the three months ended September 30, 2006 to present the results of a portion of the Power Control Systems ("PCS") business ("PCS
Business"), the Non-Aligned Products ("NAP") segment, as discontinued operations.

Fiscal Year and Quarter

The Company operates on a 52-53 week fiscal year with the fiscal year ending on a Sunday closest to June 30. The three months ended
September 2007 and 2006 consisted of 13 weeks ended on

8

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

September 30,
2007 and October 1, 2006, respectively. For ease of presenting the accompanying condensed consolidated financial statements, the fiscal September quarter-end
for all periods presented is shown as September 30.

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.

Recent Accounting Pronouncements

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

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

On
July 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan Interpretation of FASB
Statement No. 109" ("FIN 48"). Under FIN 48, differences between the amounts recognized in the consolidated financial statements prior to the adoption of FIN 48 and the
amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained earnings. The adoption of FIN 48 had no material impact on the financial
statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS No. 141(R)"). Under SFAS No. 141(R), an entity is required to recognize
the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to

9

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

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 No. 141(R) will change the
Company's accounting treatment for business combinations on a prospective basis beginning July 1, 2009.

In
December 2007, the SEC issued Staff Accounting Bulletin ("SAB") No. 110 ("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 Statement No. 123 (Revised 2004) "Share-Based Payment" ("SFAS
No. 123(R)"), Share-Based Payment. SAB 110 amended SAB No. 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.

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

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

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

10

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

2. Restatement of Consolidated Financial Statements

In connection with the Company's 2007 Annual Report the Company restated its consolidated balance sheets as of June 30, 2006 and 2005, and the consolidated
statements of income, stockholders' equity and comprehensive income (loss), and cash flows for the fiscal years ended June 30, 2006 and 2005, including the cumulative impact of corrected
matters for periods prior to June 30, 2004. In the 2007 Annual Report, the Company has also restated its unaudited quarterly financial information for the fiscal quarters ended
December 31, 2006, September 30, 2006, June 30, 2006, March 31, 2006, December 31, 2005, September 30, 2005, June 30, 2005, March 31, 2005,
December 31, 2004 and September 30, 2004. Details regarding periods covered by the restatement, including cumulative adjustments required for periods prior to July 1, 2004, are
set forth in the 2007 Annual Report. Previously filed annual reports on Form 10-K and quarterly reports on Form 10-Q affected by the restatements have not been
amended and should not be relied upon.

11

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

2. Restatement of Consolidated Financial Statements (Continued)

Summary Financial Impacts of Restatements

The following table reflects the impact of the restatement on the Company's consolidated statement of income for the three months ended September 30, 2006
(in thousands, except per share data):

|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        | As
Restated
and
Adjusted
for
Discontinued
Operations |  
|----------------------------------------------------------------------------- |  | - | ------- | - | - | ------- | - | - | ------ | - | - | ------ | - | - | ------ | ---------------------------------------------------- | -
|
|
|Revenues                                                                      |  | $ | 344,243 |   | $ | (20,320 | ) | $ | (7,861 | ) | $ |       |   | $ |       |                                                      | $
|Cost of sales                                                                 |  |   | 205,826 |   |   | (13,505 | ) |   | (2,633 | ) |   | 1,485  |   |   | (360   | )                                                    |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Gross profit                                                                  |  |   | 138,417 |   |   | (6,815  | ) |   | (5,228 | ) |   | (1,485 | ) |   | 360    |                                                      |  
|Selling and administrative expense                                            |  |   | 56,636  |   |   | 17      |   |   |       |   |   | 805    |   |   | 1,549  |                                                      |  
|Research and development expense                                              |  |   | 29,793  |   |   |        |   |   |       |   |   | 96     |   |   |       |                                                      |  
|Amortization of acquisition-related intangible assets                         |  |   | 926     |   |   | (251    | ) |   |       |   |   |       |   |   |       |                                                      |  
|Asset impairment, restructuring and other charges                             |  |   | 5,237   |   |   |        |   |   |       |   |   |       |   |   | (2,586 | )                                                    |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Operating income                                                              |  |   | 45,825  |   |   | (6,581  | ) |   | (5,228 | ) |   | (2,386 | ) |   | 1,397  |                                                      |  
|Other (income), net                                                           |  |   | (81     | ) |   |        |   |   | (1,434 | ) |   |       |   |   | 1,434  |                                                      |  
|Interest (income), net                                                        |  |   | (2,504  | ) |   |        |   |   |       |   |   |       |   |   | (21    | )                                                    |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Income from continuing operations before income taxes                         |  |   | 48,410  |   |   | (6,581  | ) |   | (3,794 | ) |   | (2,386 | ) |   | (16    | )                                                    |  
|Provision for income taxes(3)                                                 |  |   | 14,281  |   |   | (2,596  | ) |   | (1,315 | ) |   | (883   | ) |   | (3     | )                                                    |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Income from continuing operations                                             |  |   | 34,129  |   |   | (3,985  | ) |   | (2,479 | ) |   | (1,503 | ) |   | (13    | )                                                    |  
|Loss from discontinued operations, net of taxes                               |  |   |        |   |   |        |   |   |       |   |   |       |   |   |       |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Net income                                                                    |  | $ | 34,129  |   | $ | (3,985  | ) | $ | (2,479 | ) | $ | (1,503 | ) | $ | (13    | )                                                    | $
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Net income per common share:                                                  |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Basic:                                                                        |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Income from continuing operations                                             |  | $ | 0.47    |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Loss from discontinued operations                                             |  |   |        |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Net income per share                                                          |  | $ | 0.47    |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Diluted:                                                                      |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Income from continuing operations                                             |  | $ | 0.47    |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Loss from discontinued operations                                             |  |   |        |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Net income per share                                                          |  | $ | 0.47    |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Average common shares outstandingbasic                                       |  |   | 72,052  |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|Average common shares and potentially dilutive securities outstandingdiluted |  |   | 72,630  |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  
|                                                                              |  |   |         |   |   |         |   |   |        |   |   |        |   |   |        |                                                      |  

---

12

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

2. Restatement of Consolidated Financial Statements (Continued)

The following table presents the impact of the restatement adjustments on the Company's previously reported consolidated statements of
comprehensive income for the three months ended September 30, 2006 (in thousands):

Three Months Ended
September 30, 2006As previously
reported

As restatedComprehensive income:Net income

$
34,129

$
16,272Foreign currency translations adjustments


8,985


9,165Unrealized gains on foreign currency forward contract, net of deferred tax provision


2,553


2,553Unrealized gains on available-for-sale securities, net of deferred tax provision


3,986


3,986Reclassification adjustments of losses for available for sale securities and foreign currency forward contract to income, net of tax provision


(419
)

(419
)Comprehensive income

$
49,234

$
31,557


13

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

2. Restatement of Consolidated Financial Statements (Continued)

The
following table presents the impact of the restatement adjustments on the Company's previously reported consolidated statements of cash flows for the three months ended
September 30, 2006 (in thousands):

|                                               |                                                                      | Three Months Ended September 30, 2006                                             |        
|---------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------------------------------------------- | -------
|
|Cash flow from operating activities:           |                                                                      |                                                                                   |        
|                                               | Net income                                                           |                                                                                   | $      
|                                               |                                                                      | Adjustments to reconcile net income to net cash provided by operating activities: |        
|                                               |                                                                      | Depreciation and amortization                                                     |        
|                                               |                                                                      | Amortization of acquisition-related intangible assets                             |        
|                                               |                                                                      | Stock compensation expense                                                        |        
|                                               |                                                                      | Provision for bad debt                                                            |        
|                                               |                                                                      | Provision for inventory write-downs                                               |        
|                                               |                                                                      | Unrealized gain on derivatives                                                    |        
|                                               |                                                                      | Deferred revenue                                                                  |        
|                                               |                                                                      | Deferred income taxes                                                             |        
|                                               |                                                                      | Tax benefit from options exercised                                                |        
|                                               |                                                                      | Excess tax benefit from options exercised                                         |        
|                                               |                                                                      | Loss on sale of investments                                                       |        
|                                               |                                                                      | Change in operating assets and liabilities, net                                   |        
|                                               |                                                                      |                                                                                   |        
|Net cash provided by operating activities      |                                                                      |                                                                                   | 11,469 
|                                               |                                                                      |                                                                                   |        
|Cash flow from investing activities:           |                                                                      |                                                                                   |        
|                                               | Additions to property, plant and equipment                           |                                                                                   |        
|                                               | Proceeds from sale of property, plant and equipment                  |                                                                                   |        
|                                               | Sale or maturities of investments                                    |                                                                                   |        
|                                               | Purchase of investments                                              |                                                                                   |        
|                                               | Other, net                                                           |                                                                                   |        
|                                               |                                                                      |                                                                                   |        
|Net cash used in investing activities          |                                                                      |                                                                                   | (51,991
|                                               |                                                                      |                                                                                   |        
|Cash flow from financing activities:           |                                                                      |                                                                                   |        
|                                               | Proceeds from short-term debt                                        |                                                                                   |        
|                                               | Repayments of obligations under capital leases                       |                                                                                   |        
|                                               | Proceeds from exercise of stock options and stock participation plan |                                                                                   |        
|                                               | Excess tax benefit from options exercised                            |                                                                                   |        
|                                               | Other, net                                                           |                                                                                   |        
|                                               |                                                                      |                                                                                   |        
|Net cash provided by financing activities      |                                                                      |                                                                                   | (352   
|                                               |                                                                      |                                                                                   |        
|                                               | Effect of exchange rate changes on cash and cash equivalents         |                                                                                   |        
|                                               |                                                                      |                                                                                   |        
|                                               | Net decrease in cash and cash equivalents                            |                                                                                   |        
|Cash and cash equivalents, beginning of period |                                                                      |                                                                                   | 482,907
|                                               |                                                                      |                                                                                   |        
|Cash and cash equivalents, end of period       |                                                                      | $                                                                                 | 446,261
|                                               |                                                                      |                                                                                   |        

3. Discontinued Operations and the Divestiture

On April 1, 2007 (the last day of the Company's fiscal third quarter), the Company completed the sale of its PCS Business to Vishay
Intertechnology, Inc. ("Vishay") for $339.6 million (the

14

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

3. Discontinued Operations and the Divestiture (Continued)

"Divestiture"),
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 and while the Company prepared its restated financial statements, a number of matters have developed, as
discussed in Note 21, "Subsequent Events," that have raised uncertainties under applicable accounting standards and guidance as to the recognition of the gain on the Divestiture. Consequently,
the Company has deferred recognition of the gain from continuing operations of $116.1 million. However, the Company has recognized the loss from discontinued operations of $4.3 million.

The
PCS Business consisted of the Company's former NAP and Commodity Products ("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.

Under
the terms of the transaction agreement, the Company entered into license agreements pursuant to which it agreed to license certain of its technology related to the PCS Business to
Vishay. In addition, as part of the Divestiture, the Company agreed to transfer certain other technology related to the PCS Business to Vishay. Vishay, in turn, agreed to license back to the Company
such other technology. The Company also entered into certain transition services agreements ("TSAs") for the sale and purchase of specified products, wafer and packaging services, manufacturing and
other support services, for up to three years following the date of the Divestiture. The fair value of these transition agreements was recorded at $20.0 million for the transition services the
Company will provide to Vishay and $3.4 million for the transition services Vishay will provide to the Company. The fair value of these agreements is being amortized over the three year life of
the TSAs.

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

Subsequent
to April 1, 2007, Vishay and the Company commenced discussions regarding the application of the net working capital adjustment formula in accordance with the terms of
the definitive documents related to the Divestiture. However, the parties did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and
Vishay has taken the position that the discussion should be deferred pending the disclosure of the results of IR's internal investigation into certain accounting and financial reporting matters (the
"Investigation") conducted by the Audit Committee of the Board of Directors ("Audit Committee"). As of the date of this report, Vishay continues to assert a net working capital adjustment in its favor
of approximately $20.0 million, and the Company maintains that the proper application of the contractual formula results in no adjustment to net working capital. The Company does not believe
that Vishay's assertions have merit and intends to vigorously defend its position.

15

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

3. Discontinued Operations and the Divestiture (Continued)

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

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

The
outcome of any claim or litigation is inherently uncertain and the Company cannot assure its success. An adverse determination could affect the Company's rights and could have a
material adverse effect on its business, consolidated financial position or results of operations.

