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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 1934For the quarterly period ended December 31, 2008oro

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 ý No o

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 72,261,500 shares of the registrant's common stock, par value $1.00 per share, outstanding on January 30, 2009.



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TABLE OF CONTENTS



PagePART I.

FINANCIAL INFORMATION

4Item 1.

FINANCIAL STATEMENTS

4UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

4UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2008 AND 2007

5CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008
(UNAUDITED) AND JUNE 30, 2008

6UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED DECEMBER 31, 2008 AND 2007

7NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

42Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

56Item 4.

CONTROLS AND PROCEDURES

58PART II.

OTHER INFORMATION

62Item 1.

LEGAL PROCEEDINGS

62Item 1A.

RISK FACTORS

62Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

63Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

63Item 6.

EXHIBITS

64


2

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Table of Contents

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements relate to expectations concerning matters that (a) are not historical facts, (b) predict or forecast future events or results, or (c) embody
assumptions that may prove to have been inaccurate. These forward-looking statements involve risks, uncertainties and assumptions. When we use words such as "believe," "expect," "anticipate," "will"
or similar expressions, we are making forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give readers any
assurance that such expectations will prove correct. The actual results may differ materially from those anticipated in the forward-looking statements as a result of numerous factors, many of which
are beyond our control. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors discussed in the sections entitled
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." All forward-looking statements attributable to us are expressly qualified in their entirety
by the factors that may cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our
opinion only as of the date hereof. We undertake no duty or obligation to revise these forward-looking statements. Readers should carefully review the risk factors described in this document as well
as in other documents we file from time to time with the Securities and Exchange Commission ("SEC").

3

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    Financial Statements

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

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Revenues

$
189,746

$
262,736

$
434,220

$
528,930Cost of sales


125,403


170,683


273,485


339,492Gross profit


64,343


92,053


160,735


189,438Selling and administrative expense


61,559


69,778


126,868


136,585Research and development expense


24,901


28,759


49,618


56,655Amortization of acquisition-related intangible assets


1,098


377


2,195


757Asset impairment, restructuring and other charges


48,976


7


49,447


42Operating (loss)


(72,191
)

(6,868
)

(67,393
)

(4,601
)Other expense, net


10,626


1,305


25,208


7,434Interest expense (income), net


769


(7,829
)

(4,291
)

(15,722
)(Loss) income before income taxes


(83,586
)

(344
)

(88,310
)

3,687Provision for (benefit from) income taxes


102,475


(657
)

102,207


(7,039
)Net (loss) income

$
(186,061
)
$
313

$
(190,517
)
$
10,726Net (loss) income per common sharebasic

$
(2.56
)
$
0.00

$
(2.62
)
$
0.15Net (loss) income per common sharediluted

$
(2.56
)
$
0.00

$
(2.62
)
$
0.15Average common shares outstandingbasic


72,692


72,814


72,737


72,813Average common shares and potentially dilutive securities outstandingdiluted


72,692


73,151


72,737


73,172


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 LOSS        (In thousands)

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Net (loss) income

$
(186,061
)
$
313

$
(190,517
)
$
10,726Other comprehensive loss :Foreign currency translation adjustments


(60,774
)

(6,045
)

(84,645
)

(1,285
)Unrealized gains and losses on securities:Unrealized holding gains (losses) on available-for-sale securities, net of tax effect of $0, $(97), $0 and $(168), respectively


5,611


(1,175
)

(853
)

(18,937
)Unrealized holding gains (losses) on foreign currency forward contract, net of tax effect of $0 in all periods





846





(2,303
)Reclassification adjustments of net losses (gains) on foreign currency forward contract


113


(199
)

(83
)

(820
)Other comprehensive loss


(55,050
)

(6,573
)

(85,581
)

(23,345
)Comprehensive loss

$
(241,111
)
$
(6,260
)
$
(276,098
)
$
(12,619
)


The
accompanying notes are an integral part of these statements.

5

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Table of Contents

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

December 31, 2008
(Unaudited)

June 30, 2008(1)AssetsCurrent assets:Cash and cash equivalents

$
399,390

$
320,464Restricted cash


2,925


4,341Short-term investments


112,209


101,739Trade accounts receivable, net


86,997


105,384Inventories


175,508


175,856Current deferred tax assets


7,425


13,072Prepaid expenses and other receivables


54,861


43,993Total current assets


839,315


764,849Restricted cash


15,080


15,012Long-term investments


170,359


303,680Property, plant and equipment, net


394,652


534,098Goodwill


98,822


98,822Acquisition-related intangible assets, net


14,030


16,225Long-term deferred tax assets


467


89,576Other assets


40,913


52,650Total assets

$
1,573,638

$
1,874,912Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable

$
62,525

$
77,653Accrued salaries, wages and commissions


21,930


33,022Accrued income taxes


37,982


30,943Current deferred tax liabilities


2,266


2,266Other accrued expenses


91,866


103,355Total current liabilities


216,569


247,239Long-term deferred tax liabilities


13,874


4,828Deferred gain on divestiture


116,341


112,609Other long-term liabilities


55,372


59,285Total liabilities


402,156


423,961Commitments and contingenciesStockholders' equity:Common shares


72,928


72,826Capital contributed in excess of par value of shares


975,878


971,920Treasury stock, at cost


(7,431
)

Retained earnings


148,429


338,946Accumulated other comprehensive (loss) income


(18,322
)

67,259Total stockholders' equity


1,171,482


1,450,951Total liabilities and stockholders' equity

$
1,573,638

$
1,874,912


---

The
accompanying notes are an integral part of these statements.

6

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Table of Contents

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

Six Months Ended December 31,2008

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

$
(190,517
)
$
10,726Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:Depreciation and amortization


32,840


38,153Amortization of acquisition-related intangible assets


2,195


757Stock compensation expense


2,371


7,850Provision for (recovery of) bad debt


191


(430
)Provision for inventory write-downs


4,935


2,578Debt retirement charge





5,659Deferred revenue


(2,689
)

(11,325
)Deferred income taxes


92,034


1,833Tax benefit from options exercised


16


118Excess tax benefit from options exercised


(3
)

(81
)Write-down of investments


25,518


868Impairment of fixed assets


50,824


Loss on sale of investments


5,962


Changes in operating assets and liabilities, net


(34,133
)

(29,359
)Net cash (used in) provided by operating activities


(10,456
)

27,347Cash flow from investing activities:Additions to property, plant and equipment


(11,065
)

(29,689
)Proceeds from sale of property, plant and equipment


181


Additions to restricted cash


(68
)

(284
)Sale or maturities of investments


225,601


187,053Purchase of investments


(122,484
)

(185,313
)Other, net





709Net cash provided by (used in) investing activities


92,165


(27,524
)Cash flow from financing activities:Repayments of short-term debt





(550,000
)Repayments of obligations under capital lease





(273
)Proceeds from exercise of stock options


1,363


174Excess tax benefit from options exercised


3


81Reductions (additions) to restricted cash


1,416


(4,341
)Purchase of treasury stock


(7,431
)

Net settlement of restricted stock units


(228
)

Other, net





(6,946
)Net cash used in financing activities


(4,877
)

(561,305
)Effect of exchange rate changes on cash and cash equivalents


2,094


6,847Net increase (decrease) in cash and cash equivalents


78,926


(554,635
)Cash and cash equivalents, beginning of period


320,464


853,040Cash and cash equivalents, end of period

$
399,390

$
298,405


The
accompanying notes are an integral part of these statements.

7

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        December 31, 2008

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

Business

International Rectifier Corporation ("IR" or the "Company") designs, manufactures and markets power management semiconductors. Power
management semiconductors address the core challenges of power management, power performance and power conservation, by increasing system efficiency, allowing more compact end-products,
improving features on electronic devices and prolonging battery life.

The
Company pioneered the fundamental technology for power metal oxide semiconductor field effect transistors ("MOSFETs") in the 1970s, and estimates that the majority of the world's
planar power MOSFETs use its technology. Power MOSFETs are instrumental in improving the ability to manage
power efficiently. The Company's products include power MOSFETs, high voltage analog and mixed signal integrated circuits ("HVICs"), low voltage analog and mixed signal integrated circuits ("LVICs"),
digital integrated circuits ("ICs"), radiation-resistant ("RAD-Hard") power MOSFETs, insulated gate bipolar transistors ("IGBTs"), high reliability DC-DC
converters, PowerStage ("PS") modules, and DC-DC converter type applications.

Basis of Presentation

At the beginning of the first quarter of fiscal year 2009, the Company's Chief Executive Officer ("CEO"), who is the Chief Operating
Decision Maker, refined the definition of the Company's business segments by renaming its Aerospace and Defense ("A&D") segment its HiRel ("HR") segment, combining its previously identified PS segment
with its Enterprise Power ("EP") segment and creating a new Automotive Products ("AP") segment which was previously reported within the Energy-Saving Products ("ESP") and Power Management Devices
("PMD") segments. Furthermore, some products that were previously reported under the EP segment moved to PMD. Consequently, the Company now reports in seven segments: EP, PMD, ESP, HR, AP,
Intellectual Property ("IP") and Transition Services ("TS"), as described more fully in Note 13, "Segment Information." Prior year segment presentation has been recast to conform with current
year presentation.

The
condensed consolidated financial statements have been prepared in accordance with the instructions for preparation of a Quarterly Report on 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 U.S. generally accepted accounting principles ("GAAP"). The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, which are located in
North America, Europe and Asia. Intercompany balances and transactions have been eliminated in consolidation.

In
the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation of the Company's results of
operations, financial position and cash flows have been included. The results of operations for any interim period are not necessarily indicative, nor comparable to the results of operations for any
other interim period or for a full fiscal year. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the Company's annual audited
consolidated financial statements and the notes thereto for the year ended June 30, 2008 included in the Company's Annual Report on

8

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

Form 10-K
for the fiscal year ended June 30, 2008 filed with the SEC on September 15, 2008 (the "2008 Annual Report").

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 December 2008 and 2007 consisted of 13 weeks ending on December 28, 2008 and December 30, 2007, respectively. For ease of presenting the accompanying
condensed consolidated financial statements, the fiscal December quarter-end for all periods presented is shown as December 31.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Out-of-Period Adjustments

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

Adoption of New Accounting Standards

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

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

In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits the
Company to choose to measure certain

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

financial
instruments and certain other items at fair value. This statement requires that unrealized gains and losses on items for which the fair value option has been chosen, be reported in earnings.
The Company adopted SFAS 159 at the beginning of the first quarter of fiscal year 2009, and the adoption had no material effect on the Company's consolidated financial statements as the Company
elected not to measure certain financial instruments and certain other items within the scope of SFAS 159 at fair value.

In
May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for
nongovernmental entities. SFAS 162 became effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to remove the GAAP hierarchy from the
auditing standards, which was November 15, 2008. SFAS 162 did not have a material impact on the Company's consolidated financial statements.

In
December 2008, the FASB issued FASB Staff Position FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities." ("FSP FAS 140-4 and FIN 46(R)-8"). FSP FAS 140-4 and
FIN 46(R)-8 requires additional disclosures about transfers of financial assets and involvement with variable interest entities. FSP FAS 140-4 and
FIN 46(R)-8 is effective for all reporting periods ending after December 15, 2008. The Company adopted FSP FAS 140-4 and FIN 46(R)-8 at
the end of its second quarter of fiscal year 2009 and the adoption did not require additional disclosures.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). Under
SFAS 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It
further requires that acquisition-related costs are recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition,
acquired in-process research and development ("R&D") is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change the Company's
accounting treatment for business combinations on a prospective basis beginning July 1, 2009.

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

10

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

The
Company will adopt the provisions of SFAS 161 for the third quarter of fiscal year 2009. The adoption of these provisions will require additional footnote disclosure but will have no impact
on the Company's consolidated financial statements.

In
April 2008, the FASB issued FASB Staff Position Financial Accounting Standard 142-3, "Determination of the Useful Life of Intangible Assets"
("FSP 142-3") which amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset
under SFAS No. 142, "Goodwill and Other Intangible Assets." FSP 142-3 is effective for fiscal years beginning after December 15, 2008 and interim periods within those
fiscal years. The Company is in the process of evaluating the impact of FSP 142-3 on its consolidated financial statements.

In
November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-6, "Equity Method Investment Accounting Considerations" ("EITF 08-6").
EITF 08-6 clarifies the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal
years beginning after December 15, 2008, with early adoption prohibited. The Company is in the process of evaluating the impact of EITF 08-6 on its consolidated financial
statements.

In
November 2008, the FASB ratified Emerging Issues Task Force Issue No. 08-7, "Accounting for Defensive Intangible Assets" ("EITF 08-7").
EITF 08-7 clarifies the accounting for certain separately identifiable intangible assets which an acquirer does not intend to actively use but intends to hold to prevent its
competitors from obtaining access to them. EITF 08-7 requires an acquirer in a business combination to account for a defensive intangible asset as a separate unit of accounting
which should be amortized to expense over the period the asset diminishes in value. EITF 08-7 is effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited. The Company is in the process of evaluating the impact of EITF 08-7 on its consolidated financial statements.

2. Deferred Gain on Divestiture

On April 1, 2007, the Company completed the sale of its Power Control Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc. ("Vishay") for
$339.6 million (the "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, a number of matters as discussed in Note 18, "Commitments and
Contingencies," raised uncertainties under applicable accounting standards and guidance as to the determination of the gain on the Divestiture. As of fiscal year end June 30, 2008, the Company
had deferred recognition of the gain on the Divestiture of $112.6 million. At the present time, the Company cannot make a determination as to when these uncertainties will be resolved. During
the first quarter of fiscal year 2009, the deferred gain on the Divestiture was increased because certain tax indemnification obligations in respect of divested entities aggregating to
$0.3 million ceased to exist through lapsing of a statute of limitation in a foreign tax jurisdiction. During the second quarter of fiscal year 2009, the deferred gain on the Divestiture was
further increased by $2.3 million due to a correction of a prior period immaterial error related to certain stock rotation and warranty liabilities and by $1.1 million due to currency
translation adjustments on the tax indemnification amount. Consequently, as of December 31, 2008, the Company has a deferred gain on the Divestiture of $116.3 million.

