International Rectifier Reports Fourth Quarter and Full Year Fiscal 2014 Results

EL SEGUNDO, Calif.--()--International Rectifier Corporation (NYSE:IRF) today announced financial results for the fourth quarter (ended June 29, 2014) of its fiscal year 2014.

On August 20, 2014, International Rectifier Corporation entered into a definitive agreement with Infineon Technologies AG under which Infineon has agreed to acquire International Rectifier for $40 per share in an all-cash transaction valued at approximately $3.0 billion. In anticipation of this transaction which is expected to close late in the calendar year 2014 or early in the calendar year 2015 subject to regulatory approval, International Rectifier will not conduct a fourth quarter results conference call nor issue financial guidance for the upcoming quarter. International Rectifier is also discontinuing its share repurchase program.

Revenue for the June quarter was $297.6 million, a 10.5% increase compared to $269.3 million in the prior quarter and a 7.6% increase from $276.5 million in the prior year quarter. GAAP net income for the fourth quarter was $12.9 million, or $0.18 per fully diluted share compared to GAAP net income of $19.1 million, or $0.26 per fully diluted share, in the prior quarter and GAAP net loss of $6.1 million, or $0.09 per fully diluted share in the prior year quarter.

Revenue for fiscal year 2014 was $1,106.6 million, a 13.3% increase from $977.0 million in the prior fiscal year. Net income for fiscal year 2014 was $58.7 million or $0.81 per fully diluted share compared with a net loss of $88.8 million or $1.28 per fully diluted share for fiscal year 2013.

“Fourth quarter revenue exceeded our expectations, increasing significantly as all of our business segments posted sequential growth,” stated President and Chief Executive Officer Oleg Khaykin. “In addition, we reduced inventory by about 5% bringing our inventory weeks to 15.6, the lowest level in four years and below our target level of 16 weeks. Our non-GAAP operating income increased to 8.2% of revenue in the fourth quarter and we increased our cash balance by $67.7 million.”

GAAP gross margin for the fourth quarter was 35.6% compared to 37.2% in the prior quarter and 30.0% in the prior year quarter. GAAP operating income for the fourth quarter was $20.7 million compared to operating income of $19.2 million in the prior quarter and operating income of $0.2 million in the prior year quarter.

Cash, cash equivalents and marketable investments increased $67.7 million and totaled $610.4 million at the end of the fourth quarter, including restricted cash of $1.4 million.

Cash provided by operating activities for the quarter was $70.3 million and free cash flow was $62.0 million.

Non-GAAP Results
Non-GAAP net income for the fourth quarter was $21.9 million, or $0.30 per fully diluted share compared to non-GAAP net income of $19.7 million, or $0.27 per fully diluted share in the prior quarter and non-GAAP net loss of $1.2 million, or $0.02 per fully diluted share in the prior year quarter.

Non-GAAP gross margin for the fourth quarter was 35.7% compared to non-GAAP gross margin of 36.3% in the prior quarter and non-GAAP gross margin of 30.2% in the prior year quarter. Non-GAAP operating income for the fourth quarter was $24.3 million compared to non-GAAP operating income of $20.1 million in the prior quarter and non-GAAP operating income of $4.5 million in the prior year quarter.

Non-GAAP net income for fiscal year 2014 was $70.2 million or $0.97 per fully diluted share compared with a non-GAAP net loss of $62.6 million or $0.90 per fully diluted share for fiscal year 2013.

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

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

Segment Table Information/Customer Segments
The business segment tables included with this release for the Company’s fiscal quarters ended June 29, 2014, March 30, 2014, and June 30, 2013, respectively, reconcile revenue and gross margin for the Company’s segments to the consolidated total amounts of such measures for the Company.

Annual Report on Form 10-K
The Company expects to file its Annual Report on Form 10-K for the 2014 fiscal year with the Securities and Exchange Commission by Thursday, August 21, 2014. This financial report will be available for viewing and download at http://investor.irf.com.

