10-Q

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TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2007
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                             to

Commission file number 1-7935

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

Delaware	95-1528961
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
233 Kansas Street El Segundo, California	90245
(Address of Principal Executive Offices)	(Zip Code)

Registrant's Telephone Number, Including Area Code: (310) 726-8000

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o    No ý

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller
reporting company) Smaller reporting company o

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

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

TABLE OF CONTENTS

			Page
EXPLANATORY NOTE REGARDING RESTATEMENTS			3
PART I.    FINANCIAL INFORMATION			4
	ITEM 1.    FINANCIAL STATEMENTS		4
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006	4
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006	5
		UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND JUNE 30, 2007	6
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006	7
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	8
	ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		46
	ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		59
	ITEM 4.    CONTROLS AND PROCEDURES		61
PART II.    OTHER INFORMATION			64
	ITEM 1.    LEGAL PROCEEDINGS		64
	ITEM 1A.    RISK FACTORS		65
	ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		78
	ITEM 6.    EXHIBITS		78

2

EXPLANATORY NOTE REGARDING RESTATEMENTS

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

3

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,
		2007			2006 As restated			2007			2006 As restated
Revenues		$	262,736		$	345,631		$	528,930		$	634,331
Cost of sales			170,683			209,556			339,492			376,748
	Gross profit		92,053			136,075			189,438			257,583
Selling and administrative expense			69,778			53,194			136,585			110,041
Research and development expense			28,759			31,792			56,655			60,392
Amortization of acquisition-related intangible assets			377			413			757			848
Asset impairment, restructuring and other charges (Note 13)			7			206			42			2,167
	Operating (loss) income		(6,868	)		50,470			(4,601	)		84,135
Other expense (income), net			1,305			(1,696	)		7,434			(1,777	)
Interest income, net			(7,829	)		(1,843	)		(15,722	)		(4,368	)
(Loss) income from continuing operations before income taxes			(344	)		54,009			3,687			90,280
(Benefit from) provision for income taxes			(657	)		16,210			(7,039	)		34,892
Income from continuing operations			313			37,799			10,726			55,388
Income from discontinued operations, net of taxes (Note 3)			—			8,415			—			7,098
	Net income	$	313		$	46,214		$	10,726		$	62,486
Net income per common share:
Basic:
	Income from continuing operations	$	0.00		$	0.52		$	0.15		$	0.77
	Income from discontinued operations		—			0.12			—			0.10
	Net income per share	$	0.00		$	0.64		$	0.15		$	0.87
Diluted:
	Income from continuing operations	$	0.00		$	0.52		$	0.15		$	0.76
	Income from discontinued operations		—			0.11			—			0.10
	Net income per share	$	0.00		$	0.63		$	0.15		$	0.86
Average common shares outstanding—basic			72,814			72,204			72,813			72,128
Average common shares and potentially dilutive securities outstanding—diluted			73,151			72,854			73,172			72,721

The accompanying notes are an integral part of these statements.

4

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

(In thousands)

			Three Months Ended December 31,						Six Months Ended December 31,
			2007			2006 As restated			2007			2006 As restated
Net income			$	313		$	46,214		$	10,726		$	62,486
Other comprehensive (loss) income:
	Foreign currency translation adjustments			(6,045	)		19,097			(1,285	)		28,262
Unrealized (losses) gains on securities:
	Unrealized holding (losses) gains on available-for-sale securities, net of tax effect of $(97), $1,988, $(168) and ($317), respectively			(1,175	)		(3,706	)		(18,937	)		280
	Unrealized holding gains (losses) on foreign currency forward contract, net of tax effect of $0, ($521), $0 and ($1,896), respectively			846			969			(2,303	)		3,522
	Reclassification adjustments of net losses on available-for-sale securities and foreign currency forward contract			(199	)		(425	)		(820	)		(844	)
		Other comprehensive (loss) income		(6,573	)		15,935			(23,345	)		31,220
Comprehensive (loss) income			$	(6,260	)	$	62,149		$	(12,619	)	$	93,706

The accompanying notes are an integral part of these statements.

5

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

			December 31, 2007		June 30, 2007
Assets
Current assets:
	Cash and cash equivalents		$	298,405	$	853,040
	Restricted cash			4,341		—
	Short-term investments			99,650		113,901
	Trade accounts receivable, net			125,329		152,820
	Inventories			183,640		219,723
	Current deferred tax assets			11,087		11,087
	Prepaid expenses and other receivables			48,932		63,451
		Total current assets		771,384		1,414,022
Restricted cash				14,876		14,592
Long-term investments				347,612		335,995
Property, plant and equipment, net				559,587		573,246
Goodwill				131,446		131,446
Acquisition-related intangible assets, net				18,773		20,881
Long-term deferred tax assets				75,164		71,560
Other assets				58,084		85,663
		Total assets	$	1,976,926	$	2,647,405
Liabilities and Stockholders' Equity
Current liabilities:
	Bank loans		$	—	$	462
	Long-term debt, due within one year			144		543,383
	Accounts payable			67,736		68,410
	Accrued salaries, wages and commissions			43,056		40,588
	Accrued income taxes			1,780		162,836
	Current deferred tax liabilities			2,883		2,883
	Other accrued expenses			105,266		133,463
		Total current liabilities		220,865		952,025
Long-term accrued income taxes				71,505		—
Long-term deferred tax liabilities				—		4,188
Other long-term liabilities				39,252		41,873
Deferred gain on Divestiture (Note 11)				116,059		116,059
		Total liabilities		447,681		1,114,145
Commitments and contingencies (Notes 17, 18 and 19)
Stockholders' equity:
	Common shares			72,811		72,811
	Capital contributed in excess of par value of shares			967,021		958,417
	Retained earnings			412,314		401,588
	Accumulated other comprehensive income			77,099		100,444
		Total stockholders' equity		1,529,245		1,533,260
		Total liabilities and stockholders' equity	$	1,976,926	$	2,647,405

The accompanying notes are an integral part of these statements.

6

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Six Months Ended December 31,
			2007			2006 As restated
Cash flow from operating activities:
	Net income		$	10,726		$	62,486
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		38,153			39,450
		Amortization of acquisition-related intangible assets		757			1,168
		Stock compensation expense		7,850			4,243
		Loss on sale of investments		—			490
		Debt retirement charge		5,659			—
		Unrealized gain on derivatives		—			(765	)
		(Recovery of) provision for bad debt		(430	)		1,988
		Provision for inventory write-downs		2,578			7,726
		Deferred income taxes		1,833			(11,313	)
		Deferred revenue		(11,325	)		9,285
		Write-down of investments		868			—
		Tax benefit from options exercised		118			1,421
		Excess tax benefit from options exercised		(81	)		(465	)
		Change in operating assets and liabilities, net		(29,359	)		(37,495	)
Net cash provided by operating activities				27,347			78,219
Cash flow from investing activities:
	Additions to property, plant and equipment			(29,689	)		(70,297	)
	Proceeds from sale of property, plant and equipment			—			54
	Additions to restricted cash			(284	)		—
	Sale or maturities of investments			187,053			190,475
	Purchase of investments			(185,313	)		(208,746	)
	Other, net			709			(3,066	)
Net cash used in investing activities				(27,524	)		(91,580	)
Cash flow from financing activities:
	(Repayments of) proceeds from short-term debt			(550,000	)		5,472
	Repayments of long-term debt			—			(642	)
	Repayments of obligations under capital lease			(273	)		(144	)
	Proceeds from exercise of stock options and stock participation plan			174			6,083
	Excess tax benefit from options exercised			81			465
	Additions to restricted cash			(4,341	)		—
	Other, net			(6,946	)		292
Net cash (used in) provided by financing activities				(561,305	)		11,526
Effect of exchange rate changes on cash and cash equivalents				6,847			5,141
Net (decrease) increase in cash and cash equivalents				(554,635	)		3,306
Cash and cash equivalents, beginning of period				853,040			482,907
Less: Cash and cash equivalents, held for sale				—			(26,937	)
Cash and cash equivalents, end of period			$	298,405		$	459,276

The accompanying notes are an integral part of these statements.

7

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

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

Business

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

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

Basis of Presentation

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

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

Reclassification

        Certain reclassifications have been made to previously reported amounts to conform to the current year presentation. Certain reclassifications have been made to the Unaudited Condensed Consolidated Statements of Income for three and six months ended December 31, 2006 to present the results of a portion of the Power Controls System ("PCS") business ("PCS Business"), the Non-Aligned Products ("NAP") segment, as discontinued operations.

Fiscal Year and Quarter

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

8

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

December 30, 2007 and December 31, 2006, 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.

Recent Accounting Pronouncements

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

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

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

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

9

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in process research and development ("R&D") is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS No. 141(R) will change the Company's accounting treatment for business combinations on a prospective basis beginning July 1, 2009.

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

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

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

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

10

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

2. Restatement of Consolidated Financial Statements

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

        The following table reflects the impact of the restatement on the Company's consolidated statement of income for the three months ended December 31, 2006 (in thousands, except per share data):

																						As Restated and Adjusted for Discontinued Operations
				Restatement Adjustments
Three Months Ended December 31, 2006	As Previously Reported(1)			IR Japan			Other Revenue Recognition Matters			Unrecorded Liabilities and Other			Restructuring			Tax Matters			Discontinued Operations(2)
Revenues	$	327,604		$	23,963		$	(5,991	)	$	—		$	—		$	—		$	55		$	345,631
Cost of sales		186,864			16,948			(2,764	)		8,028			1,781			—			(1,301	)		209,556
Gross profit		140,740			7,015			(3,227	)		(8,028	)		(1,781	)		—			1,356			136,075
Selling and administrative expense		54,804			(295	)		—			(1,505	)		400			—			(210	)		53,194
Research and development expense		31,767			—			—			25			—			—			—			31,792
Amortization of acquisition-related intangible assets		663			(250	)		—			—			—			—			—			413
Asset impairment, restructuring and other charges		1,587			—			—			—			(1,694	)		—			313			206
Operating income		51,919			7,560			(3,227	)		(6,548	)		(487	)		—			1,253			50,470
Other (income), net		(1,696	)		—			—			—			—			—			—			(1,696	)
Interest (income), net		(1,823	)		—			—			—			(20	)		—			—			(1,843	)
Income from continuing operations before income taxes		55,438			7,560			(3,227	)		(6,548	)		(467	)		—			1,253			54,009
Provision for income taxes(3)		10,777			3,067			(1,162	)		(2,422	)		(176	)		23,745			(17,619	)		16,210
Income from continuing operations		44,661			4,493			(2,065	)		(4,126	)		(291	)		(23,745	)		18,872			37,799
Income from discontinued operations, net of taxes		27,287			—			—			—			—			—			(18,872	)		8,415
Net income	$	71,948		$	4,493		$	(2,065	)	$	(4,126	)	$	(291	)	$	(23,745	)	$	—		$	46,214
Net income per common share:
Basic:
Income from continuing operations	$	0.62																				$	0.52
Income from discontinued operations		0.38																					0.12
Net income per share	$	1.00																				$	0.64
Diluted:
Income from continuing operations	$	0.61																				$	0.52
Income from discontinued operations		0.38																					0.11
Net income per share	$	0.99																				$	0.63
Average common shares outstanding—basic		72,204																					72,204
Average common shares and potentially dilutive securities outstanding—diluted		72,854																					72,854

(1)

Certain reclassifications have been made to the previously reported amounts to conform to the current presentation.

(2)

See Note 3, "Discontinued Operations and Divestiture."

(3)

The tax provisions related to the restatement adjustments were based on the statutory rates of the jurisdictions affected.

