10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(MARK ONE)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                                 TO
COMMISSION FILE NUMBER: 1-7935

International Rectifier Corporation

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE	95-1528961
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)	(IRS EMPLOYER IDENTIFICATION NUMBER)
233 KANSAS STREET EL SEGUNDO, CALIFORNIA	90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:  (310) 726-8000

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.    YES ý  NO  o

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).     YES ý  NO  o

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A SHELL COMPANY (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).     YES o  NO  ý

THERE WERE 70,794,310 SHARES OF THE REGISTRANT’S COMMON STOCK, PAR VALUE $1.00 PER SHARE, OUTSTANDING ON NOVEMBER 8, 2005.

Table of Contents

		Page Reference
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004	3
	Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2005 and 2004	4
	Unaudited Consolidated Balance Sheets as of September 30, 2005 and June 30, 2005	5
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2005 and 2004	6
	Notes to Unaudited Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	56
ITEM 4.	Controls and Procedures	59
PART II.	OTHER INFORMATION
		60
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds
ITEM 6.	Exhibits	61

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PART I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share amounts)

	Three Months Ended September 30,
	2005			2004
Revenues	$	272,573		$	312,225
Cost of sales	161,680			178,788
Gross profit	110,893			133,437
Selling and administrative expense	45,166			46,415
Research and development expense	25,212			25,366
Amortization of acquisition-related intangibles	1,453			1,439
Impairment of assets, restructuring and severance charges	4,293			6,691
Other expense (income), net	124			(36		)
Interest (income) expense, net	(1,552		)	1,717
Income before income taxes	36,197			51,845
Provision for income taxes	9,954			14,265
Net income	$	26,243		$	37,580
Net income per common share – basic	$	0.37		$	0.56
Net income per common share – diluted	$	0.36		$	0.53
Average common shares outstanding – basic	70,329			66,516
Average common shares and potentially dilutive securities outstanding – diluted	72,277			75,711

The accompanying notes are an integral part of these statements.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended September 30,
	2005			2004
Net income	$	26,243		$	37,580
Other comprehensive (loss) income:
Foreign currency translation adjustments	(5,136		)	139
Unrealized (losses) gains on securities:
Unrealized holding losses on available-for-sale securities, net of tax effect of $1,686 and $5,521, respectively	(2,872		)	(9,401		)
Unrealized holding gains on foreign currency forward contract, net of tax effect of ($154) and ($477), respectively	263			811
Less: Reclassification adjustments of net (gains) losses on available-for-sale securities and foreign currency forward contract	(23		)	216
Other comprehensive loss	(7,768		)	(8,235		)
Comprehensive income	$	18,475		$	29,345

The accompanying notes are an integral part of these statements.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30,		June 30,
	2005		2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	359,138	$	359,978
Short-term cash investments	224,499		278,157
Trade accounts receivable, less allowance for doubtful accounts	159,685		158,510
Inventories, net	193,781		177,560
Deferred income taxes	33,982		34,784
Prepaid expenses and other receivables	64,952		53,387
Total current assets	1,036,037		1,062,376
Long-term cash investments	348,311		302,585
Property, plant and equipment, net	502,517		488,204
Goodwill	152,329		152,457
Acquisition-related intangible assets, net	33,862		35,354
Long-term deferred income taxes	74,038		76,158
Other assets	103,756		106,410
Total assets	$	2,250,850	$	2,223,544
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank loans	$	20,437	$	18,168
Long-term debt, due within one year	47		163
Accounts payable	78,157		81,893
Accrued salaries, wages and commissions	29,353		33,344
Other accrued expenses	82,415		91,328
Total current liabilities	210,409		224,896
Long-term debt, less current maturities	542,322		547,259
Other long-term liabilities	25,188		26,186
Stockholders’ equity:
Common stock	70,736		69,826
Capital contributed in excess of par value of shares	882,388		854,045
Retained earnings	461,388		435,145
Accumulated other comprehensive income	58,419		66,187
Total stockholders’ equity	1,472,931		1,425,203
Total liabilities and stockholders’ equity	$	2,250,850	$	2,223,544