Conference Call Information: On August 20, 2014, International Rectifier Corporation entered into a definitive agreement with Infineon Technologies AG under which Infineon has agreed to acquire International Rectifier for $40 per share in an all-cash transaction valued at approximately $3.0 billion. In anticipation of this transaction which is expected to close late in the calendar year 2014 or early in the calendar year 2015 subject to regulatory approvals, International Rectifier will not conduct a fourth quarter results conference call nor issue financial guidance for the upcoming quarter.

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

Forward-Looking Statements:
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations concerning matters that (a) are not historical facts, (b) predict or forecast future events or results, or (c) embody assumptions that may prove to have been inaccurate. These forward-looking statements involve risks, uncertainties and assumptions. When we use words such as “believe,” “expect,” “anticipate,” “will”, “outlook” or similar expressions, we are making forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give readers any assurance that such expectations will prove correct. The actual results may differ materially from those anticipated in the forward-looking statements as a result of numerous factors, many of which are beyond our control. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, lower than expected demand or greater than expected order cancellations arising from a decline or volatility in general market and economic conditions and the failure of the market to improve as anticipated; reduced margins from lower than expected factory utilization, higher than expected costs and customer shifts to lower margin products; changes in the timing or amount of costs associated with, or disruptions caused by, our restructuring initiatives; our ability to implement our restructuring initiatives as planned and achieve the anticipated benefits, which may be affected by, among other things: customer requirements, changes in business conditions and/or operational needs, retention of key employees, governmental regulations, delays and increased costs; unexpected costs or delays in implementing our plans to secure and qualify external manufacturing capacity for our products, including the purchase and installation of additional manufacturing equipment and the construction of our new wafer thinning manufacturing facility in Singapore; the effects of longer lead times for certain products on meeting demand and any inability by us to satisfy or to timely satisfy customer demand; volatility or deterioration of capital markets; the adverse impact of regulatory, investigative and legal actions; increased competition in the highly competitive semiconductor business that could adversely affect the prices of our products or our ability to secure additional business; the effects of manufacturing, operational and vendor disruptions; unexpected delays and disruptions in our supply, manufacturing and delivery efforts due to, among other things, supply constraints, equipment malfunction or natural disasters; delays in launching new technology products; our ability to maintain current intellectual property licenses and obtain new intellectual property licenses; costs arising from pending and threatened litigation or claims; the effects of natural disasters; the risk that the transaction with Infineon Technologies AG will not close or that the closing may be delayed; the possibility that the conditions to the closing of the transaction with Infineon Technologies AG may not be satisfied; the risk that competing offers to the transaction with Infineon Technologies AG will be made; the outcome of any legal proceedings related to the transaction with Infineon Technologies AG; the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement entered into with Infineon Technologies AG; general economic conditions; conditions in the markets Infineon Technologies AG and International Rectifier are engaged in; behavior of customers, suppliers and competitors (including their reaction to the transaction); and other uncertainties disclosed in the Company’s reports filed from time to time with the Securities and Exchange Commission, including its most recent reports on Forms 10-K and 10-Q.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF OPERATIONS

 
(In thousands, except per share data)
   
Three Months Ended Fiscal Year Ended

June 29, 2014

  March 30, 2014   June 30, 2013 June 29, 2014   June 30, 2013
(Unaudited) (Unaudited) (Unaudited)        
Revenues $ 297,587 $ 269,269 $ 276,453 $ 1,106,571 $ 977,035
Cost of sales 191,789   169,135   193,386   707,363   719,930  
Gross profit 105,798 100,134 83,067 399,208 257,105
Selling, general and administrative expense 48,816 45,025 46,348 182,318 181,746
Research and development expense 33,179 32,710 32,643 130,848 127,093
Amortization of acquisition-related intangible assets 1,555 1,605 1,630 6,420 6,653
Asset impairment, restructuring and related charges 1,597   1,624   2,209   5,638   16,996  

Operating income (loss)

20,651 19,170 237 73,984 (75,383 )
Other expense, net 251 451 421 2,974 1,390
Interest (income) expense, net (10 ) 28   33   24   57  
Income (loss) before income taxes 20,410 18,691 (217 ) 70,986 (76,830 )
Provision for (benefit from) income taxes 7,461   (449 ) 5,861   12,253   11,990  
Net income (loss) $ 12,949 $ 19,140 $ (6,078 ) $ 58,733 $ (88,820 )
 