11

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

2. Restatement of Consolidated Financial Statements (Continued)

        The nature of restatement adjustments and the impact on the Company's previously reported consolidated statement of income for the six months ended December 31, 2006 are shown in the following table (in thousands, except per share data):

					Adjustments
Six Months Ended December 31, 2006		As Previously Reported (1)			IR Japan			Other Revenues Recognition Matters			Unrecorded Liabilities and Others			Restructuring			Tax Matters			Discontinued Operations (1)(2)			As Restated and Adjusted for Discontinued Operations
Revenues		$	643,455		$	3,643		$	(13,852	)	$	—		$	—		$	—		$	1,085		$	634,331
Cost of sales			369,341			3,443			(5,398	)		9,513			1,421			—			(1,572	)		376,748
Gross profit			274,114			200			(8,454	)		(9,513	)		(1,421	)		—			2,657			257,583
Selling and administrative expense			109,316			(278	)		—			(702	)		1,949			—			(244	)		110,041
Research and development expense			60,271			—			—			121			—			—			—			60,392
Amortization of acquisition related intangible assets			1,347			(499	)		—			—			—			—			—			848
Impairment of assets, restructuring, severance and other charges			5,749			—			—			—			(4,280	)		—			698			2,167
Operating income			97,431			977			(8,454	)		(8,932	)		910			—			2,203			84,135
Other (income), net			(1,777	)		—			(1,434	)		—			1,434			—			—			(1,777	)
Interest (income), net			(4,328	)		—			—			—			(40	)		—			—			(4,368	)
Income from continuing operations before income taxes			103,536			977			(7,020	)		(8,932	)		(484	)		—			2,203			90,280
Provision for income taxes(3)			23,868			471			(2,477	)		(3,305	)		(179	)		33,623			(17,109	)		34,892
Income from continuing operations			79,668			506			(4,543	)		(5,627	)		(305	)		(33,623	)		19,312			55,388
Income from discontinued operations, net of taxes			26,410			—			—			—			—			—			(19,312	)		7,098
Net income		$	106,078		$	506		$	(4,543	)	$	(5,627	)	$	(305	)	$	(33,623	)	$	—		$	62,486
Net income per common share:
Basic:
	Income from continuing operations	$	1.10																				$	0.77
	Income from discontinued operations		0.37																					0.10
	Net income	$	1.47																				$	0.87
Diluted:
	Income from continuing operations	$	1.10																				$	0.76
	Income from discontinued operations		0.36																					0.10
	Net income	$	1.46																				$	0.86
Average common shares outstanding—basic			72,128																					72,128
Average common shares and potentially dilutive securities outstanding—diluted			72,721																					72,721

(1)

Certain reclassifications have been made to the previously reported amounts to conform to the current presentation.

(2)

See Note 3, "Discontinued Operations and Divestiture."

(3)

The tax provisions related to the restatement adjustments were based on the statutory rates of the jurisdictions affected.

12

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

2. Restatement of Consolidated Financial Statements (Continued)

        The following table presents the impact of the restatement adjustments on the Company's previously reported consolidated statements of comprehensive income for the three and six months ended December 31, 2006 (in thousands):

		Three Months Ended December 31, 2006						Six Months Ended December 31, 2006
		As previously reported			As restated			As previously reported			As restated
Comprehensive income:
	Net income	$	71,948		$	46,214		$	106,078		$	62,486
	Foreign currency translations adjustments		19,081			19,097			28,066			28,262
	Unrealized gains on foreign currency forward contract, net of deferred tax provision		969			969			3,522			3,522
	Unrealized (losses) gains on available-for-sale securities, net of deferred tax benefit		(3,706	)		(3,706	)		280			280
	Reclassification adjustments of losses for available for sale securities and foreign currency forward contract to income, net of tax provision		(425	)		(425	)		(844	)		(844	)
Comprehensive income		$	87,867		$	62,149		$	137,102		$	93,706

13

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

2. Restatement of Consolidated Financial Statements (Continued)

        The following table presents the impact of the restatement adjustments on the Company's previously reported consolidated statements of cash flows for the six months ended December 31, 2006 (in thousands):

			Six Months Ended December 31, 2006
			As previously reported			Restatement adjustments			As restated
Cash flow from operating activities:
	Net income		$	106,078		$	(43,592	)	$	62,486
		Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization		39,564			(114	)		39,450
		Amortization of acquisition-related intangible assets		1,668			(500	)		1,168
		Stock compensation expense		4,110			133			4,243
		Loss on sale of investments		490			—			490
		Provision for bad debt		1,988			—			1,988
		Provision for inventory write-downs		7,726			—			7,726
		Unrealized gain on derivatives		(765	)		—			(765	)
		Deferred revenue		—			9,285			9,285
		Deferred income taxes		(22,768	)		11,455			(11,313	)
		Tax benefit from options exercised		1,421			—			1,421
		Excess tax benefit from options exercised		(465	)		—			(465	)
		Change in operating assets and liabilities, net		(55,741	)		18,246			(37,495	)
Net cash provided by operating activities				83,306			(5,087	)		78,219
Cash flow from investing activities:
	Additions to property, plant and equipment			(70,380	)		83			(70,297	)
	Proceeds from sale of property, plant and equipment			54			—			54
	Sale or maturities of investments			190,475			—			190,475
	Purchase of investments			(208,746	)		—			(208,746	)
	Other, net			(3,066	)		—			(3,066	)
Net cash used in investing activities				(91,663	)		83			(91,580	)
Cash flow from financing activities:
	Proceeds short-term debt			681			4,791			5,472
	Repayments of long-term debt			(642	)		—			(642	)
	Repayments of obligations under capital lease			(144	)		—			(144	)
	Proceeds from exercise of stock options and stock participation plan			6,083			—			6,083
	Excess tax benefit from options exercised			465			—			465
	Other, net			25			267			292
Net cash provided by financing activities				6,468			5,058			11,526
	Effect of exchange rate changes on cash and cash equivalents			5,195			(54	)		5,141
	Net increase in cash and cash equivalents			3,306			—			3,306
Cash and cash equivalents, beginning of period				482,907			—			482,907
Less: Cash and cash equivalents, held for sale				(26,937	)		—			(26,937	)
Cash and cash equivalents, end of period			$	459,276		$	—		$	459,276

3. Discontinued Operations and the Divestiture

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

14

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

3. Discontinued Operations and the Divestiture (Continued)

"Divestiture"), including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and the net cash retained from the assets of the entities being sold totaling approximately $49.4 million. Since the consummation of the Divestiture and while the Company prepared its restated financial statements, a number of matters have developed, as discussed in Note 21, "Subsequent Events," that have raised uncertainties under applicable accounting standards and guidance as to the recognition of the gain on the Divestiture. Consequently, the Company has deferred recognition of the gain from continuing operations of $116.1 million. However, the Company has recognized the loss from discontinued operations of $4.3 million.

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

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

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

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

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

15

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

3. Discontinued Operations and the Divestiture (Continued)

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

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

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

        The following table presents revenue, operating loss from discontinued operations before income taxes, net of taxes for the three months and six months ended December 31, 2007 and 2006, respectively (in thousands)

	Three Months Ended December 31,					Six Months Ended December 31,
	2007		2006 As restated			2007		2006 As restated
Revenue	$	—	$	27,053		$	—	$	54,415
Operating loss before income taxes		—		(779	)		—		(1,417	)
Income tax expense		—		(727	)		—		(1,406	)
Loss from discontinued operations, net of taxes		—		(1,506	)		—		(2,823	)
Loss on Divestiture, before income taxes		—		—			—		—
Income tax benefit		—		9,921			—		9,921
Gain on Divestiture, net of taxes		—		9,921			—		9,921
Income from discontinued operations, net of taxes	$	—		8,415		$	—		7,098

16

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

4. Supplemental Cash Flow Disclosures

        Components in the change of operating assets and liabilities, net of effects of acquisitions and the Divestiture (see Note 3, "Discontinued Operations and Divestiture"), for the six months ended December 31, 2007 and 2006 were comprised of the following (in thousands):

		Six Months Ended December 31,
		2007			2006 As restated
Trade accounts receivable		$	29,418		$	(21,530	)
Inventories			35,122			(25,614	)
Prepaid expenses and other receivables			15,538			(35,954	)
Accounts payable			(35	)		13,423
Accrued salaries, wages and other commissions			2,395			(7,991	)
Deferred compensation			2,170			2,357
Accrued income taxes payable			(97,817	)		24,936
Other accrued expenses			(16,150	)		12,878
	Changes in operating assets and liabilities	$	(29,359	)	$	(37,495	)

        Supplemental disclosures of cash flow information (in thousands):

		Six Months Ended December 31,
		2007		2006
Non-cash investing activities:
	Liabilities accrued for property, plant and equipment purchases	$	2,974	$	12,701

5. Investments

        Available-for-sale securities as of December 31, 2007 are summarized as follows (in thousands):

			Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value
	Short-Term Investments:
Corporate debt			$	56,123	$	18	$	(119	)	$	(101	)	$	56,022
U.S. government and agency obligations				43,598		33		(3	)		30			43,628
		Total short-term investments	$	99,721	$	51	$	(122	)	$	(71	)	$	99,650
	Long-Term Investments:
Corporate debt			$	60,623	$	270	$	(536	)	$	(266	)	$	60,357
U.S. government and agency obligations				77,575		1,597		(3	)		1,594			79,169
Mortgage-backed securities				111,678		472		(1,136	)		(664	)		111,014
Asset-backed securities				99,380		205		(2,513	)		(2,308	)		97,072
		Total long-term investments	$	349,256	$	2,544	$	(4,188	)	$	(1,644	)	$	347,612

17

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

5. Investments (Continued)

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

			Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value
	Short-Term Investments:
Corporate debt			$	80,482	$	15	$	(215	)	$	(200	)	$	80,282
U.S. government and agency obligations				32,563		—		(11	)		(11	)		32,552
Asset-backed securities				1,070		—		(3	)		(3	)		1,067
		Total short-term investments	$	114,115	$	15	$	(229	)	$	(214	)	$	113,901
	Long-Term Investments:
Corporate debt			$	84,216	$	115	$	(372	)	$	(257	)	$	83,959
U.S. government and agency obligations				44,062		120		(242	)		(122	)		43,940
Mortgage-backed securities				111,388		80		(827	)		(747	)		110,641
Asset-backed securities				97,797		70		(412	)		(342	)		97,455
		Total long-term investments	$	337,463	$	385	$	(1,853	)	$	(1,468	)	$	335,995

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

        The Company holds as strategic investments the common and preferred stock of three publicly traded foreign companies, one of which is a closely held equity security. One of the investments is Nihon Inter Electronics Corporation ("Nihon"), a related party as further discussed in Note 20, "Related Party Transactions." The value of the Company's investments is subject to market fluctuations, which, if adverse, could have a material adverse effect on its financial position and if untimely sold due to illiquidity or otherwise at the down turn, could have a material adverse effect on its operating results. The Company accounts for these available-for-sale investments under SFAS No. 115. These stocks are traded on either the Tokyo Stock Exchange or the Taiwan Stock Exchange. Dividend income from these companies was $0.1 million and $0.1 million for the three months ended December 31, 2007 and 2006, respectively, and $0.2 million and $0.6 million for the six months ended December 31, 2007 and 2006, respectively.

        The Company also has a strategic investment in the common stock of a non-publicly traded company which is recorded at cost in other long-term assets. As of December 31, 2007 and June 30, 2007, the recorded cost basis and estimated fair value of this investment was $3.6 million. The estimate of fair value is based on best available information or other estimates determined by management. The Company did not experience any impairment in value regarding this investment since inception.

        The carrying values of the equity investments included in other long-term assets at December 31, 2007 and June 30, 2007 were $28.4 million and $48.0 million, respectively, compared to their purchase cost of $26.5 million. Unrealized loss, net of tax, for the three months ended December 31, 2007 and 2006 was $(0.5) million and $(3.7) million, respectively, and for the six months ended December 31, 2007 and 2006 was $(11.8) million and $(3.0) million, respectively, and was included in other comprehensive income. The carrying values of the Company's equity investments are subject to market

18

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

5. Investments (Continued)

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

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

        The Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of the securities; and the intent and ability of the Company to retain the security in order to allow for an anticipated recovery in fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings. During the three months and six months ended December 31, 2007, the Company recognized $0.6 million and $0.9 million, respectively, in other-than-temporary impairments relating to certain available-for-sale securities, included in other expense. There were no impairment charges on investments for the three and six months ended December 31, 2006. Subsequent to December 31, 2007, as a result of additional declines in fair values of these securities, the Company recognized an additional other-than-temporary impairment of $3.8 million in the three months ended March 31, 2008. In the fourth fiscal quarter of 2008, the Company recorded an additional $3.7 million charge for an other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair values through June 30, 2008.