The
following table presents revenue, operating loss from discontinued operations before income taxes and income taxes for the three months ended September 30, 2007 and 2006,
respectively (in thousands):

Three Months
Ended
September 30,2007

2006
As restatedRevenue

$


$
27,362Operating loss before income taxes

$


$
(638
)Income tax expense





(679
)Loss from discontinued operations, net of taxes

$


$
(1,317
)


16

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

4. Supplemental Cash Flow Disclosures

Components in the change of operating assets and liabilities for the three months ended September 30, 2007 and 2006 were comprised of the following
(in thousands):

Three Months Ended
September 30,2007

2006
As restatedTrade accounts receivable

$
14,037

$
(19,759
)Inventories


17,562


(23,692
)Prepaid expenses and other receivables


17,687


(9,491
)Accounts payable


6,558


1,499Accrued salaries, wages and other commissions


(3,006
)

(17,870
)Deferred compensation


1,686


1,273Accrued income taxes payable


(89,846
)

16,585Other accrued expenses


(26,432
)

(2,942
)Changes in operating assets and liabilities

$
(61,754
)
$
(54,397
)


Supplemental
disclosures of cash flow information (in thousands):

Three Months
Ended
September 30,2007

2006
As restatedNon-cash investing activities:Liabilities accrued for property, plant and equipment purchases

$
4,278

$
16,752


5. Investments

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

Amortized Cost

Gross Unrealized Gain

Gross Unrealized Loss

Net Unrealized Loss

Market ValueShort-Term Investments:Corporate debt

$
57,980

$
23

$
(261
)
$
(238
)
$
57,742Asset-backed securities


593











593Total short-term investments

$
58,573

$
23

$
(261
)
$
(238
)
$
58,335Long-Term Investments:Corporate debt

$
64,920

$
149

$
(243
)
$
(94
)
$
64,826U.S. government and agency obligations


47,472


519


(16
)

503


47,975Mortgage-backed securities


120,085


263


(604
)

(341
)

119,744Asset-backed securities


111,201


82


(1,312
)

(1,230
)

109,971Total long-term investments

$
343,678

$
1,013

$
(2,175
)
$
(1,162
)
$
342,516


17

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

5. Investments (Continued)

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

|                                       |                              | Amortized Cost |         | Gross Unrealized Gain |   | Gross Unrealized Loss |     | Net Unrealized Loss |      | Market Value
|-------------------------------------- | ---------------------------- | -------------- | ------- | --------------------- | - | --------------------- | --- | ------------------- | ---- | ------------
|Short-Term Investments:                |                              |                |         |                       |   |                       |     |                     |      |             
|Corporate debt                         |                              | $              | 80,482  |                       | $ | 15                    |     | $                   | (215 | )           
|U.S. government and agency obligations |                              |                | 32,563  |                       |   |                      |     |                     | (11  | )           
|Asset-backed securities                |                              |                | 1,070   |                       |   |                      |     |                     | (3   | )           
|                                       |                              |                |         |                       |   |                       |     |                     |      |             
|                                       | Total short-term investments |                | $       | 114,115               |   | $                     | 15  |                     | $    | (229        
|                                       |                              |                |         |                       |   |                       |     |                     |      |             
|Long-Term Investments:                 |                              |                |         |                       |   |                       |     |                     |      |             
|Corporate debt                         |                              | $              | 84,216  |                       | $ | 115                   |     | $                   | (372 | )           
|U.S. government and agency obligations |                              |                | 44,062  |                       |   | 120                   |     |                     | (242 | )           
|Mortgage-backed securities             |                              |                | 111,388 |                       |   | 80                    |     |                     | (827 | )           
|Asset-backed securities                |                              |                | 97,797  |                       |   | 70                    |     |                     | (412 | )           
|                                       |                              |                |         |                       |   |                       |     |                     |      |             
|                                       | Total long-term investments  |                | $       | 337,463               |   | $                     | 385 |                     | $    | (1,853      
|                                       |                              |                |         |                       |   |                       |     |                     |      |             

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

The
Company holds as strategic investments the common and preferred stock of three publicly traded foreign companies, one of which is a closely held equity security. One of the
investments is Nihon Inter Electronics Corporation ("Nihon"), a related party as further discussed in Note 20, "Related Party Transactions." The value of the Company's investments is subject to
market fluctuations, which, if adverse, could have a material adverse effect on its financial position and if untimely sold due to illiquidity or otherwise at the down turn, could have a material
adverse effect on its operating results. The Company accounts for these available-for-sale investments under SFAS No. 115. These stocks are traded on either the Tokyo
Stock Exchange or the Taiwan Stock
Exchange. Dividend income from these companies was $0.1 million and $0.5 million for the three months ended September 30, 2007 and 2006, respectively.

The
Company also has a strategic investment in the common stock of a non-publicly traded company which is recorded at cost in other long-term assets. As of
September 30, 2007 and June 30, 2007, the recorded cost basis and estimated fair value of this investment was $3.6 million. The estimate of fair value is based on best available
information or other estimates determined by management. The Company did not experience any impairment in value regarding this investment since inception.

The
carrying values of the equity investments included in other long-term assets at September 30, 2007 and June 30, 2007 were $29.7 million and
$48.0 million, respectively, compared to their purchase cost at September 30, 2007 and June 30, 2007 of $26.5 million. Unrealized gain (loss), net of tax, for the three
months ended September 30, 2007 and 2006 was $(11.3) million and $0.7 million, respectively, and was included in other comprehensive income. The carrying values of the Company's equity
investments are subject to market fluctuations, which if adverse, could have a material adverse effect on its financial position and if untimely sold due to illiquidity or otherwise at the down turn,
could have a

18

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

5. Investments (Continued)

material
adverse effect on its operating results. Although the carrying values of these investments have declined significantly, the Company does not anticipate that it will dispose of these strategic
investments for a loss within the near term.

Available-for-sale
investments are carried at fair value, inclusive of unrealized gains and losses, and net of discount accretion and premium amortization
computed using the level yield method. Net unrealized gains and losses are included in other comprehensive income (loss) net of applicable income taxes. Gains or losses on sales of investment
available-for-sale 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. During
the three months ended September 30, 2007, the Company recognized $0.3 million in other-than-temporary impairments relating to certain
available-for-sale securities, included in other expense. There were no impairment charges on investments for the three months ended September 30, 2006. Subsequent to
September 30, 2007, as a result of additional declines in fair values of these securities, the Company recorded additional impairment of $4.4 million through March 31, 2008. In
the fourth fiscal quarter of
2008, the Company recorded an additional $3.7 million charge for an other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair
values through June 30, 2008.

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

|                                       |       | Securities held for less than 12 months, in a loss position at September 30, 2007 |        | Securities held for 12 months or more, in a loss position at September 30, 2007 |   | Total in a loss position |       
|-------------------------------------- | ----- | --------------------------------------------------------------------------------- | ------ | ------------------------------------------------------------------------------- | - | ------------------------ | ------
|
|Corporate debt                         |       | $                                                                                 | 51,236 |                                                                                 | $ | (281                     | )     
|U.S. government and agency obligations |       |                                                                                   | 7,171  |                                                                                 |   | (16                      | )     
|Mortgage-backed securities             |       |                                                                                   | 30,446 |                                                                                 |   | (355                     | )     
|Asset-backed securities                |       |                                                                                   | 56,751 |                                                                                 |   | (1,075                   | )     
|                                       |       |                                                                                   |        |                                                                                 |   |                          |       
|                                       | Total |                                                                                   | $      | 145,604                                                                         |   | $                        | (1,727
|                                       |       |                                                                                   |        |                                                                                 |   |                          |       

19

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

5. Investments (Continued)

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

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

Total in a loss positionMarket Value

Gross Unrealized Losses

Market Value

Gross Unrealized Losses

Market Value

Gross Unrealized LossesCorporate debt

$
76,920

$
(354
)
$
38,287

$
(233
)
$
115,207

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


54,023


(181
)

17,704


(72
)

71,727


(253
)Mortgage-backed securities


55,923


(599
)

16,779


(228
)

72,702


(827
)Asset-backed securities


46,663


(186
)

17,877


(229
)

64,540


(415
)Total

$
233,529

$
(1,320
)
$
90,647

$
(762
)
$
324,176

$
(2,082
)


The amortized cost and estimated fair value of investments at September 30, 2007, by contractual maturity, are as follows (in thousands):

Amortized Cost

Estimated Fair ValueDue in 1 year or less

$
58,573

$
58,335Due in 1-2 years


24,142


24,130Due in 2-5 years


151,000


151,271Due after 5 years


168,536


167,115Total investments

$
402,251

$
400,851


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 gross realized (losses) for the three months ended September 30, 2007 were $0.2 million and $(0.4) million, respectively. Gross realized
gains and gross realized (losses) for the three months ended September 30, 2006 were $0.1 million and $(0.3) million, respectively. The cost of marketable securities sold was
determined by the weighted average cost method.

6. Inventories

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

September 30, 2007

June 30, 2007Raw materials

$
35,184

$
31,067Work-in-process


81,182


85,383Finished goods


82,988


103,273Total inventories, net

$
199,354

$
219,723


20

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

7. Goodwill and Acquisition-Related Intangible Assets

At September 30, 2007 and June 30, 2007 acquisition-related intangible assets included the following (in thousands):

September 30, 2007

June 30, 2007Amortization Periods (Years)

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying AmountAcquisition-related intangible assets:Completed technology

4-12

$
29,679

$
(12,742
)
$
16,937

$
29,679

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

5-12


5,446


(3,784
)

1,662


5,446


(3,677
)

1,769Intellectual property and other

5-12


7,963


(6,735
)

1,228


7,963


(6,681
)

1,282Total acquisition-related intangible assets



$
43,088

$
(23,261
)
$
19,827

$
43,088

$
(22,207
)
$
20,881


As of September 30, 2007, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal year
2008: $3,172; fiscal year 2009: $4,210; fiscal year 2010: $4,210; fiscal year 2011: $3,948; and fiscal year 2012: $1,588.

The
carrying amount of goodwill by business segment as of September 30, 2007 is as follows (in thousands):

September 30, 2007

June 30
2007Power Management Devices

$
28,748

$
28,748Energy-Saving Products


36,984


36,984Aerospace and Defense


18,959


18,959Enterprise Power


22,805


22,805PowerStage


3,876


3,876Intellectual Property


20,074


20,074Total Goodwill

$
131,446

$
131,446


In
fourth fiscal quarter of 2008, the Company began its annual assessment of goodwill for impairment. During that quarter, the forecasted cash flows of the Company's reporting units were
updated. This update considered current economic conditions and trends, estimated future operating results, anticipated future economic conditions and technology. After completing the first step in
the goodwill impairment analysis, the Company concluded that goodwill related to the PowerStage ("PS"), Power Management Devices ("PMD") and Intellectual Property ("IP") segments may be impaired.
Several factors led to a reduction in forecasted cash flows, including, among others, lower than expected performance in the Company's PS segment, softening demand and pricing for products in the PMD
segment and a significant decline in projected royalty revenue in the IP segment as its broadest MOSFET patents expire. Based on the preliminary results of the annual assessment of goodwill for
impairment, the net book value of three of the Company's reporting units, PS, PMD and IP, exceeded their estimated fair value. Therefore, the Company is performing the second step of the impairment
test to determine the implied fair value of goodwill. While this second step analysis is not complete, during the quarter ending June 30, 2008, the Company expects to record an impairment
charge. A

21

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

7. Goodwill and Acquisition-Related Intangible Assets (Continued)

reasonable
estimate of the amount of the impairment charge or range of amounts of the charge cannot be determined at this time.

8. Bank Loans and Long-Term Debt

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

September 30, 2007

June 30, 2007Foreign accounts receivable financing facilities at rates from 1.625% to 1.825% and other loans

$
432

$
894Convertible subordinated notes at 4.25 percent due in July 2007 ($550,000 principal amount, plus accumulated fair value adjustment of ($7,049) at June 30, 2007)





542,951Total Debt

$
432

$
543,845


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

On
July 16, 2007, the Company funded the payment in full at maturity of the Notes due on July 16, 2007. The funding included a final interest payment of
$11.7 million. In connection with the final maturity and payment of the Notes, the Company recorded a debt retirement charge of $5.7 million, included in other expense during the three
months ended September 30, 2007.

In
June 2006, the Company's subsidiary in Singapore entered into a Credit Agreement with Bank of America, N.A. ("BoA"). Pursuant to the Credit Agreement, BoA loaned $81.0 million
to the Singapore subsidiary, bearing interest at the London Interbank Offered Rate plus 1.0 percent and maturing on June 26, 2008. In conjunction with the Credit Agreement, the Company
entered into a guaranty in favor of BoA to guarantee the payment and performance of obligations by its Singapore subsidiary. In January 2007, the Company's subsidiary in Singapore made a prepayment of
$26.0 million on the loan. The Credit Agreement contained certain financial and other covenants, with which the Company and its Singapore subsidiary were in compliance at March 31, 2007
and June 30, 2006. In May 2007, the Singapore subsidiary prepaid the remaining balance on the loan of $55.0 million.

On
November 6, 2006, the Company entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including JPM, BoA, HSBC Bank USA,
and Deutsche Bank AG

22

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

(the
"Facility"). The Facility expires in November 2011 and provides a credit line of $150.0 million with an option to increase the Facility limit to $250.0 million. Up to
$75.0 million of the Facility may be used for standby letters of credit and up to $10.0 million may be used for swing-line loans. The Facility bears interest at
(i) local currency rates plus (ii) a margin between 0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for
Euro-currency rate advances, based on the Company's senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility
ranges between 0.175 and 0.25 percent of the unused portion of the total Facility, depending upon the Company's senior leverage ratio. In connection with the Facility, the Company is required
to pledge as collateral shares of certain of its subsidiaries and certain of the Company's subsidiaries are required to guarantee the Facility. At September 30, 2007, the Company had no
borrowings and $4.3 million in letters of credit outstanding under the Facility.

