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

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

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

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 72,880,072 shares of the registrant's common stock, par value $1.00 per share, outstanding on October 31, 2008.

				Page

PART I.			FINANCIAL INFORMATION	4
	Item 1.		FINANCIAL STATEMENTS	4
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007		4
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007		5
		CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND JUNE 30, 2008		6
		UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007		7
		NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		8
	Item 2.		MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
	Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	50
	Item 4.		CONTROLS AND PROCEDURES	52
PART II.			OTHER INFORMATION	55
	Item 1.		LEGAL PROCEEDINGS	55
	Item 1A.		RISK FACTORS	58
	Item 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	72
	Item 6.		EXHIBITS	73

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

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

		Three Months Ended September 30,

		2008			2007
Revenues		$	244,474		$	266,194
Cost of sales			148,082			168,809

	Gross profit		96,392			97,385
Selling and administrative expense			65,309			66,806
Research and development expense			24,717			27,896
Amortization of acquisition-related intangible assets			1,097			380
Asset impairment, restructuring and other charges (Note 12)			471			35

	Operating income		4,798			2,268
Other expense, net			14,582			6,129
Interest income, net			(5,060	)		(7,893	)

	(Loss) income before income taxes		(4,724	)		4,032
Benefit from income taxes			(268	)		(6,381	)

	Net (loss) income	$	(4,456	)	$	10,413

Net (loss) income per common share—basic		$	(0.06	)	$	0.14

Net (loss) income per common share—diluted		$	(0.06	)	$	0.14

Average common shares outstanding—basic			72,843			72,811

Average common shares and potentially dilutive securities outstanding—diluted			72,843			73,257

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

			Three Months Ended September 30,

			2008			2007
Net (loss) income			$	(4,456	)	$	10,413

Other comprehensive (loss) income:
	Foreign currency translation adjustments			(23,871	)		4,760
	Unrealized losses on securities:
		Unrealized holding losses on available-for-sale securities, net of tax effect of $0 and $(72), respectively		(6,464	)		(17,762	)
		Unrealized losses on foreign currency forward contract, net of tax effect of $0		—			(3,149	)
		Reclassification adjustments of net gains on foreign currency forward contract		(196	)		(621	)

		Other comprehensive loss		(30,531	)		(16,772	)

Comprehensive loss			$	(34,987	)	$	(6,359	)

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

			September 30, 2008 (Unaudited)		June 30, 2008

Assets
Current assets:
	Cash and cash equivalents		$	302,782	$	320,464
	Restricted cash			4,341		4,341
	Short-term investments			102,965		101,739
	Trade accounts receivable, net			110,322		105,384
	Inventories			175,889		175,856
	Current deferred tax assets			13,071		13,072
	Prepaid expenses and other receivables			52,851		43,993

		Total current assets		762,221		764,849
Restricted cash				15,046		15,012
Long-term investments				286,696		303,680
Property, plant and equipment, net				502,241		534,098
Goodwill				98,822		98,822
Acquisition-related intangible assets, net				15,128		16,225
Long-term deferred tax assets				86,249		89,576
Other assets				51,231		52,650

		Total assets	$	1,817,634	$	1,874,912

Liabilities and Stockholders' Equity
Current liabilities:
	Accounts payable		$	66,349	$	77,653
	Accrued salaries, wages and commissions			26,989		33,022
	Accrued income taxes			29,992		30,943
	Current deferred tax liabilities			2,266		2,266
	Other accrued expenses			99,402		103,355

		Total current liabilities		224,998		247,239
Long-term deferred tax liabilities				4,975		4,828
Deferred gain on divestiture (Note 2)				112,922		112,609
Other long-term liabilities				56,332		59,285

		Total liabilities		399,227		423,961

Commitments and contingencies (Notes 16, 17 and 18)
Stockholders' equity:
	Common shares			72,876		72,826
	Capital contributed in excess of par value of shares			974,313		971,920
	Retained earnings			334,490		338,946
	Accumulated other comprehensive income			36,728		67,259

		Total stockholders' equity		1,418,407		1,450,951

		Total liabilities and stockholders' equity	$	1,817,634	$	1,874,912

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Three Months Ended September 30,

			2008			2007
Cash flow from operating activities:
	Net (loss) income		$	(4,456	)	$	10,413
	Adjustments to reconcile net (loss) income to net cash used in operating activities:
		Depreciation and amortization		17,021			20,336
		Amortization of acquisition-related intangible assets		1,097			380
		Stock compensation expense		1,190			438
		Provision for (recovery of) bad debt		225			(425	)
		Provision for inventory write-downs		951			4,566
		Debt retirement charge		—			5,659
		Deferred revenue		942			(6,872	)
		Deferred income taxes		—			2,827
		Tax benefit from options exercised		8			—
		Excess tax benefit from options exercised		(3	)		—
		Write-down of investments		15,198			273
		Loss on sale of investments		927			—
		Changes in operating assets and liabilities, net		(52,990	)		(61,754	)

Net cash used in operating activities				(19,890	)		(24,159	)

Cash flow from investing activities:
	Additions to property, plant and equipment			(4,799	)		(11,519	)
	Proceeds from sale of property, plant and equipment			19			41
	Additions to restricted cash			(34	)		(156	)
	Sale or maturities of investments			60,086			144,801
	Purchase of investments			(57,444	)		(95,782	)
	Other, net			1,032			(1,019	)

Net cash (used in) provided by investing activities				(1,140	)		36,366

Cash flow from financing activities:
	Repayments of short-term debt			—			(550,000	)
	Proceeds from exercise of stock options and stock participation plan			981			—
	Excess tax benefit from options exercised			3			—
	Additions to restricted cash			—			(4,341	)
	Other, net			(132	)		(4,699	)

Net cash provided by (used in) financing activities				852			(559,040	)

Effect of exchange rate changes on cash and cash equivalents				2,496			176

Net decrease in cash and cash equivalents				(17,682	)		(546,657	)
Cash and cash equivalents, beginning of period				320,464			853,040

Cash and cash equivalents, end of period			$	302,782		$	306,383

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2008

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

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

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

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

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 of the Company's results of operations, financial position, and cash flows have been included. The results of operations for any interim period are not necessarily indicative, nor comparable to the results of operations for any other interim period or for a full fiscal year. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the Company's annual consolidated financial statements and the notes thereto for the year ended June 30, 2008 included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008 filed with the SEC on September 15, 2008 (the "2008 Annual Report").

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

The Company operates on a 52-53 week fiscal year with the fiscal year ending on a Sunday closest to June 30. The three months ended September 2008 and 2007 consisted of 13 weeks ending on September 28, 2008 and September 30, 2007, respectively. For ease of presenting the accompanying condensed consolidated financial statements, the fiscal September quarter-end for all periods presented is shown as September 30.

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.

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

In October 2008, the FASB issued FASB Staff Position Financial Accounting Standard 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active" ("FSP 157-3"). FSP 157-3 clarifies the application of SFAS 157 in cases where a market is not active. The Company has considered the guidance provided by FSP 157-3 in its determination of estimated fair values as of September 30, 2008, and the impact was not material.

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

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). Under SFAS 141(R), an entity is required to recognize the assets acquired, liabilities

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

assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs are recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in process research and development ("R&D") is capitalized as an intangible asset and amortized over its estimated useful life. The adoption of SFAS 141(R) will change the Company's accounting treatment for business combinations on a prospective basis beginning July 1, 2009.

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

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

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS 162"). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. 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 in the process of evaluating the impact of SFAS 162 on its consolidated financial statements.

On April 1, 2007, the Company completed the sale of its Power Control Systems ("PCS") business ("PCS Business") to Vishay Intertechnology, Inc. ("Vishay") for $339.6 million (the "Divestiture"), including $14.5 million of restricted cash temporarily held in escrow to cover indemnity obligations, if any, and the net cash retained from the assets of the entities being sold totaling approximately $49.4 million. Since the consummation of the Divestiture, a number of matters as discussed in Note 18, "Commitments and Contingencies," raised uncertainties under applicable accounting standards and

guidance as to the determination of the gain on the Divestiture. As of fiscal year end June 30, 2008, the Company had deferred recognition of the gain on the Divestiture of $112.6 million. At the present time, the Company cannot make a determination as to when these uncertainties will be resolved. During the first quarter of fiscal year 2009, the deferred gain on the Divestiture was increased because certain tax indemnification obligations in respect of divested entities aggregating to $0.3 million ceased to exist through lapsing of a statute of limitation in a foreign tax jurisdiction. Consequently, as of September 30, 2008, the Company has a deferred gain on the Divestiture of $112.9 million.

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

The following table sets forth, by Level, the Company's financial assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2008 (in thousands):

	Fair Value Measurement Using Inputs Considered as

Assets:	Total			(Level 1)			(Level 2)			(Level 3)
U.S. government and agency obligations	$	237,659		$	137,789		$	99,870		$	—
Corporate debt		82,173			29,708			52,465			—
Mortgage-backed securities		83,036			—			39,325			43,711
Asset-backed securities		54,501			—			—			54,501
Equity securities		19,762			19,758			—			4
Foreign currency derivatives		93			—			93			—

Total	$	477,224		$	187,255		$	191,753		$	98,216

Fair value as a percentage of total		100.0	%		39.2	%		40.2	%		20.6	%

Level 3 as a percentage of total assets											5.4	%

Financial assets and liabilities measured and recorded at fair value on a recurring basis were presented on the Company's condensed consolidated balance sheet as of September 30, 2008 as follows (in thousands):

Certain financial assets are measured using Level 3 inputs such as pricing models, discounted cash flow methodologies or similar techniques and where at least one significant model assumption or input is unobservable. Level 3 inputs are used for financial assets that include certain investment securities for which there is limited market activity where the determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain mortgage-backed securities and asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At September 30, 2008, these securities were valued primarily using independent valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and amount of future cash flows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants at September 30, 2008. The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a

recurring basis that used significant unobservable Level 3 inputs for the three months ended September 30, 2008 (in thousands):

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

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

During the fiscal quarter ended September 30, 2008, the Company had no significant measurements of financial assets or liabilities at fair value on a nonrecurring basis.