        The following table summarizes the market value and gross unrealized losses related to available-for-sale investments, aggregated by type of investment and length of time that individual

19

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

5. Investments (Continued)

securities have been held. The unrealized loss position is measured and determined at each fiscal quarter (in thousands):

		Securities held for less than 12 months, in a loss position at December 31, 2007					Securities held for 12 months or more, in a loss position at December 31, 2007					Total in a loss position at December 31, 2007
		Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses
Corporate debt		$	44,169	$	(578	)	$	26,407	$	(78	)	$	70,576	$	(655	)
U.S. government and agency obligations			6,496		(5	)		—		—			6,496		(6	)
Mortgage-backed securities			34,004		(1,024	)		7,562		(112	)		41,566		(1,136	)
Asset-backed securities			43,089		(2,085	)		11,895		(428	)		54,984		(2,513	)
	Total	$	127,758	$	(3,692	)	$	45,864	$	(618	)	$	173,622	$	(4,310	)

		Securities held for less than 12 months, in a loss position at June 30, 2007					Securities held for 12 months or more, in a loss position at June 30, 2007					Total in a loss position at June 30, 2007
		Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses
Corporate debt		$	76,920	$	(354	)	$	38,287	$	(233	)	$	115,207	$	(587	)
U.S. government and agency obligations			54,023		(181	)		17,704		(72	)		71,727		(253	)
Mortgage-backed securities			55,923		(599	)		16,779		(228	)		72,702		(827	)
Asset-backed securities			46,663		(186	)		17,877		(229	)		64,540		(415	)
	Total	$	233,529	$	(1,320	)	$	90,647	$	(762	)	$	324,176	$	(2,082	)

        The amortized cost and estimated fair value of investments at December 31, 2007, by contractual maturity, are as follows (in thousands):

		Amortized Cost		Estimated Fair Value
Due in 1 year or less		$	81,821	$	81,756
Due in 1-2 years			73,832		74,672
Due in 2-5 years			122,802		123,350
Due after 5 years			170,522		167,484
	Total investments	$	448,977	$	447,262

        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.

20

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

5. Investments (Continued)

        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. Gross realized gains were $0.1 million and $0.2 million for the three and six months ended December 31, 2006, respectively, and gross realized losses were $(0.4) million and $(0.7) million for the three and six months ended December 31, 2006, respectively. The cost of marketable securities sold was determined by the weighted average cost method.

6. Inventories

        Inventories at December 31, 2007 and June 30, 2007 were comprised of the following (in thousands):

		December 31, 2007		June 30, 2007
Raw materials		$	33,689	$	31,067
Work-in-process			72,167		85,383
Finished goods			77,784		103,273
	Total inventories	$	183,640	$	219,723

7. Goodwill and Acquisition-Related Intangible Assets

        At December 31, 2007 and June 30, 2007 acquisition-related intangible assets included the following (in thousands):

		December 31, 2007							June 30, 2007
	Amortization Periods (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Acquisition-related intangible assets:
Completed technology	4 - 12	$	29,679	$	(13,641	)	$	16,038	$	29,679	$	(11,849	)	$	17,830
Customer lists	5 - 12		5,446		(3,892	)		1,554		5,446		(3,677	)		1,769
Intellectual property and other	5 - 12		7,963		(6,782	)		1,181		7,963		(6,681	)		1,282
Total acquisition-related intangible assets		$	43,088	$	(24,315	)	$	18,773	$	43,088	$	(22,207	)	$	20,881

        As of December 31, 2007, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal year 2008: $2,105; fiscal year 2009: $4,210 fiscal year 2010: $4,210, fiscal year 2011: $3,948, and fiscal year 2012: $1,595.

21

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

        The carrying amount of goodwill by business segment as of December 31, 2007 is as follows (in thousands):

		December 31, 2007		June 30, 2007
Power Management Devices		$	28,748	$	28,748
Energy-Saving Products			36,984		36,984
Aerospace and Defense			18,959		18,959
Enterprise Power			22,805		22,805
PowerStage			3,876		3,876
Intellectual Property			20,074		20,074
	Total goodwill	$	131,446	$	131,446

Subsequent Events

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

22

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

8. Bank Loans and Long-Term Debt

        The following is a summary of the Company's long-term debt and other loans at December 31, 2007 and June 30, 2007 (in thousands):

	December 31, 2007		June 30, 2007
Foreign accounts receivable financing facilities at rates from 1.625% to 1.825% and other loans	$	144	$	894
Convertible subordinated notes at 4.25 percent due in July 2007 ($550,000 principal amount, plus accumulated fair value adjustment of ($7,049) at June 30, 2007)	$	—	$	542,951
Total debt	$	144	$	543,845

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

        On July 16, 2007, the Company funded the payment in full at maturity of the Notes due on July 16, 2007. The funding included a final interest payment of $11.7 million. In connection with the final maturity and payment of the Notes, the Company recorded a debt retirement charge of $5.7 million, included in other expense during the six months ended December 31, 2007.

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

        On November 6, 2006, the Company entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including JPM, BoA, HSBC Bank USA, and Deutsche Bank AG (the "Facility"). The Facility expires in November 2011 and provides a credit line of $150.0 million with an option to increase the Facility limit to $250.0 million. Up to $75.0 million of the Facility may be used for standby letters of credit and up to $10.0 million may be used for swing-line loans. The Facility bears interest at (i) local currency rates plus (ii) a margin between 0 percent and 0.25 percent for base

23

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on the Company's senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility ranges between 0.175 and 0.25 percent of the unused portion of the total Facility, depending upon the Company's senior leverage ratio. In connection with the Facility, the Company is required to pledge as collateral shares of certain of its subsidiaries and certain of the Company's subsidiaries are required to guarantee the Facility. At December 31, 2007, the Company had no borrowings and $4.3 million in letters of credit outstanding under the Facility.

        The Facility has been amended by (together the "Facility Amendments"): an Amendment No. 1 to the Facility dated May 4, 2007, an Amendment No. 2 to the Facility dated June 27, 2007, an Amendment No. 3 to the Facility dated September 13, 2007, an Amendment No. 4, to the Facility dated December 14, 2007 and an Amendment No. 5, to the Facility dated March 17, 2008. Pursuant to the Facility Amendments, the Company's lenders under the Facility agreed that, in light of the Audit Committee Investigation, it would not be deemed in default with respect to certain representations, warranties, covenants and reporting requirements during a period ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders have no obligation to make any extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until (i) the Investigation has been concluded, (ii) the lenders have received a report of the results thereof and revised audited consolidated financial statements, reasonably satisfactory to the lenders, and (iii) no other default (as defined in the Facility) exists. As set forth in the Facility Amendments, the Company agreed to provide cash collateral for the outstanding letters of credit under the Facility and paid amendment fees to the lenders. While the Investigation has been concluded, other conditions remain.

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

        The Company intends to reinstate the Facility following the satisfaction of the necessary conditions, but there can be no assurance that it will be successful (see Part II, Item 1A, "Risk Factors–Our liquidity may be subject to the availability of a credit facility upon acceptable terms and conditions"). Although the Company is not able to access the Facility except for the renewal of outstanding letters of credit, it believes it has sufficient cash, cash equivalents, investments and cash

24

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

flows from operations to meet current foreseeable working capital and other operating cash requirements.

        At December 31, 2007, including the Japan accounts receivable financing facilities and the Facility, the Company had $220.7 million in total lines of credit, of which $4.3 million had been utilized in letters of credit.

9. Other Accrued Expenses

        Other accrued expenses at December 31, 2007 and June 30, 2007 were comprised of the following (in thousands):

		December 31, 2007		June 30, 2007
Accrued sales returns		$	37,840	$	34,561
Accrued accounting and legal costs			15,949		8,924
Deferred revenue			10,448		21,773
Accrued compensation			10,424		10,354
Transition services contract liability			6,667		6,665
Accrued sales and other taxes			3,889		6,958
Accrued Divestiture transaction costs			3,427		4,901
Due to customers			2,742		4,535
Accrued warranty			1,730		2,434
Accrued interest			76		15,749
Other			12,074		16,609
	Total other accrued expenses	$	105,266	$	133,463

Warranty

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

25

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

9. Other Accrued Expenses (Continued)

        The following table details the changes in the Company's warranty reserve for the six months ended December 31, 2007, which is included in other accrued liabilities (in thousands):

Accrued warranty, June 30, 2007	$	2,434
Accruals for warranties issued during the period		2,389
Changes in estimates related to pre-existing warranties		(1,334	)
Warranty claim settlements		(1,759	)
Accrued warranty, December 31, 2007	$	1,730

10. Other Long-Term Liabilities

        Other long-term liabilities at December 31, 2007 and June 30, 2007 were comprised of the following (in thousands):

		December 31, 2007	June 30, 2007
Divested entities tax obligations		18,578	18,578
Deferred compensation		10,788	9,645
Transition services contract liability		8,333	11,665
Other		1,553	1,985
	Total other long-term liabilities	39,252	41,873

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

11. Deferred Gain on Divestiture

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

26

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

12. Stock-Based Compensation

        The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. The following table summarizes the stock option activities for the six months ended December 31, 2007 (in thousands, except per share data):

		Shares		Weighted Average Option Exercise Price Per Share		Aggregate Intrinsic Value
Outstanding, June 30, 2007		11,754		$	40.72	$	29,921
	Granted	—			—		—
	Exercised	(15	)		12.63		—
	Expired or canceled	(1,471	)		42.27		—
Outstanding, December 31, 2007		10,268		$	40.71	$	19,104

        For the six months ended December 31, 2007 and 2006 the Company received $0.2 million and $6.1 million, respectively, for stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.1 million and $1.4 million for the six months ended December 31, 2007 and 2006, respectively.

        The following table summarizes the Restricted Stock Unit ("RSU") activities for the six months ended December 31, 2007 (in thousands, except per share data):

		Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share	Aggregate Intrinsic Value
Outstanding, June 30, 2007		9		49.14	$	337
	Granted	—		—		—
	Expired or cancelled	(1	)	49.44		—
Outstanding, December 31, 2007		8		49.23	$	290

        Additional information relating to the stock option plans, including employee stock options and RSUs, at December 31, 2007 and June 30, 2007 is as follows (in thousands):

	December 31, 2007	June 30, 2007
Options exercisable	8,937	9,855
Options available for grant	3,537	2,932
Total reserved common stock shares for stock option plans	14,018	14,695

        The Company's employee stock option plan typically provides terminated employees a period of thirty days from date of termination to exercise their vested stock options. In certain circumstances, the Company has extended that thirty-day period for a period consistent with the plan. In accordance with SFAS No. 123(R), the extension of the exercise period was deemed to be a modification of stock option terms. Additionally, certain of these modified awards have been classified as liability awards 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

27

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

12. Stock-Based Compensation (Continued)

statements of income in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the mark-to-market adjustments of the liability awards included in other accrued expenses, the Company recorded a 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 $3.2 million at December 31, 2007.

        For the three and six months ended December 31, 2007 and 2006, stock-based compensation expense associated with the Company's stock options and RSUs is as follows (in thousands):

		December 31, 2007				December 31, 2006
		Three Months Ended		Six Months Ended		Three Months Ended		Six Months Ended
Cost of sales		$	380	$	388	$	214	$	456
Selling and administrative expense			5,802		6,084		728		2,057
Research and development expense			1,230		1,378		1,052		1,730
	Total stock-based compensation expense	$	7,412	$	7,850	$	1,994	$	4,243

        The total unrecognized compensation expense for outstanding stock options and RSUs was $13.5 million as of December 31, 2007, and will be recognized, in general, over three years. The weighted average number of years to recognize the compensation expense is 1.3 years.