The accompanying notes are an integral part of these statements.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended September 30,
	2005			2004
Cash flow from operating activities:
Net income	$	26,243		$	37,580
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,043			16,922
Amortization of acquisition-related intangible assets	1,453			1,439
Stock compensation expense	491			—
Unrealized (gains) losses on swap transactions	(1,175		)	773
Deferred income taxes	4,270			(4,681		)
Tax benefit from options exercised	6,980			1,063
Change in operating assets and liabilities, net	(44,477		)	(30,019		)
Net cash provided by operating activities	13,828			23,077
Cash flow from investing activities:
Additions to property, plant and equipment	(37,009		)	(28,514		)
Proceeds from sale of property, plant and equipment	2			32
Acquisition of business	—			(41,468		)
Sale or maturities of cash investments	110,987			101,103
Purchase of cash investments	(105,277		)	(78,437		)
Change in other investing activities, net	(3,785		)	(1,990		)
Net cash used in investing activities	(35,082		)	(49,274		)
Cash flow from financing activities:
Proceeds from short-term debt, net	2,457			2,924
Repayments of capital lease obligations, net	(59		)	(57		)
Proceeds from exercise of stock options and stock purchase plan	21,782			5,084
Other, net	(4,492		)	588
Net cash provided by financing activities	19,688			8,539
Effect of exchange rate changes on cash and cash equivalents	726			48
Net decrease in cash and cash equivalents	(840		)	(17,610		)
Cash and cash equivalents, beginning of period	359,978			339,024
Cash and cash equivalents, end of period	$	359,138		$	321,414

The accompanying notes are an integral part of these statements.

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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

1.Basis of Consolidation

The consolidated financial statements include the accounts of International Rectifier Corporation and its subsidiaries (“the Company”), which are located in North America, Europe and Asia.  Intercompany transactions have been eliminated in consolidation.

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring adjustments which, in the opinion of the Company’s management, are necessary to state fairly the consolidated financial position of the Company at September 30, 2005, and the consolidated results of operations and the consolidated cash flows for the three months ended September 30, 2005 and 2004.  The results of operations for the three months ended September 30, 2005 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

The Company operates on a 52-53 week fiscal year under which the three months ended September 2005 and 2004 consisted of 13 weeks ending October 2, 2005 and October 3, 2004, respectively.  For ease of presenting the accompanying consolidated financial statements, the fiscal quarter-end for all periods presented is shown as September 30 or June 30.  Fiscal 2006 will consist of 52 weeks ending July 2, 2006.

Certain reclassifications have been made to the September 30, 2004 (i) cash flow from investing activities, (ii) net decrease in cash and cash equivalents, and (iii) ending cash and cash equivalents, as a result of reclassification of auction rate securities (“ARS”) from cash and cash equivalents to short-term investments.  Previously, the Company’s investments in ARS were recorded in cash and cash equivalents rather than short-term cash investments.  The Company reclassified ARS from cash and cash equivalents to short-term investments because the underlying instruments have maturity dates exceeding ninety days. As a result of the reclassifications, the Company’s consolidated cash flows were affected as follows:

•net cash used for the purchase of cash investments decreased by $51.0 million for the three months ended September 30, 2004; and

•net change in cash and cash equivalents increased by $51.0 million for the three months ended September 30, 2004.

The reclassifications had no impact on the Company’s total current assets, stockholders’ equity, cash flows provided by operating activities or total

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consolidated results reported in any period presented.  At September 30, 2005 and June 30, 2005, the Company had no investments in these securities.

2.Net Income Per Common Share

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

The following table provides a reconciliation of the numerator and denominator of the basic and diluted per-share computations for the three months ended September 30, 2005 and 2004 (in thousands except per share amounts):

	Net Income		Shares	Per Share Amount
	(Numerator)		(Denominator)
Three months ended September 30, 2005:
Net income per common share – basic	$	26,243	70,329	$	0.37
Effect of dilutive securities:
Stock options	—		1,948	(0.01		)
Net income per common share – diluted	$	26,243	72,227	$	0.36
Three months ended September 30, 2004:
Net income per common share – basic	$	37,580	66,516	$	0.56
Effect of dilutive securities:
Stock options	—		1,756	(0.01		)
Conversion of subordinated notes	2,386		7,439	(0.02		)
Net income per common share – diluted	$	39,966	75,711	$	0.53

The conversion effect of the Company’s outstanding convertible subordinated notes into 7,439,000 shares of common stock was not included in the computation of diluted income per share for the three months ended September 30, 2005, since such effect would be anti-dilutive.

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3.Cash and Investments

The Company classifies all highly liquid investments purchased with original or remaining maturities of ninety days or less at the date of purchase as cash equivalents.  The cost of these investments approximates fair value.

The Company invests excess cash in marketable securities consisting primarily of commercial paper, corporate notes, corporate bonds and U.S. government securities.  At September 30, 2005 and June 30, 2005, all of the Company’s marketable securities are classified as available-for-sale.  In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, unrealized gains and losses on these investments are included in accumulated other comprehensive income, a separate component of stockholders’ equity, net of any related tax effect.  Realized gains and losses and declines in value considered to be other than temporary are included in interest income and expense.  At September 30, 2005 and June 30, 2005, no investment was in a material loss position for greater than one year.