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

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

		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value

Short-Term Investments:
Corporate debt		$	24,723	$	8	$	(1,481	)	$	(1,473	)	$	23,250
U.S. government and agency obligations			79,661		99		(45	)		54			79,715

	Total short-term investments	$	104,384	$	107	$	(1,526	)	$	(1,419	)	$	102,965

Long-Term Investments:
Corporate debt		$	37,927	$	55	$	(1,880	)	$	(1,825	)	$	36,102
U.S. government and agency obligations			111,230		1,996		(169	)		1,827			113,057
Mortgage-backed securities			84,296		805		(2,065	)		(1,260	)		83,036
Asset-backed securities			55,595		151		(1,245	)		(1,094	)		54,501

	Total long-term investments	$	289,048	$	3,007	$	(5,359	)	$	(2,352	)	$	286,696

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

		Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value

Short-Term Investments:
Corporate debt		$	34,181	$	44	$	(103	)	$	(59	)	$	34,122
U.S. government and agency obligations			67,507		132		(22	)		110			67,617

	Total short-term investments	$	101,688	$	176	$	(125	)	$	51		$	101,739

Long-Term Investments:
Corporate debt		$	44,031	$	205	$	(466	)	$	(261	)	$	43,770
U.S. government and agency obligations			90,260		1,760		(325	)		1,435			91,695
Mortgage-backed securities			96,204		546		(5,492	)		(4,946	)		91,258
Asset-backed securities			80,023		272		(3,338	)		(3,066	)		76,957

	Total long-term investments	$	310,518	$	2,783	$	(9,621	)	$	(6,838	)	$	303,680

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

The Company holds as strategic investments the common and preferred stock of three publicly traded foreign companies, one of which is a closely held equity security. One of the investments is Nihon Inter Electronics Corporation ("Nihon"), a related party as further discussed in Note 19, "Related Party Transactions." These stocks are traded on either the Tokyo Stock Exchange or the Taiwan Stock Exchange. Dividend income from these companies was $0.2 million and $0.1 million for the three months ended September 30, 2008 and 2007, respectively.

The carrying values of the equity investments included in other long-term assets at September 30, 2008 and June 30, 2008 were $19.7 million and $29.2 million, respectively, compared to their purchase cost at September 30, 2008 and June 30, 2008 of $24.9 million and $24.9 million, respectively. Unrealized loss, net of taxes, for the three months ended September 30, 2008 and 2007 was $9.5 million and $11.3 million, respectively, and was included in other comprehensive loss.

The Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of the securities; and the intent and ability of the Company to retain the security in order to allow for an anticipated recovery in fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings. During the three months ended September 30, 2008 and 2007, the Company recognized $15.2 million and $0.3 million, respectively, in other-than-temporary impairments relating to certain available-for-sale securities, included in other expense.

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

		Securities held in a loss position for less than 12 months at September 30, 2008					Securities held in a loss position for 12 months or more at September 30, 2008					Total in a loss position

		Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses
Corporate debt		$	22,858	$	(2,613	)	$	15,868	$	(748	)	$	38,726	$	(3,361	)
U.S. government and agency obligations			51,976		(214	)		—		—			51,976		(214	)
Mortgage-backed securities			17,846		(1,570	)		2,727		(495	)		20,573		(2,065	)
Asset-backed securities			13,932		(388	)		13,920		(857	)		27,852		(1,245	)

	Total	$	106,612	$	(4,785	)	$	32,515	$	(2,100	)	$	139,127	$	(6,885	)

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

		Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses			Market Value		Gross Unrealized Losses
Corporate debt		$	37,473	$	(485	)	$	6,182	$	(84	)	$	43,655	$	(569	)
U.S. government and agency obligations			32,026		(347	)		—		—			32,026		(347	)
Mortgage-backed securities			43,297		(5,077	)		1,893		(415	)		45,190		(5,492	)
Asset-backed securities			31,567		(2,915	)		4,920		(423	)		36,487		(3,338	)

	Total	$	144,363	$	(8,824	)	$	12,995	$	(922	)	$	157,358	$	(9,746	)

The amortized cost and estimated fair value of investments at September 30, 2008, by contractual maturity, are as follows (in thousands):

In accordance with the Company's investment policy which limits the length of time that cash may be invested, the expected disposal dates may be less than the contractual maturity dates as indicated in the table above.

Gross realized gains and gross realized (losses) for the three months ended September 30, 2008 were $0.4 million and $(1.3) million, respectively. Gross realized gains and gross realized (losses) for the three months ended September 30, 2007 were $0.2 million and $(0.4) million, respectively. The cost of marketable securities sold was determined by the first-in, first-out method.

Components in the changes of operating assets and liabilities for the three months ended September 30, 2008 and 2007 were comprised of the following (in thousands):

		Three Months Ended September 30,

		2008			2007
Trade accounts receivable		$	(6,808	)	$	14,037
Inventories			(2,282	)		17,562
Prepaid expenses and other receivables			(19,043	)		17,687
Accounts payable			(11,275	)		6,558
Accrued salaries, wages and other commissions			(5,598	)		(3,006	)
Deferred compensation			(598	)		1,686
Accrued income taxes payable			(1,208	)		(89,846	)
Other accrued expenses			(6,178	)		(26,432	)

	Changes in operating assets and liabilities	$	(52,990	)	$	(61,754	)

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

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

				September 30, 2008							June 30, 2008

		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	$	(16,751	)	$	12,928	$	29,679	$	(15,803	)	$	13,876
Customer lists			5-12		5,446		(4,214	)		1,232		5,446		(4,107	)		1,339
Intellectual property and other			5-12		7,963		(6,995	)		968		7,963		(6,953	)		1,010

	Total acquisition-related intangible assets			$	43,088	$	(27,960	)	$	15,128	$	43,088	$	(26,863	)	$	16,225

As of September 30, 2008, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal year 2009: $3,290; fiscal year 2010: $4,386; fiscal year 2011: $4,125; fiscal year 2012: $1,771; and fiscal year 2013: $231.

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

In the fourth quarter of fiscal year 2008, the Company performed its annual assessment of goodwill for impairment. During that quarter, the forecasted cash flows of the Company's reporting units were updated. This update considered current economic conditions and trends, estimated future

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

In July 2000, the Company issued $550.0 million in principal amount of 4.25 percent convertible subordinated notes due July 16, 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 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 paid in full at maturity the Notes. The payment included a final interest payment of $11.7 million. In connection with the final maturity and payment of the Notes, the Company recorded a debt retirement charge of $5.7 million, included in other expense during the three months ended September 30, 2007.

On November 6, 2006, the Company entered into a five-year multi-currency revolving credit facility with a syndicate of lenders including JPM, Bank of America, N.A., 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 0.0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on the Company's senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility ranges between 0.175 percent and 0.25 percent of the unused portion of the total Facility, depending upon the Company's senior leverage ratio. In connection with the Facility, the Company pledged as collateral shares of certain of its subsidiaries, and certain of the Company's subsidiaries have guaranteed the Facility. The Facility, as amended also contains certain financial and other covenants, with which the Company was in compliance at September 30, 2008.

The Facility has been amended by certain amendments including Amendment No. 5 to the Facility dated March 17, 2008 (together, the "Facility Amendments"). Pursuant to these Facility Amendments, the Company's lenders agreed that, the Company would not be deemed in default with respect to certain representations, warranties, covenants and reporting requirements during a period ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders had no obligation to make any extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until, among other things, the lenders have received the Company's audited consolidated financial statements, reasonably satisfactory to the lenders, and 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.

On July 30, 2008, the Company and the lender parties to the Facility amended the Facility by Amendment No. 6, which extended the then current accommodation through November 30, 2008 and provided that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of its current filings with the SEC 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. Amendment No. 6 provides that failure by the Company to provide full cash collateral for the approximately $4.3 million of letters of credit currently outstanding under the Facility will be deemed an event of default under the Facility as a result of which the currently outstanding letters of credit would no longer be subject to renewal under the Facility. The Company has received notice setting out the lender parties' satisfaction with the Company's required financial statements under Amendment No. 6 and has asked to begin discussions regarding revised terms that may be applicable to the Facility. Pending the execution of any further amendment to the Facility, the Company is not able to access credit under the Facility and there can be no assurance that the Facility will be reinstated.

At September 30, 2008, the Company had $150.0 million in total lines of credit (consisting solely of the Facility as amended, which provides for the renewal of the currently outstanding letters of credit in existing amount but under which, as described above, the Company cannot otherwise borrow at this time) of which $4.3 million in letters of credit remain outstanding under the Facility. The Facility, as amended also contains certain financial and other covenants, with which the Company was in compliance at September 30, 2008.

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

		September 30, 2008		June 30, 2008

Sales returns		$	35,714	$	40,850
Accrued accounting and legal costs			19,194		18,884
Deferred revenue			8,268		7,326
Transition services contract liability			6,667		6,667
Accrued compensation			6,161		6,679
Accrued divestiture transaction costs			3,101		3,101
Accrued warranty			2,704		2,672
Accrued sales and other taxes			2,686		1,583
Short-term severance liability			2,332		1,091
Accrued utilities			1,825		2,320
Other			10,750		12,182

	Total other accrued expenses	$	99,402	$	103,355

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

The following table details the changes in the Company's warranty reserve for the three months ended September 30, 2008, which is included in other accrued liabilities (in thousands):

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

The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. The following table summarizes the stock option activities for the three months ended September 30, 2008 (in thousands, except per share price data):

For the three months ended September 30, 2008, the Company received $1.0 million for stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.01 million for the three months ended September 30, 2008. For the three months ended September 30, 2007, no stock options were exercised.

The following table summarizes the Restricted Stock Unit ("RSU") activities for the three months ended September 30, 2008 (in thousands, except per share price data):

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

The Company's employee stock option plan typically provides terminated employees a period of thirty (30) days from date of termination to exercise their vested stock options. In certain circumstances, the Company has extended that thirty-day period for a period consistent with the plan. In accordance with SFAS No. 123 (Revised 2004) "Share-Based Payment," the extension of the exercise period was deemed to be a modification of stock option terms. Additionally, certain of these modified awards have been classified as liability awards within other accrued expenses. Accordingly, at the end of each reporting period, the Company determined the fair value of those awards and recognized any change in fair value in its consolidated statements of operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the mark-to-market adjustments of the liability awards included in other accrued expenses, the Company recorded a net credit of $0.3 million and $1.8 million for the three months ended September 30, 2008 and 2007, respectively. The aggregate fair value of the liability awards included in other accrued expenses was $0.3 million at September 30, 2008.

For the three months ended September 30, 2008 and 2007, stock-based compensation expense associated with the Company's stock options and RSUs is as follows (in thousands):

The total unrecognized compensation expense for outstanding stock options and RSUs was $20.1 million as of September 30, 2008, and will be recognized, in general, over three years, except for one stock option award and RSU award made to the CEO. The awards to the CEO (which are included in the awards disclosed above), are a 750,000 stock option award and a 250,000 RSU award made to the CEO during fiscal year 2008 as provided for under his employment agreement. The Company estimated the value of the option awards for the CEO by using the Black-Scholes options pricing model with the following assumptions: (i) an expected life of the award of 5 years; (ii) risk free rate of 3.2 percent; (iii) Company stock price volatility of 45.0 percent; and (iv) an annual dividend yield on the Company's common stock of 0.0 percent. The total unrecognized compensation expense for these grants was $10.4 million as of September 30, 2008, and will be recognized over five years. The weighted average number of years to recognize the total compensation expense (including that of the CEO) is 2.24 years.