        The fair value of the options associated with the above compensation expense for the three and six months ended December 31, 2007 and 2006, was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Six Months Ended December 31, 2007	Six Months Ended December 31, 2006
Expected life	N/A	3.5 years
Risk free interest rate	N/A	4.7	%
Volatility	N/A	44.0	%
Dividend yield	N/A	0.0	%

13. Asset Impairment, Restructuring and Other Charges

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

28

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

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

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

•

The December 2002 initiative; and



•

The PCS Divestiture initiative.

        The following table summarizes restructuring and related charges incurred during the three and six months ended December 31, 2007 and 2006 and recorded in asset impairment, restructuring and other charges as well as the portion of those costs attributable to discontinued operations (in thousands):

		Three Months Ended December 31,					Six Months Ended December 31,
		2007		2006 As restated			2007		2006 As restated
Reported in cost of sales		$	—	$	275		$	—	$	541
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—		$	—	$	—
	Severance		7		206			7		2,162
	Other charges		—		54			35		749
Subtotal			7		260			42		2,911
Discontinued operations (1)			—		(54	)		—		(744	)
Total asset impairment, restructuring and other charges		$	7	$	206		$	42	$	2,167

(1)

Amounts that have been reclassified to discontinued operations represent costs relating to the former NAP segment.

The December 2002 Initiative

        In December 2002, the Company announced a restructuring initiative to better reposition itself for market conditions at the time and de-emphasize its commodity business. The restructuring plans included consolidating and closing certain manufacturing sites in designated facilities, and discontinuing production in other facilities that could not support more advanced technology platforms or products.

29

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

In addition, the Company sought to implement initiatives to lower overhead costs across its support organizations. As of December 31, 2006, these restructuring activities were substantially completed. The following illustrates the charges the Company recorded in the three and six months ended December 31, 2007 and 2006 related to its December 2002 restructuring initiative (in thousands):

		Three Months Ended December 31,				Six Months Ended December 31,
		2007		2006 As restated		2007		2006 As restated
Reported in cost of sales		$	—	$	275	$	—	$	541
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—	$	—	$	—
	Severance		—		19		—		111
	Other charges		—		71		—		681
Total asset impairment, restructuring and other charges		$	—	$	90	$	—	$	792

        Charges recorded as an element of cost of sales in the three and six months ended December 31, 2006 represent the costs of the closure of the Company's assembly line in Krefeld, Germany and the move of these manufacturing activities to its facility in Swansea, Wales. The principal elements of those costs related to startup and transition costs, including:

•

Manufacturing inefficiencies and cost overruns during the transition period;



•

Expedited inbound and outbound air shipping charges during the transition period; and



•

Training and transition expenses for the Swansea workforce.

        Other charges reflect the costs to relocate equipment related to the consolidation and closing of certain of the Company's manufacturing sites and to discontinue production at designated facilities. Other costs of $0.7 million in the six months ended December 31, 2006 were principally incurred in connection with the relocation of operations from the Company's Krefeld facility to its Swansea facility.

The PCS Divestiture Initiative

        During the fiscal year 2007, in connection with the Divestiture, the Company terminated approximately 100 former PCS employees. The Company also terminated other operating and support personnel to streamline the organization in connection with the Divestiture. Severance charges for these terminated employees were $0.2 million and $2.1 million for the three and six months ended December 31, 2006, respectively.

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

30

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

        The following illustrates the charges the Company recorded in the three and six months ended December 31, 2007 and 2006 related to its PCS restructuring initiative (in thousands):

		Three Months Ended December 31,				Six Months Ended December 31,
		2007		2006 As restated		2007		2006 As restated
Reported in cost of sales		$	—	$	—	$	—	$	—
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—	$	—	$	—
	Severance		7		187		7		2,051
	Other charges		—		106		35		122
Total asset impairment, restructuring and other charges		$	7	$	293	$	42	$	2,173

Other Activities and Charges

        From time to time, the Company also undertakes and executes other smaller scale restructuring initiatives at its local sites. Credits of $0.1 million for the three and six months ended December 31, 2006 represent downward changes in estimates related to plant termination and relocation costs incurred at its El Segundo, California location. The following illustrates the credits the Company recorded in the three and six months ended December 31, 2007 and 2006 related to its other activities and charges (in thousands):

		Three Months Ended December 31,					Six Months Ended December 31,
		2007		2006 As restated			2007		2006 As restated
Reported in cost of sales		$	—	$	—		$	—	$	—
Reported in asset impairment, restructuring and other credits
	Asset impairment	$	—	$	—		$	—	$	—
	Severance		—		—			—		—
	Other credits		—		(123	)		—		(54	)
Total asset impairment, restructuring and other credits		$	—	$	(123	)	$	—	$	(54	)

Research and Development Facility Closure Initiative

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

31

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

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

        The following table summarizes the Company's severance accrual for the six months ended December 31, 2007:

	December 31, 2007
Accrued severance, June 30, 2007	$	826
Charged to asset impairment, restructuring and other charges		7
Charged to operating expenses		4,959
Costs paid		(5,808	)
Foreign exchange losses		16
Accrued severance, December 31, 2007	$	—

14. Segment Information

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

•

The PMD segment consists of the Company's discrete power MOSFETs, excluding DirectFET® and IGBTs. These products are multi-market in nature and therefore add value across a wide-range of applications and markets. PMD targets power supply, automotive, notebook and industrial and commercial battery powered applications.



•

The Energy-Saving Products ("ESP") segment includes the Company's high-voltage analog and mixed signal ICs, digital control ICs, intelligent power switch ICs, micro-electronic relay ICs, motion control modules, high voltage DirectFET® and IGBTs. ESP targets solutions in variable-speed motion controls for washing machines, refrigerators, air conditioners, fans, pumps and compressors; advanced lighting products such as fluorescent lamps, high intensity discharge lamps, cold cathode fluorescent tubes and light emitting diodes; advanced automotive solutions such as diesel injection and electric-gasoline hybrids; and consumer applications such as plasma televisions, LCD TV and class D audio systems. These products provide multiple technologies to deliver completely integrated design platforms specific to these customers.



•

The Aerospace and Defense ("A&D") segment includes the Company's RAD-Hard™ power management modules, RAD-Hard™ power MOSFETs, RAD-Hard™ ICs, and other high-reliability power components that address power management requirements in satellites, launch vehicles, aircraft, ships, submarines and other defense and high-reliability applications. A&D's strategy is to apply multiple technologies to deliver highly efficient power delivery in applications that operate in harsh environments such as space, underwater and underground, and certain medical applications.



•

The Enterprise Power ("EP") segment includes the Company's low-voltage ICs (including XPhase® and SupIRBuck™), DirectFET™ Power MOSFETs. Products within the EP segment are focused on data center applications (servers, storage, routers and switches), and communication infrastructure equipment end markets. Generally, these products contain multiple differentiated technologies and are targeted to be combined as system solutions to the Company's customers for their next generation applications that require a higher level of performance and technical service.

32

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

14. Segment Information (Continued)

•

The PS segment is solely composed of the Company's iPOWIR® product, which is an optimized and versatile functional component that combines multiple power semiconductors, ICs and passive elements into a single thermally enhanced package. PS targets computers, switchers and routers, servers and game stations.



•

The IP segment includes revenues from the sale of the Company's technologies and manufacturing process know-how, in addition to the operating results of the Company's patent licensing and settlements of claims brought against third parties. IP segment revenue is dependent on the unexpired portion of the Company's licensed MOSFET patents. Some of the Company's power MOSFET patents have expired in calendar year 2007 and the broadest expire in calendar 2008. Certain of the licensed MOSFET patents remain in effect through 2010. However, with the expiration of the Company's broadest MOSFET patents, most of its IP segment revenue has ceased during the fourth quarter of fiscal year 2008. The strategy within IP is to concentrate on creating and using the Company's intellectual property primarily for the design and development of new value-added products, with opportunistic licensing where the Company believes it is consistent with its business.



•

The Transition Services ("TS") segment consists of the operating results of the transition services, including wafer fabrication, assembly, product supply, test and other manufacturing-related support services being supplied to Vishay as part of the Divestiture. The TS segment targets to substantially complete the transition services within three years following the consummation of the Divestiture.



•

The CP segment is comprised primarily of older-generation power components that have widespread use throughout the power management industry, but are typically commodity in nature. The Company sold the business reported within CP to Vishay as part of the Divestiture on April 1, 2007. The CP segment is reportable only in the prior fiscal period for this report.

        The Company does not allocate assets, sales and marketing, information systems, finance and administrative costs and asset impairment, restructuring and other charges to the operating segments, as these are not meaningful statistics to its Chief Operating Decision Maker ("CODM") in making resource allocation decisions or in evaluating performance of the operating segments.

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

33

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

14. Segment Information (Continued)

        For the three and six months ended December 31, 2007 and 2006, revenue and gross margin by reportable segments are as follows (in thousands, except percentages):

		Three months ended December 31, 2007						Three months ended December 31, 2006 As restated
Business Segment		Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Power Management Devices		$	97,241	37.0	%	15.9	%	$	102,773	29.7	%	31.4	%
Energy-Saving Products			53,899	20.5		47.3			65,998	19.1		52.0
Aerospace and Defense			41,599	15.8		56.3			38,999	11.3		49.6
Enterprise Power			25,657	9.8		42.9			23,881	6.9		52.0
PowerStage			18,988	7.2		35.3			50,239	14.5		37.5
Intellectual Property			9,805	3.7		100.0			10,619	3.1		100.0
	Ongoing Segments Total		247,189	94.1		37.2			292,509	84.6		43.7
Transition Services			15,547	5.9		0.7			—	—
Commodity Products			—	0.0		0.0			53,122	15.4		15.4
Consolidated Total		$	262,736	100.0	%	35.0	%	$	345,631	100.0	%	39.4	%

		Six months ended December 31, 2007						Six months ended December 31, 2006 As restated
Business Segment		Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Power Management Devices		$	203,666	38.5	%	23.1	%	$	194,806	30.7	%	33.1	%
Energy-Saving Products			94,403	17.8		42.6			121,986	19.2		52.5
Aerospace and Defense			78,107	14.8		53.9			77,354	12.2		50.0
Enterprise Power			53,926	10.2		46.9			44,362	7.0		52.5
PowerStage			47,705	9.0		32.5			64,194	10.1		38.9
Intellectual Property			19,098	3.6		100.0			21,628	3.4		100.0
	Ongoing Segments Total		496,905	93.9		38.1			524,330	82.7		45.2
Transition Services			32,025	6.1		0.7			—	—
Commodity Products			—	—		—			110,001	17.3		18.7
Consolidated Total		$	528,930	100.0	%	35.8	%	$	634,331	100.0	%	40.6	%

        No single customer accounted for more than ten percent of the Company's consolidated revenue for the three and six months ended December 31, 2007 and 2006.

15. Income Taxes

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

34

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

15. Income Taxes (Continued)

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

        As of December 31, 2007, the liability for income tax associated with uncertain tax positions was $60.0 million. If recognized, the liabilities associated with uncertain tax positions would result in a benefit to income taxes on the Consolidated Statement of Income of $58.3 million which would reduce the Company's future effective tax rate. The change in the uncertain tax positions from the date of adoption is the result of filing qualified amended returns in the U.S. Federal tax jurisdiction for fiscal years 2004 to 2006 and the payment of additional tax of $44.3 million with the returns, partially offset by the accrual of reserves in certain jurisdictions.

        The Company's continuing practice is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2007, the Company had accrued $29.1 million, of interest and penalties related to uncertain tax positions. The change in the interest and penalties from the date of adoption is the result of filing amended returns in the U.S. federal tax jurisdiction for fiscal years 2004 to 2006 which is comprised of the payment of interest of approximately $4.2 million and the reversal of reserves of approximately $13.7 million of penalties and related interest which were partially offset by the accrual of additional interest and penalties. The Company has determined that in fiscal year 2009 it will file amended U.S. federal income tax returns and consequently will pay approximately $14.2 million dollars in taxes and $13.2 million in related interest and penalties to the Internal Revenue Service in connection with uncertain tax positions recorded for fiscal years 2001 through 2003.