11

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

3. Fair Value Measurements

As discussed in Note 1, "Business, Basis of Presentation and Summary of Significant Accounting Policies," the Company adopted SFAS 157 effective the first day of fiscal
year 2009. SFAS 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value, and expands on required disclosures about fair value measurement.
Under SFAS 157, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants as of the measurement date. SFAS 157 also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of
unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability developed based on
market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset
or liability developed based upon the best information available in the circumstances. The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest
level of input that is significant to the fair value measurement. The hierarchy is broken down into three levels (with Level 3 being the lowest) defined as follows:



12

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

3. Fair Value Measurements (Continued)



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

The following table sets forth, by Level, the Company's financial assets and liabilities that were measured at fair value on a
recurring basis as of December 31, 2008 (in thousands):

Assets:

Total

(Level 1)

(Level 2)

(Level 3)U.S. government and agency obligations

$
224,726

$
119,395

$
105,331

$
Corporate debt


9,057


5,788


3,269


Mortgage-backed securities


32,422





3,765


28,657Asset-backed securities


32,845








32,845Equity securities


16,074


16,070





4Foreign currency derivatives


(1,718
)




(1,718
)

Total

$
313,406

$
141,253

$
110,647

$
61,506Fair value as a percentage of total


100.0
%

45.1
%

35.3
%

19.6
%Level 3 as a percentage of total assets











3.9
%


Financial
assets and liabilities measured and recorded at fair value on a recurring basis were presented on the Company's condensed consolidated balance sheet as of December 31,
2008 as follows (in thousands):

Assets:

Total

(Level 1)

(Level 2)

(Level 3)Cash and cash equivalents

$
16,482

$
13,393

$
3,089

$
Short-term investments


112,209


67,095


45,114


Long-term investments


170,359


44,695


64,162


61,502Other long-term assets


15,585


16,070


(489
)

4Other accrued expenses


(1,229
)




(1,229
)

Total

$
313,406

$
141,253

$
110,647

$
61,506


Level 3 Valuation Techniques

Certain financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar
techniques and where at least one significant model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there
is limited market activity where the determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain
mortgage-backed securities and asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At December 31, 2008, these securities were
valued primarily using independent valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as
assumptions about liquidity and credit valuation adjustments of marketplace participants at December 31, 2008.

13

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

3. Fair Value Measurements (Continued)

The
following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable Level 3
inputs for the three months ended December 31, 2008 (in thousands):

Balance at September 30, 2008

$
98,216Total gains (losses), realized and unrealized:Included in earnings


(14,549
)Included in other comprehensive loss


3,199Purchases, sales and settlements, net


(25,360
)Net transfers in (out) of Level 3


Balance at December 31, 2008

$
61,506


The
following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable Level 3
inputs for the six months ended December 31, 2008 (in thousands):

Balance at June 30, 2008

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


(26,287
)Included in other comprehensive loss


8,738Purchases, sales and settlements, net


(47,220
)Net transfers in (out) of Level 3


Balance at December 31, 2008

$
61,506


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

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

During the fiscal quarter ended December 31, 2008, the Company had no significant measurements of financial assets or
liabilities at fair value on a nonrecurring basis.

4. Investments

Available-for-sale investments are carried at fair value, inclusive of unrealized gains and losses, and net of discount accretion and premium amortization
computed using the level yield method. Net unrealized gains and losses are included in other comprehensive loss net of applicable income taxes. Gains or losses on sales of
available-for-sale investments are recognized on the first-in, first-out basis.

14

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

4. Investments (Continued)

Available-for-sale
securities as of December 31, 2008 are summarized as follows (in thousands):

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
Gain

Market
ValueShort-Term Investments:Corporate debt

$
6,679

$
8

$
(5
)
$
3

$
6,682U.S. government and agency obligations


104,254


1,277


(4
)

1,273


105,527Total short-term investments

$
110,933

$
1,285

$
(9
)
$
1,276

$
112,209Long-Term Investments:Corporate debt

$
826

$
9

$
(2
)
$
7

$
833U.S. government and agency obligations


100,454


3,924


(119
)

3,805


104,259Mortgage-backed securities


32,043


380


(1
)

379


32,422Asset-backed securities


32,791


54





54


32,845Total long-term investments

$
166,114

$
4,367

$
(122
)
$
4,245

$
170,359


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

Amortized
Cost

Gross
Unrealized
Gain

Gross
Unrealized
Loss

Net
Unrealized
Loss

Market
ValueShort-Term Investments:Corporate debt

$
34,181

$
44

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


67,507


132


(22
)

110


67,617Total short-term investments

$
101,688

$
176

$
(125
)
$
51

$
101,739Long-Term Investments:Corporate debt

$
44,031

$
205

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


90,260


1,760


(325
)

1,435


91,695Mortgage-backed securities


96,204


546


(5,492
)

(4,946
)

91,258Asset-backed securities


80,023


272


(3,338
)

(3,066
)

76,957Total long-term investments

$
310,518

$
2,783

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


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 19, "Related Party Transactions." 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 $0.1 million for the three months ended December 31, 2008 and 2007, respectively,
and $0.3 million and $0.2 million for the six months ended December 31, 2008 and 2007, respectively.

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

4. Investments (Continued)

The
carrying values of the equity investments included in other long-term assets at December 31, 2008 and June 30, 2008 were $16.0 million and
$29.2 million, respectively, compared to their purchase cost at December 31, 2008 and June 30, 2008 of $24.9 million and $24.9 million, respectively. Unrealized
loss, net of taxes, for the three months ended December 31, 2008 and 2007 was $3.7 million and $0.5 million, respectively, and for the six months ended December 31, 2008
and 2007 was $13.2 million and $11.8 million, respectively, and was included in other comprehensive loss.

The
Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their
relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and
near-term prospects of the issuer of the securities; and the intent and ability of the Company to retain the security in order to allow for an anticipated recovery in fair value. If, based
upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings.
Other-than-temporary impairments relating to certain available-for-sale securities, for the three months ended December 31, 2008 and 2007 were
$10.3 million and $0.6 million, respectively, and for the six months ended December 31, 2008 and 2007 were $25.5 million and $0.9 million, respectively, and were
included in other expense.

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 in a
loss position for less
than 12 months at
December 31, 2008

Securities held in a
loss position for
12 months or more
at December 31, 2008

Total in a loss
position at
December 31, 2008Market Value

Gross Unrealized Losses

Market Value

Gross Unrealized Losses

Market Value

Gross Unrealized LossesCorporate debt

$
2,564

$
(7
)
$


$


$
2,564

$
(7
)U.S. government and agency obligations


3,463


(123
)







3,463


(123
)Mortgage-backed securities


338


(1
)







338


(1
)Asset-backed securities

















Total

$
6,365

$
(131
)
$


$


$
6,365

$
(131
)


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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

4. Investments (Continued)



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

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

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

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
Losses

Market
Value

Gross
Unrealized
LossesCorporate debt

$
37,473

$
(485
)
$
6,182

$
(84
)
$
43,655

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


32,026


(347
)







32,026


(347
)Mortgage-backed securities


43,297


(5,077
)

1,893


(415
)

45,190


(5,492
)Asset-backed securities


31,567


(2,915
)

4,920


(423
)

36,487


(3,338
)Total

$
144,363

$
(8,824
)
$
12,995

$
(922
)
$
157,358

$
(9,746
)


The
amortized cost and estimated fair value of investments at December 31, 2008, by contractual maturity, were as follows (in thousands):

Amortized
Cost

Estimated
Fair ValueDue in 1 year or less

$
105,649

$
106,924Due in 1 - 2 years


57,161


58,752Due in 2 - 5 years


54,965


57,205Due after 5 years


59,272


59,687Total investments

$
277,047

$
282,568


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 were $2.7 million and $3.1 million for the three and six months ended December 31, 2008, respectively, and gross realized (losses) were $(7.8)
million and $(9.1) million for the three and six months ended December 31, 2008, respectively. Gross realized gains were $0.1 million and $0.3 million for the three and six months
ended December 31, 2007, respectively, and gross realized (losses) were $(0.2) million and $(0.6) million for the three and six months ended December 31, 2007, respectively.

During
the three and six months ended December 31, 2008, as a result of sales of available-for-sale securities and recognition of
other-than-temporary impairments on available-for-sale securities, the Company reclassified $15.4 million and $29.6 million, respectively,
from accumulated other comprehensive income to earnings either as a component of interest expense (income) or other expense depending on the nature of the gain (loss).

17

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

5. Supplemental Cash Flow Disclosures

Components of the changes in operating assets and liabilities for the six months ended December 31, 2008 and 2007 were comprised of the following (in thousands):

Six Months Ended
December 31,2008

2007Trade accounts receivable

$
13,433

$
29,418Inventories


(8,744
)

35,122Prepaid expenses and other receivables


(16,552
)

15,538Accounts payable


(12,282
)

(35
)Accrued salaries, wages and commissions


(10,068
)

2,395Deferred compensation


694


2,170Accrued income taxes


9,523


(97,817
)Other accrued expenses


(10,137
)

(16,150
)Changes in operating assets and liabilities

$
(34,133
)
$
(29,359
)


Supplemental
disclosures of cash flow information (in thousands):

Six Months Ended December 31,2008

2007Non-cash investing activities:Liabilities accrued for property, plant and equipment purchases

$
522

$
2,974


6. Inventories

Inventories at December 31, 2008 and June 30, 2008 were comprised of the following (in thousands):

December 31, 2008

June 30, 2008Raw materials

$
34,452

$
34,046Work-in-process


65,779


67,855Finished goods


75,277


73,955Total inventories

$
175,508

$
175,856


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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

7. Goodwill and Acquisition-Related Intangible Assets

At December 31, 2008 and June 30, 2008, acquisition-related intangible assets included the following (in thousands):

December 31, 2008

June 30, 2008Amortization
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

$
(17,699
)
$
11,980

$
29,679

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


5 - 12


5,446


(4,322
)

1,124


5,446


(4,107
)

1,339Intellectual property and other


5 - 12


7,963


(7,037
)

926


7,963


(6,953
)

1,010Total acquisition-related intangible assets




$
43,088

$
(29,058
)
$
14,030

$
43,088

$
(26,863
)
$
16,225


As of December 31, 2008, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal
year 2009: $2,193; fiscal year 2010: $4,386; fiscal year 2011: $4,125; fiscal year 2012: $1,771; and fiscal year 2013: $231.

The
carrying amount of goodwill by ongoing business segment as of December 31, 2008 and June 30, 2008 was as follows (in thousands):

Business Segment

December 31, 2008

June 30, 2008Energy-Saving Products

$
33,190

$
33,190HiRel


18,959


18,959Enterprise Power


22,806


22,806Automotive Products


3,793


3,793Intellectual Property


20,074


20,074Total goodwill

$
98,822

$
98,822


In
the fourth quarter of fiscal year 2008, the Company performed 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. Based on the
results of the annual assessment of goodwill for impairment, the net book value of each of the Company's reporting segments exceeded their estimated fair value determined using a discounted cash flow
analysis. Therefore, the Company recorded during the fourth quarter of fiscal year 2008 goodwill impairment charges of $32.6 million. As a result of this impairment, the PMD segment carries no
goodwill.

During
the second quarter of fiscal year 2009, the Company performed an interim impairment analysis of the goodwill associated with the Company's reporting units. The interim analysis
was performed due to an impairment of a significant asset group (see Note 12, "Asset Impairment, Restructuring and Other Charges") in the second quarter of fiscal year 2009 and a change in the
business climate since the fourth quarter of fiscal year 2008. Based on the results of this interim goodwill impairment analysis, the Company concluded that, for each reporting unit, the carrying
amount did not exceed its fair value. Therefore, goodwill for each reporting unit was not considered to be impaired as of December 31, 2008 and the second step of the goodwill impairment test
was not considered necessary.

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

8. Bank Loans and Long-Term Debt

As of December 31, 2008, the Company had no long-term debt outstanding.

Revolving
Credit Facility

On
November 6, 2006, the Company entered into a five-year multi-currency revolving credit facility with a syndicate of lenders including JPMorgan Chase
Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG (the "Facility"). The Facility provided for an expiration date in November 2011 and a credit line of
$150.0 million with an option to increase the Facility limit to $250.0 million. Under the Facility, up to $75.0 million could be used for standby letters of credit and up to
$10.0 million could be used for swing-line loans. Interest under the Facility was at (i) local currency rates plus (ii) a margin between 0.0 percent and
0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on the Company's senior leverage ratio.
The annual commitment fee for the Facility ranged between 0.175 percent 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 pledged as collateral shares of certain of its subsidiaries, and certain of the Company's subsidiaries have guaranteed the Facility. The Facility, as
amended, also contained certain financial and other covenants.

The
Facility was amended by certain amendments pursuant to which the Company's lenders agreed that the Company would not be deemed in default with respect to certain representations,
warranties, covenants and reporting requirements during a period ending not later than November 30, 2008. In
addition, pursuant to the amendments, the lenders had no obligation to make any extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing
amounts) until, among other things, the lenders received the Company's audited consolidated financial statements, reasonably satisfactory to the lenders, and no other default (as defined in the
Facility) existed. The Company agreed to provide cash collateral for the outstanding letters of credit under the Facility and paid amendment fees to the lenders.