Cash, cash equivalents and cash investments as of September 30, 2005 and June 30, 2005 are summarized as follows (in thousands):

	September 30,		June 30,
	2005		2005
Cash and cash equivalents	$	359,138	$	359,978
Short-term cash investments	224,499		278,157
Long-term cash investments	348,311		302,585
Total cash, cash equivalents and cash investments	$	931,948	$	940,720

Available-for-sale securities as of September 30, 2005 are summarized as follows (in thousands):

Short-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss				Net Unrealized Loss			Market Value
Corporate debt	$	155,359	$	2	$		(1,220	)	$	(1,218	)	$	154,141
U.S. government and agency obligations	70,237		—		(322			)	(322		)	69,915
Other debt	443		—		—				—			443
Total short-term cash investments	$	226,039	$	2	$	(1,543		)	$	(1,541	)	$	224,499

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Long-Term Cash Investments:

	Amortized Cost			Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value
Corporate debt	$		144,813	$	8	$	(654	)	$	(646	)	$	144,167
U.S. government and agency obligations	130,171			54		(597		)	(543		)	129,628
Other debt	74,729			26		(239		)	(213		)	74,516
Total long-term cash investments	$	349,713		$	88	$	(1,490	)	$	(1,402	)	$	348,311

Available-for-sale securities as of June 30, 2005 are summarized as follows (in thousands):

Short-Term Cash Investments:

	Amortized Cost			Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized Loss			Market Value
Corporate debt	$		179,372	$	6	$	(1,477	)	$	(1,471	)	$	177,901
U.S. government and agency obligations	99,728			—		(576		)	(576		)	99,152
Other debt	1,105			—		(1		)	(1		)	1,104
Total long-term cash investments	$	280,205		$	6	$	(2,054	)	$	(2,048	)	$	278,157

Long-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Net Unrealized (Loss) Gain			Market Value
Corporate debt	$	124,727	$	249	$	(355	)	$	(106	)	$	124,621
U.S. government and agency obligations	116,082		239		(134		)	105			116,187
Other debt	61,765		131		(119		)	12			61,777
Total long-term cash investments	$	302,574	$	619	$	(608	)	$	11		$	302,585

The Company holds as strategic investments the common stock of two publicly-traded Japanese companies, one of which is Nihon Inter Electronics Corporation (“Nihon”), a related party as further disclosed in Note 15.  The Company accounts for these available-for-sale investments under SFAS 115.  These stocks are traded on the Tokyo Stock Exchange.  The market values of the equity investments at September 30, 2005 and June 30, 2005 were $66.6 million and $71.2 million, respectively, compared to their purchased cost of $24.2 million.  Mark-to-market losses, net of tax, of $2.9 million and $9.8 million for the three months ended September 30, 2005 and 2004, respectively, were included in accumulated other comprehensive income, a separate component of equity.

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The amortized cost and estimated fair value of cash investments at September 30, 2005, by contractual maturity, are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	226,039	$	224,499
Due in 1-2 years	176,052		175,121
Due in 2-5 years	138,657		138,277
Due after 5 years	35,004		34,913
Total cash investments	$	575,752	$		572,810

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

Gross realized gains were $0.01 million and gross realized losses were $0.3 million for the three months ended September 30, 2005.  Gross realized gains were $0.01 million and gross realized losses were $0.05 million for the three months ended September 30, 2004.  The cost of marketable securities sold is determined by the weighted average cost method.

4.Derivative Financial Instruments

Foreign Currency Risk

The Company conducts business on a global basis in several foreign currencies, and at various times, is exposed to fluctuations with the British Pound Sterling, the Euro and the Japanese Yen.  The Company’s risk to the European currencies is partially offset by the natural hedge of manufacturing and selling goods in both U.S. dollars and the European currencies.  Considering its specific foreign currency exposures, the Company has the greatest exposure to the Japanese Yen, since it has significant yen-based revenues without the yen-based manufacturing costs.  The Company has established a foreign-currency hedging program using foreign exchange forward contracts, including the Forward Contract described below, to hedge certain foreign currency transaction exposures.  To protect against reductions in value and volatility of future cash flows caused by changes in currency exchange rates, it has established revenue, expense and balance sheet hedging programs.  Currency forward contracts and local Yen and Euro borrowings are used in these hedging programs.  The Company’s hedging programs reduce, but do not always eliminate, the impact of currency exchange rate movements.