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

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

        While it is often difficult to predict the final outcome or the timing of resolution of any particular uncertain tax position, the Company believes reserves for income taxes represent the most probable outcome. The Company adjusts these reserves, including those for the related interest, in light of changing facts and circumstance.

35

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

15. Income Taxes (Continued)

        The Company's effective tax rate related to continuing operations was 190.6 percent and 30 percent for the three months ended December 31, 2007 and 2006 respectively, and (190.9) percent and 38.7 percent for the six months ended December 31, 2007 and 2006, respectively. For the three month period ended December 31, 2007, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) the benefit of foreign tax credits and R&D credits, (b) the benefit of lower statutory rates in certain foreign jurisdictions, partially offset by (x) non deferral of income from certain jurisdictions, and (y) an increase in reserves from uncertain tax positions. For the six month period ended December 31, 2007, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) the reversal of a reserve for potential interest and penalties thereon as a result of the Company filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (b) the benefit of foreign tax credits and R&D credits, and (c) lower statutory rates in certain foreign jurisdictions, partially offset by (x) a decrease in U.K. deferred tax assets due to the reduction in tax rate from 30% to 28%, (y) an increase in reserves for non U.S. uncertain tax positions and (z) an increase in state valuation allowance. For the three month period ended December 31, 2006, the Company's effective tax rate was lower than the U.S. federal statutory rates of 35 percent resulting from (a) the release of a valuation allowance, (b) export tax incentives, and (c) the benefit of foreign tax credits and R&D credits, partially offset by (w) actual and deemed distributions from certain foreign jurisdictions, (x) transfer pricing, (y) increase in reserves for non U.S. uncertain tax positions, and (z) state taxes. For the six month period ended December 31, 2006, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) actual and deemed distributions from certain foreign jurisdictions, (b) transfer pricing, (c) increase in reserves for non U.S. uncertain tax positions, and (d) state taxes, partially offset by (x) the release of a valuation allowance, (y) export tax incentives, and (z) the benefit of foreign tax credits and R&D credits. For the six months ended December 31, 2006, the Company recognized $2.9 million of retroactive R&D tax benefit for the January 2006 to September 2006 period, as a result of Congress reinstating the R&D tax credit retroactive to the beginning of January 2006.

        Due to errors in our transfer pricing related to intercompany transactions, the Company has filed amended income tax returns in Singapore for fiscal years 2004 through 2006 claiming tax refund and sought to assert a claim for tax refunds for fiscal years 2001 and 2003. The benefit of these claims has not been recognized in the Company's restated financial statements because the likelihood that the Singapore tax authority will refund these amounts is not probable. Consequently, the Company has recorded both U.S. federal income tax and Singapore income tax with respect to certain intercompany transactions in these fiscal years.

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

        The Company filed in fiscal year 2008 Forms 3115 to correct certain tax accounting methods with respect to fiscal years ended June 30, 2001 to June 30, 2006. As a consequence of filing the

36

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

15. Income Taxes (Continued)

Forms 3115, the Company reversed, throughout fiscal year 2008, approximately $1.2 million of accrued penalties and related interest for the fiscal years ended June 30, 2001 through June 30, 2006.

16. Net Income per Common Share

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

        The following table provides a reconciliation of the numerator and denominator of the basic and diluted per-share computations for three and six months ended December 31, 2007 and 2006 (in thousands, except per share amounts):

		Three Months Ended December 31, 2007
		Income (Numerator)		Shares (Denominator)	Per Share Amount
Three months ended December 31, 2007:
Net income per common share—basic:
	Income from continuing operations	$	313	72,814	$	0.00
	Income from discontinued operations		—	72,814		—
	Net income	$	313	72,814	$	0.00
Effect of dilutive securities:
Stock options and restricted stock units:
	Income from continuing operations	$	—	337	$	—
	Income from discontinued operations		—	337		—
	Net income	$	—	337	$	—
Net income per common share—diluted:
	Income from continuing operations	$	313	73,151	$	0.00
	Income from discontinued operations		—	73,151		—
	Net loss	$	313	73,151	$	0.00

37

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

16. Net Income per Common Share (Continued)

		Three Months Ended December 31, 2006 As restated
		Income (Numerator)		Shares (Denominator)	Per Share Amount
Net income per common share—basic:
	Income from continuing operations	$	37,799	72,204	$	0.52
	Income from discontinued operations		8,415	72,204		0.12
	Net income	$	46,214	72,204	$	0.64
Effect of dilutive securities:
Stock options and restricted stock units:
	Income from continuing operations	$	—	650	$	—
	Income from discontinued operations		—	650		(0.01	)
	Net income	$	—	650	$	(0.01	)
Net income per common share—diluted:
	Income from continuing operations	$	37,799	72,854	$	0.52
	Income from discontinued operations		8,415	72,854		0.11
	Net income	$	46,214	72,854	$	0.63

		Six Months Ended December 31, 2007
		Income (Numerator)		Shares (Denominator)	Per Share Amount
Net income per common share—basic:
	Income from continuing operations	$	10,726	72,813	$	0.15
	Income from discontinued operations		—	72,813		—
	Net income	$	10,726	72,813	$	0.15
Effect of dilutive securities:
Stock options and restricted stock units:
	Income from continuing operations	$	—	359	$	—
	Income from discontinued operations		—	359		—
	Net income	$	—	359	$	—
Net income per common share—diluted:
	Income from continuing operations	$	10,726	73,172	$	0.15
	Income from discontinued operations		—	73,172		—
	Net income	$	10,726	73,172	$	0.15

38

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

16. Net Income per Common Share (Continued)

		Six Months Ended December 31, 2006 As restated
		Income (Numerator)		Shares (Denominator)	Per Share Amount
Net income per common share—basic:
	Income from continuing operations	$	55,388	72,128	$	0.77
	Income from discontinued operations		7,098	72,128		0.10
	Net income	$	62,486	72,128	$	0.87
Effect of dilutive securities:
Stock options and restricted stock units:
	Income from continuing operations	$	—	593	$	(0.01	)
	Income from discontinued operations		—	593		—
	Net income	$	—	593	$	(0.01	)
Net income per common share—diluted:
	Income from continuing operations	$	55,388	72,721	$	0.76
	Income from discontinued operations		7,098	72,721		0.10
	Net income	$	62,486	72,721	$	0.86

        The conversion effect of the Company's outstanding Notes into 7,439,000 shares of common stock was not included in the computation of diluted income from continuing operations per share for the three and six months ended December 31, 2007 and 2006 because the effect of inclusion is anti-dilutive.

17. Environmental Matters

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

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

        As part of the environmental review process, the Company provided certain disclosures of potential permit violations and other matters to local environmental authorities with respect to its

39

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

17. Environmental Matters (Continued)

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

        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.

        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 in Angeles 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,

40

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

17. Environmental Matters (Continued)

California. Numerous parties, including the Company, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that contaminants from the Omega Site migrated in groundwater from the Omega Site to the Angeles Facility, thereby causing damage to the Angeles Facility. In addition, they claim that the EPA considers them to be responsible for the groundwater plume near the Angeles Facility which Plaintiffs contend was caused by disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA, nuisance and trespass and also seek declaratory relief. Plaintiffs seek to require the defendants to investigate and cleanup the contamination and to recover damages. The Company previously entered into a settlement with other parties associated with the Omega Site pursuant to which the Company paid those entities money in exchange for an agreement to defend and indemnify the Company with regard to certain environmental claims (the "Omega Indemnification"). In that agreement, it was estimated that the Company's volumetric share of wastes sent to the Omega Site was in the range of 0.08%. The Company believes that much, if not all of the risks associated with the Angeles Case should be covered by the Omega Indemnification. In addition, the Company has tendered the complaint to several of its insurance carriers who have agreed to defend under a reservation of rights. Therefore, the Company does not expect its out-of-pocket defense costs to be significant. In addition, in light of the Omega Indemnification, the potential for insurance coverage, and the fact that its volumetric share of Omega Site wastes was less than 0.1%, the Company does not believe that an adverse judgment against the Company would be material.

18. Litigation

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

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

        The Company filed a motion to dismiss these claims on March 6, 2008, on the grounds that Co-Plaintiffs failed to plead scienter as to the Company; failed to plead loss causation as to certain of

41

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

18. Litigation (Continued)

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

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

        IXYS Litigation.    On June 22, 2000, the Company filed International 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 the Company $6.2 million in damages through September 30, 2005. On September 14, 2006, the District Court entered the final judgment and permanent injunction based on the jury verdict. IXYS again appealed (with a notice of appeal filed after the deadline for doing so). The Federal Circuit lifted its temporary stay, and the permanent injunction was in effect until it terminated with the expiration of the '699 patent in September 2007. The matter was argued to the Federal Circuit on January 7, 2008. In an opinion issued February 11, 2008, the Federal Circuit ruled against the Company and reversed the judgment. The proceedings are now at an end, subject only to the possibility that the Supreme Court will review the case on writ of certiorari. The Company filed a petition for such a writ in July 2008.

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

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

42

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

19. Commitments and Contingencies

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

20. Related Party Transactions

        As discussed in Note 5, "Investments" the Company holds as a strategic investment common stock of Nihon, a related party. During the fiscal year ended June 30, 2006, the Company sold 2.6 million shares in Nihon for net proceeds of $19.1 million and recognized $13.6 million of pretax gains recorded in other income. At December 31, 2007, the Company owned approximately 9.2 percent of the outstanding shares of Nihon. As previously reported, the Company's former CFO was the Chairman of the Board and a director of Nihon until June 28, 2005. In addition, the former general manager of the Company's Japan subsidiary was a director of Nihon until about October 2007 and another member of the Company's Japan subsidiary was a director from June 28, 2005 through June 30, 2008.

        During the fiscal quarters ended December 31, 2007 and 2006, the Company recorded royalties of approximately $0.02 million and $0.4 million and revenues of approximately $0.1 million and $0.3 million from Nihon, respectively.

21. Subsequent Events

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

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

        Vishay has also advised the Company of certain other potential claims, including, but not limited to, certain product quality claims related to PCS 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 the Company's former manufacturing plant in Borgaro, Italy. The Company is currently in the process of assessing these claims and obtaining documentation to verify any potential liabilities to the Company. It believes that these claims will not have a material adverse

43

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

21. Subsequent Events (Continued)

effect on the Company's business or prospects, and it intends to vigorously defend its rights and position.

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

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

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

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

44

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2007

21. Subsequent Events (Continued)

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

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

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

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

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

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

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

Results of Operations

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

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

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

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

46

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

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

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

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

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

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        The following table sets forth certain operating results for the three and six month periods ended December 31, 2007 and 2006 as a percentage of revenues (in millions except percentages):

		Three Months Ended December 31,										Six Months Ended December 31,
		2007					2006 As restated					2007					2006 As restated
Revenues		$	262.7		100.0	%	$	345.6		100.0	%	$	528.9		100.0	%	$	634.3		100.0	%
Cost of sales			170.6		65.0			209.5		60.6			339.5		64.2			376.8		59.4
Gross profit			92.1		35.0			136.1		39.4			189.4		35.8			257.5		40.6
Selling and administrative expense			69.8		26.5			53.2		15.4			136.6		25.8			110.0		17.3
Research and development expense			28.8		11.0			31.8		9.2			56.7		10.7			60.4		9.6
Amortization of acquisition-related intangible assets			0.4		0.1			0.4		0.1			0.7		0.1			0.8		0.1
Asset impairment, restructuring and other charges			—		—			0.2		0.1			—		—			2.2		0.3
	Operating (loss) income		(6.9	)	(2.6	)		50.5		14.6			(4.6	)	(0.8	)		84.1		13.3
Other expense (income), net			1.3		0.5			(1.7	)	(0.5	)		7.4		1.4			(1.8	)	(0.3	)
Interest income, net			(7.8	)	(3.0	)		(1.8	)	(0.5	)		(15.7	)	(3.0	)		(4.4	)	(0.7	)
(Loss) income from continuing operations, before income taxes			(0.4	)	(0.1	)		54.0		15.6			3.7		0.8			90.3		14.3
(Benefit from) provision for income taxes			(0.7	)	(0.1	)		16.2		4.7			(7.0	)	(1.2	)		34.9		5.6
Income from continuing operations			0.3		0.0			37.8		10.9			10.7		2.0			55.4		8.7
Income from discontinued operations, net of taxes			—		—			8.4		2.5			—		—			7.1		1.1
Net income		$	0.3		0.0	%	$	46.2		13.4	%	$	10.7		2.0	%	$	62.5		9.9	%

Overview of Results of Operations for the Three Months Ended December 31, 2007 compared with the Three Months Ended December 31, 2006.