Following
discussions with the lenders concerning the terms and cost that would apply under current market conditions to potentially reinstate the lenders' obligation to extend the
credit under the Facility, and considering the Company's current liquidity position, the Company terminated the commitments of the lenders to provide further obligations effective as of
November 28, 2008. In connection therewith, on November 26, 2008, the Company and the lenders entered into a letter agreement providing for the termination of the obligations of each of
the parties under the Facility (except for those obligations which by their terms expressly survive termination) upon the payment by the Company of the outstanding fees under the Facility, and the
Facility terminated on November 28, 2008. The payment of outstanding fees did not include any early termination fees. During the second quarter of fiscal year 2009, the Company reduced its
outstanding letters of credit from $4.3 million to $2.9 million. At December 31, 2008, the $2.9 million of outstanding letters of credit were outside the Facility. These
letters of credit are secured by cash collateral provided by the Company in an amount equal to their face amount.

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

9. Other Accrued Expenses

Other accrued expenses at December 31, 2008 and June 30, 2008 were comprised of the following (in thousands):

December 31,
2008

June 30,
2008Sales returns

$
30,726

$
40,850Accrued accounting and legal costs


21,365


18,884Accrued compensation


6,825


6,679Transition services contract liability


6,667


6,667Deferred revenue


4,637


7,326Accrued sales and other taxes


3,359


1,583Accrued divestiture transaction costs


3,301


3,101Accrued warranty


2,491


2,672Accrued utilities


1,850


2,320Short-term severance liability


688


1,091Other


9,957


12,182Total other accrued expenses

$
91,866

$
103,355


Warranty

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

The
following table details the changes in the Company's warranty reserve for the six months ended December 31, 2008, which is included in other accrued liabilities
(in thousands):

Accrued warranty, June 30, 2008

$
2,672Accruals for warranties issued during the period


2,065Changes in estimates related to pre-existing warranties


1,753Warranty claim settlements


(3,999
)Accrued warranty, December 31, 2008

$
2,491


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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

10. Other Long-Term Liabilities

Other long-term liabilities at December 31, 2008 and June 30, 2008 were comprised of the following (in thousands):

December 31, 2008

June 30, 2008Income taxes payable

$
22,220

$
21,147Divested entities' tax obligations


19,340


20,734Deferred compensation


8,053


9,326Transition services contract liability


1,667


5,000Other


4,092


3,078Total other long-term liabilities

$
55,372

$
59,285


11. 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
six months ended December 31, 2008 (in thousands, except per share price data):

Shares

Weighted Average
Option Exercise
Price per Share

Weighted Average
Grant Date
Fair Value
per Share

Aggregate
Intrinsic
ValueOutstanding, June 30, 2008


9,360

$
40.43




$
2,568Granted


1,829

$
16.69

$
6.65


Exercised


(79
)
$
17.35




$
116Expired


(1,785
)
$
41.00





Outstanding, December 31, 2008


9,325

$
35.88




$
928


For
the six months ended December 31, 2008 and 2007, the Company received $1.4 million and $0.2 million, respectively, for stock options exercised. The total tax
benefit realized for the tax deductions from stock options exercised was $0.02 million and $0.1 million for the six months ended December 31, 2008 and 2007, respectively.

The
following table summarizes the Restricted Stock Unit ("RSU") activities for the six months ended December 31, 2008 (in thousands, except per share price data):

Restricted
Stock
Units

Weighted Average
Grant Date
Fair Value
per Share

Aggregate
Intrinsic
ValueOutstanding, June 30, 2008


1

$
48.10

$
13Granted


430

$
17.55


Exercised


(42
)
$
12.64

$
512Outstanding, December 31, 2008


389

$
18.14

$
5,131


The
Company's employee stock option plan permits the reduction of a grantee's RSUs for purposes of settling a grantee's income tax obligation. During the six months ended
December 31,

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

11. Stock-Based Compensation (Continued)

2008,
the Company withheld RSUs representing 18,952 shares to fund a grantee's income tax obligations.

Additional
information relating to the stock option plans, including employee stock options and RSUs at December 31, 2008 and June 30, 2008 is as follows
(in thousands):

December 31, 2008

June 30, 2008Options exercisable


7,191


8,621Options available for grant


2,735


4,440Total reserved common stock shares for stock option plans


12,449


13,800


The
Company's employee stock option plan typically provides terminated employees a period of thirty (30) days from the 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 (Revised 2004)
"Share-Based Payment," the extension of the exercise period was deemed to be a modification of stock option terms. Additionally, certain of these modified awards have been classified as
liability awards within other accrued expenses. Accordingly, at the end of each reporting period, the Company determined the fair value of those awards and recognized any change in fair value in its
consolidated statements of operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the
mark-to-market adjustments of the liability awards included in other accrued expenses, the Company recorded a net credit of $0.3 million and $0.6 million for the
three and six months ended December 31, 2008, respectively, compared to a charge of $3.6 million and $1.8 million for the three and six months ended December 31, 2007,
respectively. The aggregate fair value of the liability awards included in other accrued expenses was $0.01 million at December 31, 2008.

For
the three and six months ended December 31, 2008 and 2007, stock-based compensation expense associated with the Company's stock options and RSUs is as follows
(in thousands):

December 31, 2008

December 31, 2007Three Months
Ended

Six Months
Ended

Three Months
Ended

Six Months
EndedCost of sales

$


$
134

$
380

$
388Selling and administrative expense


897


1,405


5,802


6,084Research and development expense


284


832


1,230


1,378Total stock-based compensation expense

$
1,181

$
2,371

$
7,412

$
7,850


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

The
total unrecognized compensation expense for outstanding stock options and RSUs was $21.1 million as of December 31, 2008, and will be recognized, in general, over three
years, except for one stock option award and RSU award made to the CEO. The awards to the CEO (which are included in the awards disclosed above), include an option to purchase 750,000 shares and an
award of RSUs in the amount of 250,000 shares made to the CEO during fiscal year 2008 as provided for under

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Table of Contents

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

11. Stock-Based Compensation (Continued)

his
employment agreement. The Company estimated the value of the option awards for the CEO by using the Black-Scholes options pricing model with the following assumptions: (i) an
expected life of the award of 4.6 years; (ii) risk free rate of 3.2 percent; (iii) Company stock price volatility of 45.0 percent and (iv) an annual dividend
yield on the Company's common stock of 0.0 percent. The total unrecognized compensation expense for these grants was $9.7 million as of December 31, 2008, and will be recognized
over 4.6 years. The weighted average number of years to recognize the total compensation expense (including that of the CEO) is 2.0 years.

The
fair value of the options associated with the above compensation expense for the three and six months ended December 31, 2008 and 2007, was determined at the grant date using
the Black-Scholes option pricing model with the following weighted average assumptions:

Six Months Ended
December 31,2008

2007Expected life


3.9 years

N/ARisk free interest rate


2.5
%
N/AVolatility


54.5
%
N/ADividend yield


0.0
%
N/A


12. Asset Impairment, Restructuring and Other Charges

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

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

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



The
following table summarizes restructuring and related charges incurred during the three and six months ended December 31, 2008 and 2007 and recorded in asset impairment,
restructuring and other charges (in thousands):

Three Months
Ended
December 31,

Six Months
Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$
48,885

$


$
48,885

$
Severance


31


7


382


7Other charges


60





180


35Total asset impairment, restructuring and other charges

$
48,976

$
7

$
49,447

$
42


The following table summarizes changes in the Company's severance accrual for the six months ended December 31, 2008 (in thousands):

Accrued severance, June 30, 2008

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


382Charged to operating expenses


4,891Costs paid


(5,649
)Foreign exchange gains


(27
)Accrued severance, December 31, 2008

$
688


Newport Fabrication Facility Asset Impairment

In the second quarter of fiscal year 2009, after evaluating its manufacturing capabilities, the Company decided to reduce the size of
one of its two wafer fabrication factories at its Newport, Wales facility, in order to reduce the Company's manufacturing costs and respond to a decline in market demand. The Company estimates this
manufacturing consolidation plan will be completed by December 31, 2009. The Company estimates it will incur cash charges of approximately $4.0 million associated with this initiative
through December 31, 2009.

Related
to the Company's Newport manufacturing facility consolidation plan which impacted one of its two wafer fabrication facilities on the site, the Company recorded an asset
impairment charge of$48.9 million, reducing the net book value of the factory's assets from $56.2 million to $7.4 million during
the second quarter of fiscal year 2009. Assets with a book value of $19.4 million were removed from service in December 2008 and written down to their fair market value of $3.8 million.
The remaining assets were written down by $33.3 million from a net book value of $36.9 million based on the estimated discounted future cash flows of the asset group, which the Company
determined to be the individual fabrication factory at the Newport facility. The asset impairment did not impact any specific business segment.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

In
addition to the Newport facility asset impairment of $48.9 million, during the second quarter of fiscal year 2009, the Company recorded an asset impairment of
$1.9 million related to assets removed from service in its Tijuana, Mexico and other contract manufacturing facilities. Since the decision to remove these assets from service was in response to
a reduction in demand and not related to an exit activity, the associated asset impairment charge was recorded in cost of sales, not in asset impairment, restructuring and other charges.

PCS Divestiture Initiative

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

The
following illustrates the charges the Company recorded in the three and six months ended December 31, 2008 and 2007 related to its PCS Divestiture restructuring initiative (in
thousands):

Three Months
Ended
December 31,

Six Months
Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$
Severance





7





7Other charges











35Total asset impairment, restructuring and other charges

$


$
7

$


$
42


Research and Development Facility Closure Initiative

In the third quarter of fiscal year 2008, the Company adopted a plan for the closure of its Oxted, England facility and its El Segundo,
California R&D fabrication facility. The costs associated with closing and exiting these facilities and severance costs are estimated to total approximately $13.1 million. Of this amount,
approximately $11.2 million represents the cash outlay related to this initiative. The Company estimates that the closure and exiting of these two facilities will be completed by the end of the
fourth quarter of fiscal year 2011.

The
following illustrates the charges the Company recorded in the three and six months ended December 31, 2008 and 2007 related to its Research and Development Facility Closure
initiative (in thousands):

Three Months
Ended
December 31,

Six Months
Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$
Severance


31





382


Other charges


60





180


Total asset impairment, restructuring and other charges

$
91

$


$
562

$



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

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

El Segundo Fabrication Facility Closure Initiative

In the second quarter of fiscal year 2009, the Company adopted a plan for the closure of its El Segundo, California fabrication
facility. No costs associated with this decision were recorded in the second quarter of fiscal year 2009. The Company will incur costs in future periods associated with closing and exiting this
facility and transferring manufacturing technologies to its Temecula, California wafer fabrication facility. These expenditures are forecasted to total approximately $19.3 million and include
severance, equipment relocation and product qualification costs, facility decommissioning costs and new capital equipment expenditures at its Temecula wafer fabrication facility. The actual
expenditures may vary based on a number of factors. Of the $19.3 million in forecasted expenditures, we estimate approximately $17.8 million will represent the cash outlays related to
this initiative. The Company estimates the closure and exiting of this facility will be completed by the end of calendar year 2010. Since the assets in the Company's El Segundo fabrication
facility are almost fully depreciated, the net book value of the building and equipment at the facility as of December 31, 2008 was approximately $2.0 million. The Company reviewed the
cash flows associated with the remaining life of the facility's assets and determined that no additional asset impairment was required.

13. Segment Information

At the beginning of the first quarter of fiscal year 2009, the Company's CEO, who is the Chief Operating Decision Maker, refined the definition of the Company's business segments by
renaming its A&D segment its HR segment, combining its previously identified PS segment with its EP segment and creating a new AP segment which was previously reported within the ESP and PMD segments.
Furthermore, some products that were previously reported under the EP segment are now reported under the PMD segment. Consequently, the Company now reports in seven segments: EP, PMD, ESP, HR, AP, IP,
and TS.

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



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

13. Segment Information (Continued)



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

13. Segment Information (Continued)



The
Company does not allocate assets, sales and marketing, information systems, finance and administrative costs and asset impairment, restructuring and other charges to the operating
segments, as these are not meaningful statistics to the CEO in making resource allocation decisions or in evaluating performance of the operating segments.

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

For
the three and six months ended December 31, 2008 and 2007, revenue and gross margin by reportable segments were as follows (in thousands, except percentages):

Three Months Ended
December 31, 2008

Three Months Ended
December 31, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
64,134


33.8
%

19.4
%
$
87,060


33.2
%

16.3
%Energy-Saving Products


39,422


20.8


43.3


45,945


17.5


45.6HiRel


39,433


20.8


56.7


41,599


15.8


56.3Automotive Products


13,474


7.1


27.9


20,528


7.8


33.6Enterprise Power


19,350


10.2


42.4


42,252


16.1


39.5Ongoing customer segments total


175,813


92.7


36.3


237,384


90.4


34.6Intellectual Property


2,594


1.3


100.0


9,805


3.7


100.0Ongoing segments total


178,407


94.0


37.3


247,189


94.1


37.2Transition Services


11,339


6.0


(18.6
)

15,547


5.9


0.7Consolidated total

$
189,746


100.0
%

33.9
%
$
262,736


100.0
%

35.0
%


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

13. Segment Information (Continued)



Six Months Ended
December 31, 2008

Six Months Ended
December 31, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
137,912


31.7
%

20.5
%
$
182,163


34.4
%

23.7
%Energy-Saving Products


85,558


19.7


43.1


78,964


14.9


40.3HiRel


76,785


17.7


54.7


78,108


14.8


53.9Automotive Products


31,067


7.2


31.0


40,457


7.6


34.4Enterprise Power


56,629


13.0


42.6


98,115


18.6


39.9Ongoing customer segments total


387,951


89.3


36.3


477,807


90.3


35.6Intellectual Property


22,561


5.2


100.0


19,098


3.6


100.0Ongoing segments total


410,512


94.5


39.8


496,905


93.9


38.1Transition Services


23,708


5.5


(11.4
)

32,025


6.1


0.7Consolidated total

$
434,220


100.0
%

37.0
%
$
528,930


100.0
%

35.8
%


No
single customer accounted for more than ten percent of the Company's consolidated revenue for the three and six months ended December 31, 2008 and 2007.