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

On
July 30, 2008, the Company and the lender parties to the Facility amended the Facility by Amendment No. 6 that extends the current accommodation through
November 30, 2008 and provides that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of (i) revised audited consolidated financial
statements for fiscal years 2007, 2006 and 2005, and (ii) filing with the SEC of the Company's 2007 Annual Report and Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2007, September 30, 2007, December 31, 2007 and March 31, 2008, and if the Company is in a position to satisfy the other applicable conditions of the Facility,
the lenders shall notify the Company in writing either (i) that extensions of credit are available under the Facility to the Company or (ii) that the Facility must be amended on such
further terms and conditions as reasonably requested by such lenders. Pending the receipt of such notice and, if

23

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

applicable,
execution of such further amendment to the Facility, the Company is not able to access the Facility. The Amendment provides that failure by the Company to provide full cash collateral for
the approximately $4.3 million of letters of credit currently outstanding will result in termination of the Amendment.

At
September 30, 2007, including the Japan accounts receivable financing facilities and the Facility, the Company had $219.9 million in total lines of credit, of which
$4.3 million had been utilized in letters of credit, as noted above.

9. Other Accrued Expenses

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

September 30, 2007

June 30, 2007Accrued sales returns

$
35,623

$
34,561Deferred revenue


14,901


21,773Accrued accounting and legal costs


9,549


8,924Accrued compensation


8,827


10,354Transition services contract liability


6,665


6,665Accrued Divestiture transaction costs


3,870


4,901Due to customers


3,602


4,535Accrued sales and other taxes


3,041


6,958Accrued warranty


2,033


2,434Short term severance liability


441


826Accrued interest


76


15,749Other


10,775


15,783Total other accrued expenses

$
99,403

$
133,463


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 country in which the Company does business. In general, for standard products, the Company will replace defective parts not meeting
the Company's published specifications at no cost to the customers. Factors that affect the liability include historical and anticipated failure rates of products sold, and cost per claim to satisfy
the warranty obligation. If actual results differ from the estimates, the Company revises its estimated warranty liability to reflect such changes.

24

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

9. Other Accrued Expenses (Continued)

The
following table details the changes in the Company's warranty reserve for the three months ended September 30, 2007, which is included in other accrued liabilities (in
thousands):

Accrued warranty, June 30, 2007

$
2,434Accruals for warranties issued during the period


1,184Changes in estimates related to pre-existing warranties


(560
)Warranty claim settlements


(1,025
)Accrued warranty, September 30, 2007

$
2,033


10. Other Long-Term Liabilities

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

September 30, 2007

June 30, 2007Divested entities tax obligations

$
18,578

$
18,578Deferred compensation


10,557


9,645Transition services contract liability


9,995


11,665Other


1,972


1,985Total other long-term liabilities

$
41,102

$
41,873


In
connection with the Divestiture, the Company recorded a provision of $18.6 million for certain tax obligations with respect to divested entities.

11. Deferred Gain on Divestiture

Since the consummation of the Divestiture and while the Company prepared its restated financial statements, a number of matters have developed, as discussed in
Note 21, "Subsequent Events," that have raised uncertainties under applicable accounting standards and guidance as to the recognition of the gain on the Divestiture. Consequently, the Company
has deferred recognition of the gain from continuing operations of $116.1 million. However, the Company has recognized the loss from discontinued operations of $4.3 million.

25

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

12. Stock-Based Compensation

The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. The following table summarizes the stock option
activities for the three months ended September 30, 2007 (in thousands, except per share data):

Shares

Weighted Average Option Exercise Price Per Share

Aggregate Intrinsic ValueOutstanding, June 30, 2007

11,754

$
40.72

$
29,921Granted







Exercised







Expired

(1,132
)
$
43.06


Outstanding, September 30, 2007

10,622

$
40.68

$
18,643


For
the three months ended September 30, 2007, no stock options were exercised. For the three months ended September 30, 2006, the Company received $2.5 million for
stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.6 million for three months ended September 30, 2006.

The
following table summarizes the Restricted Stock Unit ("RSU") activities for the three months ended September 30, 2007 (in thousands, except per share data):

Restricted Stock Units

Weighted Average Grant Date Fair Value Per Share

Aggregate Intrinsic ValueOutstanding, June 30, 2007

9

$
49.14

$
337Granted







Expired

(1
)
$
49.44


Outstanding, September 30, 2007

8

$
49.23

$
279


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

September 30, 2007

June 30, 2007Options exercisable

9,116

9,855Options available for grant

3,537

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

14,169

14,695


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

26

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

12. Stock-Based Compensation (Continued)

within
other accrued expenses. 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 income 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 net credit of $1.8 million for the three months ended September 30, 2007. The aggregate
fair value of the liability awards included in other accrued expenses was $1.9 million at September 30, 2007. Subsequent to September 30, 2007, the Company continued to provide
from time to time extensions to certain terminated employees to exercise their vested stock options. As a result of these actions, the Company recorded a charge of $0.9 million through
March 31, 2008 for the modifications and mark-to-market adjustments associated with such extensions.

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

Three Months Ended September 30,2007

2006Cost of sales

$
8

$
242Selling and administrative expense


282


1,329Research and development expense


148


678Total stock-based compensation expense

$
438

$
2,249


The
total unrecognized compensation expense for outstanding stock options and RSUs was $16.2 million as of September 30, 2007, and will be recognized, in general, over
three years. The weighted average number of years to recognize the compensation expense is 1.4 years.

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

Three Months Ended September 30, 2007

Three Months Ended September 30, 2006Expected life

N/A

3.5 yearsRisk free interest rate

N/A

4.7%Volatility

N/A

44.3%Dividend yield

N/A

0.0%


13. 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

27

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

impairment,
restructuring, and other charges include program-specific exit costs recognized pursuant to SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities,"
severance benefits pursuant to an ongoing benefit arrangement recognized pursuant to SFAS No. 112, "Employers' Accounting for Postemployment Benefits," and special termination benefits
recognized pursuant to SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." Severance costs unrelated to the
Company's restructuring initiatives are recorded as an element of cost of sales, R&D or selling and administrative expense, depending upon the classification and function of the employee terminated.
Restructuring costs were expensed during the period in which all requirements of recognition were met.

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

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



28

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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



The
following table summarizes restructuring and related charges incurred during the three months ended September 30, 2007 and 2006 and recorded in asset impairment, restructuring
and other charges as well as the portion of those costs attributable to discontinued operations (in thousands):

Three Months Ended September 302007

2006
As restatedReported in cost of sales

$


$
266Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





1,957Other charges


35


695Subtotal


35


2,652Discontinued operations(1)





(691
)Total asset impairment, restructuring and other charges

$
35

$
1,961




The December 2002 Initiative

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

Three Months Ended September 30,2007

2006
As restatedReported in cost of sales

$


$
266Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





93Other charges





610Total asset impairment, restructuring and other charges

$


$
703


29

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

Charges
recorded as an element of cost of sales in the three months ended September 30, 2006 represent the costs of the closure of the Company's assembly line in Krefeld, Germany
and the move of these manufacturing activities to its facility in Swansea, Wales. The principal elements of those costs related to startup and transition costs, including:



Other
charges reflect the costs to relocate equipment related to the consolidation and closing of certain of the Company's manufacturing sites and to discontinue production at designated
facilities. Other costs of $0.6 million in the three months ended September 30, 2006 were principally incurred in connection with the relocation of operations from the Company's Krefeld
facility to its Swansea facility.

The PCS Divestiture Initiative

During fiscal year 2007, in connection with the Divestiture, the Company terminated approximately 100 former PCS employees. The Company also terminated other
operating and support personnel to streamline the organization in connection with the Divestiture. Severance charges for these terminated employees were $1.9 million for the three months ended
September 30, 2006.

The
Divestiture included two components of the business. One of these components, the former NAP segment, has been reported as an element of discontinued operations. The other component,
the former CP segment, was not presented as a discontinued operation due to the significance of the Company's ongoing involvement with its TSAs relating to the Divestiture.

The
following illustrates the charges the Company recorded in the three months ended September 30, 2007 and 2006 related to its PCS restructuring initiative (in thousands):

Three Months Ended September 302007

2006
As restatedReported in cost of sales

$


$
Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





1,864Other charges


35


16Total asset impairment, restructuring and other charges

$
35

$
1,880


30

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

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

Other Activities and Charges

From time to time, the Company also undertakes and executes other smaller scale restructuring initiatives at its local sites. The following illustrates the
charges the Company recorded in the three months ended September 30, 2007 and 2006 related to its other activities and charges (in thousands):

Three Months Ended September 302007

2006
As restatedReported in cost of sales

$


$
Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





Other charges





69Total asset impairment, restructuring and other charges

$


$
69


Research and Development Facility Closure Initiative

In the third fiscal quarter of 2008, the Company adopted a plan for the closure of its Oxted, England facility and its El Segundo, California R&D
fabrication facility. The costs associated with closing and exiting these facilities and severance costs are expected to total approximately $14.1 million. Of this amount, approximately
$12.2 million represents the cash outlay related to this initiative in future periods. The Company expects the closure and exiting of these two facilities to be completed by the end of the
second fiscal quarter of 2010.

The
following table summarizes the Company's severance accrual for the three months ended September 30, 2007:

September 30, 2007Accrued severance, June 30, 2007


826Charged to asset impairment, restructuring and other charges


Charged to operating expenses


992Costs paid


(1,393
)Foreign exchange losses


16Accrued severance, September 30, 2007

$
441


14. Segment Information

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



31

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

14. Segment Information (Continued)



32

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

14. 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 its Chief Operating Decision Maker ("CODM") in making resource allocation decisions or in evaluating performance of the operating segments.

The
accounting policies of the segments are the same as those described in Note 1 of the 2007 Annual Report, "Business, Basis of Presentation and Summary of Significant Accounting
Policies." The Company's wafer manufacturing facilities fabricate ICs for all business units as necessary and their operating costs are reflected in the segments' cost of revenues on the basis of
product costs. General manufacturing overhead and variances are allocated to the segments based on their percentage of total revenues. Because operating segments are generally defined by the products
they design and sell, they do not make sales to each other. Depreciation and amortization related to the manufacturing of goods is included in gross profit for the segments. Due to the Company's
methodology for cost build up at the product level, it is impractical to determine the amount of depreciation and amortization included in each segment's gross profit. The Company does not discretely
allocate assets to its operating segments, nor does the CODM evaluate operating segments using discrete asset information.

For
the three months ended September 30, 2007 and 2006, revenue and gross margin by reportable segments are as follows (in thousands, except percentages):

Three months ended September 30, 2007

Three months ended September 30, 2006
as restatedBusiness Segment

Revenues

Percentage of Total

Gross Margin

Revenues

Percentage of Total

Gross MarginPower Management Devices

$
106,424

40.0
%
29.6
%
$
92,030

31.9
%
34.9
%Energy-Saving Products


40,504

15.2

36.5


55,989

19.4

53.1Aerospace and Defense


36,509

13.7

51.1


38,355

13.3

50.3PowerStage


28,717

10.8

30.6


13,956

4.8

43.9Enterprise Power


28,269

10.6

50.6


20,481

7.1

53.1Intellectual Property


9,293

3.5

100.0


11,010

3.8

100.0Ongoing Segments Total


249,716

93.8

38.9


231,821

80.3

47.1Transition Services


16,478

6.2

0.8




0.0

0.0Commodity Products




0.0

0.0


56,879

19.7

21.7Consolidated Total

$
266,194

100.0
%
36.6
%
$
288,700

100
%
42.1
%


No single customer accounted for more than ten percent of the Company's consolidated revenue for the three months ended September 30, 2007
and 2006.

33

---



INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

15. Income Taxes

On July 1, 2007, the Company adopted the provisions of FIN 48. Under FIN 48, differences between the amounts recognized in the consolidated
financial statements prior to the adoption of FIN 48 and the amounts reported as a result of adoption are to be accounted for as a cumulative effect adjustment recorded to retained earnings.
The adoption of FIN 48 had no material impact on the financial statements.

As
of the adoption date, the liability for income taxes associated with uncertain tax positions was $103.9 million. If the benefit were recognized, the release of the liabilities
associated with the uncertain tax positions would result in a benefit to income taxes on the Consolidated Statement of Income of $102.2 million which would reduce the Company's future effective
tax rate.

As
of September 30, 2007, the liability for income tax associated with uncertain tax positions was $59.6 million. If recognized, the liabilities associated with uncertain
tax positions would result in a benefit to income taxes on the Consolidated Statement of Income of $57.9 million which would reduce the Company's future effective tax rate. The change in the
uncertain tax positions from the date of adoption is the result of filing qualified amended returns in the U.S. Federal tax jurisdiction for fiscal years 2004 to 2006 and the payment of additional tax
of $44.3 million with the returns, partially offset by the accrual of reserves in certain jurisdictions.

The
Company's continuing practice is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. At adoption, and as of
September 30, 2007, the Company had accrued $45.0 million and $28.1 million, respectively, of interest and penalties related to uncertain tax positions. The change in the interest
and penalties from the date of adoption is the result of filing amended returns in the U.S. federal tax jurisdiction for fiscal years 2004 to 2006 which is
comprised of the payment of interest of approximately $4.2 million and the reversal of reserves of approximately $13.7 million of penalties and related interest which were partially
offset by the accrual of additional interest and penalties.

The
uncertain tax positions are expected to decrease from the date of adoption by approximately $44.3 million over the next twelve months due to the filing of amended returns,
expiration of statute of limitations and increases in certain jurisdictions as mentioned. It is reasonably possible there will be other changes to the liability associated with uncertain tax positions
due to the expiration of statutes of limitations, payment of tax on amended returns, and other changes in reserves. Due to the complexity of the restatement, it is it not possible to estimate the
range of change at this time.