Revenue and Gross Margin

        Ongoing segment revenue, which excludes the TS segment, for the three and six months ended December 31, 2007 was $247.2 million and $496.9 million, respectively, compared to $292.5 million and $524.3 million in the comparable prior three and six months ended December 31, 2006, respectively. During this period, revenues decreased by 15.5 percent and 5.2 percent for the three and six months ended December 31, 2007, respectively, compared to the three and six months ended December 31, 2006, respectively. Sales declined in most of our segments in this quarterly comparison, although year to date, we saw continued strength in data center related products including enterprise servers and workstations in the EP segment as well as an increase in IP revenue. Other segments continued to experience an overall reduction in demand as a result of decreased consumer spending, a downturn in the housing market and higher distributor channel inventories.

        Ongoing gross margin declined to 37.2 percent and 38.1 percent the three and six months ended December 31, 2007, respectively, compared to 43.7 percent and 45.2 percent three and six months ending December 31, 2006, respectively. Our gross margin was negatively impacted by increased production costs primarily due to under utilization of capacity, and a decline in average selling price in several segments detailed below. Additionally, for the quarter and year-to-date periods, the Divestiture resulted in a lower base of revenue over which to absorb indirect manufacturing costs, and we did not complete a commensurate reduction in these costs.

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

		Three months ended December 31, 2007						Three months ended December 31, 2006 As restated
Business Segment		Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Power Management Devices		$	97,241	37.0	%	15.9	%	$	102,773	29.7	%	31.4	%
Energy-Saving Products			53,899	20.5		47.3			65,998	19.1		52.0
Aerospace and Defense			41,599	15.8		56.3			38,999	11.3		49.6
Enterprise Power			25,657	9.8		42.9			23,881	6.9		52.0
PowerStage			18,988	7.2		35.3			50,239	14.5		37.5
Intellectual Property			9,805	3.7		100.0			10,619	3.1		100.0
	Ongoing Segments Total		247,189	94.1		37.2			292,509	84.6		43.7
Transition Services			15,547	5.9		0.7			—	—		—
Commodity Products			—	—		—			53,122	15.4		15.4
Consolidated Total		$	262,736	100.0	%	35.0	%	$	345,631	100.0	%	39.4	%

		Six months ended December 31, 2007						Six months ended December 31, 2006 As restated
Business Segment		Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Power Management Devices		$	203,666	38.5	%	23.1	%	$	194,806	30.7	%	33.1	%
Energy-Saving Products			94,403	17.8		42.6			121,986	19.2		52.5
Aerospace and Defense			78,107	14.8		53.9			77,354	12.2		50.0
Enterprise Power			53,926	10.2		46.9			44,362	7.0		52.5
PowerStage			47,705	9.0		32.5			64,194	10.1		38.9
Intellectual Property			19,098	3.6		100.0			21,628	3.4		100.0
	Ongoing Segments Total		496,905	93.9		38.1			524,330	82.7		45.2
Transition Services			32,025	6.1		0.7			—	—		—
Commodity Products			—	—		—			110,001	17.3		18.7
Consolidated Total		$	528,930	100.0	%	35.8	%	$	634,331	100.0	%	40.6	%

        PMD revenue for the three months ended December 31, 2007 decreased by 5.4 percent from the three months ended December 31, 2006. PMD segment revenue for the six months ended December 31, 2007 increased by 4.5 percent from the six months ended December 31, 2006. This year-to-date revenue increase shows first quarter fiscal 2008 improvement in commodity package demand partially offset by some overall market decline in second quarter fiscal 2008. Gross margin for the PMD segment declined to 15.9 percent and 23.1 percent for the three and six months ended December 31, 2007, respectively, from 31.4 percent and 33.1 percent for the three and six months ended December 31, 2006, respectively. This decline in gross margin is primarily due to a decline in average selling price and a year-to-date increase in production costs primarily due to under utilization of capacity as we reduced our inventory.

        ESP revenue for the three months ended December 31, 2007 decreased by 18.3 percent compared to the three months ended December 31, 2006. ESP revenue for the six months ended December 31, 2007, decreased by 22.6 percent compared to the six months ended December 31, 2006. The ESP revenue decrease reflects a decline in general purpose high voltage integrated circuits ("ICs") due to a reduction of inventory levels at distributors and general softening market demand. However, revenue and volume increased from first quarter fiscal 2008. Gross margin for ESP was 47.3 percent and

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52.0 percent for the three months ended December 31, 2007 and December 31, 2006, respectively, and 42.6 percent and 52.5 percent for the six months ended December 31, 2007 and December 31, 2006, respectively. This gross margin decline, both quarterly and year-to-date, was primarily due to a decline in average selling price as well as low production utilization which increased production cost.

        A&D revenue for the three months ended December 31, 2007 increased by 6.7 percent from the three months ended December 31, 2006. Revenue for the six months ended December 31, 2007 increased by 1.0 percent from the six months ended December 31, 2006. The A&D year-to-date slight revenue increase primarily reflects a ramp-up in new medical and communications customer programs. Gross margin for the A&D segment increased to 56.3 percent for the three months ended December 31, 2007, from 49.6 percent in the three months ended December 31, 2006, and to 53.9 percent for the six months ended December 31, 2007, from 50.0 percent for the six months ended December 31, 2006. A significant contributor to gross margin increase was the ramp-up of a new medical applications program as well as manufacturing and design efficiencies.

        EP revenue for the three months ended December 31, 2007 increased by 7.4 percent from the three months ended December 31, 2006. Revenue for the six months ended December 31, 2007 increased by 21.6 percent from the six months ended December 31, 2006. The EP revenue increased primarily due to continued strength in data center related products including enterprise servers and workstations in the EP segment. Gross margin for the EP segment decreased to 42.9 percent for the three months ended December 31, 2007, from 52.0 percent in the three months ended December 31, 2006, and to 46.9 percent for the six months ended December 31, 2007, from 52.5 percent for the six months ended December 31, 2006. The gross margin decrease, both quarterly and year-to-date, reflected higher costs from reduced factory utilization as we reduced our inventory levels during the first half of fiscal 2008.

        PS revenue for the three months ended December 31, 2007, decreased by 62.2 percent from the three months ended December 31, 2006. Revenue for the six months ended December 31, 2007, decreased by 25.7 percent from the six months ended December 31, 2006. The PS quarterly and year-to-date revenue decreased due to a drop in demand for game station products. Gross margin for the PS segment decreased to 35.3 percent for the three months ended December 31, 2007, from 37.5 percent in the three months ended December 31, 2006, and to 32.5 percent for the six months ended December 31, 2007, from 38.9 percent for the six months ended December 31, 2006. The quarter and year-to-date gross margin decline were due to newly introduced game station parts with lower selling prices which could not be entirely offset by reduced manufacturing costs.

        IP revenue was $9.8 million for the three months ended December 31, 2007 compared to $10.6 million for the prior three months ended December 31, 2006. IP revenue was $19.1 million for the six months ended December 31, 2007 compared to $21.6 million for the prior six months ended December 31, 2006. We expect that with the expiration of our broadest MOSFET patents in 2008, most of our IP segment revenue ceased by the fiscal fourth quarter of 2008, and our gross profit will be adversely impacted accordingly.

        TS revenue of $15.5 million and $32.0 million consisted of the new manufacturing related services provided to Vishay during the three and six month periods ended December 31, 2007. As part of the PCS sale agreements, we supply manufacturing services to Vishay at our cost. TS revenue is expected to continue for up to three years from the date of the Divestiture, which was April 1, 2007.

        The CP segment is comprised primarily of older-generation power components that have widespread use throughout the power management industry, but are typically commodity in nature. Reflecting the discontinuation of the CP business upon its sale to Vishay, there was no CP revenue for the three and six months ended December 31, 2007 compared to $53.1 million and $110.0 million for the three and six months ended December 31, 2006, respectively.

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

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

Selling and Administrative Expense

        Selling and administrative expense was $69.8 million (26.5 percent of revenue) and $53.2 million (15.4 percent of revenue) for the three months ended December 31, 2007 and December 31, 2006, respectively, and $136.6 million (25.8 percent of revenue) and $110.0 million (17.3 percent of revenue) for the six months ended December 31, 2007 and December 31, 2006, respectively. Three and six months ended December 31, 2007 selling and administrative expense included $24.9 million and $39.7 million of Investigation and restatement related expenses, respectively. These costs include legal, audit and consulting costs associated with the Investigation, reconstruction of the financial results at our Japan subsidiary, and restatement of multiple periods of consolidated financial statements. The costs will continue through the fourth quarter of fiscal year 2008 and will total more than $100 million through the completion of the restatement.

        Excluding costs associated with the Audit Committee-led Investigation, selling and administrative expense decreased for the three and six months ended December 31, 2007 primarily due to cost reductions following the Divestiture. This reduction was partially offset by an increase in stock option compensation charges for the three and six months ended December 31, 2007 by $5.1 million and $4.0 million, respectively.

Research and Development Expense

        Research and development ("R&D") expense was $28.8 million and $31.8 million (11.0 percent and 9.2 percent of revenues) for the three months ended December 31, 2007 and 2006, respectively, and $56.7 million (10.7 percent of revenue) and $60.4 million (9.6 percent of revenue) for the six months ended December 31, 2007 and 2006, respectively. We continue to concentrate our R&D activities on developing new platform technologies, as well as our power management ICs and the advancement and diversification of our HEXFET®, power MOSFET™ and insulated gate bipolar transistor product lines. We have been developing and introducing some of the most advanced power management products and new architectures for the next generation of applications, including new game stations, industrial electronic motors, digital televisions, high-performance servers, hybrid vehicles and energy-efficient appliances.

Stock Option Plan Modifications

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

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awards included in other accrued expenses, we recorded 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 two cost reduction programs that we have initiated. These programs and initiatives include the closing of facilities, the relocation of equipment and employees, the termination of employees and other related activities. The following table reflects the charges we recorded in the three and six months ended December 31, 2007 and 2006 related to our restructuring initiatives (in thousands):

		Three Months Ended December 31,					Six Months Ended December 31,
		2007		2006 As restated			2007		2006 As restated
Reported in cost of sales		$	—	$	275		$	—	$	541
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—		$	—	$	—
	Severance		7		206			7		2,162
	Other charges		—		54			35		749
Subtotal			7		260			42		2,911
Discontinued Operations			—		(54	)		—		(744	)
Total asset impairment, restructuring and other charges		$	7	$	206		$	42	$	2,167

The December 2002 Initiative

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

		Three Months Ended December 31,				Six Months Ended December 31,
		2007		2006 As restated		2007		2006 As restated
Reported in cost of sales		$	—	$	275	$	—	$	541
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—	$	—	$	—
	Severance		—		19		—		111
	Other charges		—		71		—		681
Total asset impairment, restructuring and other charges		$	—	$	90	$	—	$	792

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        Charges recorded as an element of cost of sales in the three and six months ended December 31, 2007 represent the costs from the closure of our assembly line in Krefeld, Germany and the move of these manufacturing activities to our facility in Swansea, Wales. The principal elements of those costs related to start up and transition costs, including:

•

Manufacturing inefficiencies and cost overruns during the transition period;



•

Expedited inbound and outbound air shipping charges during the transition period; and



•

Training and transition expenses for the Swansea workforce.

        Other charges of $0.7 million reported in the six months ended December 31, 2006 represent various plant and facility closure costs for the Krefeld facility.

The 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. Severance charges for these terminated employees were $0.2 million and $2.1 million for the three and six months ended December 31, 2006, respectively.