14. Income Taxes

Under Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," and FASB Interpretation No. 18, "Accounting for Income Taxes in Interim
Periodsan Interpretation of APB Opinion No. 28," the Company is required to adjust its effective tax rate each quarter to be consistent with the estimated annual effective tax
rate. The Company is also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of
changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a year-to-date loss where no tax
benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter,
based upon the mix and timing of actual earnings versus annual projections.

The
Company recorded a tax provision of $102.5 million for the second quarter of fiscal year 2009. Approximately $92.8 million relates to valuation allowances
recorded against the Company's deferred tax assets. SFAS No. 109, "Accounting for Income Taxes" requires such allowances to be recorded when cumulative and current losses impact the
realizability of these assets. The increase in current losses in the second quarter necessitated the reevaluation of the realizability of these assets which led to the recording of the valuation
allowance. Approximately $5.6 million is related to increases in the Company's FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxesan Interpretation of
FASB Statement No. 109" ("FIN 48") reserves. In addition, approximately $4.1 million is related to foreign taxes payable.

As
of December 31, 2008, the liability for income tax associated with uncertain tax positions was $82.7 million. If recognized, the liabilities associated with uncertain
tax positions would result in a benefit to income taxes on the consolidated statement of operations of $55.2 million which would reduce the Company's future effective tax rate.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

14. Income Taxes (Continued)

The
Company's continuing practice is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2008, the
Company had accrued $37.7 million of interest and penalties related to uncertain tax positions.

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 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 (122.8) percent and 190.6 percent for the three months ended December 31, 2008 and 2007, respectively
and (115.7) percent and (190.9) percent for the six months ended December 31, 2008 and 2007, respectively. For the three and six months ended December 31, 2008, the Company's effective
tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (i) valuation allowances recorded on deferred tax assets, impaired securities and other items,
(ii) prior period adjustments, (iii) non deferral of income from certain foreign jurisdictions and (iv) an increase in certain FIN 48 reserves.

On
October 3, 2008, U.S. federal legislation was enacted which extended the research and development tax credit provision which allows for retroactive application of R&D tax
credits to January 1, 2008. The legislation also extends the R&D credit provision to December 31, 2010. The fiscal year 2009 benefit and the third and fourth quarter of fiscal year 2008
benefit was recorded in the second quarter of fiscal year 2009. A valuation allowance was also recorded against this benefit.

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

15. Net (Loss) Income per Common Share

Net (loss) income per common sharebasic is computed by dividing net (loss) income available to common stockholders (the numerator) by the weighted average number of common
shares outstanding (the denominator) during the period. In general, the computation of net (loss) income per common sharediluted is similar to the computation of net (loss) income per
common sharebasic except that when dilutive, 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 resulting 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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

15. Net (Loss) 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 and six months ended
December 31, 2008 and 2007 (in thousands, except per share amounts):

Three Months Ended December 31, 2008Loss
(Numerator)

Shares
(Denominator)

Per Share
AmountNet loss per common sharebasic

$
(186,061
)

72,692

$
(2.56
)Effect of dilutive securities:Stock options and restricted stock units








Net loss per common sharediluted

$
(186,061
)

72,692

$
(2.56
)




Three Months Ended December 31, 2007Income
(Numerator)

Shares
(Denominator)

Per Share
AmountNet income per common sharebasic

$
313


72,814

$
0.00Effect of dilutive securities:Stock options and restricted stock units





337


Net income per common sharediluted

$
313


73,151

$
0.00




Six Months Ended December 31, 2008Loss
(Numerator)

Shares
(Denominator)

Per Share
AmountNet loss per common sharebasic

$
(190,517
)

72,737

$
(2.62
)Effect of dilutive securities:Stock options and restricted stock units








Net loss per common sharediluted

$
(190,517
)

72,737

$
(2.62
)




Six Months Ended December 31, 2007Income
(Numerator)

Shares
(Denominator)

Per Share
AmountNet income per common sharebasic

$
10,726


72,813

$
0.15Effect of dilutive securities:Stock options and restricted stock units





359


Net income per common sharediluted

$
10,726


73,172

$
0.15


16. 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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

16. Environmental Matters (Continued)

laws
and regulations. Despite its efforts and controls, from time to time, issues may arise with respect to these matters. However, the Company does not believe that general compliance with such laws
and regulations as now in effect will have a material adverse effect on its results of operations, financial position or cash flows.

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

As
part of the environmental review process, the Company has provided certain disclosures of potential permit violations and other matters to local environmental authorities with respect
to the Company's Temecula, California facility. The Company has taken steps to correct the alleged deficiencies. However, subsequent to the fiscal quarter ended September 30, 2008, the Company
received a notification of additional permit violations at such facility, which the Company is investigating. The Company has not yet been assessed any penalties with respect to the disclosures made
for its Temecula, California facility; however, in December 2008, the enforcement division for the South Coast Air Quality Management District requested information from the Company for the purposes
of
determining what further action to take with the matter. The Company is preparing its response to that request.

During
negotiations for the Divestiture, chemical compounds were discovered in the groundwater underneath one of the Company's former manufacturing plants in Italy. The Company has
advised appropriate governmental authorities and is awaiting further reply to its inquiries, with no current orders or directives on the matter outstanding from the governmental authorities.

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

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

16. Environmental Matters (Continued)

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

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

In
November 2007, the Company was named as one of approximately 100 defendants inAngeles Chemical Company, Inc. et al. v.
Omega Chemical PRP Group, LLC et al., No. EDCV07-1471 (TJH)(JWJx) (C.D. Cal.) (the "Angeles Case"). Angeles Chemical
Company, Inc. and related entities ("Plaintiffs") own or operate a facility (the "Angeles Facility") which is located approximately one and a half miles downgradient of the Omega Chemical
Superfund Site (the "Omega Site") in Whittier, California. Numerous parties, including the Company, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that contaminants from the Omega
Site migrated in groundwater from the Omega Site to the Angeles Facility, thereby causing damage to the Angeles Facility. In addition, they claim that the EPA considers them to be responsible for the
groundwater plume near the Angeles Facility, which Plaintiffs contend was caused by disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA, nuisance and trespass, and also seek
declaratory relief. Plaintiffs seek to require the defendants to investigate and clean-up 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 percent.
The Company believes that much, if not all, of the risks associated with the Angeles Case should be covered by the Omega Indemnification. In addition, the Company has tendered the complaint to several
of its insurance carriers 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 percent, the Company does not
believe that an adverse judgment against the Company would be material.

17. Litigation

International Rectifier Securities Litigation.Following the Company's disclosure on April 9, 2007 that the Audit Committee of the
Company's
Board of Directors ("Audit Committee") was conducting an internal investigation (the "Investigation") into the Company's accounting practices, a series of putative class action lawsuits was filed
against IR in the United States District Court for the Central District of California. The complaints named as defendants certain of IR's officers and directors and alleged violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising out of

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

17. Litigation (Continued)

alleged
accounting irregularities at the Company's Japan subsidiary. On July 22, 2007, the court consolidated all of the actions under the captionIn re International
Rectifier Corporation Securities Litigation, No. CV 07-02544-JFW (VBKx) (C.D. Cal.), and appointed the Massachusetts
Laborers' Pension Fund and the General Retirement System of the City of Detroit (together, "Co-Lead Plaintiffs") as co-lead plaintiffs.

On
January 14, 2008, Co-Lead Plaintiffs filed a Consolidated Class Action Complaint ("CAC") alleging violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 against the Company and certain of its former officers and directors. On March 6, 2008, defendants filed motions to dismiss the CAC. On May 23, 2008, the Court
issued an order granting defendants' motions to dismiss, without prejudice, on the ground that Co-Lead Plaintiffs failed to plead detailed facts sufficient to give rise to a strong
inference of defendants' scienter. In its order, the Court granted plaintiffs leave to amend and refile the CAC until October 17, 2008.

On
October 17, 2008, Co-Lead Plaintiffs filed a Second Amended Consolidated Class Action Complaint ("SACC"). The SACC purports to extend the class period from
July 31, 2003 to February, 11, 2008, alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
arising out of matters recently disclosed by the Company in connection with the restatement of certain prior period financial statements, and names as defendants the Company and certain of its former
officers and directors. The SACC does not name as defendants any of the Company's current officers or directors. The SACC seeks unspecified damages from all defendants.

On
November 10, 2008, the Company filed a motion to dismiss the SACC on the grounds that plaintiffs had failed to plead with particularity facts raising a strong inference that
the individuals who spoke on the Company's behalf during the putative class period knew, or were reckless in not knowing, that the Company's financial statements were inaccurate. Similar motions to
dismiss were filed that same day on behalf of the individual defendants. The Company also filed an alternative motion to strike allegations purporting to extend the putative class period to a date
earlier than April 29, 2005 or to a date later than May 11, 2007 on the grounds that plaintiffs had failed to plead loss causation as to disclosures issued during that time period. On
December 31, 2008, the District Court issued an order granting the Company's motion to dismiss plaintiffs' claim for control person liability and granting, in its entirety, defendant Robert
Grant's motion to dismiss. These dismissals were with prejudice. The District Court denied the Company's motion to dismiss the securities fraud count and denied in their entirety motions to dismiss
brought by defendants Alex Lidow, McGee and Eric Lidow. On January 7, 2009, the Court issued orders referring the matter for mediation, setting September 1, 2009 as the last day for a
settlement conference and January 12, 2010 as the first day of trial. The Company intends to defend against the claims asserted against it vigorously.

International Rectifier Derivative Litigation.On August 1, 2008, a partial shareholder derivative lawsuit captioned Mayers v. Lidow, No. BC395652, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint asserts
shareholder derivative claims for breach of fiduciary duty, unjust enrichment and violations of Section 25402 of the California Corporations Code against certain of IR's former officers and
current and former directors in connection with the matters recently disclosed by the Company in connection with its restatement of its financial statements. The derivative claims seek damages,
disgorgement, and imposition of a constructive trust against the individual defendants purportedly for the benefit of the Company. The

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

17. Litigation (Continued)

complaint
also seeks injunctive relief against the current Board of Directors under a provision of Delaware law that permits shareholders to request the Delaware Court of Chancery to require a
corporation to hold an annual shareholders' meeting. The complaint does not seek monetary relief against the Company.

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

The
Company demurred to plaintiff's complaint on December 22, 2008 on the grounds that plaintiff failed to make a demand for litigation or to plead particularized facts
establishing that demand is excused, as required by both Delaware and California law. Plaintiff filed an opposition to the Company's demurrer on January 30, 2009. The hearing on the Company's
demurrer is scheduled for March 10, 2009.

The
stay of discovery and on responsive pleadings by the individual defendants continues through the date of this report.

Litigation Arising from Vishay Proposal.On August 15, 2008, shortly after the Company's disclosure that Vishay had made an
unsolicited,
non-binding proposal to acquire all outstanding shares of the Company, a purported class action complaint captionedHui Zhao v. International Rectifier
Corporation, No. BC396461, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint named as defendants the Company and
all current directors and alleged that the Vishay proposal was unfair and thatacceptanceof the offer would constitute a breach of fiduciary duty by
the board. Five other substantively identical complaints seeking the same relief were filed in the same court and, on October 3, 2008, were consolidated under the caption of the lead case. On
October 28, 2008, plaintiffs filed a consolidated amended complaint purporting to allege claims for breach of fiduciary duty on behalf of a putative class of investors based on the theory that
the board breached its fiduciary duty byrejectingthe Vishay proposal.

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

Briefing
on both complaints has been coordinated pursuant to a scheduling order issued by the Court on October 15, 2008. On November 21, 2008, defendants demurred to the
complaints on the grounds that plaintiffs in both cases have failed to plead a claim and lack standing to bring the claims on behalf of the Company. In support of the Zhaodemurrer, defendants further
assert that plaintiffs' claims are derivative, not direct, and that because plaintiffs already have filed with the
Court pleadings in which they allege that the Vishay offer was undervalued, they are now estopped from alleging the opposite. Defendants also have moved for a protective order staying discovery in
both cases and, in theCity ofSterling matter, for an order requiring plaintiff to post a bond in the amount of fifty thousand dollars ($50,000)
to help cover the expenses incurred by the Company in defense of the case. The hearing on these motions presently is set for February 18, 2009.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

17. Litigation (Continued)

The
Company intends to defend against the claims asserted against it in these actions vigorously. No trial date has been set for these actions.

Vishay Offer.On September 10, 2008, Vishay made an additional unsolicited proposal to acquire all outstanding shares of the
Company at a
price of $23.00 per share, and announced its intention to commence a tender offer to purchase all of the Company's shares. In addition, it gave notice of its intention: (a) to nominate three
individuals for election as Class I directors at the 2007 annual meeting scheduled for October 10, 2008, and (b) to present at that meeting proposals to amend the Company's
Bylaws. Vishay's proposed Bylaw amendments provide: (x) that the meeting to elect the Company's Class II directors be held by December 21, 2008; (y) that any adjournment of
a stockholders' meeting at which a quorum is present must be approved by a majority of the shares present at the meeting in person or by proxy; and (z) for an amendment to the Bylaws to repeal
any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29, 2008 and the 2007 annual meeting unless approved by the holders of a majority of the outstanding
shares of the Company (collectively, "Annual Meeting Actions"). On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its tender offer.