The
Company conducts business globally and, as a result, files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company's major tax
jurisdictions are U.S. federal, California, Japan, U.K. and Singapore. In the normal course of business, the Company is subject to examination by taxing authorities. With few exceptions, at the date
of adoption, the Company is no longer subject to U.S. federal income tax examinations for years before fiscal year end July 1, 2001; California income tax examinations before fiscal year end
July 5, 1998; Japan income tax examinations before fiscal year June 30, 2002; U.K. tax examinations before fiscal year end June 30 2002; and Singapore tax examination for
assessment year end December 31, 2001.

While
it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes reserves for income taxes represent
the most probable

34

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

15. Income Taxes (Continued)

outcome.
The Company adjusts these reserves, including those for the related interest, in light of changing facts and circumstance.

The
Company's effective tax rate related to continuing operations was (158.3) percent and 51.5 percent for the three months ended September 30, 2007 and 2006,
respectively. For the fiscal 2008 period, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) reversal of reserve
for potential penalties and interest thereon as a result of the Company filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (b) the
benefit of foreign tax credits and R&D credits and (c) lower statutory rates in certain foreign jurisdictions which were partially offset by (w) a decrease in U.K. deferred tax assets
due to the reduction in tax rates from 30 percent to 28 percent, (x) non deferral of income from certain jurisdictions, and (y) an increase in reserve for non U.S.
uncertain tax provisions, and (z) a state valuation allowance. For the fiscal 2007 period, the Company's effective tax rate differed from the U.S. federal tax rate of 35 percent
resulting from (a) actual and deemed distributions from certain jurisdictions, (b) transfer pricing adjustments, (c) increase in reserves for non U.S. uncertain tax provisions and
(d) state taxes, which were partially offset by (w) lower statutory tax rates in certain foreign jurisdictions, (x) the release of a valuation allowance, (y) export tax
incentives and (z) benefits from foreign tax credits and R&D credits.

In
connection with the errors related to the tax matters described above, the Company prepared and filed in September 2007 amended U.S. federal tax returns for the fiscal years 2004
through 2006. In conjunction with the filing of these amended tax returns and extensions related to federal and state income tax returns for the fiscal year ended June 30, 2007, the Company
remitted income taxes and interest in the aggregate amount of $74.0 million to the Internal Revenue Service and various state revenue agencies. Included in the $74.0 million tax and
interest payment is approximately $44.3 million of tax and $4.2 million of interest related to fiscal years 2004 through 2006. Upon filing the amended returns for fiscal years 2004
through 2006 and paying $4.2 million of interest due on underpayment of tax, the Company released during the first fiscal quarter of 2008, from accrued income taxes, $13.7 million of
accrued penalty and related interest for the underpayment of income taxes due for the fiscal years 2004 to 2006 that the Company determined would have been payable in those years absent the timely
filing of amended tax returns. The Company also paid, in the first quarter of fiscal year 2008, the Internal Revenue Service and state taxing agencies approximately $25.5 million upon the
filing of fiscal year 2007 extensions. Due to errors in our transfer pricing related to intercompany transactions, the Company has filed amended income tax returns in Singapore for fiscal years 2004
through 2006 claiming tax refund and sought to assert a claim for tax refunds for fiscal years 2001 and 2003. The benefit of these claims has not been recognized in the Company's restated financial
statements because the likelihood that the Singapore tax authority will refund these amounts is not probable. Consequently, the Company has recorded both U.S. federal income tax and Singapore income
tax with respect to certain intercompany transactions in these fiscal years.

Pursuant
to Sections 382 and 383 of the U.S. Internal Revenue Code, the utilization of net operating losses ("NOLs") and other tax attributes may be subject to substantial
limitations if certain ownership changes occur during a three-year testing period (as defined). The Company does not believe an ownership change has occurred as of September 30,
2007 that would limit the Company's utilization of any NOL, credit carryforward or other tax attributes.

35

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

15. Income Taxes (Continued)

The
Company filed in fiscal year 2008 Forms 3115 to correct certain tax accounting methods with respect to fiscal years ended June 30, 2001 to June 30, 2006. As a
consequence of filing the Forms 3115, the Company reversed, throughout fiscal year 2008, approximately $1.2 million of accrued penalties and related interest for the fiscal years ended
June 30, 2001 through June 30, 2006.

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

16. Net Income per Common Share

Net income per common sharebasic is computed by dividing net income available to common stockholders (the numerator) by the weighted average number
of common shares outstanding (the denominator) during the period. In general, the computation of net income per common sharediluted is similar to the computation of net income per common
sharebasic except that the denominator is increased to include the number of additional common shares that would have been outstanding for the exercise of stock options using the treasury
stock method and the conversion of the Company's convertible subordinated Notes using the if-converted method only if the conversion of the bonds results in the dilution of earnings per
share. The Company's use of the treasury stock method reduces the gross number of the dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised. The
Company's use of the if-converted method increases reported net income by the interest expense, net of tax, related to the convertible subordinated Notes when computing net income per
common sharediluted.

36

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

16. Net Income per Common Share (Continued)

The
following table provides a reconciliation of the numerator and denominator of the basic and diluted per-share computations for the three months ended September 30,
2007 and 2006 (in thousands, except per share amounts):

Three Months Ended September 30, 2007Income (Numerator)

Shares (Denominator)

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

$
10,413

72,811

$
0.14Loss from discontinued operations




72,811


Net income

$
10,413

72,811

$
0.14Effect of dilutive securities:Stock options and restricted stock units:Income from continuing operations




446


Income from discontinued operations




446


Net income




446


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

$
10,413

73,257

$
0.14Loss from discontinued operations




73,257


Net income

$
10,413

73,257

$
0.14


|
|

Three Months Ended September 30, 2006Income (Numerator)

Shares (Denominator)

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

$
17,589

72,052

$
0.24Loss from discontinued operations


(1,317
)
72,052


(0.01
)Net income

$
16,272

72,052

$
0.23Effect of dilutive securities:Stock options and restricted stock units:Income from continuing operations




578


Income from discontinued operations




578


Net income




578


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

$
17,589

72,630

$
0.24Loss from discontinued operations


(1,317
)
72,630


(0.02
)Net income

$
16,272

72,630

$
0.22


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

37

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

16. Net Income per Common Share (Continued)

operations
per share for the three months ended September 30, 2007 and 2006 because the effect of inclusion is anti-dilutive.

17. 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 it releases substances that damage or harm third parties. The Company cannot make
assurances that changes in environmental laws and regulations will not require additional investments in capital equipment and the implementation of additional compliance programs in the future, which
could have a material adverse effect on the Company's results of operations, financial position or cash flows, as could any failure by the Company to comply with environmental laws and regulations.

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

International
Rectifier Corporation and Rachelle Laboratories, Inc. ("Rachelle"), a former operating subsidiary of the Company that discontinued operations in 1986, were each
named a potentially responsible party ("PRP") in connection with the investigation by the United States Environmental Protection Agency ("EPA") of the disposal of allegedly hazardous substances at a
major superfund site in Monterey Park, California ("OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 against a number of
other PRPs, including the Company, for cost recovery and contribution under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"). The Company has
settled all outstanding claims that have arisen against it out of the OII Site. No claims against

38

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

17. Environmental Matters (Continued)

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

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

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

39

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

18. Litigation

International Rectifier Securities Litigation.Following IR's disclosure on April 9, 2007, that its Audit Committee
was conducting the internal Investigation into certain revenue recognition errors, a series of putative class action lawsuits was filed against IR in the United States District Court for the Central
District of California. Edward R. Koller filed the first complaint on April 17, 2007, on behalf of a putative class of purchasers of IR stock from October 27, 2005 through
April 9, 2007 ("Original Class Period"). The complaint named as defendants IR and certain of its present and former officers and directors and alleged violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 based upon revenue recognition errors at IR's Japan subsidiary. On July 22, 2007, the court consolidated all of the actions under the caption In re International Rectifier
Corporation Securities Litigation, No. CV 07-02544-JFW (VBKx) (C.D. Cal.), and appointed
Massachusetts Laborers' Pension Fund and General Retirement System of the City of Detroit (together, "Co-Plaintiffs") as co-lead plaintiffs.

Co-Plaintiffs
filed a Consolidated Class Action Complaint ("CAC") on January 14, 2008. The CAC purports to extend the Original Class Period by nearly two years, from
July 31, 2003 to August 29, 2007,
and added claims based upon the Company's disclosures that certain former officers improperly allocated operating expenses as restructuring charges, improperly assigned tax liability from higher to
lower tax jurisdictions and improperly accounted for tax benefits associated with the granting of stock options. The CAC also named as defendants several of the Company's former officers. It did not
name any of the Company's past or present directors except Eric Lidow and Alex Lidow, who were officers as well.

The
Company filed a motion to dismiss these claims on March 6, 2008, on the grounds that Co-Plaintiffs failed to plead scienter as to the Company; failed to plead loss causation
as to certain of those disclosures; failed to plead an underlying violation of Section 10(b), which is a predicate for a claim under Section 20(a); and improperly expanded the class
period without adequate notice. Co-Plaintiffs filed an opposition to this motion on April 11, 2008. The Company filed a reply in further support of its motion on April 30, 2008. On
May 23, 2008, the Court issued an order granting defendants' motions to dismiss, without prejudice, on the ground that Co-Plaintiffs failed to plead detailed facts sufficient to give rise to a
strong inference of defendants' scienter. The Court has permitted Co-Plaintiffs to file an amended complaint on or before October 17, 2008.

Governmental Investigations.The Company is cooperating fully with investigators from the SEC Division of Enforcement
regarding matters relating to the Audit Committee Investigation described in the 2007 Annual Report. The Company is currently responding to subpoenas for records from the SEC, and continues to
cooperate with the U.S. Attorney's Office and the Internal Revenue Service who are looking into matters relating to the Audit Committee Investigation and other matters described in the 2007 Annual
Report.

IXYS Litigation.On June 22, 2000, the Company filedInternational Rectifier Corporation v.
IXYS Corporation, Case No. CV-00-06756-R, in the United States District Court for the Central District of California. The Company's
complaint alleges that certain IXYS Corporation ("IXYS") MOSFET products infringe the Company's U.S. Patent Nos. 4,959,699, 5,008,725, and 5,130,767. On August 17, 2000, IXYS filed an
answer and counterclaim, and, on February 14, 2001, amended its answer and counterclaim, denying infringement and alleging patent invalidity and unenforceability. After

40

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

18. Litigation (Continued)

proceedings,
including a jury trial on damages, in the District Court and an initial appeal, a jury trial on infringement and damages was held commencing September 6, 2005. The jury found that
IXYS was infringing certain claims of Patent No. 4,959,699 and awarded the Company $6.2 million in damages through September 30, 2005. On September 14, 2006, the District
Court entered the final judgment and permanent injunction based on the jury verdict. IXYS again appealed (with a notice of appeal filed after the deadline for doing so). The Federal Circuit lifted its
temporary stay, and the permanent injunction was in effect until it terminated with the expiration of the '699 patent in September 2007. The matter was argued to the Federal Circuit on
January 7, 2008. In an opinion issued February 11, 2008, the Federal Circuit ruled against the Company and reversed the judgment. The proceedings are now at an end, subject only to the
possibility that the Supreme Court will review the case on writ ofcertiorari. The Company filed a petition for such a writ in July 2008.

Angeles. v. Omega.See Note 17, "Environmental Matters."

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

19. Commitments and Contingencies

In connection with the Divestiture, the Company included a provision of $18.6 million for certain tax obligations with respect to divested entities.

20. Related Party Transactions

As discussed in Note 5, "Investments," the Company holds as a strategic investment common stock of Nihon, a related party. During the fiscal year ended
June 30, 2006, the Company sold 2.6 million shares in Nihon for net proceeds of $19.1 million and recognized $13.6 million of pretax gains recorded in other income. At
September 30, 2007, the Company owned approximately 9.2 percent of the outstanding shares of Nihon. As previously reported, the Company's former Chief Financial Officer was the Chairman
of the Board and a director of Nihon until June 28, 2005. In addition, the former general manager of the Company's Japan subsidiary was a director of Nihon until about October 2007 and another
member of the Company's Japan subsidiary was a director from June 28, 2005 to June 30, 2008.

During
the fiscal quarters ended September 30, 2007 and 2006, the Company recorded royalties of approximately $0.02 million and $0.03 million and revenues of
approximately $0.2 million and $0.3 million from Nihon, respectively.

21. Subsequent Events

Subsequent to April 1, 2007, Vishay and the Company commenced discussions regarding the application of the net working capital adjustment formula in
accordance with the terms of the definitive

41

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

21. Subsequent Events (Continued)

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

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

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

The
outcome of any claim or litigation is inherently uncertain and the Company cannot assure its success. An adverse determination could affect the Company's rights and could have a
material adverse effect on its business, consolidated financial position or results of operations.