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

        The following illustrates the charges we recorded in the three and six months ended December 31, 2007 and 2006 related to our PCS restructuring initiative (in thousands):

		Three Months Ended December 31,				Six Months Ended December 31,
		2007		2006 As restated		2007		2006 As restated
Reported in cost of sales		$	—	$	—	$	—	$	—
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—	$	—	$	—
	Severance		7		187		7		2,051
	Other charges		—		106		35		122
Total asset impairment, restructuring and other charges		$	7	$	293	$	42	$	2,173

Other Activities and Charges

        From time to time, we also undertake and execute other smaller scale restructuring initiatives at our local sites. Credits of $0.1 million for the three and six months ended December 31, 2006 represent downward changes in estimates related to plant termination and relocation costs incurred at out

53

El Segundo, California location. The following illustrates the credits we recorded in the three and six months ended December 31, 2007 and 2006 related to its other activities and credits (in thousands):

		Three Months Ended December 31,					Six Months Ended December 31,
		2007		2006 As restated			2007		2006 As restated
Reported in cost of sales		$	—	$	—		$	—	$	—
Reported in asset impairment, restructuring and other credits
	Asset impairment	$	—	$	—		$	—	$	—
	Severance		—		—			—		—
	Other credits		—		(123	)		—		(54	)
Total asset impairment, restructuring and other credits		$	—	$	(123	)	$	—	$	(54	)

Research and Development Facility Closure Initiative

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

Other Income and Expense

        Other expense (income) was $1.3 million and $(1.7) million for the three months ended December 31, 2007 and 2006, respectively, and $7.4 million and $(1.8) million for the six months ended December 31, 2007 and 2006, respectively. Other expense primarily included a $5.7 million debt retirement charge in the first fiscal quarter of 2008 and the impact of foreign currency fluctuations, dividend income from our equity investments, investment impairments and loss on debt retirement.

Interest Income and Expense

        Interest income was $8.5 million and $12.7 million for the three months ended December 31, 2007 and 2006, respectively, and $18.7 million and $25.3 million for the six months ended December 31, 2007 and 2006, respectively, reflecting lower prevailing interest rates on lower average cash and investment balances in the current year.

        Interest expense was $0.7 million and $10.9 million for the three months ended December 31, 2007 and 2006, respectively, and $3.0 million and $20.9 million for the six months ended December 31, 2007 and 2006, respectively primarily reflecting lower interest expense due to the repayment of the $550.0 million convertible subordinated notes (the "Notes") on July 16, 2007.

Income Taxes

        Our effective tax rate related to continuing operations was 190.6 percent and 30 percent for the three months ended December 31, 2007 and 2006 respectively, and (190.9) percent and 38.7 percent for the six months ended December 31, 2007 and 2006, respectively. For the three month period ended December 31, 2007, our effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) the benefit of foreign tax credits and R&D credits, (b) the benefit of lower statutory rates in certain foreign jurisdictions, partially offset by (x) non deferral of income from certain jurisdictions, and (y) an increase in reserves from uncertain tax positions. For the six month period ended December 31, 2007, our effective tax rate differed from the U.S. federal statutory tax rate of 35

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percent, resulting from (a) the reversal of a reserve for potential interest and penalties thereon as a result of our filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (b) the benefit of foreign tax credits and R&D credits, and (c) lower statutory rates in certain foreign jurisdictions, partially offset by (x) a decrease in U.K. deferred tax assets due to the reduction in tax rate from 30% to 28%, (y) an increase in reserves for non U.S. uncertain tax positions and (z) an increase in state valuation allowance. For the three month period ended December 31, 2006, our effective tax rate was lower than the U.S. federal statutory rates of 35 percent resulting from (a) the release of a valuation allowance, (b) export tax incentives, and (c) the benefit of foreign tax credits and R&D credits, partially offset by (w) actual and deemed distributions from certain foreign jurisdictions, (x) transfer pricing, (y) increase in reserves for non U.S. uncertain tax positions, and (z) state taxes. For the six month period ended December 31, 2006, our effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (a) actual and deemed distributions from certain foreign jurisdictions, (b) transfer pricing, (c) increase in reserves for non U.S. uncertain tax positions, and (d) state taxes, partially offset by (x) the release of a valuation allowance, (y) export tax incentives, and (z) the benefit of foreign tax credits and R&D credits. For the six months ended December 31, 2006, we recognized $2.9 million of retroactive R&D tax benefit for the January 2006 to September 2006 period, as a result of Congress reinstating the R&D tax credit retroactive to the beginning of January 2006.

        In the six months ended December 31, 2006, we recorded a tax benefit of $18.1 million of which $11.7 million was attributed to discontinued operations.

Discontinued Operations

        The amounts and disclosures in this Quarterly Report on Form 10-Q present the result of reclassifying the operating results of our NAP segment to Discontinued Operations, net of applicable income taxes, for the period ended December 31, 2006.

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

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

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

55

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

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

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

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

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

Liquidity and Capital Resources

        At December 31, 2007, we had $745.7 million of total cash, cash equivalents and investments, consisting of available-for-sale fixed income and investment-grade securities. As of December 31, 2007 and June 30, 2007, the fair market values of our mortgage-backed securities and asset-backed securities were $208.1 million (27.9 percent of cash and cash equivalents, short-term and long-term investments) and $209.2 million (28.0 percent of cash and cash equivalents, short-term and long-term investments), respectively (see Part 1, Item 3, "Quantitative and Qualitative Disclosures about Market Risk," for discussions about our investment strategy). We recognized a $0.9 million charge for an other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair market values through December 31, 2007. Subsequent to December 31, 2007, in the third quarter ended March 31, 2008, we recognized additional charges of $3.8 million other-than-temporary impairment of these securities as a result of declines in their fair market value. In the fourth fiscal quarter of 2008, we recorded an additional $3.7 million charge for an other-than-temporary impairment relating to certain available-for-sale securities as a result of declines in their fair values through June 30, 2008.

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

	December 31, 2007		June 30, 2007
Cash and cash equivalents	$	298,405	$	853,040
Investments		447,262		449,896
Short-term and long-term debt		144		543,845

        In summary, our cash flows were as follows:

	Six Months Ended, December 31,
	2007			2006 As restated
Cash flows from operations	$	27,347		$	78,219
Cash flows used in investing activities		(27,524	)		(91,580	)
Cash flows (used in) from financing activities		(561,305	)		11,526
Effect of exchange rate changes		6,847			5,141
Net (decrease) increase in cash and cash equivalents	$	(554,635	)	$	3,306

        Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and liabilities. During the six months ended December 31, 2007, operating activities generated cash flow of $27.3 million compared to $78.2 million generated in the prior six months ended December 31, 2006. Non-cash decrease (increase) to cash flow from operations during the six months ended December 31, 2007 included $38.2 million of depreciation and $7.8 million of stock compensation expense. Changes in operating assets and liabilities decreased cash by $29.4 million, primarily attributed to $74.0 million of cash tax payments made to the Internal Revenue Service during the first quarter of fiscal year 2008, partially offset by decreases in accounts receivable, inventories, and prepaid and other receivables.

        Cash used in investing activities during the six months ended December 31, 2007 was $27.5 million. Proceeds from sales or maturities of investments were $187.1 million, offset by $185.3 million of cash used to purchase investments. During the six months ended December 31, 2007, we invested $29.7 million in capital equipment primarily for our El Segundo, California site consolidation, and at our assembly facility in Mexico. As of December 31, 2007, we had purchase commitments for capital expenditures of approximately $4.1 million. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand and anticipated cash flow from operations.

        Cash used in financing activities primarily reflected the repayments of the Notes and foreign bank loans. As of December 31, 2007, we had $220.7 million in revolving credit facilities, against which $4.3 million was drawn for letters of credit.

        On July 16, 2007, we funded the payment at maturity of the Notes due on July 16, 2007. The funding included a final interest payment of $11.7 million. In connection with the final maturity and payment of the Notes, we recorded a debt retirement charge of $5.7 million, included in other expense, during the three months ended September 30, 2007 (see also Part 1, Item 3, "Quantitative and Qualitative Disclosures about Market Risk").

        Our revolving credit facility entered into on November 6, 2006, with a syndicate of lenders, including JPMorgan Chase Bank ("JPM") and other lenders (the "Facility") has been amended by (together the "Facility Amendments"): an Amendment No. 1 to the Facility dated May 4, 2007, an Amendment No. 2 to the Facility dated June 27, 2007, an Amendment No. 3 to the Facility dated September 13, 2007, an Amendment No. 4, to the Facility dated December 14, 2007 and an Amendment No. 5, to the Facility dated March 17, 2008. Pursuant to the Facility Amendments, our

57

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

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

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

        We are pursuing refunds for income taxes we believe to have overpaid in certain jurisdictions and have recorded in the financial statements a $15.2 million tax benefit. In certain other jurisdictions, we cannot determine that the realization of the tax refunds of $62.2 million is probable and as such, we have not recognized them as income tax benefits in its financial statements. We have determined that we have overpaid $51.9 million of income taxes (which is included in the $62.2 million) in Singapore as a result of errors in our transfer pricing of intercompany transactions. As a result of this determination, we have filed amended income tax returns in Singapore for FY 2004 through FY 2006 claiming a tax refund and sought to assert a claim for tax refunds for FY 2001 and FY 2003. We have determined our

58

claim for a refund of tax is not probable and we have not recognized benefit for such refund claims. Consequently, we have recorded both U.S. federal income tax and Singapore income tax with respect to these fiscal years, thereby significantly increasing our effective tax rate.

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

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rates

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

        In December 2001, we entered into an interest rate swap transaction (the "December 2001 Transaction") with JPM, to modify our effective interest payable with respect to $412.5 million of our $550.0 million outstanding convertible debt due on July 16, 2007 (the "Debt") (see Part I, Item 1, Notes 8, "Bank Loans and Long-Term Debt"). In April 2004, we entered into an interest rate swap transaction (the "April 2004 Transaction") with JPM to modify the effective interest payable with respect to the remaining $137.5 million of the Debt. At the inception of the April 2004 Transaction, interest rates were lower than that of the Debt and we believed that interest rates would remain lower for an extended period of time. The variable interest rate we have paid since the inception of the swap has averaged 3.38 percent, compared to a coupon of 4.25 percent on the Debt.

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

59

relating to the five-year LIBOR curve and our stock prices. The mark-to-market value of the swaps resulted in a liability of $1.4 million at June 30, 2007.

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

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

Foreign Currency Exchange Rates

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

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

        In May 2006, we entered into the Forward Contract with BNP Paribas for the purpose of reducing the effect of exchange rate fluctuations on forecasted inter-company purchases by our Japan subsidiary. We had designated the Forward Contract as a cash flow hedge. Under the terms of the Forward Contract, we were required to exchange 507.5 million Yen for $5.0 million on a quarterly basis starting in June 2006 and expiring in March 2011. Based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to our cash flow requirements, we do not expect to incur a material charge to income during the next twelve months as a result of the Forward Contract.

        In December 2007, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS No. 133 Implementation Issue No. G3 "Cash Flow Hedges Discontinuation of a Cash Flow Hedge," ("SFAS No. 133") the net gain at the Forward Contract's termination date will continue to be reported in other comprehensive income and recognized over the originally specified time period through March 2011, until it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter.

        We had approximately $51.0 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at December 31, 2007. Net realized and unrealized foreign-currency gains recognized in earnings were $0.1 million and $1.5 million for the three months ended December 31, 2007 and 2006, respectively, and $0.4 million and $1.4 million for the six months ended December 31, 2007 and 2006, respectively.

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ITEM 4.    CONTROLS AND PROCEDURES

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

Evaluation of Disclosure Controls and Procedures

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

        Our management, under the supervision and with the participation of our CEO and Acting CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2007. Based on our evaluation and the identification of the material weaknesses in internal control over financial reporting described in our 2007 Annual Report, our CEO and Acting CFO concluded that, as of December 31, 2007, our disclosure controls and procedures were not effective.