On
September 10, 2008, Vishay also commenced an action in the Delaware court of Chancery (the "Delaware Action") against the Company and its current directors seeking, among other
things: (a) to compel a meeting of shareholders on or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a
declaration that proposed amendments to the Company's Bylaws are valid under Delaware law and the Company's Certificate of Incorporation; and (c) a mandatory injunction requiring the Company to
present such proposed amendments for a vote at the 2007 annual meeting. On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its proposal and filed a Notice of Voluntary
Dismissal of its complaint.

Governmental Investigations.The Company is cooperating fully with investigators from the SEC Division of Enforcement, the Internal
Revenue Service
and the U.S. Attorneys' Office regarding matters relating to the Audit Committee-led Investigation and other matters described in Note 2, "Restatements of Consolidated
Financial Statements," of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2007 filed with the SEC on August 1, 2008. The Company has
responded to subpoenas for records from the SEC; and the Company will continue to cooperate with these investigators regarding their investigation into these matters.

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

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

17. Litigation (Continued)

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 IR and reversed the judgment.
In July 2008, the Company filed a petition with the Supreme Court of the United States for a writ of certiorari, which was denied on October 6, 2008. The proceedings are now at an end, subject
to ancillary motions of the parties regarding fees.

EPC Litigation.In September 2008, the Company filed suit in the U.S. District Court for the Central District of California
against Efficient
Power Conversion Corp. ("EPC"), certain of EPC's employees and other defendants alleging improper and unauthorized use and/or misappropriation of certain Company confidential information, trade
secrets and technology related to the Company's Gallium Nitride development program. The complaint also alleges breach of contract and civil racketeering. In response to the suit, one of the
defendants, Aixtron AG, has filed a parallel action against the Company in a German civil court in Aachen, Germany. In addition, certain of the defendants in the EPC case filed motions in the
U.S. District Court. On February 2, 2009, that court dismissed the EPC case, granting leave to amend the suit and re-file. The Company intends to vigorously pursue its claims
in the action and defend the pending parallel case in Aachen, Germany, and is considering whether to re-file the EPC case in U.S. District Court or file it in the appropriate
California Superior Court.

Angeles. v. Omega.See Note 16, "Environmental Matters."

In
addition to the above, the Company is involved in certain legal matters that arise in the ordinary course of business including without limitation, litigation involving two of its
subcontractor assemblers.
The Company intends to pursue its rights and defend against any claims brought by third parties vigorously. However, because of the nature and inherent uncertainties of litigation, should the outcome
of these actions be unfavorable, the Company's business, financial condition, results of operations or cash flows could be materially and adversely affected.

18. Commitments and Contingencies

In connection with the Divestiture, the Company included in long-term liabilities $19.3 million for certain tax obligations with respect to divested entities.
Following the Divestiture, the Company commenced discussions with Vishay regarding the application of the net working capital adjustment formula in accordance with the terms of the definitive
documents related to the Divestiture. However, the Company did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and Vishay has taken
the position that the discussion should be deferred pending the disclosure of the results of the Company's prior investigation into certain accounting and financial reporting matters. As of the date
of this report, Vishay continues to assert a net working capital adjustment in its favor of approximately $20.0 million, and the Company maintains that the proper application of the contractual
formula results in no adjustment to net working capital. The Company does not believe that Vishay's assertions have merit and intends to vigorously defend its position.

On
June 9, 2008, Vishay asserted that it believes certain forecasts it received from the Company during the Divestiture negotiations related to the Automotive Systems Business
Unit ("ASBU") of the

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

18. Commitments and Contingencies (Continued)

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 its subsequent divestment of the ASBU business. The Company does not believe that
Vishay's assertions have merit and intend to vigorously defend its position.

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

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

On
September 10, 2008, Vishay made a further unsolicited proposal to acquire all outstanding shares of the Company at a price of $23.00 per share, and announced its intention to
commence a tender offer to purchase all of the Company's shares. In addition, it gave notice of its intention: (a) to nominate three individuals for election as Class I directors at the
2007 annual meeting, and (b) to present at that meeting proposals to amend the Company's Bylaws. Vishay's proposed Bylaw amendments provide: (x) that the meeting to elect the Company's
Class II directors be held by December 21, 2008; (y) that any adjournment of a stockholders' meeting at which a quorum is present must be approved by a majority of the shares
present at the meeting in person or by proxy; and (z) for an amendment to the Bylaws to repeal any new Bylaws and Bylaw amendments adopted by the Board of Directors between February 29,
2008 and the 2007 annual meeting unless approved by the holders of a majority of the outstanding shares of the Company (collectively, "Annual Meeting Actions"). On September 29, 2008, Vishay
commenced a tender offer to acquire all of the outstanding shares of the Company's common stock for $23.00 per share. On September 30, 2008, the Board of Directors unanimously determined that
the offer was inadequate and recommended that the Company's shareholders reject the offer. On October 13, 2008, following the 2007 annual meeting, Vishay terminated its tender offer.

Also
on September 10, 2008, Vishay commenced the Delaware Action against the Company and its current directors seeking, among other things: (a) to compel a meeting of
shareholders on or before December 21, 2008 to elect Class II directors to fill the positions of those whose terms expire in 2008; (b) a declaration that proposed amendments to
the Company's Bylaws are valid under Delaware law and the Company's Certificate of Incorporation; and (c) a mandatory injunction requiring the Company to present such proposed amendments for a
vote at the 2007 annual meeting. On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its tender offer to acquire all outstanding shares of the Company and filed a Notice of
Voluntary Dismissal of its complaint in the Delaware Action.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

18. Commitments and Contingencies (Continued)

In
connection with Vishay's unsolicited offer, the Company entered into an engagement letter with its financial advisor under which the Company agreed to pay a fee of
$10.0 million to its financial advisor, of which $2.0 million was paid in October 2008 and the remaining amount was contingently payable following the Company's 2008 annual
meeting of stockholders, which took place January 9, 2009. The Company recorded the entire $10.0 million as part of selling and administrative expenses in the second quarter of fiscal
year 2009.

19. Related Party Transactions

As discussed in Note 4, "Investments," the Company holds as a strategic investment common stock of Nihon, a related party. At December 31, 2008, the Company owned
approximately 9.0 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.

For
the three months ended December 31, 2008 and 2007, the Company recorded royalties of approximately $3,000 and $0.02 million and revenues of approximately
$0.2 million and $0.1 million from Nihon, respectively. For the six months ended December 31, 2008 and 2007, the Company recorded royalties of approximately $5,000 and
$0.04 million and revenues of approximately $0.3 million and $0.3 million from Nihon, respectively.

20. Stock Repurchase Program

On October 27, 2008, the Company announced that its Board of Directors authorized a stock repurchase program of up to $100.0 million. Stock repurchases under this program
may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depend on market conditions and other factors. The stock repurchase
program may be suspended at any time without prior notice. The Company has used and plans to continue to use existing cash to fund the repurchases. All of the shares repurchased by the Company during
the second quarter ended December 31, 2008 were purchased in open market transactions through this program.

The
following table relates to purchases of the Company's shares by the Company during the second quarter ended December 31, 2008:

Period

Total Number of
Shares Purchased

Average Price
Paid per Share

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

Maximum Number
(or Approximate
Dollar Value) of Shares
that May Yet be
Purchased Under the
Plans or Programs(In thousands)(9/29/08 - 10/26/08)




$





$
100,000(10/27/08 - 11/23/08)


90,730


9.84


90,730


99,107(11/24/08 - 12/28/08)


577,150


11.29


577,150


92,589Total


667,880

$
11.10


667,880

$
92,589


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2008

21. Subsequent Events

The Company and Vishay (and certain of their respective subsidiary entities) are party to a Transition Product Services Agreement ("TPSA"), pursuant to which, among other things, the
Company provides certain semiconductor wafer processing services to Vishay. The revenue received by the Company in connection with the TPSA is reported by the Company as part of its TS segment.
On January 15, 2009, the Company received written notification from Vishay terminating certain wafer processing services under the TPSA effective April 30, 2009, unless the parties
otherwise agree in writing to an earlier date. The revenue received by the Company from such terminating services represents a majority of the revenue reported under the Company's TS segment.

As
discussed in Note 18, "Commitments and Contingencies," in connection with Vishay's unsolicited offer, the Company entered into an engagement letter with its financial advisor
under which the Company agreed to pay a fee of $10.0 million to its financial advisor, of which $2.0 million was paid in October 2008 and the remaining amount was contingently payable
following the Company's 2008 annual meeting of stockholders, which took place January 9, 2009. The Company recorded the entire $10.0 million as part of selling and administrative
expenses in the second quarter of fiscal year 2009.

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

Explanatory Note

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

Overview

International Rectifier Corporation ("IR") designs, manufactures and markets power management semiconductors. Power management
semiconductors address the core challenges of power management, power performance and power conservation, by increasing system efficiency, allowing more compact end-products, improving
features on electronic devices and prolonging battery life.

We
pioneered the fundamental technology for power metal oxide semiconductor field effect transistors ("MOSFETs") in the 1970s, and estimate that the majority of the world's planar power
MOSFETs use our technology. Power MOSFETs are instrumental in improving the ability to manage power efficiently. Our products include power MOSFETs, high voltage analog and mixed signal integrated
circuits ("HVICs"), low voltage analog and mixed signal integrated circuits ("LVICs"), digital integrated circuits ("ICs"), radiation-resistant ("RAD-Hard") power MOSFETs,
insulated gate bipolar transistors ("IGBTs"), high reliability DC-DC converters, PowerStage ("PS") modules, and DC-DC converter type applications.

During
the first half of fiscal year 2009, we have made what we believe to be good progress on our strategic roadmap, particularly in light of the current economic environment, and we
are continuing to drive toward our three year overall plan. In particular, we have continued to (i) rebuild our executive management team, (ii) implement targeted cost reductions,
(iii) optimize our distribution channels, (iv) focus on accelerating near-term revenue opportunities and (v) look to find and implement additional operational
efficiencies. We now believe that our new executive management team is largely complete.

With
the prior period financial restatements and the recent proxy contest and unsolicited purchase offer behind us, we are now focusing on our cost structure. We believe it important to
preserve cash during this period of macroeconomic uncertainty, and expect to continue efforts to resize our operating expenses and take other efforts to control costs in view of the current
environment.

We
have made initial efforts to streamline our operational and manufacturing efforts, including (i) having re-segmented our production processes, (ii) having
changed the way we plan and schedule production at our factories and with subcontractors, (iii) having implemented a new demand forecasting model, (iv) launching broad initiatives to
improve our asset productivity and (v) having commenced rationalization and consolidation of subcontract manufacturing firms. We have also seen initial success

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in
revenue acceleration measures through the capture of high volume MOSFET and IGBT business, which we believe is important to our ability to regain operational efficiencies and economies of scale.

However,
during the quarter ended December 31, 2008, we continued to experience declining demand along with the overall market decline, resulting in a 22.4 percent decline
in revenue in the quarter compared to the prior quarter. However, during the quarter, we reduced our production output and ended the quarter with flat inventory levels compared to our prior quarter.
We expect demand visibility to remain uncertain, and we are closely monitoring our production levels and shipments to our channel partners to ensure that our manufacturing output matches our customer
demand.

We
are proceeding with our plans to consolidate our manufacturing sites in order to reduce our costs. During the quarter, we decided to reduce the size of our Newport, Wales wafer
fabrication facility, and we estimate achieving savings from this initiative of about $8.0 million per year beginning in calendar year 2010. We also decided to close our El Segundo, California
wafer fabrication facility which we estimate will be completed by the end of calendar year 2010. We estimate that this factory closure will save us about $12.7 million per year beginning in
calendar year 2011.

In
addition to reducing our manufacturing costs, we will continue our efforts to align our operating expense structure with our revenue levels. Although we plan to reduce our
manufacturing and selling and administrative costs in the near term, we expect to maintain our investment levels in new product development in order to meet our longer term revenue goals.

Results of Operations

Segments

At the beginning of the first quarter of fiscal year 2009, our Chief Executive Officer ("CEO"), who is our Chief Operating Decision
Maker, refined the definition of our Company's business segments by renaming our Aerospace and Defense ("A&D") segment as our HiRel ("HR") segment, combining our previously identified PS segment with
our Enterprise Power ("EP") segment and creating a new Automotive Products ("AP") segment which was previously reported within the Energy-Saving Products ("ESP") and Power Management Devices ("PMD")
segments. Furthermore, some products that were previously reported under the EP segment are now reported under the PMD segment. Consequently, we now report in seven segments: EP, PMD, ESP, HR, AP, IP,
and TS. Prior year segment presentation has been recast to conform with current year presentation.