The fair value of the options associated with the above compensation expense for the three months ended September 30, 2008 and 2007, was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

Asset impairment, restructuring, and other charges reflect the impact of various cost reduction programs and initiatives implemented by the Company. These programs and initiatives include the closing of facilities, the termination and relocation of employees, and other related activities. Asset impairment, restructuring, and other charges include program-specific exit costs recognized pursuant to SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," severance benefits

pursuant to an ongoing benefit arrangement recognized pursuant to SFAS No. 112, "Employers' Accounting for Postemployment Benefits," and special termination benefits recognized pursuant to SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." Severance costs unrelated to the Company's restructuring initiatives are recorded as an element of cost of sales, research and development or selling and administrative expense, depending upon the classification and function of the employee terminated. Restructuring costs were expensed during the period in which all requirements of recognition were met.

Asset write-downs are principally related to facilities and equipment that will not be used subsequent to the completion of 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 for the purpose of calculating write-downs, the Company groups assets at the lowest level for which independent identifiable cash flows information is available. In determining whether an asset was impaired the Company evaluates undiscounted future cash flows and other factors such as changes in strategy and technology. An indicator of impairment loss exists if the undiscounted cash flows from the initial analysis are less than the carrying amount of the asset group. The Company then determines the fair value of the asset group using the present value technique, by applying a discount rate to the estimated future cash flows that is consistent with the rate used when analyzing potential acquisitions.

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

The following table summarizes restructuring and related charges incurred during the three months ended September 30, 2008 and 2007 and recorded in asset impairment, restructuring and other charges (in thousands):

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

The following illustrates the charges the Company recorded in the three months ended September 30, 2008 and 2007 related to its PCS Divestiture restructuring initiative (in thousands):

In the third quarter of fiscal year 2008, the Company adopted a plan for the closure of its Oxted, England facility and its El Segundo, California R&D fabrication facility. The costs associated with closing and exiting these facilities and severance costs are expected to total approximately $13.4 million. Of this amount, approximately $11.5 million represents the cash outlay related to this initiative. The Company incurred $0.1 million and $0.2 million, respectively, for Oxted and El Segundo in severance costs and $0.1 million in other charges for the three months ended September 30, 2008. The Company expects the closure and exiting of these two facilities to be completed by the end of the second quarter of fiscal year 2010.

The following illustrates the charges the Company recorded in the three months ended September 30, 2008 and 2007 related to its Research and Development Facility Closure initiative (in thousands):

The following table summarizes changes in the Company's severance accrual for the three months ended September 30, 2008 (in thousands):

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

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

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

For the three months ended September 30, 2008 and 2007, revenue and gross margin by reportable segments are as follows (in thousands, except percentages):

		Three Months Ended September 30, 2008								Three Months Ended September 30, 2007

Business Segment		Revenues		Percentage of Total			Gross Margin			Revenues		Percentage of Total			Gross Margin
Power Management Devices		$	73,778		30.2	%		21.4	%	$	95,103		35.7	%		30.4	%
Energy-Saving Products			46,136		18.9			42.9			33,019		12.4			33.0
HiRel			37,352		15.3			52.7			36,509		13.7			51.1
Automotive Products			17,593		7.2			33.4			19,929		7.5			35.2
Enterprise Power			37,279		15.2			42.6			55,863		21.0			40.2

	Ongoing customer segments total		212,138		86.8			36.3			240,423		90.3			36.6
Intellectual Property			19,967		8.2			100.0			9,293		3.5			100.0

	Ongoing segments total		232,105		95.0			41.8			249,716		93.8			38.9
Transition Services			12,369		5.0			(4.7	)		16,478		6.2			0.8

	Consolidated total	$	244,474		100.0	%		39.4	%	$	266,194		100.0	%		36.6	%

No single customer accounted for more than ten percent of the Company's consolidated revenue for the three months ended September 30, 2008 and 2007.

As of September 30, 2008, the liability for income tax associated with uncertain tax positions was $81.5 million. If recognized, the liabilities associated with uncertain tax positions would result in a benefit to income taxes on the consolidated statement of operations of $51.3 million which would reduce the Company's future effective tax rate.

The Company's continuing practice is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of September 30, 2008, the Company had accrued $35.9 million of interest and penalties related to uncertain tax positions.

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

The Company's effective tax rate related to continuing operations was 5.7 percent and (158.3) percent for the three months ended September 30, 2008 and 2007, respectively. For the first quarter of fiscal year 2009, the Company's effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (i) non deferral of income from certain foreign jurisdictions, (ii) valuation allowances recorded on impaired securities and other items, and (iii) an increase in certain FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109" reserves partially offset by (iv) lower statutory rates in certain foreign jurisdictions, (v) the benefit of foreign tax credits, and (vi) the benefit from state income taxes. For fiscal year 2008, the Company's effective tax rate differed from the U.S. federal tax rate resulting from (i) reversal of reserve for potential penalties and interest thereon as a result of the Company filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (ii) the benefit of foreign tax credits and R&D credits and (iii) lower statutory rates in certain foreign jurisdictions which were partially offset by (iv) a decrease in U.K. deferred tax assets due to the reduction in tax rates from 30 percent to 28 percent, (v) non deferral of income from certain jurisdictions, and (vi) an increase in reserve for non U.S. uncertain tax provisions, and (vii) a state valuation allowance.

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

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

Net (loss) income per common share—basic is computed by dividing net (loss) income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. In general, the computation of net (loss) income per common share—diluted is similar to the computation of net (loss) income per common share—basic except that the denominator is increased to include the number of additional common shares that would have been outstanding for the exercise of stock options using the treasury stock method resulting in the dilution of earnings per share. The Company's use of the treasury stock method reduces the gross number of the dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised.

The following table provides a reconciliation of the numerator and denominator of the basic and diluted per-share computations for the three months ended September 30, 2008 and 2007 (in thousands, except per share amounts):

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

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

As part of the environmental review process, the Company has provided certain disclosures of potential permit violations and other matters to local environmental authorities with respect to the Company's Temecula, California facility. The Company has taken steps to correct the alleged deficiencies. However, subsequent to the fiscal quarter ended September 30, 2008, the Company

received a notification of additional permit violations at such facility, which the Company is investigating. The Company has not yet been assessed any penalties with respect to the disclosures made for its Temecula, California facility. Additionally, during negotiations for the Divestiture, chemical compounds were discovered in the groundwater underneath one of the Company's former manufacturing plants in Italy. The Company has advised appropriate governmental authorities and is awaiting further reply to its inquiries, with no current orders or directives on the matter outstanding from the governmental authorities.

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

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

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, California. Numerous parties, including the Company, allegedly disposed of wastes at the Omega Site. Plaintiffs claim that contaminants from the Omega Site migrated in groundwater from the Omega Site to the Angeles Facility, thereby causing damage to the Angeles Facility. In addition, they claim that the

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

International Rectifier Securities Litigation. Following the Company's disclosure on April 9, 2007 that the Audit Committee of the Company's Board of Directors ("Audit Committee") was conducting an internal investigation (the "Investigation") into the Company's accounting practices, a series of putative class action lawsuits was filed against IR in the United States District Court for the Central District of California. The complaints named as defendants certain of IR's officers and directors and alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising out of alleged accounting irregularities at the Company'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 the Massachusetts Laborers' Pension Fund and the General Retirement System of the City of Detroit (together, "Co-Lead Plaintiffs") as co-lead plaintiffs.

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

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

SACC are due to be filed by November 12, 2008. The Company intends to defend against the claims asserted against it vigorously. No trial date has been set for this action.

International Rectifier Derivative Litigation. On August 1, 2008, a partial shareholder derivative lawsuit captioned Mayers v. Lidow, No. BC395652, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint asserts shareholder derivative claims for breach of fiduciary duty, unjust enrichment and violations of Section 25402 of the California Corporations Code against certain of IR's former officers and current and former directors in connection with the matters recently disclosed by the Company in connection with its restatement of its financial statements. The derivative claims seek damages, disgorgement, and imposition of a constructive trust against the individual defendants purportedly for the benefit of the Company. The complaint also seeks injunctive relief against the current Board of Directors under a provision of Delaware law that permits shareholders to request the Delaware Court of Chancery to require a corporation to hold an annual shareholders' meeting. The complaint does not seek monetary relief against the Company.

On August 26, 2008, the Court issued a minute order designating the case complex and staying all proceedings until the Court issued an order setting the initial scheduling conference. On September 12, 2008, the Court issued orders setting the initial scheduling conference for November 7, 2008, and continuing the stay of proceedings until that time. The Company intends to seek the dismissal of this action on the grounds that plaintiff has failed to make a demand for litigation or to plead particularized facts establishing that demand is excused, as required by both Delaware and California law. The Company also intend to move to dismiss the cause of action seeking to require the Company to hold its annual shareholders' meeting on the grounds that the claim is now moot and cannot be brought before a California court. No trial date has been set for this action.

Litigation Arising from Vishay Proposal. On August 15, 2008, shortly after IR disclosed that Vishay had made an unsolicited, non-binding proposal to acquire all outstanding shares of the Company for $21.22 per share in cash, a purported class action complaint captioned Hui Zhao v. International Rectifier Corporation, No. BC396461, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint named as defendants the Company and its current directors and alleged that the Vishay proposal was unfair and that acceptance of that offer by the Board of Directors would be a breach of fiduciary duty. Five other substantively identical complaints seeking the same relief subsequently were filed in the same court and, on October 3, 2008, the Court consolidated the six class action complaints under the Zhao caption. On or around October 27, 2008, plaintiffs in Zhao filed an amended class action complaint alleging the same causes of action against the same defendants, but now alleging that the Board of Directors breached its fiduciary duties by rejecting the Vishay offer and that certain "defensive measures" enacted by the Company many years ago are improper and should be rescinded. The amended complaint seeks injunctive relief and unspecified compensatory damages against all defendants. Responses to the amended complaint are due to be filed by November 21, 2008. The Company intends to defend against the claims asserted against it in this action vigorously. No trial date has been set for this action.

Sterling complaint, like the amended class action complaint in Zhao, alleges claims for breach of fiduciary duty against the Board of Directors based upon its rejection of the Vishay offer but, unlike Zhao, asserts these claims derivatively and names the Company only as a nominal defendant. The City of Sterling complaint seeks an injunction requiring the Board of Directors to appoint a committee of independent directors to consider strategic alternatives for the Company and invalidating any "defensive measures" the Board of Directors might take in connection with this or any other offer. On September 16, 2008, plaintiff moved for a temporary restraining order enjoining the Board of Directors from employing a previously enacted shareholder rights plan in response to the Vishay offer. On September 19, 2008, the Court denied plaintiff's application for a temporary restraining order. Responses to the complaint in this action are due to be filed by November 21, 2008. The Company intends to seek the dismissal of this action on the grounds that plaintiff has failed to make a demand for litigation or to plead particularized facts establishing that demand is excused, as required by both Delaware and California law. No trial date has been set for this action.