Changes in Internal Control Over Financial Reporting

        We have engaged in and are continuing to engage in substantial efforts to improve our internal control over financial reporting and disclosure controls and procedures related to the preparation of our financial statements and disclosures. We have begun the implementation of some of the measures described below and concentrated our efforts on (i) communicating, both internally and externally, our commitment to a strong effective control environment, high ethical standards and financial reporting integrity, (ii) certain personnel actions, (iii) comprehensive training for Finance and Accounting Department personnel, (iv) the implementation of policies and procedures to ensure that we retain important business and accounting records and (v) more rigorous period end reporting policies and processes involving journal entry approval, account reconciliations and supporting documentation including manually prepared spreadsheets.

        During the second fiscal quarter of 2008, we have not completed any changes in internal control over financial reporting that will materially affect or are reasonably likely to materially affect, our internal control over financial reporting.

Plans for Remediation of Material Weaknesses

        We are in the process of developing and implementing remediation plans to address our material weaknesses. Our remediation plans include many actions that are in various stages of completion and designed to strengthen our internal controls over financial reporting. They include the following:

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

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

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

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

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

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

We are implementing a record retention policy which addresses our requirements of evidence to support our important business and accounting records and we are currently evaluating a third party software tool to improve the quality of our account reconciliations. In addition, we have implemented certain analytical procedures as part of our closing process to ensure that we have additional monitoring controls designed to improve the accuracy of our financial statements.

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

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

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

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

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

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

Inherent Limitations Over Internal Controls

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

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

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

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

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

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

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

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

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

ITEM 1A.    RISK FACTORS

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

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

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Factors That May Affect Future Results

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

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

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

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

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

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

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

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

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

        Our failure to develop new technologies or react to changes in existing technologies could materially delay our development of new products, which could result in decreased revenue and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. As a result, we must devote significant resources to R&D. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. During fiscal year 2007, we recognized significant revenues from the sale of certain PS product to one end customer. If our competitors were to develop a solution around our technology, the future viability of this product could be materially adversely impacted.

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

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

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

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

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

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

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variations or factors that can significantly affect results different from that predicted. Accordingly, we cannot guarantee that our predictions of our IP segment revenue will be consistent with actual results. We also cannot guarantee that our royalty income will continue at levels consistent with prior periods. Any decrease in our royalty income could have a material adverse effect on our operating results and financial condition.

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

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

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

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

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

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

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

        In addition, as is common in the semiconductor industry, we have at times experienced difficulty in beginning production at new facilities or in effecting transitions to new manufacturing processes. As a

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

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

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

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

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

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

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

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

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

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

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

        With certain exceptions related to products within our A&D segment, we manufacture primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end-market demand generally or in the mix of that demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the manufacturing of products, and a specific mix of products, without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to build them could have a material adverse effect on our levels of inventory (the value of our inventory), our revenue and our operating results generally. Additionally, cancellation or significant reduction in significant customer programs, like those for next generation game station or servers, could materially affect our ability to achieve our revenue and gross profit targets.

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

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

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

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

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

        Many of our distributors have some rights to return inventory under their stock rotation programs or may return inventory with the approval of the company or other circumstances. If these channel partners return a large amount of inventory, our operating results could be impacted by lower revenue and higher costs associated with inventory write-offs.

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

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

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

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

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

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

        As required by Section 404 of the Sarbanes-Oxley Act of 2002, we have conducted an assessment of our internal control over financial reporting, identified material weaknesses in our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of June 30, 2007. For a detailed description of these material weaknesses, see Part II,

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

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

        We are in the process of developing and implementing remediation efforts for the identified material weaknesses, and this work will continue during fiscal year 2008 and after. There can be no assurance as to when the remediation plan will be fully developed, when it will be implemented and the aggregate cost of implementation. Until our remedial efforts are completed, we will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, there will also continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future financial statements could contain errors that will be undetected.

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

        We and certain of our former and current executive officers and directors are defendants in several securities class action lawsuits. These lawsuits are described in Part II, Item 1, "Legal Proceedings." Our attention may be diverted from our ordinary business operations by this lawsuit and we may incur significant expenses associated with the defense of this lawsuit (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be parties to such action). Depending on the outcome of these lawsuits, we may be required to pay material damages and fines, consent to injunctions on future conduct, or suffer other penalties, remedies or sanctions. The ultimate resolution of these matters could have a material adverse effect on our results of operations, financial condition, liquidity, our ability to meet our debt obligations and, consequently, negatively impact the trading price of our common stock.

Continuing negative publicity may adversely affect our business.

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

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

        Several of our current and former directors, officers and employees are or may become the subject of lawsuits. Under Delaware law, our charter documents and certain indemnification agreements, we may have an obligation to indemnify our current and former officers and employees and directors in

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relation to these matters on certain terms and conditions. Some of these indemnification obligations may not be covered by our directors' and officers' insurance policies. If we incur significant uninsured indemnity obligations, this could have a material adverse effect on our business, results of operations, financial condition and cash flows.

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

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

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

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

        In addition, we have made certain judgments regarding the realizability of our deferred tax assets. In accordance with SFAS No. 109, "Accounting for Income Taxes," the carrying value of the net deferred tax assets is based on our assessment whether it is more likely than not that we will generate sufficient future taxable income in the relevant jurisdictions to realize these deferred tax assets, after considering all available positive and negative evidence. If our assumptions and estimates change in the future given unforeseen changes in market conditions, tax laws or other factors, the valuation allowances established may be increased, resulting in increased income tax expense. Conversely, if we are ultimately able to use all or a portion of the deferred tax assets for which a valuation allowance has been established, the related portion of the valuation allowance will be released to reduce income tax expense or goodwill, or credit additional paid-in capital, as applicable.

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

        Our A&D segment manufactures and sells certain products that are subject to U.S. export control laws and regulations. The A&D segment also manufactures and sells products that are sold directly or indirectly to the U.S. government and may subject us to certain government procurement regulations, investigations or review. While we maintain a system of control of such products and compliance with such laws and regulations, we cannot provide absolute assurance that these controls will always be

73

effective. There are also inherent limitations on the effectiveness of controls including the failure of human judgment. If we fail to maintain an effective system of control or are otherwise found non-compliant with applicable laws and regulations, violations could lead to governmental investigations, fines, penalties and limitations on our ability to export product, all of which could have a material affect on our results.

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

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

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

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

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

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

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

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

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Our investments in certain securities expose us to market risks.

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

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

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

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

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

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

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

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

        Federal, state, foreign and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our semiconductor manufacturing processes, and on the operation of our facilities and equipment. We believe we use reasonable efforts to maintain

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a system of compliance and controls for these laws and regulations. However, we cannot provide absolute assurance that these controls will always be effective or that issues with respect to these matters will not from time to time occur. There are also inherent limitations on the effectiveness of controls including the failure of human judgment.

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

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

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

Our international operations expose us to material risks.

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

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

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

Unfavorable currency exchange rate fluctuations could adversely affect us.

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

•

some of our manufacturing costs are denominated in Japanese Yen, European Union Euro, British Pound, and other foreign currencies; and

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•

sales of our products are denominated in Japanese Yen, European Union Euro, British Pound, and other foreign currencies; and



•

some property, plant and equipment purchases are denominated in Japanese Yen, European Union Euro, British Pound, and other foreign currencies.

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

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

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

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

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

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

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

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

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

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

        Natural disasters whether in the United States or internationally, may affect the markets in which our common stock trades, the markets in which we operate and our profitability. Such events could affect our domestic and international sales, disrupt our supply chains, and impair our ability to produce and deliver our products. While we do not have facilities located near the affected areas, such activities could affect physical facilities, primarily for raw materials and process chemicals and gases of our suppliers or customers, and make transportation of our supplies and products more difficult or cost prohibitive. Due to the broad and uncertain effects that natural events have had on financial and economic markets generally, we cannot provide any estimate of how these activities might affect our future results.

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

        On December 18, 2007, December 11, 2007, and December 24, 2007, respectively, in anticipation of the scheduled option expiration date of January 1, 2008, Jack O. Vance, Rochus E. Vogt and James D. Plummer each exercised options issued under one of the Company's stock options plan representing 5000 shares of the Company's stock. The exercise (sale) price for each share was $12.625. The sales were made under Section 4(2) of the Securities Act of 1933, as amended (the "33 Act") as the registration statement for the issuance of shares under the stock option plan was not effective at the time of exercise and issuance of the shares of common stock thereon. Each such holder was an accredited investor under the 33 Act, as each was a member of the Company's Board of Directors at the time of exercise of the options and issuance of the shares. The shares were issued and are held as restricted shares and bear a restricted legend preventing the resale of the shares except pursuant to the 33 Act and the regulations promulgated there under. The aggregate cash proceeds from such sale was $189,375. The proceeds were used for general corporate purposes.

ITEM 6.    EXHIBITS

Exhibit No.	Item and Document
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, 2005; Registration No. 333-117489)
3.2	Bylaws, as Amended (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 11, 2005)
10.1	Form of Option Grant Commitment Letter (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 23, 2007)
10.2	Donald R. Dancer Severance Agreement, dated October 29, 2007 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2007)
10.3	Linda J. Pahl Severance Agreement, dated October 29, 2007 (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2007)
10.4	Form of Executive Officer Severance Agreement (incorporated by reference to Exhibit 10.3 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2007)

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10.5	Form of Key Employee Severance Agreement (incorporated by reference to Exhibit 10.4 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2007)
10.6	Donald R. Dancer Compensation Agreement, dated October 29, 2007 (incorporated by reference to Exhibit 10.5 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 2, 2007)
10.7	Third Amendment to the Amended and Restated Rights Agreement, dated as of November 14, 2007, between International Rectifier Corporation and Mellon Investor Services LLC (f/k/a/ ChaseMellon Shareholder Services, L.L.C.) (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16, 2007)
10.8	Amendment No. 4, executed and delivered as of December 14, 2007, by and among International Rectifier Corporation, a Delaware corporation ("IRC"), JPMorgan Chase Bank, National Association, as administrative agent, and the other lender parties, with respect to that certain Credit Agreement, dated November 6, 2006, as amended, IRC, the lenders described therein, Bank of America, N.A. as Syndication Agent and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch as Co-Documentation Agents and JPMorgan Chase Bank, National Association, as administrative agent (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 17, 2007)
31.1	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

	INTERNATIONAL RECTIFIER CORPORATION Registrant
Date: August 1, 2008	/s/  PETER B. KNEPPER Peter B. Knepper Chief Financial Officer (Acting) (Duly Authorized Officer and Principal Financial and Accounting Officer)

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EX-31.1

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EXHIBIT 31.1

CERTIFICATION

I, Oleg Khaykin, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of International Rectifier Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 1, 2008 /s/  OLEG KHAYKIN Oleg Khaykin
Chief Executive Officer
(Principal Executive Officer)

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EXHIBIT 31.1

EX-31.2

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EXHIBIT 31.2

CERTIFICATION

I, Peter B. Knepper, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of International Rectifier Corporation;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 1, 2008 /s/  PETER B. KNEPPER Peter B. Knepper
Chief Financial Officer (Acting)
(Principal Financial and Accounting Officer)

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EXHIBIT 31.2

EX-32.1

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EXHIBIT 32.1

CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350

        The undersigned, Oleg Khaykin, the Chief Executive Officer of International Rectifier Corporation (the "Company"), pursuant to 18 U.S.C. §1350, hereby certifies that:

(i)

the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended December 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date: August 1, 2008

/s/  OLEG KHAYKIN Oleg Khaykin
Chief Executive Officer
(Principal Executive Officer)

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EX-32.2

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EXHIBIT 32.2

CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350

        The undersigned, Peter B. Knepper, the Acting Chief Financial Officer of International Rectifier Corporation (the "Company"), pursuant to 18 U.S.C. §1350, hereby certifies that:

(i)

the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended December 31, 2007 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(ii)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date: August 1, 2008

/s/  PETER B. KNEPPER Peter B. Knepper
Chief Financial Officer (Acting)
(Principal Financial and Accounting Officer)

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EXHIBIT 32.2