Below
is a description of our reportable segments:



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Selected Operating Results

The following table sets forth certain operating results for the three and six months ended December 31, 2008 and 2007 as a
percentage of revenues (in millions, except percentages):

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Revenues

$
189.7


100.0
%
$
262.7


100.0
%
$
434.2


100.0
%
$
528.9


100.0
%Cost of sales


125.4


66.1


170.6


65.0


273.5


63.0


339.5


64.2Gross profit


64.3


33.9


92.1


35.0


160.7


37.0


189.4


35.8Selling and administrative expense


61.6


32.4


69.8


26.5


126.9


29.2


136.6


25.8Research and development expense


24.9


13.1


28.8


11.0


49.6


11.4


56.7


10.7Amortization of acquisition-related intangible assets


1.0


0.6


0.4


0.1


2.1


0.5


0.7


0.1Asset impairment, restructuring and other charges


48.9


25.8








49.4


11.4





Operating loss


(72.1
)

(38.0
)

(6.9
)

(2.6
)

(67.3
)

(15.5
)

(4.6
)

(0.8
)Other expense, net


10.6


5.7


1.3


0.5


25.2


5.8


7.4


1.4Interest expense (income), net


0.8


0.4


(7.8
)

(3.0
)

(4.3
)

(1.0
)

(15.7
)

(3.0
)(Loss) income before income taxes


(83.5
)

(44.1
)

(0.4
)

(0.1
)

(88.2
)

(20.3
)

3.7


0.8Provision for (benefit from) income taxes


102.5


54.0


(0.7
)

(0.1
)

102.3


23.6


(7.0
)

(1.2
)Net (loss) income

$
(186.0
)

(98.1
)%
$
0.3


0.0
%
$
(190.5
)

(43.9
)%
$
10.7


2.0
%


Results of Operations for the Three and Six Months Ended December 31, 2008 compared with the Three and Six Months Ended December 31, 2007

Revenue and Gross Margin

Ongoing segment revenue, which excludes the TS segment, for the three and six months ended December 31, 2008 was
$178.4 million and $410.5 million, respectively, compared to $247.2 million and $496.9 million in the comparable three and six months ended December 31, 2007,
respectively. During this period, revenues decreased by 27.8 percent and 17.4 percent for the three and six months ended December 31, 2008, respectively, compared to the three and
six months ended December 31, 2007, respectively. The decline for the three and six months ended December 31, 2008 was primarily due to a continuous slowdown in the economy, customer
draw down of inventories and lower sales of our game station related products. Sales declined in most of our segments in the quarterly and year-to-date comparison, except for
year-to-date ESP which had higher than normal product returns in fiscal year 2008 that did not repeat in fiscal year 2009 and year-to-date IP which had
a one-time extension of a patent license agreement with one of our principal licensees in the first quarter of fiscal year 2009.

Ongoing
segment gross margin increased to 37.3 percent for the three months ended December 31, 2008 compared to 37.2 percent for the three months ended
December 31, 2007, and to 39.8 percent for the six months ended December 31, 2008 compared to 38.1 percent in the six months ended December 31, 2007. Our quarterly
gross margin slightly increased primarily due to a margin improvement in our PMD segment and a proportional increase as a percentage of total revenue of our higher margin ESP and HR segments, offset
by a $7.2 million decrease in royalty revenue due to the expiration of our broadest MOSFET patents. Our year-to-date gross margin improved primarily due to a
$3.5 million increase in royalty revenue driven by a one-time extension of a patent license agreement

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with
one of our principal licensees in the first quarter of fiscal year 2009 and higher than normal product returns in the six months ended December 31, 2007 that did not repeat in the six
months ended December 31, 2008.

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

Three Months Ended
December 31, 2008

Three Months Ended
December 31, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
64,134


33.8
%

19.4
%
$
87,060


33.2
%

16.3
%Energy-Saving Products


39,422


20.8


43.3


45,945


17.5


45.6HiRel


39,433


20.8


56.7


41,599


15.8


56.3Automotive Products


13,474


7.1


27.9


20,528


7.8


33.6Enterprise Power


19,350


10.2


42.4


42,252


16.1


39.5Ongoing customer segments total


175,813


92.7


36.3


237,384


90.4


34.6Intellectual Property


2,594


1.3


100.0


9,805


3.7


100.0Ongoing segments total


178,407


94.0


37.3


247,189


94.1


37.2Transition Services


11,339


6.0


(18.6
)

15,547


5.9


0.7Consolidated total

$
189,746


100.0
%

33.9
%
$
262,736


100.0
%

35.0
%




Six Months Ended
December 31, 2008

Six Months Ended
December 31, 2007Business Segment

Revenues

Percentage
of Total

Gross
Margin

Revenues

Percentage
of Total

Gross
MarginPower Management Devices

$
137,912


31.7
%

20.5
%
$
182,163


34.4
%

23.7
%Energy-Saving Products


85,558


19.7


43.1


78,964


14.9


40.3HiRel


76,785


17.7


54.7


78,108


14.8


53.9Automotive Products


31,067


7.2


31.0


40,457


7.6


34.4Enterprise Power


56,629


13.0


42.6


98,115


18.6


39.9Ongoing customer segments total


387,951


89.3


36.3


477,807


90.3


35.6Intellectual Property


22,561


5.2


100.0


19,098


3.6


100.0Ongoing segments total


410,512


94.5


39.8


496,905


93.9


38.1Transition Services


23,708


5.5


(11.4
)

32,025


6.1


0.7Consolidated total

$
434,220


100.0
%

37.0
%
$
528,930


100.0
%

35.8
%


PMD
revenue for the three months ended December 31, 2008 decreased by 26.3 percent from the three months ended December 31, 2007. PMD revenue for the six months
ended December 31, 2008 decreased by 24.3 percent from the six months ended December 31, 2007. The year-over-year and year-to-date
decrease in revenue for our PMD products was due to a continuous slowdown in the market, a continued decline in demand for notebooks and other consumer related products as well as erosion of our older
generation product revenue. Gross margin for the PMD segment increased to 19.4 percent and decreased to 20.5 percent for the three and six months ended December 31, 2008,
respectively, from 16.3 percent and 23.7 percent in the three and six months ended December 31, 2007, respectively. The year-over-year increase in gross
margin was due to lower manufacturing cost including a benefit from favorable exchange rates at our Newport, Wales facility. The year-to-date decline was primarily due to a
decline in average selling price and increased production costs primarily due to severance related expenses and lower utilization of our capacity.

ESP
revenue for the three months ended December 31, 2008 decreased by 14.2 percent from the three months ended December 31, 2007. ESP revenue for the six months
ended December 31, 2008

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increased
by 8.4 percent from the six months ended December 31, 2007. The year-over-year revenue decrease was due to a continuous slowdown in the market and a
year-over-year decline for our industrial and consumer appliances related products. The year-to-date revenue increase was due to returns and channel
inventory reductions in the fiscal quarter ended December 31, 2007 that did not repeat in fiscal quarter ended December 31, 2008. Gross margin for the ESP segment was 43.3 percent
and 45.6 percent for the three months ended December 31, 2008 and 2007, respectively, and 43.1 percent and 40.3 percent for the six months ended December 31, 2008
and 2007, respectively. The year-over-year gross margin decline was primarily due to higher than normal manufacturing costs mainly due to lower utilization of our capacity. The
year-to-date gross margin improvement was primarily due to higher margin product returns in fiscal year 2008 that did not repeat in fiscal year 2009 and higher average selling
prices partially offset by higher production costs due to lower utilization of capacity.

HR
revenue for the three months ended December 31, 2008 decreased by 5.2 percent from the three months ended December 31, 2007. Revenue for the six months ended
December 31, 2008 decreased by 1.7 percent from the six months ended December 31, 2007. This revenue decrease was primarily due to lower sales of our satellite-related products.
Gross margin for the HR segment increased to 56.7 percent for the three months ended December 31, 2008, from 56.3 percent in the three months ended December 31, 2007, and
increased to 54.7 percent for the six months ended December 31, 2008, from 53.9 percent for the six months ended December 31, 2007. The
year-over-year increase in gross margin was primarily due to increased sales of higher margin HR products. The year-to-date increase in margin is
attributable to a one-time design change and expedite fee for a major customer which commands a significantly higher margin than the base business in the first quarter of fiscal year 2009,
partially offset by lower average selling prices.

AP
revenue for the three months ended December 31, 2008 decreased by 34.4 percent from the three months ended December 31, 2007. Revenue for the six months ended
December 31, 2008 decreased by 23.2 percent from the six months ended December 31, 2007. The year-over-year and year-to-date
revenue decline was due to a slowdown in the automotive industry and production cuts in the U.S. market. Gross margin for the AP segment decreased to 27.9 percent for the three months ended
December 31, 2008, from 33.6 percent in the three months ended December 31, 2007, and to 31.0 percent for the six months ended December 31, 2008, from
34.4 percent for the six months ended December 31, 2007. The year-over-year and year-to-date decline in gross margin was due to higher
than normal manufacturing costs driven by lower production volume and lower capacity utilization, partially offset by a higher average selling price.

EP
revenue for the three months ended December 31, 2008 decreased by 54.2 percent from the three months ended December 31, 2007. Revenue for the six months ended
December 31, 2008 decreased by 42.3 percent from the six months ended December 31, 2007. This decrease was primarily due to lower sales of our game station related products and
reduced content in our newer game station parts. Gross margin for the EP segment increased to 42.4 percent for the three months ended December 31, 2008, from 39.5 percent in the
three months ended December 31, 2007, and to 42.6 percent for the six months ended December 31, 2008, from 39.9 percent for the six months ended December 31, 2007.
Year-over-year and year-to-date gross margin was higher due to an increase in margin of our growing core server business coupled with a significant
decline of lower margin game station revenue, partially offset by lower capacity utilization.

IP
revenue was $2.6 million for the three months ended December 31, 2008 compared to $9.8 million for the three months ended December 31, 2007. IP revenue was
$22.6 million for the six months ended December 31, 2008 compared to $19.1 million for the prior six months ended December 31, 2007. Revenue for the three months ended
December 31, 2008 declined by $7.2 million from the prior year second quarter due to the expiration of our broadest MOSFET patents. Revenue for the six months ended December 31,
2008 included the recognition of $18.7 million from the one-time amendment of a patent license agreement with one of our principal licensees. We expect that

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with
the expiration of our broadest MOSFET patents in 2008, our quarterly royalty revenue will be up to about $2.0 million in each of the next several quarters absent the consummation of
additional license agreements.

TS
revenue was $11.3 million for the three months ended December 31, 2008 compared to $15.5 million for the three months ended December 31, 2007. TS revenue
was $23.7 million for the six months ended December 31, 2008 compared to $32.0 million for the six months ended December 31, 2007. TS costs for the three months ended
December 31, 2008 included $2.3 million due to the revision of the deferred gain on the Divestiture related to the PCS business. On January 15, 2009, we received written
notification from Vishay terminating certain wafer processing services under the Transition Product Services Agreement ("TPSA") effective April 30, 2009, unless the parties otherwise agree in
writing to an earlier date. The revenue received by us from such terminating services represents a majority of the
revenue reported under our TS segment. We therefore expect revenues in our TS segment to decline significantly in the fiscal quarter ending June 30, 2009 and thereafter.

Selling and Administrative Expense

Selling and administrative expense was $61.6 million (32.4 percent of revenue) and $69.8 million
(26.5 percent of revenue) for the three months ended December 31, 2008 and 2007, respectively, and $126.9 million (29.2 percent of revenue) and $136.6 million
(25.8 percent of revenue) for the six months ended December 31, 2008 and 2007, respectively.

During
the three and six months ended December 31, 2008, we incurred fees and costs related to the Audit Committee-led Investigation, 2007 annual meeting and contested
proxy fees and costs, and consulting fees and costs associated with preparing and filing our financial statements and tax returns, totaling approximately $17.6 million and $34.0 million,
respectively, as compared to approximately $24.9 million and $39.7 million of costs related solely to the Audit Committee-led Investigation in the three and six months ended
December 31, 2007, respectively. The costs related to the Audit Committee-led Investigation include legal, audit and consulting fees and costs associated with the Investigation,
reconstruction of the financial results at our Japan subsidiary, and restatement of multiple periods of consolidated financial statements. The 2007 annual meeting and contested proxy costs, totaling
approximately $13.3 million and $15.3 million, relate to costs incurred in the three and six months ended December 31, 2008, respectively, in connection with our delayed 2007
annual meeting and the unsolicited proposal, tender offer, the Delaware Action and the Annual Meeting Actions initiated by Vishay.

Excluding
all the above mentioned costs, selling and administrative expense decreased by $0.9 million to $44.0 million in the current fiscal quarter as compared to the
prior year fiscal quarter ended December 31, 2007.

We
anticipate that we will continue to incur additional expenses in the near term related to (i) ongoing consulting support to assist us in the preparation and filing of our
financial statements and tax returns and (ii) additional costs and expenses resulting from the Investigation-related litigation and third party proceedings.

Research and Development Expense

Research and development ("R&D") expense was $24.9 million and $28.8 million (13.1 percent and 11.0 percent
of revenue) for the three months ended December 31, 2008 and 2007, respectively, and $49.6 million (11.4 percent of revenue) and $56.7 million (10.7 percent of
revenue) for the six months ended December 31, 2008 and 2007, respectively. The year-over-year and year-to-date decreases of $3.9 million
and $7.1 million in R&D expenses were mainly due to our efforts to size the organization to the lower revenue base following the Divestiture and savings associated with the closure of two R&D
facilities. We continue to concentrate our R&D activities on developing new platform technologies, such as our recently announced Gallium Nitride ("GaN") technology, as well as our power management
ICs and the advancement and diversification of our HEXFET®, power MOSFET and insulated gate bipolar transistor product lines.

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Stock Option Plan Modifications

Our employee stock option plan typically provides terminated employees a period of thirty (30) 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") No. 123 (Revised 2004) "Share-Based Payment," 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 operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these
modifications and the mark-to-market adjustments of the liability awards included in other accrued expenses, we recorded a net credit of $0.3 million and
$0.6 million for the three and six months ended December 31, 2008, respectively, compared to a charge of $3.6 million and $1.8 million for the three and six months ended
December 31, 2007, respectively.

Asset Impairment, Restructuring and Other Charges

Asset impairment, restructuring and other charges reflect the impact of principally three 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 and six months ended December 31, 2008 and 2007 related to our restructuring initiatives and asset impairments (in thousands):

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$
48,885

$


$
48,885

$
Severance


31


7


382


7Other charges


60





180


35Total asset impairment, restructuring and other charges

$
48,976

$
7

$
49,447

$
42


Newport Fabrication Facility Asset Impairment

In order to reduce our manufacturing costs and respond to a decline in market demand, in the second quarter of fiscal year 2009, we
evaluated our manufacturing capabilities and decided to reduce the size of one of our two wafer fabrication factories at our Newport, Wales facility. We estimate this manufacturing consolidation plan
will save us about $8.0 million per year in manufacturing overhead costs and will be completed by December 31, 2009. We estimate that we will incur cash charges of approximately
$4.0 million associated with this initiative through December 31, 2009.