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

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

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

IXYS Litigation. On June 22, 2000, the Company 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 IR $6.2 million in damages through September 30, 2005. On September 14, 2006, the District Court entered the final judgment and permanent injunction based on the jury verdict. IXYS again appealed (with a notice of appeal filed after the deadline for doing so). The Federal Circuit lifted its temporary stay, and the permanent injunction was in effect until it terminated with the expiration of the '699 patent in September 2007. The matter was argued to the Federal Circuit on January 7, 2008. In an opinion issued February 11, 2008, the Federal Circuit ruled against IR and reversed the judgment. In July 2008, the Company filed a petition with the Supreme Court of the United States for a writ of certiorari, which was denied on October 6, 2008. The proceedings are now at an end, subject to ancillary motions of the parties regarding fees.

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 will 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.

In connection with the Divestiture, the Company included in long-term liabilities $20.4 million for certain tax obligations with respect to divested entities. Following the Divestiture, the Company commenced discussions with Vishay regarding the application of the net working capital adjustment formula in accordance with the terms of the definitive documents related to the Divestiture. However, the Company did not reach agreement on the working capital adjustment within the time limits prescribed by the definitive documents, and Vishay has taken the position that the discussion should be deferred pending the disclosure of the results of the Company's prior investigation into certain accounting and financial reporting matters. As of the date of this report, Vishay continues to assert a net working capital adjustment in its favor of approximately $20.0 million, and the Company maintains that the proper application of the contractual formula results in no adjustment to net working capital. The Company does not believe that Vishay's assertions have merit and intends to vigorously defend its position.

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

PCS Business were "materially overstated" and "based upon assumptions that the management of the Company at the time knew to be unfounded and unsupportable." As part of its claim, Vishay also alleged that non-disclosure and concealment of future prospects related to the ASBU business caused Vishay to suffer damages in excess of $50.0 million attributable to, among other things, the purchase price for ASBU, subsequent operational losses and the costs incurred by Vishay in connection with its subsequent divestment of the ASBU business. The Company does not believe that Vishay's assertions have merit and intend to vigorously defend its position.

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

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

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

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

following the 2007 annual meeting, Vishay withdrew its tender offer to acquire all outstanding shares of the Company and filed a Notice of Voluntary Dismissal of its complaint in the Delaware Action.

In connection with Vishay's unsolicited offer, the Company entered into an engagement letter with its financial advisor under which the Company agreed to pay a fee of $10.0 million to its financial advisor, of which $2.0 million was paid in October 2008 and the remaining amount is contingently payable following the Company's 2008 annual meeting of stockholders.

As discussed in Note 4, "Investments," the Company holds as a strategic investment common stock of Nihon, a related party. At September 30, 2008, the Company owned approximately 9.0 percent of the outstanding shares of Nihon. As previously reported, the Company's former Chief Financial Officer was the Chairman of the Board and a director of Nihon until June 28, 2005. In addition, the former general manager of the Company's Japan subsidiary was a director of Nihon until about October 2007 and another member of the Company's Japan subsidiary was a director from June 28, 2005 to June 30, 2008.

During the fiscal quarters ended September 30, 2008 and 2007, the Company recorded royalties of approximately $2,000 and $0.02 million and product revenues of approximately $0.1 million and $0.2 million from Nihon, respectively.

On October 27, 2008, the Company issued a press release announcing that its Board of Directors authorized a stock repurchase program of up to $100.0 million. Stock repurchases under this program may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on market conditions and other factors. The stock repurchase program may be commenced or suspended at any time without prior notice. As of November 6, 2008, no shares have been repurchased under the program.

On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its tender offer to acquire all outstanding shares of the Company and filed a Notice of Voluntary Dismissal of the Delaware Action.

On October 12, 2008, the Board of Directors approved the Fourth Amendment (the "Amendment") to its existing Amended and Restated Rights Agreement, dated as of December 15, 1998 (as amended, the "Rights Agreement"), between the Company and Mellon Investor Services LLC (f/k/a ChaseMellon Shareholder Services, L.L.C.), as Rights Agent. The Amendment: (i) extends the expiration date of the preferred stock purchase rights (the "Rights") issued under the Rights Agreement from the close of business on November 25, 2008 to the close of business on the earlier of (A) April 12, 2009 or (B) the third business day after the filing by the Company with the SEC of a Quarterly Report on Form 10-Q for the quarterly period ending December 31, 2008; (ii) amends the definition of "beneficial ownership" to explicitly cover synthetic and derivative securities; (iii) decreases from 20.0 percent to 10.0 percent the threshold of beneficial ownership of the Company's securities necessary to cause investors to become "Acquiring Persons" and thereby trigger the issuance of the Rights under the Rights Agreement, except that, (A) in the case of passive investors filing on

Schedule 13G, the threshold has been fixed at 15.0 percent and (B) shareholders who beneficially own more than 10.0 percent of the Company's voting stock as of October 12, 2008 will be grandfathered under the Amendment so that their existing ownership positions, plus ownership up to an additional 1.0 percent of the Company's stock, will be permitted; and (iv) provides that a person or group who inadvertently exceeds the ownership threshold under the Rights Agreement, as determined in good faith by the Board of Directors of the Company, may cure the inadvertent triggering by promptly reducing its beneficial ownership of Company securities so that it would no longer be an "Acquiring Person."

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

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

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

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

During the first quarter of fiscal year 2009, we have made significant progress on our strategic roadmap, and are continuing to drive toward our three year overall plan. In particular, we have undertaken efforts to (i) rebuild our management team, (ii) begin to implement targeted cost reductions, (iii) consolidate and optimize our distribution channels, (iv) focus on accelerating near-term revenue opportunities and (v) look to find and implement operational efficiencies. We now believe that our new management team is largely complete.

With the prior period financial restatements and the recent proxy contest and unsolicited purchase offer behind us, we are now turning additional management focus on our cost structure. We understand the importance of preserving cash during this period of macroeconomic uncertainty, and expect to continue efforts to resize our operating expenses and control costs in view of the current environment. Additionally, we have continued our consolidation efforts in the distribution channels.

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

We have made initial efforts to streamline our operational and manufacturing efforts, including (i) having re-segmented our production processes, (ii) having changed the way we plan and schedule production at our factories and with subcontractors, (iii) having implemented a new demand forecasting

model, (iv) launching broad initiatives to improve our asset productivity and (v) having commenced rationalization and consolidation of subcontract manufacturing firms.

We have been seeing significant deterioration in the macroeconomic environment since September 30, 2008 and we are seeing what we believe to be a decline in global demand across all our market segments. Given the information we are getting from our customers, along with our own internal analysis, we estimate that revenue from our segments (excluding our Intellectual Property ("IP") segment and our Transition Services ("TS") segment) for the second quarter of fiscal year 2009 is likely to be between $160.0 million and $190.0 million, down approximately 10.0 percent to 25.0 percent from the first quarter of fiscal year 2009.

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

The following table sets forth certain operating results for the three months ended September 30, 2008 and 2007 as a percentage of revenues (in millions, except percentages):

		Three Months Ended September 30,

		2008					2007
Revenues		$	244.5		100.0	%	$	266.2		100.0	%
Cost of sales			148.1		60.6			168.8		63.4

	Gross profit		96.4		39.4			97.4		36.6
Selling and administrative expense			65.3		26.7			66.8		25.1
Research and development expense			24.7		10.1			27.9		10.5
Amortization of acquisition-related intangible assets			1.1		0.4			0.4		0.1
Asset impairment, restructuring and other charges			0.5		0.2			—		—

	Operating income		4.8		2.0			2.3		0.9
Other expense, net			14.6		6.0			6.1		2.3
Interest income, net			(5.1	)	(2.1	)		(7.9	)	(2.9	)

	(Loss) income before income taxes		(4.7	)	(1.9	)		4.1		1.5
Benefit from income taxes			(0.2	)	(0.1	)		(6.3	)	(2.4	)

	Net (loss) income	$	(4.5	)	(1.8	)%	$	10.4		3.9	%

Results of Operations for the Three Months Ended September 30, 2008 compared with the Three Months Ended September 30, 2007

Ongoing segment revenue, which excludes the TS segment, for the three months ended September 30, 2008 was $232.1 million, compared to $249.7 million in the three months ended September 30, 2007, a revenue decrease of 7.1 percent. The decline for the three months ended September 30, 2008 was primarily due to a general slowdown in the economy, continued draw down of channel inventories and lower sales of our game station related products.

Ongoing segment gross margin increased to 41.8 percent for the three months ended September 30, 2008 compared to 38.9 percent in the three months ended September 30, 2007. Our gross margin improved primarily due to a $10.7 million increase in royalty revenue related to a one-time extension of a patent license agreement with one of our principal licensees.

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

		Three Months Ended September 30, 2008								Three Months Ended September 30, 2007

Business Segment		Revenues		Percentage of Total			Gross Margin			Revenues		Percentage of Total			Gross Margin
Power Management Devices		$	73,778		30.2	%		21.4	%	$	95,103		35.7	%		30.4	%
Energy-Saving Products			46,136		18.9			42.9			33,019		12.4			33.0
HiRel			37,352		15.3			52.7			36,509		13.7			51.1
Automotive Products			17,593		7.2			33.4			19,929		7.5			35.2
Enterprise Power			37,279		15.2			42.6			55,863		21.0			40.2

	Ongoing customer segments total		212,138		86.8			36.3			240,423		90.3			36.6
Intellectual Property			19,967		8.2			100.0			9,293		3.5			100.0

	Ongoing segments total		232,105		95.0			41.8			249,716		93.8			38.9
Transition Services			12,369		5.0			(4.7	)		16,478		6.2			0.8

	Consolidated total	$	244,474		100.0	%		39.4	%	$	266,194		100.0	%		36.6	%

PMD revenue for the three months ended September 30, 2008 decreased by 22.4 percent from the three months ended September 30, 2007. Revenue for our PMD products decreased year-over-year due to a general slowdown in the market and a continued emphasis on channel inventory reductions. Gross margin for the PMD segment declined to 21.4 percent for the three months ended September 30, 2008, from 30.4 percent in the three months ended September 30, 2007. This decline was primarily due to a decline in average selling price and an increase in production costs primarily due to underutilization of our capacity as we reduced our inventory from September 30, 2007 to September 30, 2008.

ESP revenue for the three months ended September 30, 2008 increased by 39.7 percent from the three months ended September 30, 2007. This revenue increase was due to returns and channel inventory reductions in the fiscal quarter ended September 30, 2007 that did not repeat in fiscal quarter ended September 30, 2008. Also, revenue increased due to an improvement in sales and new design wins in the appliance and plasma displays markets. Gross margin for the ESP segment was 42.9 percent for the three months ended September 30, 2008, compared to 33.0 percent in the three months ended September 30, 2007. This gross margin improvement was primarily due to a provision for product returns on high margin products in the fiscal quarter ended September 30, 2007 that did not repeat in the fiscal quarter ended September 30, 2008, better capacity utilization and higher average selling prices.