The
Facility entered into on November 6, 2006 has been amended by the Facility Amendments. Pursuant to the Facility Amendments, the Company's lenders under the Facility agreed
that, in light of the Audit Committee Investigation, the Company would not be deemed in default in respect of certain representations, warranties, covenants and reporting requirements during a period
ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders have no obligation to make any extensions of credit under the Facility (other than the renewal
of currently outstanding letters of credit in existing amount) until (i) the Investigation has been concluded, (ii) the lenders have received a report of the results thereof and revised
audited consolidated financial statements, reasonably satisfactory to the lenders and (iii) no other default (as defined in the Facility) exists. As set forth in the Facility Amendments, the
Company agreed to provide cash collateral for any outstanding letters of credit under the Facility and paid amendment fees to the lenders as part of the Facility Amendments. While the Investigation
has been concluded, other conditions remain. The Company intends to reinstate the Facility following the satisfaction of the necessary conditions, but there can be no assurance that it will be
successful (see Part II, Item 1A, "Risk FactorsOur liquidity may be subject to the availability of a credit facility upon acceptable terms and conditions.") Although the
Company is not able to access the Facility except for the renewal of outstanding letters of credit, it believes it has

42

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

21. Subsequent Events (Continued)

sufficient
cash, cash equivalents, cash investments and cash flows from operations to meet current foreseeable working capital and other operating cash requirements.

On
July 30, 2008, the Company and the lender parties to the Facility amended the Facility by Amendment No. 6 that extends the current accommodation through
November 30, 2008 and provides that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of (i) revised audited consolidated financial
statements for fiscal years 2007, 2006 and 2005, and (ii) filing with the SEC of the Company's 2007 Annual Report and Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2007, September 30, 2007, December 31, 2007 and March 31, 2008, and if the Company is in a position to satisfy the other applicable conditions of the Facility,
the lenders shall notify the Company in writing either (i) that extensions of credit are available under the Facility to the Company or (ii) that the Facility must be amended on such
further terms and conditions as reasonably requested by such lenders. Pending the receipt of such notice and, if applicable, execution of such further amendment to the Facility, the Company is not
able to access the Facility. The Amendment provides that failure by the Company to provide full cash collateral for the approximately $4.3 million of letters of credit currently outstanding
will result in termination of the Amendment.

In
the first three fiscal quarters of 2008, the Company recorded a $4.7 million charge for an other-than-temporary impairment relating to certain
available-for-sale securities as a result of declines in their fair values through March 31, 2008.

In
the third fiscal quarter of 2008, the Company adopted a plan for the closure of its Oxted, England facility and its El Segundo, California R&D fabrication facility. The costs
associated with closing and exiting these facilities and severance costs are expected to total approximately $14.1 million. Of this amount, approximately $12.2 million represents the
cash outlay related to this initiative in future periods. The Company expects the closure and exiting of these two facilities to be completed by the end of the second fiscal quarter of 2010.

During
the third fiscal quarter of 2008, the Company recorded write-downs to inventory totaling approximately $17.7 million associated with products it no longer supports and
inventory that has been deemed in excess of future demand.

In
the fourth fiscal quarter of 2008, the Company began its annual assessment of goodwill for impairment. During that quarter, the forecasted cash flows of the Company's reporting units
were updated. This update considered current economic conditions and trends, estimated future operating results, anticipated future economic conditions, and technology. After completing the first step
in the goodwill impairment analysis, the Company concluded that the goodwill in its PS, PMD and IP segments may be impaired. Several factors led to a reduction in forecasted cash flows, including,
among others, lower than expected performance in the Company's PS segment, softening demand and pricing for its products in the PMD segment and a significant decline in projected royalty revenue in
the Intellectual Property segment as its broadest MOSFET patents expire. Based on the preliminary results of the annual assessment of goodwill for impairment, the net book value of three of the
Company's reporting units, PS, PMD and IP, exceeded their estimated fair value. Therefore, the Company is performing the second step of the impairment test to determine the implied fair value of
goodwill. While this second step analysis is not complete, during the quarter ending June 30, 2008, the Company

43

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30, 2007

21. Subsequent Events (Continued)

expects
to record an impairment charge. A reasonable estimate of the amount of the impairment charge or the range of amounts of the charge cannot be determined at this time.

In
the fourth fiscal quarter of 2008, the Company began working with its channel partners to determine the best model to support its product portfolio and initiated programs to support
the service of its original equipment manufacturer customers. The Company anticipates that changes in its distribution model and related programs will likely adversely impact gross margin in the last
quarter of fiscal year 2008 and possibly the first quarter of fiscal year 2009.

In
the fourth fiscal quarter of 2008, the Company recorded an additional $3.7 million charge for an other-than-temporary impairment relating to certain available-for-sale
securities as a result of declines in their fair values through June 30, 2008.

44

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with the condensed consolidated financial statements and
notes to consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Except for historic information contained herein, the matters addressed in this
Item 2 constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements may be identified by the use of terms such as "anticipate," "believe," "expect," "intend," "project," "will," and similar expressions. Such forward-looking
statements are subject to a variety of risks and uncertainties, including those discussed under the heading "Statement of Caution Under the Private Securities Litigation Reform Act of 1995," in
Part II, Item 1A, "Risk Factors," and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by
us. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Results of Operations

On April 1, 2007, we completed the sale of our Power Control Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc. ("Vishay") for
$339.6 million (the "Divestiture"). We received $339.6 million in cash in the month following the Divestiture, including $14.5 million of restricted cash temporarily held in
escrow to cover indemnity obligations, if any, and approximately $49.4 million of net cash retained from the assets of the entities being sold. Since the consummation of the Divestiture and
while we prepared our restated financial statements, a number of matters have developed, as discussed in Part I, Item 1, Note 21, "Subsequent Events," that have raised
uncertainties under applicable accounting standards and guidance as to the recognition of the gain on the Divestiture. Consequently, we have deferred recognition of the gain from continuing operations
of $116.1 million. However, we have recognized the loss from discontinued operations of $4.3 million.

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

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

Subsequent
to April 1, 2007, we commenced discussions with Vishay regarding the application of the net working capital adjustment formula in accordance with the terms of the
definitive documents related to the Divestiture. However, we did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and Vishay has
taken the position that the discussion should be deferred pending the disclosure of the results of the internal investigation into certain accounting and financial reporting matters (the
"Investigation") conducted by the Audit

45

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Committee
of the Board of Directors ("Audit Committee"). As of the date of this report, Vishay continues to assert a net working capital adjustment in its favor of approximately $20.0 million,
and we maintain that the proper application of the contractual formula results in no adjustment to net working capital. We do not believe that Vishay's assertions have merit and intend to vigorously
defend our position.

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

Vishay
has also advised us of certain other potential claims, including, but not limited to, certain product quality claims related to PCS products transferred to Vishay but manufactured
prior to the consummation of the Divestiture and a claim regarding certain chemicals found in the ground water at our former manufacturing plant in Borgaro, Italy. We are currently in the process of
assessing these claims and obtaining documentation to verify any potential liabilities to us. We believe that these claims
will not have a material adverse effect on our business or prospects, and we intend to vigorously defend our rights and position.

The
outcome of any claim or litigation is inherently uncertain and we cannot assure our success. An adverse determination could affect our rights and could have a material adverse effect
on our business, consolidated financial position or results of operations.

Subsequent
to the Divestiture in the fourth fiscal quarter ended June 30, 2007, our Chief Operating Decision Maker ("CODM") redefined our business segments to better focus on the
two key power management challenges, energy savings and energy efficiency. Beginning in the fourth fiscal quarter ended June 30, 2007, we reported our financial segments based on how our CODM
reviewed and allocated resources for the business and assessed the performance of our business managers. We now report in seven segments: Enterprise Power ("EP"), Power Management Devices ("PMD"),
PowerStage ("PS"), Energy-Saving Products ("ESP"), Aerospace and Defense ("A&D"), Intellectual Property ("IP") and Transition Services ("TS"). As part of the PCS sale to Vishay, we agreed to provide
certain manufacturing and support services for up to three years following the closing date of the Divestiture, which is reported separately in the TS segment. The results of the PCS Business through
the Divestiture date were previously reported in the CP and NAP segments, consistent with prior years and in line with our business segment reporting prior to our reorganization and the redefinition
of our business segments by our CODM. As outlined above, for the fiscal year ended June 30, 2007, the financial results of the NAP segment were included in discontinued operations and prior
period results have been reclassified to conform to current period presentation. Financial results of the CP segment were not included in discontinued operations, as we expect to have significant
ongoing involvement based on the significance of the cash flows to be derived from the PCS transition services. In addition, as part of our reorganization, whereas previously, power management metal
oxide semiconductor field transistors ("MOSFETs") were reported based on end market applications within the ESP segment and our previously reported Computing and Communication segment (which has now
been separated into EP, PMD and PS segments), they are now reported within the PMD segment.

46

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The
following table sets forth certain operating results for the three months ended September 30, 2007 and 2006 as a percentage of revenues (in millions, except percentages):

Three Months Ended
September 30,2007

2006
As restatedRevenues

$
266.2

100.0
%
$
288.7

100.0
%Cost of sales


168.8

63.4


167.2

57.9Gross profit


97.4

36.6


121.5

42.1Selling and administrative expense


66.8

25.1


56.8

19.7Research and development expense


27.9

10.5


28.6

9.9Amortization of acquisition-related intangible assets


0.4

0.2


0.4

0.1Asset impairment, restructuring and other charges







2.0

0.7Operating income


2.3

0.8


33.7

11.7Other expense (income), net


6.1

2.3


(0.1
)
(0.0
)Interest income, net


(7.9
)
(3.0
)

(2.5
)
(0.9
)Income from continuing operations, before income taxes


4.0

1.5


36.3

12.6(Benefit from) provision for income taxes


(6.4
)
(2.4
)

18.7

6.5Income from continuing operations


10.4

3.9


17.6

6.1Loss from discontinued operations, net







(1.3
)
(0.5
)Net income

$
10.4

3.9
%
$
16.3

5.6
%


Overview of Results of Operations for the Three Months Ended September 30, 2007 compared with the Three Months Ended September 30, 2006

Revenue and Gross Margin

Ongoing segment revenue, which excludes the TS segment, for the three months ended September 30, 2007 was $249.7 million, compared to
$231.8 million in the three months ended September 30, 2006, a revenue increase of 7.7%. The growth for the three months ended September 30, 2007 was primarily driven by strength
in data center-related products, including enterprise servers and workstations in the EP segment, and increased demand in commodity package products. Other segments experienced an overall reduction in
demand as a result of decreased consumer spending, a downturn in the housing market and higher distributor channel inventories.

Ongoing
gross margin declined to 38.9 percent the three months ended September 30, 2007 compared to 47.1 percent in the three months ended September 30, 2006.
Our gross margin was negatively impacted by increased production costs primarily due to under utilization of capacity, and a decline in average selling price in several segments detailed below.
Additionally, the Divestiture resulted in a lower base of revenue over which to absorb indirect manufacturing costs, and we did not complete a commensurate reduction in these costs.

47

---



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

|                         |                        | Three months ended
September 30, 2007 |         | Three months ended
September 30, 2006
as restated |      
|------------------------ | ---------------------- | ------------------------------------- | ------- | ------------------------------------------------- | -----
|
|Power Management Devices |                        | $                                     | 106,424 |                                                   | 40.0 
|Energy-Saving Products   |                        |                                       | 40,504  |                                                   | 15.2 
|Aerospace and Defense    |                        |                                       | 36,509  |                                                   | 13.7 
|PowerStage               |                        |                                       | 28,717  |                                                   | 10.8 
|Enterprise Power         |                        |                                       | 28,269  |                                                   | 10.6 
|Intellectual Property    |                        |                                       | 9,293   |                                                   | 3.5  
|                         |                        |                                       |         |                                                   |      
|                         | Ongoing Segments Total |                                       |         | 249,716                                           |      
|Transition Services      |                        |                                       | 16,478  |                                                   | 6.2  
|Commodity Products       |                        |                                       |        |                                                   | 0.0  
|                         |                        |                                       |         |                                                   |      
|Consolidated Total       |                        | $                                     | 266,194 |                                                   | 100.0
|                         |                        |                                       |         |                                                   |      

PMD
revenue for the three months ended September 30, 2007 increased by 15.6 percent from the three months ended September 30, 2006. Overall demand for PMD increased
through strong demand for commodity package products and products for the desktop business. Gross margin for the PMD segment declined to 29.6 percent for the three months ended
September 30, 2007, from 34.9 percent in the three months ended September 30, 2006. This decline was primarily due to a decline in average selling price and an increase in
production costs primarily due to under utilization of capacity as we reduced our inventory.

ESP
revenue for the three months ended September 30, 2007 declined by 27.7 percent from the three months ended September 30, 2006. This decline was driven by a
decline in general purpose high voltage integrated circuits ("ICs") due to a reduction of inventory levels at distributors and general softening market demand which drove down unit volume. The
reduction in sales on general purpose high voltage ICs was partially offset by growth in consumer spending for energy-efficient appliances and digital televisions. Gross margin for the ESP segment was
36.5 percent for the three months ended September 30, 2007, compared to 53.1 percent in the three months ended September 30, 2006. This gross margin decline was primarily
due to a decline in average selling price as well as low production utilization which increased production cost.

A&D
revenue for the three months ended September 30, 2007 decreased by 4.8 percent from the three months ended September 30, 2006, reflecting a drawdown in
distributor channel inventories and seasonal weakness in commercial aerospace. Gross margin for the A&D segment increased to 51.1 percent for the three months ended September 30, 2007,
from 50.3 percent in the three months ended September 30, 2006, reflecting a new customer program for fiber-optic communications.