Related
to our Newport manufacturing facility consolidation plan which impacted one of our two wafer fabrication facilities on the site, we recorded an asset impairment charge of
$48.9 million, reducing the net book value of the factory's assets from $56.2 million to $7.4 million during the second quarter of fiscal year 2009. Assets with a book value of
$19.4 million were removed from service in December 2008 and written down to their fair market value of $3.8 million. The remaining assets were written down by $33.3 million from
a net book value of $36.9 million based on the estimated discounted future cash flows of the asset group, which we determined to be the individual fabrication factory at the Newport facility.
The asset impairment did not impact any specific business segment.

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In
addition to the Newport facility asset impairment of $48.9 million, during the second quarter of fiscal year 2009, we recorded an asset impairment of $1.9 million
related to assets removed from service in our Tijuana, Mexico and other contract manufacturing facilities. Since the decision to remove these assets from service was in response to a reduction in
demand and not related to an exit activity, the associated asset impairment charge was recorded in cost of sales not in asset impairment, restructuring and other charges.

PCS Divestiture Initiative

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.

The
following illustrates the charges we recorded in the three and six months ended December 31, 2008 and 2007 related to our PCS Divestiture restructuring initiative (in
thousands):

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$
Severance





7





7Other charges











35Total asset impairment, restructuring and other charges

$


$
7

$


$
42


Research and Development Facility Closure Initiative

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 and six months ended December 31, 2008 and 2007 related to our Research and Development Facility Closure initiative (in thousands):

Three Months Ended
December 31,

Six Months Ended
December 31,2008

2007

2008

2007Reported in asset impairment, restructuring and other chargesAsset impairment

$


$


$


$
Severance


31





382


Other charges


60





180


Total asset impairment, restructuring and other charges

$
91

$


$
562

$



In
the third quarter of fiscal year 2008, we adopted a plan for the closure of our Oxted, England facility and our El Segundo, California R&D fabrication facility. The costs associated
with closing and exiting these facilities and severance costs are estimated to total approximately $13.1 million. Of this amount, approximately $11.2 million represents the cash outlay
related to this initiative. We estimate that the closure and exiting of these two facilities will be completed by the end of the fourth quarter of fiscal year 2011.

El Segundo Fabrication Facility Closure Initiative

In the second quarter of fiscal year 2009, we adopted a plan for the closure of our El Segundo, California fabrication facility. No
costs associated with this decision were recorded in the second

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quarter
of fiscal year 2009. We will incur costs in future periods associated with closing and exiting this facility and transferring manufacturing technologies to our Temecula, California wafer
fabrication facility. These expenditures are forecasted to total approximately $19.3 million and include severance, equipment relocation and product qualification costs, facility
decommissioning costs, and new capital equipment expenditures at our Temecula wafer fabrication facility. The actual expenditures may vary based on a number of factors. Of the $19.3 million in
forecasted expenditures, we estimate approximately $17.8 million will represent the estimated cash outlay related to this initiative. We estimate the closure and exiting of this facility to be
completed by the end of calendar year 2010. Upon completion of this facility closure initiative, we estimate that we will save approximately $12.7 million per year in manufacturing overhead
costs. Since the assets in our El Segundo fabrication facility are almost fully depreciated, the net book value of the building and equipment at the facility as of December 31, 2008 was
approximately $2.0 million. We reviewed the cash flows associated with the remaining life of the facility's assets and determined that no additional asset impairment was required.

Other Income and Expense, net

Other expense, net was $10.6 million and $1.3 million for the three months ended December 31, 2008 and 2007,
respectively, and $25.2 million and $7.4 million for the six months ended December 31, 2008 and 2007, respectively. The change is primarily due to investment impairment charges of
$10.3 million and $25.5 million in the three and six months ended December 31, 2008, respectively. Other expense included a debt retirement charge of $5.7 million in the
three months ended September 30, 2007. Other income and expense, net primarily includes foreign currency remeasurement gains and losses, dividend income from our equity investments and
investment impairments.

Interest Income and Expense, net

Interest income was $0.1 million and $8.5 million for the three months ended December 31, 2008 and 2007,
respectively, and $5.7 million and $18.7 million for the six months
ended December 31, 2008 and 2007, respectively, reflecting net realized losses on the sale of securities and lower prevailing interest rates on lower average cash and investment balances in the
current year.

Interest
expense was $0.9 million and $0.7 million for the three months ended December 31, 2008 and 2007, respectively, primarily reflecting accelerated amortization
of capitalized financing charges related to the terminated revolving credit facility. Interest expense was $1.4 million and $3.0 million for the six months ended December 31, 2008
and 2007, 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

Under Accounting Principles Board Opinion No. 28, "Interim Financial Reporting," and FASB Interpretation No. 18,
"Accounting for Income Taxes in Interim Periodsan Interpretation of APB Opinion No. 28," we are required to adjust our effective tax rate each quarter to be consistent with the
estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation
allowances and effects of changes in tax laws or rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a
year-to-date loss where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or
lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings versus annual projections.

We
recorded a tax provision of $102.5 million for the second quarter of fiscal year 2009. Approximately $92.8 million relates to valuation allowances recorded
against our deferred tax assets. SFAS No. 109, "Accounting for Income Taxes" requires such allowances to be recorded when

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cumulative
and current losses impact the realizability of these assets. The increase in current losses in the second quarter necessitated the reevaluation of the realizability of these assets which
led to the recording of the valuation allowance. Approximately $5.6 million is related to increases in our FASB Interpretation No. 48, "Accounting for Uncertainty in Income
Taxesan Interpretation of FASB Statement No. 109" ("FIN 48") reserves. In addition, approximately $4.1 million is related to foreign taxes payable.

Our
effective tax rate related to continuing operations was (122.8) percent and 190.6 percent for the three months ended December 31, 2008 and 2007, respectively and
(115.7) percent and (190.9) percent for the six months ended December 31, 2008 and 2007, respectively. For the three and six months ended December 31, 2008, our effective tax rate
differed from the U.S. federal statutory tax rate of 35 percent,
resulting from (i) valuation allowances recorded on deferred tax assets, impaired securities and other items, (ii) prior period adjustments, (iii) non deferral of income from
certain foreign jurisdictions and (iv) an increase in certain FIN 48 reserves.

On
October 3, 2008, U.S. federal legislation was enacted which extended the R&D tax credit provision which allows for retroactive application of R&D tax credits to
January 1, 2008. The legislation also extends the R&D credit provision to December 31, 2010. The fiscal year 2009 benefit of $4.9 million and the third and fourth quarter of
fiscal year 2008 benefit of $1.8 million was recorded in the second quarter of fiscal year 2009. A valuation allowance of $4.8 million was recorded against this benefit.

Liquidity and Capital Resources

At December 31, 2008, we had $682.0 million of total cash (excluding $18.0 million of restricted cash), cash
equivalents and investments, consisting of available-for-sale fixed income and investment-grade securities. As of December 31, 2008 and June 30, 2008, the fair
values of our mortgage-backed and asset-backed securities were $65.3 million (9.6 percent of cash and cash equivalents and short-term and long-term investments)
and $168.2 million (23.2 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 half of fiscal year 2009, we recorded a $25.5 million charge for
other-than-temporary impairments relating to certain available-for-sale securities as a result of declines in their fair values through
December 31, 2008.

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

December 31,
2008

June 30,
2008Cash and cash equivalents

$
399,390

$
320,464Investments


282,568


405,419$
681,958

$
725,883


Our cash flows were as follows (in thousands):

Six Months Ended December 31,2008

2007Cash flows (used in) provided by operating activities

$
(10,456
)
$
27,347Cash flows provided by (used in) investing activities


92,165


(27,524
)Cash flows used in financing activities


(4,877
)

(561,305
)Effect of exchange rate changes


2,094


6,847Net increase (decrease) in cash and cash equivalents

$
78,926

$
(554,635
)


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Cash provided by operating activities is net (loss) income adjusted for certain non-cash items and changes in operating assets and
liabilities. During the six months ended December 31, 2008, operating activities used net cash of $10.5 million compared to $27.3 million provided in the six months ended
December 31, 2007. Non-cash increase to cash flows from operations during the six months ended December 31, 2008 included $32.8 million of depreciation and
amortization, $25.5 million in write-down of investments, $6.0 million loss on sale of investments, $50.8 million in fixed asset impairments and $92.0 million
in deferred income taxes. Changes in operating assets and liabilities decreased cash by $34.1 million, primarily attributed to increases in inventories, prepaid expenses and other receivables
as well as decreases in accounts payable, accrued salaries and wages and other accrued liabilities.

Cash
provided by investing activities during the six months ended December 31, 2008 was $92.2 million. Proceeds from sales or maturities of investments were
$225.6 million, offset by $122.5 million of cash used to purchase investments. During the six months ended December 31, 2008, we invested $11.1 million in capital
equipment. As of December 31, 2008, we had purchase commitments for capital expenditures of approximately $3.3 million. We intend to fund capital expenditures and working capital
requirements through cash and cash equivalents on hand and anticipated cash flow from operations.

Cash
used by financing activities primarily reflected stock repurchases, partially offset by a reduction in restricted cash and proceeds from the exercise of stock options.

On
October 27, 2008, we issued a press release announcing that our Board of Directors authorized a stock repurchase program of up to $100.0 million. Repurchases of our
shares of common stock under this program may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased depends on market conditions
and other factors. The stock repurchase program may be suspended at any time without prior notice. As of December 31, 2008, we have repurchased 667,880 shares.

On
November 6, 2006, we entered into a five-year multi-currency revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank, Bank of America,
N.A., HSBC Bank USA and Deutsche Bank AG (the "Facility"). The Facility provided for an expiration date in November 2011 and a credit line of $150.0 million with an option to increase the
Facility limit to $250.0 million. Under the
Facility, up to $75.0 million of the Facility could be used for standby letters of credit and up to $10.0 million could be used for swing-line loans. Interest under the
Facility was at (i) local currency rates plus (ii) a margin between 0.0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and
1.25 percent for Euro-currency rate advances, based on our senior leverage ratio. The annual commitment fee for the Facility ranged between 0.175 percent and
0.25 percent of the unused portion of the total Facility, depending upon our senior leverage ratio. In connection with the Facility, we pledged as collateral shares of certain of our
subsidiaries, and certain of our subsidiaries have guaranteed the Facility. The Facility, as amended, also contained certain financial and other covenants.

The
Facility was amended by certain amendments pursuant to which our lenders agreed that we would not be deemed in default with respect to certain representations, warranties, covenants
and reporting requirements during a period ending not later than November 30, 2008. In addition, pursuant to the amendments, the lenders had no obligation to make any extensions of credit under
the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until, among other things, the lenders received our audited consolidated financial statements,
reasonably satisfactory to the lenders, and no other default (as defined in the Facility) existed. We agreed to provide cash collateral for the outstanding letters of credit under the Facility and
paid amendment fees to the lenders.

Following
discussions with the lenders concerning the terms and cost that would apply under current market conditions to potentially reinstate the lenders' obligation to extend the
credit under the Facility, and considering our current liquidity position, we terminated the commitments of the lenders

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to
provide further obligations effective as of November 28, 2008. In connection therewith, on November 26, 2008, we and the lenders entered into a letter agreement providing for the
termination of the obligations of each of the parties under the Facility (except for those obligations which by their terms expressly survive termination) upon the payment by us of the outstanding
fees under the Facility, and the Facility terminated on November 28, 2008. The payment of outstanding fees did not include any early termination fees.

As
described in Part II, Item 8, Note 4, "Derivative Financial Instruments," of our Annual Report on Form 10-K for the fiscal year ended
June 30, 2008 filed with the SEC on September 15, 2008 (the "2008 Annual Report"), we had entered into a five-year foreign exchange forward contract in May 2006 with BNP
Paribas (the "Forward Contract") for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our Japan subsidiary. Under the terms of the Forward
Contract, we were required to exchange 507.5 million Yen for $5.0 million on a quarterly basis starting in June 2006 and expiring in March 2011. In December 2007, we terminated the
Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS No. 133 Implementation Issue No. G3 "Cash Flow Hedges, Discontinuation of a Cash
Flow Hedge," ("SFAS 133") the net gain at the Forward Contract's termination date will continue to be reported in accumulated other comprehensive income and recognized over the originally
specified time period through March 2011, until it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional
two-month period of time thereafter.

In
connection with certain tax matters described in Part I, Item 1, Note 14, "Income Taxes," we are pursuing refunds for income taxes for which we cannot determine
that the realization of the tax refunds of $62.1 million is probable and as such, we have not recognized them as income tax benefits in our financial statements. We have determined that we have
overpaid $51.8 million of income taxes (which is included in the $62.1 million) in Singapore as a result of changes in our transfer pricing of intercompany transactions.

We
have determined that in fiscal year 2009 we will file amended U.S. federal income tax returns and consequently will pay approximately $17.1 million in taxes and
$18.4 million in related interest and penalties to the Internal Revenue Service ("IRS") in connection with uncertain tax positions recorded for fiscal years 2001 through 2003.

Management
believes that our existing cash and cash equivalents, together with funds generated from operations, will be sufficient to meet operating requirements and satisfy existing
balance sheet liability obligations for at least the next twelve months. Our cash and cash equivalents are available to fund continuing operating losses, capital expenditures, our stock repurchase
program, strategic investments, mergers and acquisitions and other potential large-scale cash needs that may arise.