HR revenue for the first quarter ended September 30, 2008 increased by 2.3 percent from the prior fiscal quarter ended September 30, 2007. This revenue increase was primarily due to a one-time design change and expedite fee for a major customer. Gross margin for the HR segment increased to 52.7 percent for the fiscal year ended September 30, 2008, from 51.1 percent in the prior fiscal year. This increase in margin is attributable to the above mentioned customer, which commands a significantly higher margin than the base business.

AP revenue for three months ended September 30, 2008 decreased by 11.7 percent from the three months ended September 30, 2007, due to non-seasonal timing of shipments with several key customers. These customers elected to purchase our products in the fiscal quarter ended June 30, 2008 which reduced revenue in the fiscal quarter ended September 30, 2008 compared to the prior year quarter. Gross margin for the AP segment decreased to 33.4 percent for the three months ended September 30, 2008, from 35.2 percent in the three months ended September 30, 2007. The year-over-year decline in gross margin was due to higher than normal manufacturing costs driven by lower production volume and lower capacity utilization partially offset by a higher average selling price.

EP revenue for the three months ended September 30, 2008 decreased by 33.3 percent from the three months ended September 30, 2007. This decrease was primarily due to lower sales of our game station related products and reduced content in our newer game station parts. Gross margin for the EP segment increased to 42.6 percent for the three months ended September 30, 2008, from 40.2 percent in the three months ended September 30, 2007. Gross margin was higher in the first quarter of fiscal year 2009 due to an increase in margin of our growing core server business coupled with a significant decline of lower margin game station revenue.

IP revenue was $20.0 million for the three months ended September 30, 2008 compared to $9.3 million for the three months ended September 30, 2007. Revenue for the three months ended September 30, 2008 include recognition of $18.7 million from the one-time amendment of a patent license agreement with one of our principal licensees for fixed payments of $2.0 million per quarter, over ten quarters beginning September 30, 2008. The $18.7 million revenue from the one-time patent amendment represents the present value of the $20.0 million in cash payments due to us from the licensee as required by the amendment. The $1.3 million remaining balance of the $20.0 million payment will be recognized as interest income over the term of the agreement. In the fiscal quarter ended September 30, 2008, $0.4 million of the $1.3 million remaining balance was recognized as interest income. The short-term and long-term portions of this $18.7 million receivable are recorded in prepaid expenses and other receivables and other assets, respectively. We expect that with the expiration of our broadest MOSFET patents in 2008, our quarterly royalty revenue will be up to about $1.0 million in each of the next several quarters absent the consummation of additional license agreements.

TS revenue was $12.4 million for the three months ended September 30, 2008 compared to $16.5 million for the three months ended September 30, 2007.

For the three months ended September 30, 2008, selling and administrative expense was $65.3 million (26.7 percent of revenue), compared to $66.8 million (25.1 percent of revenue) for the three months ended September 30, 2007.

During the fiscal quarter ended September 30, 2008, we incurred fees and costs related to the Audit Committee-led Investigation, 2007 annual meeting and contested proxy fees and costs, and consulting fees and costs associated with preparing and filing our financial statements, totaling approximately $16.4 million, as compared to approximately $14.8 million of costs related solely to the Audit Committee-led Investigation in the fiscal quarter ended September 30, 2007. The costs related to the Audit Committee-led Investigation include legal, audit and consulting fees and costs associated with the Investigation, reconstruction of the financial results at our Japan subsidiary, and restatement of multiple periods of consolidated financial statements. The 2007 annual meeting and contested proxy costs, totaling approximately $2.0 million, relate to costs incurred in the fiscal quarter ended September 30, 2008, in connection with our delayed 2007 annual meeting and the unsolicited proposal, tender offer, the Delaware Action and the Annual Meeting Actions initiated by Vishay.

Excluding all the above mentioned costs, selling and administrative expense decreased by $3.1 million to $48.9 million in the current fiscal quarter as compared to the prior year fiscal quarter ended September 30, 2007.

We anticipate that we will continue to incur additional expenses in the near term related to (i) our 2007 and 2008 annual meetings and 2007 contested proxy fees and costs, (ii) ongoing consulting support to assist us in the preparation and filing of our financial statements and tax returns and (iii) additional costs and expenses resulting from the Investigation-related litigation and third party proceedings.

Research and development ("R&D") expense was $24.7 million and $27.9 million (10.1 percent and 10.5 percent of revenue) for the three months ended September 30, 2008 and 2007, respectively. Overall R&D expenses were lower by $3.2 million mainly due to our efforts to size the organization to the lower revenue base following the Divestiture. We continue to concentrate our R&D activities on developing new platform technologies, such as our recently announced Gallium Nitride ("GaN") technology, as well as our power management ICs and the advancement and diversification of our HEXFET®, power MOSFET™ and insulated gate bipolar transistor product lines.

Our employee stock option plan typically provides terminated employees a period of thirty (30) days from date of termination to exercise their vested stock options. In certain circumstances, we have extended that thirty-day period for a period consistent with the plan. In accordance with Statement of Financial Accounting Standard ("SFAS") No. 123 (Revised 2004) "Share-Based Payment", the extension of the exercise period was deemed to be a modification of the stock option terms. Additionally, certain of these modified awards have been classified as liability awards within other accrued expenses. Accordingly, at the end of each reporting period, we determine the fair value of those awards and recognize any change in fair value in our consolidated statements of operations in the period of change until the awards are exercised, expire or are otherwise settled. As a result of these modifications and the mark-to-market adjustments of the liability awards included in other accrued expenses, we recorded a net credit of $0.3 million for the three months ended September 30, 2008 compared to a net credit of $1.8 million for the three months ended September 30, 2007.

Asset impairment, restructuring and other charges reflect the impact of principally two cost reduction programs that we have initiated. These programs and initiatives include the closing of facilities, the relocation of equipment and employees, the termination of employees and other related activities. The following table reflects the charges we recorded in the three months ended September 30, 2008 and 2007 related to our restructuring initiatives (in thousands):

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

The following illustrates the charges we recorded in the three months ended September 30, 2008 and 2007 related to our PCS Divestiture restructuring initiative (in thousands):

From time to time, we also undertake and execute other smaller scale restructuring initiatives at our local sites. The following illustrates the charges we recorded in the three months ended September 30, 2008 and 2007 related to our Research and Development Facility Closure initiative (in thousands):

In the third quarter of fiscal year 2008, we adopted a plan for the closure of our Oxted, England facility and our El Segundo, California R&D fabrication facility. The costs associated with closing and exiting these facilities and severance costs are expected to total approximately $13.4 million. Of this amount, approximately $11.5 million represents the cash outlay related to this initiative. We incurred $0.1 million and $0.2 million, respectively, for Oxted and El Segundo in severance costs and $0.1 million in other charges for the three months ended September 30, 2008. 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 expense was $14.6 million and $6.1 million for the three months ended September 30, 2008 and 2007, respectively. The change is primarily due to investment impairment charges of $15.2 million in the three months ended September 30, 2008. Other expense included a debt retirement charge of $5.7 million in the three months ended September 30, 2007. Other income and expense primarily includes foreign currency fluctuations, dividend income from our equity investments and investment impairments.

Interest income was $5.6 million and $10.2 million for the three months ended September 30, 2008 and 2007, respectively, reflecting lower prevailing interest rates on lower average cash and investment balances in the current year.

Interest expense was $0.5 million and $2.3 million for the three months ended September 30, 2008 and 2007, respectively, primarily reflecting lower interest expense due to the repayment of the $550.0 million convertible subordinated notes (the "Notes") on July 16, 2007.

Our effective tax rate related to continuing operations was 5.7 percent and (158.3) percent for the three months ended September 30, 2008 and 2007, respectively. For the fiscal 2009 period, our effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (i) non deferral of income from certain foreign jurisdictions, (ii) valuation allowances recorded on impaired securities and other items, and (iii) an increase in certain Financial Accounting Standard Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109" reserves partially offset by (iv) lower statutory rates in certain foreign jurisdictions, (v) the benefit of foreign tax credits, and (vi) the benefit from state income taxes. For the fiscal 2008 period, our effective tax rate differed from the U.S. federal statutory tax rate of 35 percent, resulting from (i) reversal of reserve for potential penalties and interest thereon as a result of our filing amended U.S. federal income tax returns and paying the tax liability for fiscal years 2004 through 2006, (ii) the benefit of foreign tax credits and R&D credits and (iii) lower statutory rates in certain foreign jurisdictions which were partially offset by (iv) a decrease in U.K. deferred tax assets due to the reduction in tax rates from 30 percent to 28 percent, (v) non deferral of income from certain jurisdictions, and (vi) an increase in reserve for non U.S. uncertain tax provisions, and (vii) a state valuation allowance.

At September 30, 2008, we had $692.4 million of total cash (excluding $19.4 million of restricted cash), cash equivalents and investments, consisting of available-for-sale fixed income and investment-grade securities. As of the three months ended September 30, 2008 and June 30, 2008, the fair values of our mortgage-backed and asset-backed securities were $137.5 million (19.9 percent of cash and cash equivalents and short-term and long-term investments) and $168.2 million (23.2 percent of cash and cash equivalents and short-term and long-term investments), respectively (see Part I, Item 3, "Quantitative and Qualitative Disclosures about Market Risk," for discussions about our investment strategy). In the first quarter of fiscal year 2009, we recorded a $15.2 million charge for other-than-temporary impairments relating to certain available-for-sale securities as a result of declines in their fair values through September 30, 2008.

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

Cash provided by operating activities is net (loss) income adjusted for certain non-cash items and changes in operating assets and liabilities. During the three months ended September 30, 2008, operating activities used net cash of $19.9 million compared to $24.2 million used in the three months ended September 30, 2007. Non-cash increase to cash flow from operations during the three months ended September 30, 2008 included $17.0 million of depreciation and amortization and $15.2 million in write-down of investments. Changes in operating assets and liabilities decreased cash by $52.9 million, primarily attributed to increases in accounts receivable, inventories, prepaid expenses and other receivables as well as decreases in accounts payable, accrued salaries and wages, accrued income taxes payable and other accrued liabilities.

Cash used by investing activities during the three months ended September 30, 2008 was $1.1 million. Proceeds from sales or maturities of investments were $60.1 million, offset by $57.4 million of cash used to purchase investments. During the three months ended September 30, 2008, we invested $4.8 million in capital equipment. As of September 30, 2008, 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 provided by financing activities primarily reflected proceeds from exercise of stock options.

On October 27, 2008, we issued a press release announcing that our Board of Directors authorized a stock repurchase program of up to $100.0 million. Stock repurchases under this program may be made in the open market or through privately negotiated transactions. The timing and actual number of shares repurchased will depend on market conditions and other factors. The stock repurchase program may be commenced or suspended at any time without prior notice. As of November 6, 2008, we made no repurchases under the program.

On November 6, 2006, we entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including JPMorgan Chase Bank ("JPM"), Bank of America, N.A, 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 0.0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on our senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility ranges between 0.175 percent and 0.25 percent of the unused portion of the total Facility, depending upon our senior leverage ratio. In connection with the Facility, we pledged as collateral shares of certain of our subsidiaries, and certain of our subsidiaries have guaranteed the Facility. The Facility, as amended, also contains certain financial and other covenants, with which we were in compliance at September 30, 2008.