EP
revenue for three months ended September 30, 2007 increased by 38.0 percent from the three months ended September 30, 2006, due to continued strength in data
center related products including enterprise servers and workstations in the EP segment. Gross margin for the EP segment decreased to 50.6 percent for the three months ended
September 30, 2007, from 53.1 percent in the three months ended September 30, 2006. Gross margin was lower in the first fiscal quarter of 2008 due to a decline in average selling
price, partially offset by an increase in volume.

PS
revenue for three months ended September 30, 2007 increased by 105.8 percent from the three months ended September 30, 2006, due to a significant increase in the
demand for game stations products. Gross margin for the PS segment decreased to 30.6 percent for the three months ended September 30, 2007, down from 43.9 percent in the three
months ended September 30, 2006. The

48

---



year-over-year
decline in gross margin was due to higher than normal manufacturing costs driven by lower production volume.

IP
revenue was $9.3 million for the three months ended September 30, 2007 compared to $11.0 million for the three months ended September 30, 2006. We expect
that with the expiration of our broadest MOSFET patents in 2008, most of our IP segment revenue ceased by the fiscal fourth quarter of 2008, and our gross profit will be adversely impacted
accordingly.

TS
revenue was $16.5 million for the three months ended September 30, 2007 compared to $0.0 million for the three months ended September 30, 2006. As part of
the PCS sale agreements, we supply manufacturing services to Vishay at our cost. TS revenue is expected to continue for up to three years from the date of the Divestiture, which was April 1,
2007.

The
CP segment is comprised primarily of older-generation power components that have widespread use throughout the power management industry, but are typically commodity in nature.
Reflecting the discontinuation of the CP business upon its sale to Vishay, there was no CP revenue for the three months ended September 30, 2007 compared to $56.9 million for the three
months ended September 30, 2006.

During
the third fiscal quarter of 2008, we recorded inventory write-downs totaling approximately $17.7 million associated with products we no longer support and inventory deemed
to be in excess of future demand.

In
the fourth fiscal quarter of 2008, we began working with our channel partners to determine the best model to support our product portfolio and initiating programs to support the
service of our original equipment manufacturer ("OEM") customers. We anticipate that changes in our distribution model and related programs will likely adversely impact gross margin in the last
quarter of fiscal year 2008 and potentially the first quarter of fiscal year 2009.

Selling and Administrative Expense

For the three months ended September 30, 2007, selling and administrative expense was $66.8 million (25.2 percent of revenues), compared to
$56.8 million (19.7 percent of revenues) for the three months ended September 30, 2006. The increase is primarily due to Audit Committee Investigation costs of
$14.8 million, partially offset by a reduction in selling and administrative costs following the Divestiture. The Audit Committee-led Investigation costs include legal, audit and
consulting costs associated with the Investigation, reconstruction of the financial results at our Japan subsidiary, and restatement of multiple periods of consolidated financial statements. The costs
for the Audit Committee-led Investigation and the financial restatements will continue through the fourth quarter of fiscal year 2008, and as of March 31, 2008, these costs totaled
$73.3 million. Investigation and restatement costs in total are expected to exceed $100 million through the end of fiscal year 2008. Additionally, stock compensation charge decreased for
the three months ended September 30, 2007 by $1.0 million.

Research and Development Expense

Research and development ("R&D") expense was $27.9 million and $28.6 million (10.5 percent and 9.9 percent of revenues) for the three
months ended September 30, 2007 and 2006, respectively. 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 insulated gate bipolar transistor 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.

49

---



Stock Option Plan Modifications

Our employee stock option plan typically provides terminated employees a period of thirty days from date of termination to exercise their vested stock options. In
certain circumstances, we have extended that thirty-day period for a period consistent with the plan. In accordance with Statement of Financial Accounting Standard ("SFAS") 123(R), the
extension of the exercise period was deemed to be a modification of the stock option terms. Additionally, certain of these modified awards have been classified as liability awards within other accrued
expenses. Accordingly, at the end of each reporting period, we determine the fair value of those awards and recognize any change in fair value in our consolidated statements of income in the period of
change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the mark-to-market adjustments of the liability awards included
in other accrued expenses, we recognized a credit of $1.8 million for the quarter ended September 30, 2007.

Asset Impairment, Restructuring and Other Charges

Asset impairment, restructuring and other charges reflect the impact of principally two cost reduction programs that we have initiated. 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 reflects the charges we recorded in the three months ended September 30, 2007 and 2006 related to our restructuring initiatives (in thousands):

Three Months Ended
September 30,2007

2006
As restatedReported in cost of sales

$


$
266Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





1,957Other charges


35


695Subtotal


35


2,652Discontinued operations





(691
)Total asset impairment, restructuring and other charges

$
35

$
1,961




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

50

---



the
charges we recorded in the three months ended September 30, 2007 and 2006 related to our December 2002 restructuring initiative (in thousands):

Three Months Ended
September 30,2007

2006
As restatedReported in cost of sales

$


$
266Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





93Other charges





610Total asset impairment, restructuring and other charges

$


$
703


Charges
recorded as an element of cost of sales in the three months period ended September 30, 2006 represent the costs from the closure of our assembly line in
Krefeld, Germany and the move of these manufacturing activities to our facility in Swansea, Wales. The principal elements of those costs related to start up and transition costs, including:



Other
charges reflect the costs to relocate equipment related to the consolidation and closing of certain of our manufacturing sites to discontinue production at designated facilities.
Other costs of $0.6 million in the three months ended September 30, 2006 were principally incurred in connection with the relocation of operations from our Krefeld facility to our
Swansea facility.



During fiscal year 2007, in connection with the Divestiture, we terminated approximately 100 former PCS employees. We also terminated other operating and support
personnel to streamline the organization in connection with the Divestiture. Severance charges for these terminated employees were $1.9 million for the three months ended September 30,
2006.

The
Divestiture included two components of the business. One of these components, the former NAP segment, has been reported as an element of discontinued operations. The other component,
the former CP segment, was not presented as a discontinued operation due to the significance of our ongoing involvement with our TSAs relating to the Divestiture.

51

---





The following illustrates the charges we recorded in the three months ended September 30, 2007 and 2006 related to our PCS restructuring initiative (in thousands):

Three Months Ended
September 30,2007

2006
As restatedReported in cost of sales

$


$
Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





1,864Other charges


35


16Total asset impairment, restructuring and other charges

$
35

$
1,880




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

Three Months Ended
September 30,2007

2006
As restatedReported in cost of sales

$


$
Reported in asset impairment, restructuring and other chargesAsset impairment

$


$
Severance





Other charges





69Total asset impairment, restructuring and other charges

$


$
69




In the third fiscal quarter of 2008, we adopted a plan for the closure of our Oxted, England facility and our El Segundo, California R&D fabrication facility. The
costs associated with closing and exiting these facilities and severance costs are expected to total approximately $14.1 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.

Other Income and Expense

Other expense (income) was $6.1 million and $(0.1) million for the three months ended September 30, 2007 and 2006, respectively. Other expense
(income) includes a debt retirement charge of $5.7 million in the three months ended September 30, 2007 and the impact of foreign currency fluctuations, dividend income from our equity
investments, investment impairments and loss on retirement of debt.

Interest Income and Expense

Interest income was $10.2 million and $12.6 million for the three months ended September 30, 2007 and 2006, respectively, reflecting lower
prevailing interest rates on lower average cash and investment balances in the current year.

52

---



Interest
expense was $2.3 million and $10.1 million for the three months ended September 30, 2007 and 2006, respectively, primarily reflecting lower interest expense
due to the repayment of the $550.0 million convertible subordinated notes (the "Notes") on July 16, 2007.

Income Taxes

Our effective tax rate related to continuing operations was (158.3) percent and 51.5 percent for the three months ended September 30, 2007
and 2006, respectively. For the fiscal 2008 period, our effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) reversal of reserve
for potential penalties and interest thereon as a result of our filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (b) the benefit
of foreign tax credits and R&D credits and (c) lower statutory rates in certain foreign jurisdictions which were partially offset by (w) a decrease in U.K. deferred tax assets due to the
reduction in tax rates from 30 percent to 28 percent, (x) non deferral of income from certain jurisdictions, and (y) an increase in
reserve for non U.S. uncertain tax provisions, and (z) a state valuation allowance. For the fiscal 2007 period, our effective tax rate differed from the U.S. federal tax rate of
35 percent resulting from (a) actual and deemed distributions from certain jurisdictions, (b) transfer pricing adjustments, (c) increase in reserves for non U.S. uncertain
tax provisions and (d) state taxes, which were partially offset by (w) lower statutory tax rates in certain foreign jurisdictions, (x) the release of a valuation allowance,
(y) export tax incentives and (z) benefits from foreign tax credits and R&D credits.

Discontinued Operations

The amounts and disclosures in this Form 10-Q present the result of reclassifying the operating results of our NAP segment to Discontinued
Operations, net of applicable income taxes, for the period ended September 30, 2006.

On
April 1, 2007, the last day of the third quarter of fiscal 2007, we completed the sale of our PCS Business to Vishay for $339.6 million. We received
$339.6 million in cash during the fourth quarter of fiscal 2007, including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and
approximately $49.4 million of net cash retained from the assets of the entities being sold. Since the consummation of the Divestiture and while we prepared our restated financial statements, a
number of matters have developed, as discussed in Part I, Item 1, Note 21, "Subsequent Events," that have raised uncertainties under applicable accounting standards and guidance
as to the recognition of the gain on the Divestiture. Consequently, we have deferred recognition of the gain from continuing operations of $116.1 million. However, we have recognized the loss
from discontinued operations of $4.3 million.

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

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

53

---



for
up to three years following the date of the Divestiture. As part of the Divestiture, Vishay also agreed to sell back to us certain die products subject to specified terms and conditions.

Subsequent
to April 1, 2007, we commenced discussions with Vishay regarding the application of the net working capital adjustment formula in accordance with the terms of the
definitive documents related to the Divestiture. However, we did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and Vishay has
taken the position that the discussion should be deferred pending the disclosure of the results of our internal Investigation. As of the date of this report, Vishay continues to assert a net working
capital adjustment in its favor of approximately $20.0 million, and we maintain that the proper application of the contractual formula results in no adjustment to net working capital. We do not
believe that Vishay's assertions have merit and intend to vigorously defend our position.

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

Vishay
has also advised us of certain other potential claims, including, but not limited to, certain product quality claims related to PCS products transferred to Vishay but manufactured
prior to the consummation of the Divestiture and a claim regarding certain chemicals found in the ground water at our former manufacturing plant in Borgaro, Italy. We are currently in the process of
assessing these claims and obtaining documentation to verify any potential liabilities to us. We believe that these claims will not have a material adverse effect on our business or prospects, and we
intend to vigorously defend our rights and position.

The
outcome of any claim or litigation is inherently uncertain and we cannot assure our success. An adverse determination could affect our rights and could have a material adverse effect
on our business, consolidated financial position or results of operations.

Liquidity and Capital Resources

At September 30, 2007, we had $707.2 million of total cash, cash equivalents and investments, consisting of
available-for-sale fixed income and investment-grade securities. As of the three months ended September 30, 2007 and June 30, 2007, the fair market values of our
mortgage-backed and asset-backed securities were $230.3 million (32.6 percent of cash and cash equivalents and short-term and long-term investments) and
$209.2 million (16.1 percent of cash and cash equivalents and short-term and long-term investments), respectively (see Part I, Item 3, "Quantitative and Qualitative Disclosures about
Market Risk," for discussions about our investment strategy). In the first fiscal quarter of 2008, we
recorded a $0.3 million charge for an other-than-temporary impairments relating to certain available-for-sale securities as a result of declines
in their fair values through September 30, 2007. Subsequent to September 30, 2007, in the second and third quarters of fiscal 2008, we recognized additional charges of
$4.4 million for impairment of these securities plus additional available-for-sale securities as a result of declines in their fair market value. In the fourth fiscal
quarter of 2008, we recorded an additional $3.7 million charge for an other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair
values through June 30, 2008.

54

---



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

September 30,
2007

June 30,
2007Cash and cash equivalents

$
306,383

$
853,040Investments


400,851


449,896Short-term and long-term debt


432


543,845


In
summary, our cash flows were as follows:

Three Months Ended
September 30,2007

2006
As restatedCash flows (used in) from operations

$
(24,159
)
$
1,671Cash flows from (used in) investing activities


36,366


(51,969
)Cash flows (used in) from financing activities


(559,040
)

9,381Effect of exchange rate changes


176


4,271Net decrease in cash and cash equivalents

$
(546,657
)
$
(36,646
)


Cash
provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. During the three months ended
September 30, 2007, operating activities used net cash flow of $24.2 million compared to $1.7 million generated in the prior three months ended September 30, 2006.
Non-cash decrease (increase) to cash flow from operations during the three months ended September 30, 2007 included $20.3 million of depreciation and amortization and
$0.4 million of stock compensation expense. Changes in operating assets and liabilities decreased cash by $61.8 million, primarily attributed to $74.0 million of cash tax payments
made during the quarter to the Internal Revenue Service and various state revenue agencies related to the tax restatement matters.

Cash
provided by investing activities during the three months ended September 30, 2007 was $36.4 million. Proceeds from sales or maturities of investments were
$144.8 million, offset by $95.8 million of cash used to purchase investments. During the three months ended September 30, 2007, we invested $11.5 million in capital
equipment primarily for our assembly operations in Mexico and subcontract assembly in Asia as well as our fabrication facilities in Temecula, California. As of September 30, 2007, we had
purchase commitments for capital expenditures of approximately $5.7 million. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand
and anticipated cash flow from operations.