Net income (loss) per common share:
Basic $ 0.18 $ 0.27 $ (0.09 ) $ 0.83 $ (1.28 )
Diluted $ 0.18 $ 0.26 $ (0.09 ) $ 0.81 $ (1.28 )
Weighted average common shares outstanding:
Basic 71,208 71,248 69,785 71,108 69,385
Diluted 72,874 72,728 69,785 72,549 69,385
 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
(In thousands)
   
June 29, 2014 June 30, 2013
ASSETS
Current assets:
Cash and cash equivalents $ 588,922 $ 443,490
Restricted cash 635 611
Short-term investments 20,114 11,056
Trade accounts receivable, net of allowances of $352 for 2014 and $915 for 2013 161,723 137,762
Inventories 230,011 232,315
Current deferred tax assets 2,145 4,948
Prepaid expenses and other receivables 26,675   33,002  
Total current assets 1,030,225 863,184
Restricted cash 739 738
Property, plant and equipment, net 391,765 423,338
Goodwill 52,149 52,149
Acquisition-related intangible assets, net 15,503 21,923
Long-term deferred tax assets 31,183 32,792
Other assets 43,976   59,088  
Total assets $ 1,565,540   $ 1,453,212  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 86,256 $ 89,312
Accrued income taxes 2,946 949
Accrued salaries, wages and commissions 47,750 39,719
Current deferred tax liabilities 348
Other accrued expenses 72,968   78,414  
Total current liabilities 210,268 208,394
Long-term deferred tax liabilities 7,817 8,970
Other long-term liabilities 19,809   24,530  
Total liabilities 237,894   241,894  
Commitments and contingencies
Stockholders’ equity:
Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in 2014 and 2013
Common shares, $1 par value, authorized: 330,000,000; outstanding: 71,520,121 shares in 2014 and 70,399,081 shares in 2013 78,192 76,590
Capital contributed in excess of par value 1,097,665 1,067,841
Treasury stock, at cost: 6,672,216 shares in 2014 and 6,191,082 shares in 2013 (125,785 ) (113,175 )
Retained earnings 260,598 201,865
Accumulated other comprehensive loss 16,976   (21,803 )
Total stockholders’ equity 1,327,646   1,211,318  
Total liabilities and stockholders’ equity $ 1,565,540   $ 1,453,212  
 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
   
Three Months Ended Fiscal Year Ended

June 29, 2014
(Unaudited)

 

June 30, 2013
(Unaudited)

June 29, 2014   June 30, 2013
Cash flows from operating activities:
Net income (loss) $ 12,949 $ (6,078 ) $ 58,733 $ (88,820 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 21,817 22,625 87,210 91,187
Amortization of acquisition-related intangible assets 1,555 1,630 6,420 6,653
(Gain) loss on disposal of fixed assets (444 ) 703 (264 ) 5,036
Impairment of long-lived assets 80 1 80 2,792
Stock compensation expense 6,467 5,146 26,494 21,560
Gain on sale of investments (36 ) (8 )
Other-than-temporary impairment of investments 350
Provision for (recovery of) bad debts 4 (58 )
Provision for inventory write-downs 1,273 5,142 4,900 20,421
Loss on derivatives 276 469 1,437 634
Deferred income taxes 1,412 5,769 7,338 11,384
Tax benefit from stock-based awards 219 219
Changes in operating assets and liabilities, net 25,690 21,657 (11,190 ) 65,046
Other (999 ) 697   (1,255 ) 3,219  
Net cash provided by operating activities 70,295   57,765   180,086   139,396  
Cash flows from investing activities:
Additions to property, plant and equipment (8,275 ) (11,681 ) (44,111 ) (72,605 )
Proceeds from sale of property, plant and equipment 978 1,003 118
Sale of investments 36 52,131
Maturities of investments 4,000 11,000 25,500
Purchase of investments (9,979 )
Release from restricted cash 13   2   27   176  
Net cash used in investing activities (7,284 ) (7,679 ) (32,045 ) (4,659 )
Cash flows from financing activities:
Proceeds from exercise of stock options 1,508 11,132 14,146 15,474
Purchase of treasury stock (10,012 ) (12,610 ) (5,210 )
Net settlement of restricted stock units for tax withholdings (8,273 ) (3,972 ) (9,433 ) (5,464 )
Net cash (used in) provided by financing activities (16,777 ) 7,160 (7,897 ) 4,800
Effect of exchange rate changes on cash and cash equivalents 1,400   (750 ) 5,288   (1,470 )
Net increase in cash and cash equivalents 47,634 56,496 145,432 138,067
Cash and cash equivalents, beginning of period 541,288   386,994   443,490   305,423  
Cash and cash equivalents, end of period $ 588,922   $ 443,490   $ 588,922   $ 443,490  
 