Off-Balance Sheet Arrangements

Apart from the operating lease obligations and purchase commitments discussed in the 2008 Annual Report, we do not have any
off-balance sheet arrangements as of December 31, 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.

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates have not changed from our fiscal year ended June 30, 2008, except for adding the
following critical accounting policies:

Fair Value Measurements

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



Certain
financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar techniques and where at least one significant
model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there is limited market activity where the
determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain mortgage-backed securities and
asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At December 31, 2008, these securities were valued primarily using
independent valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit
valuation adjustments of marketplace participants at December 31, 2008.

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Other-Than-Temporary Impairment

We evaluate 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 our intent and ability to retain the security in order to allow for an anticipated recovery in
fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized
through earnings. Other-than-temporary impairments relating to certain available-for-sale securities, for the three months ended December 31,
2008 and 2007 were $10.3 million and $0.6 million, respectively, and for the six months ended December 31, 2008 and 2007 were $25.5 million and $0.9 million,
respectively, and were included in other expense. As of December 31, 2008, our cumulative unrealized losses related to debt instruments classified as available-for-sale
was approximately $0.1 million (approximately $9.7 million as of June 30, 2008). These unrecognized losses could be recognized in the future if our
other-than-temporary assessment changes.

For
a complete description of what we believe to be the critical accounting policies and estimates that affect our more significant judgments and estimates used in the preparation of our
unaudited condensed consolidated financial statements, please refer to "Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies
and Estimates" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008.

Out-of-Period Adjustments

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

ITEM 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 exposure to interest rate risk is primarily through our investment portfolio. The primary objective of our investments in debt
securities is to preserve principal while maximizing yields. To achieve this objective, the returns on our investments in fixed-rate debt are generally based on the three-month LIBOR, or,
if longer term, are generally swapped into U.S. dollar three-month LIBOR-based returns. Based on our investment portfolio and interest rates at December 31, 2008, a 100 basis point increase or
decrease in interest rates would result in an annualized decrease or increase of approximately $4.1 million, respectively, in the fair value of the investment portfolio. Changes in interest
rates may affect the fair value of the investment portfolio; however, unrealized gains or losses are not recognized in net income unless the investments are sold or the loss is considered to be other
than temporary.

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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 seek to 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. In December 2007, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In accordance
with SFAS 133, the net gain at the Forward Contract's termination date will continue to be reported in accumulated other comprehensive income and recognized over the originally specified time
period through March 2011, 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 $31.6 million and $51.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS 133 at
December 31, 2008 and 2007, respectively. Net realized and unrealized foreign-currency gains (losses) recognized in earnings, as a component of other expense, were $(0.6) million and
$0.1 million for the three months ended December 31, 2008 and 2007, respectively, and $0.3 million and $0.4 million for the six months ended December 31, 2008 and
2007, respectively.

Market Value Risk

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

At
December 31, 2008, we had $682.0 million of total cash, cash equivalents and investments, consisting of available-for-sale fixed income and
investment-grade securities. We manage our total portfolio to encompass a diversified pool of investment-grade securities. Our investment policy is to manage our total cash and investment balances to
preserve principal and maintain liquidity while maximizing the returns on the investment portfolio. To the extent that our marketable portfolio of investments continues to have strategic value, we
typically do not attempt to reduce or eliminate our market exposure. For securities that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing
of disposal. We may or may not enter into transactions to reduce or eliminate the market risks of our investments in marketable securities. During the six months ended December 31, 2008, the
fair values of certain investments declined and we recognized

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$25.5 million
in other-than-temporary impairment relating to certain available-for-sale securities. See Part II, Item 1A, "Risk
FactorsOur investments in certain securities expose us to market risks."

ITEM 4.    CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures

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

Our
management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as
of
December 31, 2008. Based on our evaluation and the identification of the material weaknesses in our internal controls over financial reporting, our CEO and CFO concluded that, as of
December 31, 2008, our disclosure controls and procedures were not effective. Management has identified the following control deficiencies that constituted individually or in the aggregate
material weaknesses in our internal control over financial reporting as of December 31, 2008:

1.     We
did not maintain an effective control environment based on the criteria established in the COSO Framework. Specifically,



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

2.     We
did not maintain effective controls over the completeness and accuracy of our period end financial reporting processes for certain transactions, including controls
with respect to review, supervision and monitoring of certain accounting operations. Specifically,



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3.     We
did not maintain effective controls to ensure proper periodic recognition of revenue transactions were consistent with the nature of our customer relationships.
Specifically, (i) existing Company policy and procedures were not consistently applied and adequately communicated, (ii) controls designed to maintain customer master file and contract
information were not effectively operating and (iii) controls were not effective to detect certain customer sales transactions containing transfer of risk, transfer of title and delivery terms
that were inconsistent with our standard sales terms and conditions. Other customer sale transactions and shipments were recorded in an earlier period than the correct sale transaction period without
a written acknowledgement by the customer.

4.     We
did not maintain effective controls to ensure that accounts payable and accrued liabilities are recorded in the proper period. Specifically, the controls surrounding
our accounts payable and accrued liabilities process failed to ensure the completeness and accuracy over the processing and recording of purchase invoices at period end. Consequently, our accounts
payable and accrued liability balances relating primarily to inventory in transit, construction in progress and other selling and administrative expense may not be properly recorded. In addition, we
did not maintain effective controls to ensure we did not accrue for amounts which had either been paid in prior periods or were included in accounts payable at period end.

5.     We
did not maintain effective controls over the accounting for income taxes, including the accurate determination and reporting of income taxes payable, deferred income
tax assets and liabilities and the related income tax provision. We did not effectively review and monitor the accuracy of the components of the income tax provision calculation and related income
taxes payable. We did not maintain a sufficient complement of personnel with income tax accounting knowledge and expertise to ensure the completeness and accuracy of our income taxes payable, deferred
income tax assets and liabilities, and income tax provision.

Changes in Internal Control Over Financial Reporting

During the second quarter of fiscal year 2009, specific actions to improve internal control over financial reporting and remediate
material weaknesses included the appointment of the Executive Vice President and CFO as an addition to our executive management team. There were no changes in internal control over financial reporting
during the fiscal quarter ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Plans for Remediation of Material Weaknesses

We have engaged in and are continuing to engage in substantial efforts to improve our internal control over financial reporting and
disclosure controls and procedures related to the preparation of our financial statements and disclosures. We have begun the implementation of some of the measures described below and 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 procedures.

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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:



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

Inherent Limitations Over Internal Controls

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

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Our disclosures regarding the matters set forth in Note 16, "Environmental Matters," and Note 17, "Litigation," to our
unaudited condensed consolidated financial statements set forth in Part I, Item I, herein, are incorporated herein by reference.

ITEM 1A.    RISK FACTORS

Factors That May Affect Future Results

This Quarterly Report on Form 10-Q includes some statements and other information that are not historical facts but
are "forward-looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. The materials presented can be identified by the use of forward-looking terminology
such as "anticipate," "believe," "estimate," "expect," "may," "should," "view," or "will" or the negative or other variations thereof. We caution that such statements are subject to a number of
uncertainties, and actual results may differ materially. Factors that could affect our actual results include those set forth under "Item 1A. Risk Factors" in our Annual Report on
Form 10-K for the fiscal year ended June 30, 2008 as supplemented by the factors set forth below and other uncertainties disclosed in our reports filed from time to time with
the SEC. In light of our refined definition of our business segments, which is discussed in Note 1, "Business, Basis of Presentation and Summary of Significant Accounting Policies," references
to the A&D segment set forth under "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2008 should be read as references to
our HiRel segment. 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.

Global capital and credit market conditions, and resulting declines in consumer confidence and spending, or liquidity difficulties of our customers and suppliers could have
a material adverse effect on our business, operating results and financial condition.

Our operations and performance depend significantly on worldwide economic conditions and its impact on purchases of our products by our
customers. These economic conditions have recently deteriorated significantly in many countries and regions, including without limitation the United States, and may remain depressed for the
foreseeable future. Customers may experience unexpected fluctuations in demand for their products, as consumers alter purchasing activities in response to this economic uncertainty, and these
customers may change or scale back product development efforts, product purchases or other sales activities that affect purchases of our products. In addition, certain of our customers and vendors may
experience liquidity difficulties which may adversely affect their ability to purchase products from us, pay for products sold by us or provide us products or services. These uncertainties may affect
our ability to provide or meet specific forecasted results, as we attempt to address this increased volatility in our business. If we are unable to adequately respond to unforeseeable changes in
demand resulting from general economic conditions, or our
business is impacted by liquidity difficulties of third parties our financial condition and operating results may be materially and adversely affected.

We may be unable to sell some of our investments for the value reflected in our financial statements; the value of our investments may also deteriorate; the income from our
investment portfolio may decline.

Some of our investments in corporate bonds and collateral-backed mortgage obligations are difficult to value and/or are valued for
purposes of our financial statements using complex valuation methodologies. While we have valued investments in accordance with accounting procedures adopted by us, such valuations may not necessarily
be indicative of the value that we would receive upon a sale and, if we are required to sell these securities, we may not realize prices as high as indicated by the

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values
reflected in our financial statements. In addition, the value of these investments may deteriorate in the future. Additionally, during the second quarter, we elected to sell higher yielding
investments in an attempt to lower our risk profile with respect to such investments and improve our liquidity, and this shift in investments combined with lower market interest rates may result in a
significant decline in our reported interest income.

Our cost reduction plans may not be as effective as planned or result in higher than expected costs; the loss of wafer processing services for Vishay may adversely affect
our gross margins if we are not successful at reducing manufacturing costs.

We have reported on our plans to try to realize savings from a variety of initiatives, including, without limitation, workforce
reductions, the consolidation of our Newport, Wales facilities, and the closing of our El Segundo, California wafer fabrication facilities and the transfer of its operations to other facilities.
However, there may be unexpected costs or delays in implementing our cost savings programs, including the ability to transfer, consolidate and qualify product lines and unexpected costs or delays in
the closure of facilities, and we may not be able to achieve our expected workforce reductions and other cost savings. In addition, Vishay Intertechnology, Inc. has provided notice of termination of
certain wafer processing services currently performed at our Temecula, California wafer fabrication facility effective April 30, 2009. The loss of this manufacturing volume may adversely affect
our gross margins if we are not successful in reducing our manufacturing costs commensurate with the volume reduction. If we are unable to carry out all our initiatives as planned, our financial
condition and operating results may be materially and adversely affected.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

For information on common stock repurchases, see Note 20 to condensed consolidated financial statements for the second quarter
ended December 31, 2008, which is incorporated by reference in this Item 2.

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

The following matters were submitted to a vote of our Company's shareholders at the 2008 annual meeting of shareholders held on
January 9, 2009. Below is a summary of, where applicable, the number of votes cast for, against or withheld, as well as the number of abstentions as to each matter.

Description of Matter

For

Authority
Withheld1.

Election of DirectorsRichard J. Dahl


59,027,872


8,081,129Dr. Rochus E. Vogt


47,153,913


19,955,088


In
addition, the terms of office of the following directors continued after the 2008 annual meeting: Robert S. Attiyeh, Oleg Khaykin, Dr. James D. Plummer,
Mary B. Cranston, Thomas Lacey and Dr. Jack O. Vance.

For

Against

Abstentions2.

Ratification of the Appointment of Ernst & Young LLP as
our Company's Independent Registered Public Accounting
Firm For Fiscal Year 2009


66,738,791


245,319


124,891




For

Against

Abstentions3.

Stockholder Proposal To Eliminate the Current Classified
Board Structure


43,053,658


13,884,877


151,976


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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)4.1

Fourth Amendment to the Amended and Restated Rights Agreement, dated as of October 12, 2008, between the Company and Mellon Investor Services LLC (F/K/A/ ChaseMellon Shareholder Services, L.L.C.)
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on October 14, 2008)10.1

Form of Indemnification Agreement approved for directors and executive officers of the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission
on September 19, 2008)10.2

Letter Agreement executed September 21, 2008 between the Company and Ilan Daskal (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on
September 26, 2008)+10.3

Severance Agreement executed September 21, 2008 between the Company and Ilan Daskal (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on
September 26, 2008)+10.4

Amendment No. 1 to Consulting Agreement dated October 16, 2008, between the Company and Pahl Consulting, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed with the Commission on October 22, 2008)+10.5

Letter Agreement Amendment, executed October 22, 2008, between the Company and Peter B. Knepper (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the
Commission on October 22, 2008)+10.6

Amendment to Employment Agreement, dated December 29, 2008, entered into between the Company and Oleg Khaykin*+10.7

RSU Award Agreement, dated August 6, 2008, entered into between the Company and Oleg Khaykin*+10.8

Option Award Agreement, dated August 6, 2008, entered into between the Company and Oleg Khaykin*+10.9

Amendment to Offer Letter, dated December 26, 2008, entered into between the Company and Ilan Daskal*+10.10

Amendment to Severance Agreement, dated December 26, 2008, entered into between the Company and Ilan Daskal*+10.11

Amendment to Compensation Agreement Letter, dated December 29, 2008, entered into between the Company and Donald R. Dancer*+10.12

Amendment to Severance Agreement, dated December 29, 2008, entered into between the Company and Donald R. Dancer*+10.13

Amendment to Offer Letter, dated December 26, 2008, entered into between the Company and Michael Barrow*+


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Index:10.14

Amendment to Severance Agreement, dated December 26, 2008, entered into between the Company and Michael Barrow*+10.15

Revised form of RSU Award Agreement under the Company's 2000 Incentive Plan (Amended and Restated as of November 22, 2004)*+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.

INTERNATIONAL RECTIFIER CORPORATION
RegistrantDate: February 6, 2009

/s/ ILAN DASKAL Ilan Daskal Chief Financial Officer
(Principal Financial and Accounting Officer)


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