Cash
used in financing activities primarily reflected the repayments of the Notes and foreign bank loans. As of September 30, 2007, we had $219.9 million in revolving
credit facilities, against which $4.3 million was drawn for letters of credit.

On
July 16, 2007, we funded the payment at maturity of the Notes due on July 16, 2007. The funding included a final interest payment of $11.7 million. In connection
with the final maturity and payment of the Notes, we recorded a debt retirement charge of $5.7 million, included in other expense, during the three months ended September 30, 2007 (see
also Part I, Item 3, "Quantitative and Qualitative Disclosures about Market Risk").

Our
revolving credit facility entered into on November 6, 2006, with a syndicate of lenders, including JPMorgan Chase Bank ("JPM") and other lenders (the "Facility"), has been
amended by (together the "Facility Amendments"): an Amendment No. 1 to the Facility dated May 4, 2007, an Amendment No. 2 to the Facility dated June 27, 2007, an Amendment
No. 3 to the Facility dated

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

On
July 30, 2008, we and the lender parties to the Facility amended the Facility by Amendment No. 6 that extends the current accommodation through November 30, 2008
and provides that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of (i) revised audited consolidated financial statements for fiscal
years 2007, 2006 and 2005, and (ii) filing with the SEC of our Annual Report on Form 10-K for the fiscal year ended June 30, 2007 ("2007 Annual Report") and Quarterly Reports on
Form 10-Q for the fiscal quarters ended March 31, 2007, September 30, 2007, December 31, 2007 and March 31, 2008, and if we are in a position to satisfy the other
applicable conditions of the Facility, the lenders shall notify us in writing either (i) that extensions of credit are available under the Facility to us or (ii) that the Facility must
be amended on such further terms and conditions as reasonably requested by such lenders. Pending the receipt of such notice and, if applicable, execution of such further amendment to the Facility, we
are not able to access the Facility. The Amendment provides that failure by us to provide full cash collateral for the approximately $4.3 million of letters of credit currently outstanding will
result in termination of the Amendment.

We
entered into a five-year foreign exchange forward contract in May 2006 with BNP Paribas (the "Forward Contract") for the purpose of reducing the effect of exchange rate
fluctuations on forecasted inter-company purchases by our Japan subsidiary. Under the terms of the Forward Contract, we were required to exchange 507.5 million Yen for $5.0 million on a
quarterly basis starting in June 2006 and expiring in March 2011. On December 11, 2007, we agreed with BNP Paribas to terminate the Forward Contract, which resulted in a net payment to us of
$2.8 million. In accordance with SFAS No. 133 Implementation Issue No. G3, "Cash Flow Hedges, Discontinuation of a Cash Flow Hedge," the net gain at the Forward Contract's termination
date will continue to be reported in other comprehensive income and recognized over the originally specified time period through March 2011, until it is probable that the forecasted transaction will
not occur by the end of the originally specified time period or within an additional two-month period of time thereafter.

In
September 2007, we remitted $74 million in income taxes and interest due to the Internal Revenue Service related to the tax restatement matters previously described. Of
such amount, $48.5 million (consisting of tax and interest) was paid in connection with the filing of amended returns filed with respect to our 2004, 2005 and 2006 fiscal years, and
$25.5 million was paid as additional federal estimated tax payments for our 2007 fiscal year. We are pursuing refunds for income taxes we believe to have overpaid in certain jurisdictions and
have recorded in the financial statements a

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$15.2 million
tax benefit. In certain other jurisdictions, we cannot determine that the realization of the tax refunds of $60.8 million is probable and as such, we have not recognized
them as income tax benefits in its financial statements. We have determined that we have overpaid $50.5 million of income taxes (which is included in the $60.8 million) in Singapore as a
result of errors in our transfer pricing of intercompany transactions. As a result of this determination, we have filed amended income tax returns in Singapore for FY 2004 through
FY 2006 claiming a tax refund and sought to assert a claim for tax refunds for FY 2001 and FY 2003. We have determined our claim for a refund of tax is not probable and we have
not recognized benefit for such refund claims. Consequently, we have recorded both U.S. federal income tax and Singapore income tax with respect to these fiscal years, thereby significantly increasing
our effective tax rate.

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rates

Our financial assets and liabilities subject to interest rate risk are investments, variable-rate convertible Notes and bank loan, revolving credit
facilities and interest rate
swaps. The primary objective of our investments in debt securities is to preserve principal while maximizing yields. To achieve this objective, the returns on our investments in fixed-rate
debt are generally based on the three-month London Interbank Offered Rate ("LIBOR"), or, if longer term, are generally swapped into U.S. dollar three-month LIBOR-based returns.

In
December 2001, we entered into an interest rate swap transaction (the "December 2001 Transaction") with JPM, to modify our effective interest payable with respect to
$412.5 million of our $550.0 million outstanding convertible debt due on July 16, 2007 (the "Debt") (see Part I, Item 1, Notes 8, "Bank Loans and
Long-Term Debt"). In April 2004, we entered into an interest rate swap transaction (the "April 2004 Transaction") with JPM to modify the effective interest payable with respect to the
remaining $137.5 million of the Debt. At the inception of the April 2004 Transaction, interest rates were lower than that of the Debt and we believed that interest rates would remain lower

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for
an extended period of time. The variable interest rate we have paid since the inception of the swap has averaged 3.38 percent, compared to a coupon of 4.25 percent on the Debt.

The
above interest rate swap transactions qualified as fair value hedges under SFAS No. 133. To test effectiveness of the hedges, regression analyses were performed quarterly
comparing the changes in fair value of the swap transactions and the Debt. The fair values of the swap transactions and the Debt were calculated quarterly as the present value of the contractual cash
flows to the expected maturity date, where the expected maturity date was based on probability-weighted analyses of interest rates relating to the five-year LIBOR curve and our stock
prices. The mark-to-market value of the swaps resulted in a liability of $1.4 million at June 30, 2007.

In
April 2002, we entered into an interest rate contract (the "Contract") with an investment bank, Lehman Brothers ("Lehman"), to reduce the variable interest rate risk of the December
2001 Transaction. The notional amount of the Contract was $412.0 million, representing approximately 75 percent of the Debt. Under the terms of the Contract, we had the option to receive
a payout from Lehman covering our exposure to LIBOR fluctuations between 5.5 percent and 7.5 percent for any four designated quarters. The Contract had no market value at June 30,
2007.

On
July 16, 2007, concurrent with the Debt's maturity, the December 2001 and April 2004 Transactions with JPM and the Contract with Lehman terminated.

Foreign Currency Exchange Rates

We generally hedge currency risks of non-U.S.-dollar-denominated investments in debt securities with offsetting currency borrowings, currency forward
contracts, or currency interest rate swaps. Gains and losses on these non-U.S.-currency investments would generally be offset by corresponding losses and gains on the related hedging
instruments, resulting in negligible net exposure.

A
significant amount of our revenue, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies. At various times, we have currency
exposure related to the British Pound Sterling, the Euro and the Japanese Yen. Considering our specific foreign currency exposures, we have exposure to the Japanese Yen, since we have significant
Yen-based revenues without material Yen-based manufacturing costs. To protect against reductions in value and the volatility of future cash flows caused by changes in currency
exchange rates, we have established revenue, expense and balance sheet transaction risk management programs. Currency forward contracts and currency options are generally utilized in these hedging
programs. Our hedging programs reduce, but do not always entirely eliminate, the impact of currency exchange rate movements.

In
May 2006, we entered into the Forward Contract with BNP Paribas for the purpose of reducing the effect of exchange rate fluctuations on forecasted 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. At September 30, 2007, 14 quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of
101.5 Yen per U.S. dollar. The market value of the Forward Contract was $4.2 million and $8.0 million at September 30, 2007 and June 30, 2007, respectively, and was
included in other assets. The mark-to-market (losses) gains included in other comprehensive income were ($2.0) million and $2.6 million, net of tax, for the fiscal
quarters ended September 30, 2007 and 2006, respectively. Based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to our cash flow
requirements, we do not expect to incur a material charge to income during the next twelve months as a result of the Forward Contract.

In
December 2007, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS No. 133 Implementation Issue No.
G3 "Cash Flow Hedges

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Discontinuation
of a Cash Flow Hedge," the net gain at the Forward Contract's termination date will continue to be reported in other comprehensive income and recognized over the originally specified
time period through March 2011, until it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month
period of time thereafter.

We
had approximately $50.8 million and $66.1 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at
September 30, 2007 and 2006, respectively. Net realized and unrealized foreign-currency losses recognized in earnings were $0.3 million and $0.1 million for the fiscal quarters
ended September 30, 2007 and 2006, respectively.

ITEM 4.    CONTROLS AND PROCEDURES

This Report includes the certifications of our Chief Executive Officer ("CEO") and Chief Financial Officer (acting) ("Acting CFO") required by
Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the
controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

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

Our
management, under the supervision and with the participation of our CEO and Acting CFO, evaluated the effectiveness of the design and operation of our disclosure controls and
procedures as of September 30, 2007. Based on our evaluation and the identification of the material weaknesses in internal control over financial reporting described in our 2007 Annual Report,
our CEO and Acting CFO concluded that, as of September 30, 2007, our disclosure controls and procedures were not effective.

Changes in Internal Control Over Financial Reporting

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 concentrated our efforts on (i) communicating, both internally and externally, our commitment to a strong effective control environment, high ethical standards and financial
reporting integrity, (ii) certain personnel actions, (iii) comprehensive training for Finance and Accounting Department personnel, (iv) the implementation of policies and
procedures to ensure that we retain important business and accounting records and (v) more rigorous period end reporting policies and processes involving journal entry approval, account
reconciliations and supporting documentation including manually prepared spreadsheets.

During
the first fiscal quarter of 2008, specific actions by us to improve internal control over financial reporting and remediate material weaknesses previously reported by us included
the implementation of period end procedures by our corporate internal audit function to review shipping and billing records to ensure that we recognized revenue in the proper period and we implemented
an updated whistle blower hotline process administered by a third party to receive and transmit anonymous complaints, including any relating to accounting or audit matters.

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Plans for Remediation of Material Weaknesses

We 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:

Control EnvironmentIn order to fill a vacancy and a newly created position on the Board, in February 2008, Richard J. Dahl
and Thomas A. Lacey were elected to our Board of Directors as independent outside Directors. Mr. Dahl subsequently became Chairman of the Board of Directors on May 1, 2008. In May 2008,
Mary B. Cranston was elected to our Board of Directors as an independent outside Director. Additionally, she will serve as a member of the Board's Corporate Governance and Nominating Committee.

In
March of 2008, Oleg Khaykin was appointed CEO and subsequently elected to our Board of Directors and Don Dancer was appointed Chief Administrative Officer. In April of 2008, Peter
Knepper was appointed Acting CFO. In June of 2007, the Corporate Internal Audit function began reporting administratively to the General Counsel and directly to the Audit Committee. Beginning
June 2, 2008, we created the new position of Vice President of Compliance, encompassing the internal audit function. The Vice President of Compliance reports directly to the Audit Committee and
administratively to the Chief Administrative Officer. An updated "Hot-line" process administered by a third party was established to receive and transmit anonymous complaints including any
relating to accounting or audit matters.

Our
leadership team, together with its recent additions, is committed to implementing and maintaining a strong control environment, high ethical standards, and financial reporting
integrity. During fiscal year 2008, we have trained all employees on our updated ethics and integrity policy and communicated to all employees regarding the availability of our improved third party
administered Ethics Hotline through which employees at all levels can anonymously submit information or express concerns regarding accounting, financial reporting, violations of our code of ethics or
other irregularities.

Period End Financial Reporting ProcessWe continue to search for personnel with an appropriate level of accounting knowledge,
experience and training in the application of accounting principles generally accepted in the United States of America ("GAAP") commensurate with our financial reporting requirements. Until such time
as we believe we have adequately engaged a sufficient complement of skilled personnel we will continue to supplement our accounting staff with external advisors and technical accounting staff.

Training
has commenced on new policies and procedures concerning: (i) ethics and integrity, (ii) revenue recognition and sales return and warranty obligations,
(iii) accounting for asset impairment, severance and restructuring charges, (iv) accrued liabilities for acquisition of property and equipment along with goods and services received and
(v) income tax accounting including transfer pricing. We have reinforced the importance of understanding GAAP and we have implemented an annual training requirement.

Additional
remediation efforts have been undertaken to create a company-wide awareness for the need to properly record liabilities as incurred. We have initiated and completed a
supplemental training program with senior executive management and their respective administrative assistants focusing on how to recognize and properly respond to situations where and how liabilities
are incurred, recorded and reported.

We
are implementing a record retention policy which addresses our requirements of evidence to support our important business and accounting records and we are currently evaluating a
third party software tool to improve the quality of our account reconciliations. In addition, we have implemented

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certain
analytical procedures as part of our closing process to ensure that we have additional monitoring controls designed to improve the accuracy of our financial statements.

Oversight of Japan SubsidiaryThe management of the subsidiary has been changed with the removal of two members of management,
including the head of the office.

All
"off-book" warehouses were closed and we repatriated all remaining inventory to our global logistics shipping centers. We engaged an interim financial executive unrelated
to the previous management team members to oversee day to day operations and we recently completed a search for a permanent replacement. Our increased corporate oversight over our subsidiary in Japan
includes implementing control reviews for order processing, financial accounting, payroll, logistics and treasury activities.