For the three months ended June 29, 2014, March 30, 2014, and June 30, 2013, revenue and gross margin by reportable segments were as follows (in thousands, except percentages):

  Three Months Ended
June 29, 2014   March 30, 2014   June 30, 2013
Business Segment Revenues  

Percentage
of Total

 

Gross
Margin

Revenues  

Percentage
of Total

 

Gross
Margin

Revenues  

Percentage
of Total

 

Gross
Margin

Power management devices $ 110,255 37.0 % 33.8 % $ 96,868 36.0 % 30.9 % $ 108,453 39.2 % 28.8 %
Energy saving products 58,556 19.7 26.9 53,808 20.0 33.7 52,142 18.9 19.2
Automotive products 38,918 13.1 26.3 37,901 14.1 28.4 36,337 13.1 25.1
Enterprise power 36,446 12.2 39.5 32,057 11.9 45.3 29,355 10.6 30.1
HiRel 53,091   17.8   52.5   48,323   17.9   54.9   49,802   18.0   47.3  
Customer segments total 297,266 99.9 35.5 268,957 99.9 37.1 276,089 99.9 30.0
Intellectual property 321   0.1   100.0   312   0.1   100.0   364   0.1   100.0  
Consolidated total $ 297,587   100.0 % 35.6 % $ 269,269   100.0 % 37.2 % $ 276,453   100.0 % 30.0 %
 

For the fiscal years ended June 29, 2014 and June 30, 2013, revenue and gross margin by reportable segments were as follows (in thousands, except percentages):

  Fiscal Year Ended
June 29, 2014   June 30, 2013
Business Segment Revenues  

Percentage
of Total

 

Gross
Margin

Revenues  

Percentage
of Total

 

Gross
Margin

Power management devices $ 411,967 37.2 % 31.4 % $ 367,762 37.6 % 21.7 %
Energy saving products 209,450 18.9 31.1 176,386 18.1 15.3
Automotive products 149,646 13.5 29.5 124,695 12.8 17.7
Enterprise power 133,947 12.1 41.1 116,302 11.9 32.5
HiRel 200,412   18.1   52.0   188,831   19.3   46.7  
Customer segments total 1,105,422 99.9 36.0 973,976 99.7 26.2
Intellectual property 1,149   0.1   100.0   3,059   0.3   78.4  
Consolidated total $ 1,106,571   100.0 % 36.1 % $ 977,035   100.0 % 26.3 %
 

For the three months ended June 29, 2014, March 30, 2014, and June 30, 2013, stock-based compensation was as follows (in thousands):

  Three Months Ended
June 29, 2014   March 30, 2014   June 30, 2013
Cost of sales $ 1,302 $ 1,330 $ 1,091
Selling, general and administrative expense 3,260 3,233 2,455
Research and development expense 1,905   1,975   1,600
Total stock-based compensation expense $ 6,467   $ 6,538   $ 5,146
 

For the fiscal years ended June 29, 2014, and June 30, 2013, stock-based compensation was as follows (in thousands):

  Fiscal Year Ended
June 29, 2014   June 30, 2013
Cost of sales $ 5,242 $ 4,393
Selling, general and administrative expense 13,144 11,166
Research and development expense 8,108   6,001
Total stock-based compensation expense $ 26,494   $ 21,560
 