The Facility has been amended by certain amendments including Amendment No. 5 to the Facility dated March 17, 2008 (together, the "Facility Amendments"). Pursuant to these Facility Amendments, our lenders agreed that, we would not be deemed in default with respect to certain representations, warranties, covenants and reporting requirements during a period ending not later than July 31, 2008. In addition, pursuant to the Facility Amendments, the lenders had no obligation to make any extensions of credit under the Facility (other than the renewal of currently outstanding letters of credit in existing amounts) until, among other things, the lenders have received our audited consolidated financial statements, reasonably satisfactory to the lenders, and 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.

On July 30, 2008, we and the lender parties to the Facility amended the Facility by Amendment No. 6 which extended the current accommodation through November 30, 2008 and provided that thirty (30) days after the lenders' receipt of and reasonable satisfaction with the form and substance of our current filings with the SEC and if we are in a position to satisfy 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. Amendment No. 6 provides that failure by us to provide full cash collateral for the approximately $4.3 million of letters of credit currently outstanding under the Facility will be deemed an event of default under the Facility, as a result of which the currently outstanding letters of credit would no longer be subject to renewal under the Facility. We have received notice setting out the lender parties' satisfaction with our required financial statements under Amendment No. 6 and have asked to begin discussions regarding revised terms that may be applicable to the Facility. Pending the execution of any further amendment to the Facility, we are not able to access credit under the Facility and there can be no assurance that the Facility will be reinstated.

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

In connection with certain tax matters described in Part I, Item 1, Note 14, "Income Taxes," we are pursuing refunds for income taxes for which we cannot determine that the realization of the tax refunds of $62.8 million is probable and as such, we have not recognized them as income tax benefits in our financial statements. We have determined that we have overpaid $52.5 million of income taxes (which is included in the $62.8 million) in Singapore as a result of changes in our transfer pricing of intercompany transactions.

We have determined that in fiscal year 2009 we will file amended U.S. federal income tax returns and consequently will pay approximately $16.9 million in taxes and $17.7 million in related interest and penalties to the Internal Revenue Service ("IRS") in connection with uncertain tax positions recorded for fiscal years 2001 through 2003.

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

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.

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."

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 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, Note 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 133. To test effectiveness of the hedges, regression analyses were performed quarterly comparing the changes in fair value of the swap transactions and the Debt. The fair values of the swap transactions and the Debt were calculated quarterly as the present value of the contractual cash flows to the expected maturity date, where the expected maturity date was based on probability-weighted analyses of interest rates relating to the five-year LIBOR curve and our stock prices. The mark-to-market value of the swaps resulted in a liability of $1.4 million at June 30, 2007.

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

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

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

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

In May 2006, we entered into the Forward Contract with BNP Paribas for the purpose of reducing the effect of exchange rate fluctuations on forecasted inter-company purchases by our Japan subsidiary. We had designated the Forward Contract as a cash flow hedge. Under the terms of the Forward Contract, we were required to exchange 507.5 million Yen for $5.0 million on a quarterly basis starting in June 2006 and expiring in March 2011. At September 30, 2007, 14 quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of 101.5 Yen per U.S. dollar. The market value of the Forward Contract was $4.2 million at September 30, 2007 and was included in other assets. The mark-to-market losses included in other comprehensive loss was $3.1 million, net of tax, for the fiscal quarter ended September 30, 2007. In December 2007, we terminated the Forward Contract and received $2.8 million of cash as part of the settlement. In accordance with SFAS 133, the net gain at the Forward Contract's termination date will continue to be reported in accumulated other comprehensive income and recognized over the originally specified time period through March 2011, until it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter.

We had approximately $35.7 million and $50.8 million in notional amounts of forward contracts not designated as accounting hedges under SFAS 133 at September 30, 2008 and 2007, respectively. Net realized and unrealized foreign-currency gains recognized in earnings were $0.9 million and $0.3 million for the fiscal quarters ended September 30, 2008 and 2007, respectively.

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

At September 30, 2008, we had $692.4 million of total cash, cash equivalents and investments, consisting of available-for-sale fixed income and investment-grade securities. We manage our total portfolio to encompass a diversified pool of investment-grade securities. Our investment policy is to manage our total cash and investment balances to preserve principal and maintain liquidity while maximizing the returns on the investment portfolio. To the extent that our marketable portfolio of investments continues to have strategic value, we typically do not attempt to reduce or eliminate our

market exposure. For securities that we no longer consider strategic, we evaluate legal, market, and economic factors in our decision on the timing of disposal. We may or may not enter into transactions to reduce or eliminate the market risks of our investments in marketable securities. Based on our investment portfolio and interest rates at September 30, 2008, a 100 basis point increase or decrease in interest rates would result in an annualized decrease or increase of approximately $5.3 million, respectively, in the fair value of the investment portfolio. Changes in interest rates may affect the fair value of the investment portfolio; however, unrealized gains or losses are not recognized in net income unless the investments are sold or the loss is considered to be other than temporary. During the three months ended September 30, 2008, the fair values of certain investments declined and we recognized $15.2 million in other-than-temporary impairment relating to certain available-for-sale securities. See Part II, Item 1A, "Risk Factors—Our investments in certain securities expose us to market risks."

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

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

Our management, under the supervision and with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2008. Based on our evaluation and the identification of the material weaknesses in our internal controls over financial reporting described in our 2008 Annual Report, our CEO and CFO concluded that, as of September 30, 2008, our disclosure controls and procedures were not effective.

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

During the first quarter of fiscal year 2009, specific actions by us to improve internal control over financial reporting and remediate material weaknesses previously reported by us included the appointment of a Vice President, General Counsel and Secretary as an addition to our executive management team. In addition, we implemented and updated our global policies and procedures regarding revenue recognition, exit activities, severance and accrued liabilities. Other than these events, there were no changes in internal control over financial reporting during the fiscal quarter ended

September 30, 2008 that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

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:

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

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.

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, the outcome of these actions could be unfavorable, and our business, financial condition, results of operations, or cash flows could be materially and adversely affected.

International Rectifier Securities Litigation. Following our disclosure on April 9, 2007 that the Audit Committee was conducting an internal investigation into accounting practices at our company, a series of putative class action lawsuits was filed against our company in the United States District Court for the Central District of California. The complaints named as defendants certain of our officers and directors and alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising out of alleged accounting irregularities at our company'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 the Massachusetts Laborers' Pension Fund and the General Retirement System of the City of Detroit (together, "Co-Lead Plaintiffs") as co-lead plaintiffs.

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

On October 17, 2008, Co-Lead Plaintiffs filed a Second Amended Consolidated Class Action Complaint ("SACC"). The SACC purports to extend the class period from July 31, 2003 to February, 11, 2008, alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 arising out of matters recently disclosed by us in connection with the restatement of certain prior period financial statements, and names as defendants our company and certain of its former officers and directors. The SACC does not name as defendants any of our company's current officers or directors. The SACC seeks unspecified damages from all defendants. Responses to the SACC are due to be filed by November 12, 2008. We intend to defend against the claims asserted against us vigorously. No trial date has been set for this action.

International Rectifier Derivative Litigation. On August 1, 2008, a partial shareholder derivative lawsuit captioned Mayers v. Lidow, No. BC395652, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint asserts shareholder derivative claims for breach of fiduciary duty, unjust enrichment and violations of Section 25402 of the California Corporations Code against certain of our company's former officers and current and former directors in connection with the matters recently disclosed by us in connection with our restatement of our financial statements. The derivative claims seek damages, disgorgement, and imposition of a constructive trust against the individual defendants, purportedly for the benefit of our company. The complaint also seeks injunctive relief against the current Board of Directors under a provision of Delaware law that permits shareholders to request the Delaware Court of Chancery to require a corporation to hold an annual shareholders' meeting. The complaint does not seek monetary relief against our company.

On August 26, 2008, the Court issued a minute order designating the case complex and staying all proceedings until the Court issued an order setting the initial scheduling conference. On September 12, 2008, the Court issued orders setting the initial scheduling conference for November 7, 2008, and continuing the stay of proceedings until that time. We intend to seek the dismissal of this action on the grounds that plaintiff has failed to make a demand for litigation or to plead particularized facts establishing that demand is excused, as required by both Delaware and California law. We also intend to move to dismiss the cause of action seeking to require our company to hold its annual shareholders' meeting on the grounds that the claim is now moot and cannot be brought before a California court. No trial date has been set for this action.

Litigation Arising from Vishay Proposal. On August 15, 2008, shortly after we disclosed that Vishay had made an unsolicited, non-binding proposal to acquire all outstanding shares of our company for $21.22 per share in cash, a purported class action complaint captioned Hui Zhao v. International Rectifier Corporation, No. BC396461, was filed in the Superior Court of the State of California for the County of Los Angeles. The complaint named as defendants our company and its current directors and alleged that the Vishay proposal was unfair and that acceptance of that offer by the Board of Directors would be a breach of fiduciary duty. Five other substantively identical complaints seeking the same relief subsequently were filed in the same court and, on October 3, 2008, the Court consolidated the six class action complaints under the Zhao caption. On or around October 27, 2008, plaintiffs in Zhao filed an amended class action complaint alleging the same causes of action against the same defendants, but now alleging that the Board of Directors breached its fiduciary duties by rejecting the Vishay offer and that certain "defensive measures" enacted by us many years ago are improper and should be rescinded. The amended complaint seeks injunctive relief and unspecified compensatory damages against all defendants. Responses to the amended complaint are due to be filed by November 21, 2008. We intend to defend against the claims asserted against us in this action vigorously. No trial date has been set for this action.

Also pending before the same Court is a related shareholder derivative action, captioned City of Sterling Heights Police Fire Retirement System v. Dahl, No. BC397326, filed August 29, 2008. The City of Sterling complaint, like the amended class action complaint in Zhao, alleges claims for breach of fiduciary duty against the Board of Directors based upon its rejection of the Vishay offer but, unlike Zhao, asserts these claims derivatively and names our company only as a nominal defendant. The City of Sterling complaint seeks an injunction requiring the Board of Directors to appoint a committee of independent directors to consider strategic alternatives for our company and invalidating any "defensive measures" the Board of Directors might take in connection with this or any other offer. On September 16, 2008, plaintiff moved for a temporary restraining order enjoining the Board of Directors from employing a previously enacted shareholder rights plan in response to the Vishay offer. On September 19, 2008, the Court denied plaintiff's application for a temporary restraining order. Responses to the complaint in this action are due to be filed by November 21, 2008. We intend to seek the dismissal of this action on the grounds that plaintiff has failed to make a demand for litigation or to plead particularized facts establishing that demand is excused, as required by both Delaware and California law. No trial date has been set for this action.