Revenue RecognitionWe are currently designing for implementation a centralized customer contract master file function to
ensure proper handling of creations, changes or deletions to customer master file information. We are conducting training on new and revised policies and procedures for: (i) ethics and
integrity, (ii) revenue recognition and (iii) order processing. We are currently implementing enhancements to our IT systems to automate the recognition of revenue according to
contractual terms and conditions regarding transfer of title and risk of loss. We have implemented quarterly self-audits on transactions performed by customer service. Our corporate
internal audit function has implemented procedures to review shipping and billing records to ensure that we recognize revenue in the proper accounting period.

Accounting for Income TaxesWe continue to search for additional qualified tax professionals in order to ensure adequate
technical and accounting expertise commensurate with our needs to properly consider and apply GAAP for income taxes. Until we develop a technically strong and knowledgeable team, we will engage
external technical advisers to assist us with the evaluation of complex tax issues. In the third quarter of fiscal year 2007, we hired a Vice President of Tax with extensive domestic and international
tax experience. We have also hired tax managers outside the U.S. and are identifying candidates for the Director of Tax Financial Reporting.

We
are increasing the level of review of the preparation of the quarterly and annual income tax provision calculations, allocations and methodologies. We are improving the process,
procedures and documentation standards relating to the preparation of the income tax provision calculations. We are correcting the methodology and accounting for certain types of foreign-earned income
that are subject to taxation currently, rather than deferred until the earnings are remitted. We are implementing a regular review of our deferred tax accounts and accounting for temporary
differences, primarily related to fixed assets, intangible assets and various nondeductible reserves and accruals. We are evaluating the implementation of new tax software to facilitate the
computation of our tax provision.

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

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Inherent Limitations Over Internal Controls

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

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

International Rectifier Securities Litigation.

Following our disclosure on April 9, 2007 that our Audit Committee was conducting the internal Investigation into certain revenue recognition matters, a
series of putative class action lawsuits was filed against International Rectifier Corporation ("IR") in the United States District Court for the Central District of California. Edward R. Koller filed
the first complaint on April 17, 2007, on behalf of a putative class of purchasers of IR stock from October 27, 2005 through April 9, 2007 ("Original Class Period"). The complaint
named as defendants IR and certain of its present and former officers and directors and alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based upon revenue
recognition errors at our Japan subsidiary. On July 22, 2007, the court consolidated all of the actions under the captionIn re International Rectifier Corporation
Securities Litigation, No. CV 07-02544-JFW (VBKx) (C.D. Cal.), and appointed Massachusetts Laborers' Pension Fund and General Retirement System
of the City of Detroit (together, "Co-Plaintiffs") as co-lead plaintiffs.

Co-Plaintiffs
filed a Consolidated Class Action Complaint ("CAC") on January 14, 2008. The CAC purported to extend the Original Class Period by nearly two years, from
July 31, 2003 to August 29, 2007, and added claims based upon our disclosures that certain former officers improperly allocated operating expenses as restructuring charges, improperly
assigned tax liability from higher to lower tax jurisdictions and improperly accounted for tax benefits associated with the granting of stock options. The CAC also named as defendants several of our
former officers, but did not name any of our past or present directors except Eric Lidow and Alex Lidow, who were officers as well.

We
filed a motion to dismiss these claims on March 6, 2008, on the grounds that Co-Plaintiffs failed to plead scienter as to IR; failed to plead scienter as to us; failed to plead
loss causation as to certain of those disclosures; failed to plead an underlying violation of Section 10(b), which is a predicate for a claim under Section 20(a); and improperly expanded
the class period without adequate notice. Co-Plaintiffs filed an opposition to this motion on April 11, 2008. We filed a reply in further support of the motion on April 30, 2008. On
May 23, 2008, the Court issued an order granting defendants' motions to dismiss, without prejudice, on the ground that Co-Plaintiffs failed to plead detailed facts sufficient to give rise to a
strong inference of defendants' scienter. The Court has permitted Co-Plaintiffs to file an amended complaint on or before October 17, 2008.

Governmental Investigations.

We are cooperating fully with investigators from the SEC Division of Enforcement regarding matters relating to the Audit Committee Investigation described in the
2007 Annual Report. We are currently responding to subpoenas for records from the SEC, and we continue to cooperate with the U.S. Attorney's Office and the Internal Revenue Service who are looking
into matters relating to the Audit Committee Investigation and other matters described in the 2007 Annual Report.

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IXYS Litigation.

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

Angeles v. Omega.

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

ITEM 1A.    RISK FACTORS

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

This Quarterly Report on Form 10-Q Report includes some statements and other information that are not historical facts but are "forward-looking
statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The materials presented can be identified by the use of forward-looking terminology such as "anticipate,"
"believe," "estimate," "expect," "may," "should,"

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"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

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 our Audit Committee-led Investigation and following its completion, our representatives met with representatives of the SEC, the
Internal Revenue Service, the Office of the U.S. Attorney and other governmental officials to keep them advised as to the course of the Investigation. We continue to share information with the SEC and
other governmental officials and are currently responding to subpoenas for records from the SEC. Adverse developments in connection with requests by the SEC or other governmental agencies, could
negatively impact us and divert our resources and the focus of our management team from our ordinary business operations. In addition, we may incur significant expenses associated with responding to
these investigations (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be subject to such
investigation(s)), and we may be required to pay criminal or civil fines, consent to injunctions on future conduct or suffer other penalties, any of which could have a material adverse effect on us.
It is also possible that the existence, findings and outcome of these inquiries may have a negative impact on lawsuits that are pending or may be filed against us, the trading prices of our securities
and our ability to access the capital markets. See Part II, Item 1, "Legal Proceedings" for a more detailed description of these proceedings.

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

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

In
addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix sought by customers, seasonality, price competition for
orders and the costs associated with the introduction of new products and start-up of new facilities and additional capacity lines. The markets for our products depend on continued demand
with the product technological platforms and in the mix we plan for and produce in the information technology, consumer, industrial, aerospace and defense 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.

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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. During fiscal year 2007, we recognized significant revenues from the sale of certain PS product to one end customer. If our
competitors were to develop a solution around our technology, the future viability of this product could be materially adversely impacted.

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

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

Our future financial performance and success are largely dependent on our ability to implement our new business strategy subsequent to the sale of our PCS
Business to Vishay Intertechnology, Inc. on April 1, 2007. Our strategy included the decision to discontinue and/or not compete in older technology products or programs, and to realign
our business segments and reorganize our overall manufacturing and support infrastructure to reduce operating costs. We cannot assure you that we will be able to successfully implement our business
strategy or that implementing our strategy will sustain or improve our results of operations in the future.

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

We have traditionally relied on our patents and proprietary technologies. Patent litigation settlements and royalty income substantially contribute to our
financial results. Enforcement of our intellectual property rights is costly, risky and time-consuming. We cannot assure you that we can successfully continue to protect our intellectual
property rights, especially in foreign markets. Certain of

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our
key MOSFET patents expired during calendar year 2007 with the broadest expiring in calendar year 2008. Certain of our MOSFET patents will remain in effect through 2010. We expect that with the
expiration of our key MOSFET patents, most of our royalty revenue will cease during the fourth quarter of fiscal year 2008.

Our
royalty income is also largely dependent on the following factors: the continuing introduction and acceptance of products that are not covered by our patents; remaining coverage
under unexpired MOSFET 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 that our royalty income will continue at levels consistent with prior periods. Any decrease in our royalty
income could have a material adverse effect on our operating results and financial condition.

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

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

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

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

A "design-win" or program award from a customer does not guarantee that the design or program win will become future sales to that customer. For
example, in our PS segment, we have announced new design or program wins in next generation game stations, and our other segments have had other design or program wins. We also are unable to guarantee
that we will be able to convert these design or program wins, or any wins, into sales for the life of any particular program, or at all, or that the revenue from such wins would be significant. We
also cannot guarantee that we will achieve the same level of design or program wins as we have in the past, or at all. 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

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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, among other things, capacity constraints, construction
delays, upgrading or expanding existing facilities or changing our process technologies, any of which could result in a loss of future revenue. Our operating results could also be adversely affected
by the increase in fixed costs and operating expenses related to increases in production capacity if revenue does not increase proportionately.

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

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

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

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

Our products are typically sold at prices that are significantly lower than the cost of the equipment or other goods in which they are incorporated. Although we
maintain quality control systems, we ship large quantities of semiconductor devices to a wide range of customers around the world, 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

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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 Aerospace and Defense segment, we are sometimes subject to
government procurement regulations and other laws that could result in costly investigations and other legal proceedings as a consequence of allegedly defective products or other actions. Any
perception that our products are defective would likely result in reduced sales of our products, loss of customers and harm to our business and reputation.

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

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

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

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 Aerospace and Defense 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

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significant
customer programs, like those for next generation game station or servers, could materially affect our ability to achieve our revenue and gross profit targets.

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

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

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

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

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

Many of our distributors have some rights to return inventory under their stock rotation programs or may return inventory with the approval of the company or
other circumstances. 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.

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Since
the beginning of the Audit Committee-led Investigation, we have experienced significant turnover in some of our senior management positions. Our Board of Directors has
appointed a new CEO and Acting CFO. We will need to implement procedures to ensure continuity of management in crucial areas, including the oversight of our financial reporting systems, financial
controls and corporate governance practices. There can be no assurance that future changes in senior management personnel will not adversely affect our efforts in this regard. Similarly, there is no
assurance that we will be able to retain any of our existing key personnel, or attract, assimilate and retain the additional personnel needed to support our business. If we are unable to retain
existing key employees or are unsuccessful in attracting new highly qualified employees, our business, financial condition and results of operations could be materially and adversely affected.

We have identified material weaknesses in our internal control over financial reporting, which could continue to 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 of 2002, we have conducted an assessment of our internal control over financial reporting, identified
material weaknesses in our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of June 30, 2007. For a detailed
description of these material weaknesses, see Part II, Item 9A of the 2007 Annual Report, "Controls and Procedures." Each of our material weaknesses results in more than a remote
likelihood that a material misstatement in our financial statements will not be prevented or detected. As a result, we must perform extensive additional work to obtain reasonable assurance regarding
the reliability of our financial statements. Even with this additional work, given the material weaknesses identified, including the number of continuing manual journal entries, the lack of integrated
financial systems, the significant turnover of our finance organization personnel, and use of consultants to augment our accounting staff, there is a risk of additional errors not being prevented or
detected, which could result in additional restatements. In addition, it is possible that in the future other material weaknesses may be identified. All of these factors continue to increase the time
and cost involved in preparing our financial statements and to undermine the credibility of such statements.

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

We are in the process of developing and implementing remediation efforts for the identified material weaknesses, and this work will continue during fiscal year
2008 and after. There can be no assurance as to when the remediation plan will be fully developed, when it will be implemented 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 lawsuit 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 lawsuits. These lawsuits are described
in Part II, Item 1, "Legal Proceedings." Our attention may be diverted from our ordinary business operations by this lawsuit and we may incur significant expenses associated with the
defense of this lawsuit (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be parties to
such action). Depending on the outcome of these lawsuits, we may be

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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.

Continuing negative publicity may adversely affect our business.

As a result of the Audit Committee-led Investigation, restatement of our financial statements and related matters as discussed herein, we have been
the subject of negative publicity. This negative publicity may have an effect on the terms under which some customers, lenders, landlords and suppliers are willing to continue to do business with us
and could affect our financial performance and financial condition. We also believe that certain of our employees perceive themselves to be operating under stressful conditions, which may cause them
to terminate their employment or, if they remain, result in reduced morale that could adversely affect our business. Continuing negative publicity also could have a material adverse effect on our
business.

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

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

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

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

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

Our future effective tax rates may be adversely affected by a number of factors including the jurisdictions in which profits are determined to be earned and taxed
and the inter-company 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

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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; or the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.

In
addition, we have made certain judgments regarding the realizability of our deferred tax assets. In accordance with SFAS No. 109, "Accounting for Income Taxes," 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, as applicable.

Our Aerospace and Defense segment is subject to governmental regulation that exposes us to additional risks.

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

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

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

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

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

Our common stock, which is traded on The New York Stock Exchange, 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

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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, shareholders 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.

Our investments in certain securities expose us to market risks.

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

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

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

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

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

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

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

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 operating results and
financial condition.

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

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

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Our international operations expose us to material risks.

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

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

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

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.

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

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

Our reported results can be affected adversely and unexpectedly by the implementation of new, or changes in the interpretation of
existing, 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.

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.

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ITEM 6.    EXHIBITS

|Index: |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1    |  | Certificate of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-8 filed with the Commission on July 19, 2006; Registration No. 333-117489)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.2    |  | Bylaws as Amended (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 11, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.1   |  | Amendment No. 3, executed and delivered as of 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, 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 (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 13, 2007)
|10.2   |  | Separation Agreement dated October 2, 2007, by and between International Rectifier Corporation and Alex Lidow (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 2, 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|31.1   |  | Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|31.2   |  | Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|32.1   |  | Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|32.2   |  | Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



|Date: August 1, 2008 |  | /s/PETER B. KNEPPER                                                         
|-------------------- |  | ----------------------------------------------------------------------------
|                     |  | Chief Financial Officer (Acting)                                            
|                     |  | (Duly Authorized Officer and Principal Financial and
    Accounting Officer)

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