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NON-GAAP RESULTS

(In thousands, except per share and gross profit-percentage data)

Reconciliation of GAAP to Non-GAAP Gross Profit:

  Three Months Ended   Fiscal Year Ended
June 29, 2014   March 30, 2014   June 30, 2013 June 29, 2014   June 30, 2013
GAAP Gross profit $ 105,798 $ 100,134 $ 83,067 $ 399,208 $ 257,105
Adjustments to reconcile GAAP to Non-GAAP gross profit:
Impairment of long-lived assets 2,792
Accelerated depreciation 509 507 417 2,097 1,683
Product litigation reserve release   (2,790 )   (2,790 )  
Non-GAAP gross profit $ 106,307   $ 97,851   $ 83,484   $ 398,515   $ 261,580  
Non-GAAP gross profit-percentage 35.7 % 36.3 % 30.2 % 36.0 % 26.8 %
 

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

  Three Months Ended   Fiscal Year Ended
June 29, 2014   March 30, 2014   June 30, 2013 June 29, 2014   June 30, 2013
GAAP Operating income (loss) $ 20,651 $ 19,170 $ 237 $ 73,984 $ (75,383 )
Adjustments to reconcile GAAP to Non-GAAP operating loss:
Impairment of long-lived assets 2,792
Accelerated depreciation 509 507 417 2,097 1,683
Product litigation reserve release (2,790 ) (2,790 )
Amortization of acquisition-related intangible assets 1,555 1,605 1,630 6,420 6,653
Asset impairment, restructuring and related charges 1,597   1,624   2,209   5,638   16,996  
Non-GAAP operating income (loss) $ 24,312   $ 20,116   $ 4,493   $ 85,349   $ (47,259 )
 
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
 
NON-GAAP RESULTS
 
(In thousands, except per share and gross profit-percentage data)
 
Reconciliation of GAAP to Non-GAAP Net Income (Loss):
   
Three Months Ended Fiscal Year Ended
June 29, 2014   March 30, 2014   June 30, 2013 June 29, 2014   June 30, 2013
GAAP Net income (loss) $ 12,949 $ 19,140 $ (6,078 ) $ 58,733 $ (88,820 )
Adjustments to reconcile GAAP to Non-GAAP net income (loss):
Impairment of long-lived assets 2,792
Accelerated depreciation 509 507 417 2,097 1,683
Product litigation reserve release (2,790 ) (2,790 )
Amortization of acquisition-related intangible assets 1,555 1,605 1,630 6,420 6,653
Asset impairment, restructuring and related charges 1,597 1,624 2,209 5,638 16,996
Tax expense (benefit) of discrete items and other tax adjustments 5,319   (373 ) 664   103   (1,902 )
Non-GAAP net income (loss) $ 21,929   $ 19,713   $ (1,158 ) $ 70,201   $ (62,598 )
 
GAAP net income (loss) per common share — basic $ 0.18 $ 0.27 $ (0.09 ) $ 0.83 $ (1.28 )
Non-GAAP adjustments per above 0.13   0.01   0.07   0.16   0.38  
Non-GAAP net income (loss) per common share — basic $ 0.31 $ 0.28 $ (0.02 ) $ 0.99 $ (0.90 )
 
GAAP net income (loss) per common share — diluted $ 0.18 $ 0.26 $ (0.09 ) $ 0.81 $ (1.28 )
Non-GAAP adjustments per above 0.12   0.01   0.07   0.16   0.38  
Non-GAAP net income (loss) per common share — diluted $ 0.30 $ 0.27 $ (0.02 ) $ 0.97 $ (0.90 )
 
Weighted average common shares outstanding — basic 71,208 71,248 69,785 71,108 69,385
Weighted average common shares outstanding — diluted 72,874 72,728 69,785 72,549 69,385
 

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

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

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

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

Contacts

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

Release Summary

International Rectifier reports solid Q4 and full year 2014 earnings. Company earns $21.9M or $0.30 non-GAAP EPS beating First Call Consensus estimates. Increases Q4 cash balance by $67.7 million.

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Contacts

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