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

Board of Directors between February 29, 2008 and the 2007 annual meeting unless approved by holders of a majority of the outstanding shares of our Company. On October 13, 2008, following the 2007 annual meeting, Vishay withdrew its tender offer.

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

Governmental Investigations. We are cooperating fully with investigators from the SEC Division of Enforcement, the IRS and the U.S. Attorneys' Office regarding matters relating to the Audit Committee-led Investigation and other matters described in Part II, Item 8, Note 2, "Restatements of Consolidated Financial Statements," of our Annual Report on Form 10-K for the fiscal year ended June 30, 2007 filed with the SEC on August 1, 2008. We have responded to a subpoena for records from the SEC, and we will continue to cooperate with these investigators regarding their investigation into these matters.

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

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 Plaintiffs own or operate the Angeles Facility which is located approximately one and a half miles downgradient of 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 EPA considers them to be responsible for the groundwater plume near the Angeles Facility, which Plaintiffs contend was caused by disposal activities at the Omega Site. Plaintiffs filed claims based on CERCLA, nuisance and trespass, and also seek declaratory relief. Plaintiffs seek to require the Defendants to investigate and clean-up the contamination and to recover damages. 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. In that agreement, it was estimated that our volumetric share of wastes sent to the Omega Site was in the

range of 0.08 percent. We believe that much, if not all, of the risks associated with the Angeles Case should be covered by the Omega Indemnification. In addition, we have tendered the complaint to several of our insurance carriers 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 percent, we do not believe that an adverse judgment against us would be material.

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

This Quarterly Report on Form 10-Q includes some statements and other information that is not historical facts but is "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.

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 the Investigation led by our Audit Committee and following its completion, our representatives met with representatives of the SEC, the IRS, the Office of the U.S. Attorney and other governmental officials to keep them advised as to the course of the Investigation. We continue to share information with the SEC and other governmental officials and are currently responding to subpoenas for records from the SEC. Adverse developments in connection with requests by the SEC or other governmental agencies, could negatively impact us and divert our resources and the focus of our management team from our ordinary business operations. In addition, we may incur significant expenses associated with responding to these investigations (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be subject to such investigation(s)), and we may be required to pay criminal or civil fines, consent to injunctions on future conduct or suffer other penalties, any of which could have a material adverse effect on us. It is also possible that the existence, findings and outcome of these inquiries may have a negative impact on lawsuits that are pending or may be filed against us, the trading prices of our securities and our ability to access the capital markets. See 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 years 2008 and 2007, we have experienced a decline in end-market demand for our products as a result of uncertainties in general market conditions resulting from the sharp correction in the housing market, the significant fluctuations of oil prices, financial uncertainties affecting ultimate consumers and other factors affecting consumer commercial and industrial spending. 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 materially adversely impacted. To the extent these market conditions persist for a prolonged period of time, our business, financial condition and results of operations could be significantly harmed.

In addition, we may experience significant changes in our profitability as a result of variations in sales, changes in product mix sought by customers, seasonality, price competition for orders and the costs associated with the introduction of new products and start-up of new facilities and additional capacity lines. The markets for our products depend on continued demand with the product technological platforms and in the mix we plan for and produce in the information technology, consumer, industrial, HiRel and automotive markets. Changes in the demand mix, needed technologies and these end markets may materially 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 materially adversely affect our revenue and gross margin, and hence, our profitability. We also compete in various markets with companies of various sizes, many of which are larger and have greater financial and other resources than we have, and thus they may be better able to withstand adverse economic or market conditions. In addition, companies not currently in direct competition with us may introduce competing products in the future.

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

Our failure to develop new technologies or react to changes in existing technologies could materially delay our development of new products, which could result in decreased revenue and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. As a result, we must devote significant resources to R&D. Our financial performance depends on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis.

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

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

Our future financial performance and success are largely dependent on our ability to implement our recently announced three-phase growth strategy, consisting of business stabilization, operational optimization and growth acceleration. We cannot assure you that we will be able to successfully

implement our business 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 ceased during the fourth quarter of fiscal year 2008; however, from time to time, we continue to enter into opportunistic licensing arrangements that we believe are consistent with our business strategy.

Our royalty income is also largely dependent on the following factors: remaining coverage under unexpired MOSFET patents; the continuing introduction and acceptance of products that are not covered by our patents; the defensibility and enforceability of our patents; changes in our licensees' unit sales, prices or die sizes; the terms, if any, upon which expiring license agreements are renegotiated; and our ability to obtain revenue from new licensing opportunities. Market conditions and mix of licensee products, as well as sales of non-infringing devices can significantly adversely affect royalty income. We also cannot guarantee that we can obtain new licenses to offset reductions in royalties from existing licenses. While we try to predict the effects of these factors and efforts, often there are variations or factors that can significantly affect results different from that predicted. Accordingly, we cannot guarantee that our predictions of our IP segment revenue will be consistent with actual results. We also cannot guarantee 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 are achieved in part by defending and maintaining the validity of our patents and defending claims by our competitors of IP infringement, and at times asserting IP claims against third parties. We license certain patents owned by others. We are currently a defendant in IP claims, have asserted IP claims against others and we could become subject to other lawsuits in which it is alleged that we have infringed upon the IP rights of others.

Our involvement in existing and future IP litigation could result in significant expense, materially 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 against us, we may be exposed to substantial liability for damages and may need to obtain licenses from the patent owners, discontinue or change our processes or products or expend significant resources to develop or acquire non-infringing technologies. We cannot assure you that we would be successful in such efforts or that such licenses would be available under reasonable terms or that we would be successful in our claims against third parties. Our failure to develop or acquire non-infringing technologies, to obtain licenses on acceptable terms or the occurrence of related litigation itself or our failure to be successful in litigation could have a material adverse effect on our operating results and financial condition.

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

A "design-win" or program award from a customer does not guarantee that the design or program win will become future sales to that customer. We also are unable to guarantee that we will be able to convert these design or program wins, or any wins, into sales for the life of any particular program, or at all, or that the revenue from such wins would be significant. We also cannot guarantee that we will achieve the same level of design or program wins as we have in the past, or at all. Uncertainties regarding our Company, including uncertainties regarding pending litigation (see Part II, Item 1, "Legal Proceedings") or uncertainties regarding the Divestiture and ongoing disputes with Vishay could affect our ability to achieve design-wins or sales there from. Without design or program wins from OEMs, we would only be able to sell our products to these OEMs as a second source, if at all. Once an OEM designs another supplier's semiconductor into one of its product platforms, it is more difficult for us to achieve future design or program wins with that OEM's product platform because changing suppliers involves significant cost, time, effort and risk. Achieving a design or program win with a customer also does not ensure that we will receive significant revenue from that customer.

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

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

In addition, as is common in the semiconductor industry, we have at times experienced difficulty in beginning production at new facilities or in effecting transitions to new manufacturing processes. As a consequence, we have experienced delays in product deliveries and reduced yields. We may experience manufacturing problems in achieving acceptable yields, experience product delivery delays, and/or quality issues in the future, as a result of, 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 materially 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 materially 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, for use in a variety of high profile and critical applications. In the ordinary course of our business, we receive claims for some of these products that are defective, or that do not perform to published specifications. Since a defect or failure in our products could give rise to failures in the end products that incorporate them (and consequential claims for damages against our customers from their customers depending on applicable law and contract), we often need to defend against claims for damages that are disproportionate to the revenue and profit we receive from the products involved. In addition, our ability to reduce such liabilities may be limited by the laws or the customary business practices of the countries where we do business. Even in cases where we do not believe we have legal liability for such claims, we may choose to pay for them to retain a customer's business or goodwill or to settle claims to avoid protracted litigation. Our results of operations and business would be adversely affected as a result of significant alleged quality or performance issues in our products, or if we are required or choose to pay for the damages that result.

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

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

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

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 materially adversely affected if our relationships with these subcontractors were disrupted or terminated.

Our growth strategy includes a number of changes to the manner in which we conduct business, including, among other things, the implementation of a number of cost reductions, and consolidation and rationalization of suppliers and our distribution channels. We have previously accepted the return of inventory in certain circumstances and experienced lower sales volume with certain distribution partners as we awaited the sale of channel inventory to end customers. Continued execution on our strategy could expose us to additional costs, the return of additional inventory and reduced sales to distributors. All of these risks could have a material adverse impact on our results of operations.

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

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

We build and maintain inventory in order to meet our historic and projected needs, but cannot guarantee that our inventory will be adequate to meet 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 materially adversely affected. Additionally, if we produce or have produced inventory that does not meet current or future demand, we may determine at some point that certain of the inventory may only be sold at a discount or may not be sold at all, resulting in the reduction in the carrying value of our inventory and a material adverse effect on our financial condition and operating results.

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

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

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

Many of our distributors have some rights to return inventory under their stock rotation programs or may return inventory with our approval or other circumstances. In addition, as part of our growth strategy, we have, from time to time, accepted, and may in the future accept, additional returns. If these channel partners return a large amount of inventory, our operating results could be impacted by lower revenue and higher costs associated with inventory write-offs.

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

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

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

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

We have experienced significant turnover in some of our senior management positions. In fiscal year 2008, our Board of Directors has appointed a new CEO and in fiscal 2009, a new 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, especially in light of publicity concerning our Audit Committee-led Investigation, the recent restatement of our financial statements and related matters, and unsolicited, nonbinding offers to purchase the outstanding shares of our Company from a third party (including the public announcement by that party of its intention to commence a tender offer, to nominate three individuals for election as directors at our 2007 annual meeting, and to seek certain amendments to our Bylaws). 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 impact our ability to report our results of operations and financial condition accurately and in a timely manner.

As required by Section 404 of the Sarbanes-Oxley Act, we have conducted an assessment of our internal control over financial reporting, identified material weaknesses in our internal control over financial reporting and concluded that our internal control over financial reporting was not effective as of September 30, 2008. For a detailed description of these material weaknesses, see Part I, Item 4, "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 certain remediation efforts for the identified material weaknesses, and this work will continue during fiscal year 2009. There can be no assurance as to when these remediation efforts will be fully developed, when they will be implemented, when they will be completed and the aggregate cost of implementation. Until our remedial efforts are completed, we will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, there will also continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our future financial statements could contain errors that will be undetected.

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

We and certain of our former and current executive officers and directors are defendants in several securities class action and other lawsuits. These lawsuits are described in Part II, Item 1, "Legal Proceedings." Our attention may be diverted from our ordinary business operations by these lawsuits and we may incur significant expenses associated with the defense of these lawsuits (including substantial fees of lawyers and other professional advisors and potential obligations to indemnify current and former officers and directors who may be parties to such action). 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.

Our continuing obligations under the transaction documents for the Divestiture and claims by Vishay 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, as discussed in Part I, Item 1, Note 18, "Commitments and Contingencies," 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. Vishay has additionally notified us that it intends to seek rescission of the Divestiture. 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.

Continuing negative publicity and publicity generally may adversely affect our business.

As a result of the Audit Committee-led Investigation, the fiscal year 2007 restatement of our financial statements and related matters as discussed herein, we have been the subject of negative publicity. We were also the subject of recent publicity regarding unsolicited, nonbinding proposals to purchase all outstanding shares of our Company by a third party,which third party subsequently commenced an all cash tender offer for all of our outstanding shares, nominated three individuals for election as directors at our 2007 annual meeting, and proposed certain amendments to our Bylaws at our 2007 annual meeting. The tender offer was terminated following our shareholders' rejection of that third party's director nominees and proposed Bylaw amendments at our 2007 annual meeting. This 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.

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

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

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 practices 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 effecting 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 IRS 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. (See Part I, Item 1, Note 14, "Income Taxes").

Changes in our effective tax rate may materially effect on our results of operations.

Our future effective tax rates may be materially affected by a number of factors, including the jurisdictions in which profits are determined to be earned and taxed and the intercompany pricing related to those profits; the resolution of issues arising from tax audits with various tax authorities; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; increases in expenses not deductible for tax purposes; changes in available tax credits; changes in share-based compensation expense; changes in tax laws or the interpretation of such tax laws (including transfer pricing guidelines); changes in generally accepted accounting principles ("GAAP"); or the repatriation of non-U.S. earnings 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 HiRel segment is subject to governmental regulation that exposes us to additional risks.

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

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

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

We rely on our collaborative partners to manufacture certain of our products. Although we believe that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources to be devoted to these activities may not be within our control. There can also be no assurance that these parties or any future parties

will perform their obligations as expected which could have a material adverse affect on our financial condition and results of operations.

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

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

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

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

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

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 years 2008 and 2009, 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.

Given the current investment environment, some of our investments may not be sold for the market value indicated in our financial statements.

With the recent developments in the financial markets, some of our investments in corporate bonds and collateral-backed mortgage obligations are more difficult to value or are subject to complex valuation techniques. While we have valued such investments in accordance with accounting procedures adopted by us, such valuations may not necessarily be indicative of their actual liquidation value and, if we are required to liquidate these securities, we may not realize prices as high as indicated by their market value in our financial statements. There is no assurance that the market value of these investments will not deteriorate further.

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.

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

Federal, state, foreign and local laws and regulations impose various restrictions and controls on the discharge of materials, chemicals and gases used in our semiconductor manufacturing processes, and on the operation of our facilities and equipment. We believe we use reasonable efforts to maintain a system of compliance and controls for these laws and regulations. However, we cannot provide absolute assurance that these controls will always be effective or that issues with respect to these matters will not from time to time occur. There are also inherent limitations on the effectiveness of controls, including the failure of human judgment.

Under some laws and regulations, we could be held financially responsible for remedial measures if our properties are contaminated or if we send waste to a landfill or recycling facility that becomes contaminated, even if we did not cause the contamination. Under other laws, we may be subject to fines and penalties if facilities or equipment are not operated in technical compliance with permit conditions or if required reports are not timely filed with applicable agencies. We have received such notices, including a notice following our fiscal quarter ended September 30, 2008 at our Temecula, California facility. 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 credit facility with a group of banks under which our ability to draw has been suspended pending the banks review of our current 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.

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,

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 materially 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, accounting principles generally accepted in the United States of America.

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

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

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

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

Natural disasters, whether in the United States or internationally, may affect the markets in which our common stock trades, the markets in which we operate and our profitability. Such events could affect our domestic and international sales, disrupt our supply chains, and impair our ability to produce and deliver our products. We have two main facilities for wafer production and any interruption in those facilities could materially adversely impact us. Even if 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.

The following matters were submitted to a vote of our Company's shareholders at the 2007 annual meeting of shareholders held on October 10, 2008. Below is a summary of, where applicable, the number of votes cast for, against or withheld, as well as the number of abstentions as to each matter.

Index:

	3.1		Certificate of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-8 filed with the Commission on July 19, 2006; Registration No. 333-117489)
	3.2		Bylaws as Amended (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the Commission on November 11, 2005)
	4.1		Fourth Amendment to the Amended and Restated Rights Agreement, dated as of October 12, 2008, between the Company and Mellon Investor Services LLC (F/K/A/ ChaseMellon Shareholder Services, L.L.C.) (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Commission on October 14, 2008)
	10.1		Form of Indemnification Agreement approved for directors and executive officers of the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on September 19, 2008)
	10.2		Letter Agreement executed September 21, 2008 between the Company and Ilan Daskal (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on September 26, 2008)
	10.3		Severance Agreement executed September 21, 2008 between the Company and Ilan Daskal (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on September 26, 2008)
	10.4		Amendment No. 1 to Consulting Agreement dated October 16, 2008, between the Company and Pahl Consulting, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on October 22, 2008)
	10.5		Letter Agreement Amendment, executed October 22, 2008, between the Company and Peter B. Knepper (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on October 22, 2008)
	10.6		Form of Non-Employee Director Option Agreement*
	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*

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.


(Mark One)
ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


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


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


Balance at June 30, 2008		$	126,275
	Total gains (losses), realized and unrealized
	Included in earnings		(11,738	)
	Included in other comprehensive loss		5,539
Purchases, sales and settlements, net			(21,860	)
Net transfers in (out) of Level 3			—

Balance at September 30, 2008		$	98,216

		Amortized Cost		Estimated Fair Value

Due in 1 year or less		$	92,884	$	91,465
Due in 1-2 years			97,022		96,584
Due in 2-5 years			85,191		85,530
Due after 5 years			118,335		116,082

	Total investments	$	393,432	$	389,661

		Three Months Ended September 30,

		2008		2007
Non-cash investing activities:
	Liabilities accrued for property, plant and equipment purchases	$	1,778	$	4,278

		September 30, 2008		June 30, 2008

Raw materials		$	32,189	$	34,046
Work-in-process			69,471		67,855
Finished goods			74,229		73,955

	Total inventories	$	175,889	$	175,856

Business Segment		September 30, 2008		June 30, 2008

Energy-Saving Products		$	33,190	$	33,190
HiRel			18,959		18,959
Enterprise Power			22,806		22,806
Automotive Products			3,793		3,793
Intellectual Property			20,074		20,074

	Total goodwill	$	98,822	$	98,822


Accrued warranty, June 30, 2008	$	2,672
Accruals for warranties issued during the period		1,101
Changes in estimates related to pre-existing warranties		1,065
Warranty claim settlements		(2,134	)

Accrued warranty, September 30, 2008	$	2,704

		September 30, 2008		June 30, 2008

Income taxes payable		$	20,890	$	21,147
Divested entities' tax obligations			20,422		20,734
Deferred compensation			8,730		9,326
Transition services contract liability			3,333		5,000
Other			2,957		3,078

	Total other long-term liabilities	$	56,332	$	59,285

				Weighted Average Option Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Aggregate Intrinsic Value

Outstanding, June 30, 2008		9,360		$	40.43		—	$	2,568
	Granted	1,299		$	18.58	$	7.50		—
	Exercised	(49	)	$	20.19		—	$	94
	Expired	(90	)	$	41.22		—		—

Outstanding, September 30, 2008		10,520		$	37.83		—	$	3,957

				Weighted Average Grant Date Fair Value per Share		Aggregate Intrinsic Value

Outstanding, June 30, 2008		1		$	48.10	$	13
	Granted	360		$	18.63		—
	Exercised	(1	)	$	48.10	$	13

Outstanding, September 30, 2008		360		$	18.63	$	7,092



Options exercisable	8,733	8,621
Options available for grant	2,498	4,440
Total reserved common stock shares for stock option plans	13,378	13,800

	Three Months Ended September 30,

	2008			2007
Expected life		4.4 years			N/A
Risk free interest rate		3.1	%		N/A
Volatility		45.0	%		N/A
Dividend yield		0.0	%		N/A

		Three Months Ended September 30,

		2008		2007
Reported in asset impairment, restructuring and other charges
	Asset impairment	$	—	$	—
	Severance		351		—
	Other charges		120		35

Total asset impairment, restructuring and other charges		$	471	$	35

	September 30, 2008

Accrued severance, June 30, 2008	$	1,091
Charged to asset impairment, restructuring and other charges		351
Charged to operating expenses		2,646
Costs paid		(1,748	)
Foreign exchange losses		(8	)

Accrued severance, September 30, 2008	$	2,332

		Three Months Ended September 30, 2008

		Loss (Numerator)			Shares (Denominator)		Per Share Amount
Net loss per common share—basic		$	(4,456	)		72,843	$	(0.06	)
Effect of dilutive securities:
	Stock options and restricted stock units		—			—		—

Net loss per common share—diluted		$	(4,456	)		72,843	$	(0.06	)

		Three Months Ended September 30, 2007

		Income (Numerator)		Shares (Denominator)		Per Share Amount
Net income per common share—basic		$	10,413		72,811	$	0.14
Effect of dilutive securities:
	Stock options and restricted stock units		—		446		—

Net income per common share—diluted		$	10,413		73,257	$	0.14

	Three Months Ended September 30,

	2008			2007
Cash flows used in operating activities	$	(19,890	)	$	(24,159	)
Cash flows (used in) provided by investing activities		(1,140	)		36,366
Cash flows provided by (used in) financing activities		852			(559,040	)
Effect of exchange rate changes		2,496			176

Net decrease in cash and cash equivalents	$	(17,682	)	$	(546,657	)

Description of Matter		For				Authority Withheld

1.	Election of Directors
	Jack O. Vance		30,784,328				655,722
	Thomas Lacey		30,860,187				579,863
	Mary B. Cranston		30,867,405				572,645
	Ronald M. Ruzic		24,109,909				358,242
	William T. Vinson		24,106,209				361,942
	Yoram (Jerry) Wind		24,109,800				358,351
In addition, the terms of office of the following directors continued after the 2007 annual meeting: Dr. Rochus E. Vogt, Richard J. Dahl, Dr. James D. Plummer, Robert S. Attiyeh, and Oleg Khaykin.
		For		Against		Abstentions
2.	Ratification of the Appointment of PricewaterhouseCoopers LLP as our Company's Independent Registered Public Accounting Firm For Fiscal Year 2008		54,617,059		702,454		588,688
		For		Against		Abstentions
3.	Stockholder Proposal Regarding Compensation Recoupment Policy		25,339,572		26,771,703		3,796,926
		For		Against		Abstentions
4.	Stockholder Proposal to Amend Bylaws to Require 2008 Annual Meeting be held No Later Than December 21, 2008		9,854,249		45,991,016		62,936
		For		Against		Abstentions
5.	Stockholder Proposal to Amend Bylaws to Provide for Majority Stockholder Vote to Adjourn Stockholders Meeting		25,919,315		29,838,730		150,156
		For		Against		Abstentions
6.	Stockholder Proposal to Amend Bylaws to Repeal Amendments to the Bylaws Made After February 29, 2008		25,899,317		29,731,695		277,189


		INTERNATIONAL RECTIFIER CORPORATION Registrant
Date: November 6, 2008		/s/ ILAN DASKAL Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)