In March 2001, the Company entered into a five-year foreign exchange forward contract (the “Forward Contract”) for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by the Company’s subsidiary in Japan. The Company has designated the Forward Contract as a cash flow hedge under which mark-to-market adjustments are recorded in accumulated other comprehensive income, a separate component of stockholders’ equity, until the forecasted transactions are recorded in earnings.  Under the terms of the Forward Contract, the Company is required to exchange

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1.2 billion yen for $11.0 million on a quarterly basis from June 2001 to March 2006.  At September 30, 2005, two quarterly payments of 1.2 billion yen remained to be swapped at a forward exchange rate of 109.32 yen per U.S. dollar.  The market value of the forward contract was $0.5 million and $0.1 million at September 30, 2005 and June 30, 2005, respectively.  Mark-to-market gains, included in other comprehensive income, net of tax, were $0.3 million and $0.8 million for the three months ended September 30, 2005 and 2004, respectively.  At September 30, 2005, based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to its cash flow requirements, the Company does not expect to incur a material charge as a result of the Forward Contract to income during the next six months through its maturity.

The Company had approximately $111.7 million and $75.9 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at September 30, 2005 and June 30, 2005, respectively.  Net realized and unrealized foreign-currency net gains recognized in earnings were less than $1 million for the three months ended September 30, 2005 and 2004.

Interest Rate Risk

In December 2001, the Company entered into an interest rate swap transaction (the “Transaction”) with an investment bank, JP Morgan Chase Bank (the “Bank”), to modify the Company’s effective interest payable with respect to $412.5 million of its $550 million outstanding convertible debt (the “Debt”) (see Note 8, “Bank Loans and Long-Term Debt”).   In April 2004, the Company entered into an interest rate swap transaction (the “April 2004 Transaction”) with the Bank to modify the effective interest payable with respect to the remaining $137.5 million of the Debt.  The Company will receive from the Bank fixed payments equal to 4.25 percent of the notional amount, payable on January 15 and July 15.  In exchange, the Company will pay to the Bank floating rate payments based upon the London InterBank Offered Rate (“LIBOR”) multiplied by the notional amount.  At the inception of the Transaction, interest rates were lower than that of the Debt and the Company believed that interest rates would remain lower for an extended period of time.  The variable interest rate paid since the inception of the swaps has averaged 2.36 percent, compared to a coupon of 4.25 percent on the Debt.  During the three months ended September 30, 2005 and 2004, this arrangement reduced interest expense by $0.9 million and $2.2 million, respectively.

Accounted for as fair value hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, the mark-to-market adjustments of the Transaction and April 2005 Transaction were offset by the mark-to-market adjustments on the Debt, resulting in no material impact to earnings.  The market value of the Transaction was a liability of $3.9 million and $0.3 million at September 30, 2005 and June 30, 2005, respectively.  The market value of the April 2005 Transaction was a liability of $3.8 million and a $3.4 million at September 30, 2005 and June 30, 2005, respectively.

Both Transactions terminate on July 15, 2007 (“Termination Date”), subject to certain early termination provisions.  On or after July 18, 2004 and prior to July 14, 2007, if the ten-day average closing price of the Company’s common stock equals or exceeds $77.63, both transactions will terminate.  Depending on the timing of

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the early termination event, the Bank would be obligated to pay the Company an amount equal to the redemption premium called for under the terms of the Debt.

In support of the Company’s obligation under the two transactions, the Company is required to obtain irrevocable standby letters of credit in favor of the Bank, totaling $7.5 million plus a collateral requirement for the Transaction and the April 2005 Transaction, as determined periodically.  At September 30, 2005, $15.8 million in letters of credit were outstanding related to both transactions.

The Transaction and the April 2005 Transaction qualify as fair value hedges under SFAS No. 133.  To test effectiveness of the hedge, regression analysis is performed quarterly comparing the change in fair value of the two transactions and the Debt.  The fair values of the Transaction, the April 2005 Transaction and the Debt are calculated quarterly as the present value of the contractual cash flows to the expected maturity date, where the expected maturity date is based on probability-weighted analysis of interest rates relating to the five-year LIBOR curve and the Company’s stock prices.  For the three months ended September 30, 2005 and 2004, the hedges were highly effective and therefore, the ineffective portion did not have a material impact on earnings.

In April 2002, the Company entered into an interest rate contract (the “Contract”) with an investment bank, Lehman Brothers (“Lehman”), to reduce the variable interest rate risk of the Transaction.  The notional amount of the Contract is $412.0 million, representing approximately 75 percent of the Debt.  Under the terms of the Contract, the Company has the option to receive a payout from Lehman covering its exposure to LIBOR fluctuations between 5.5 percent and 7.5 percent for any four designated quarters.  The market value of the Contract at September 30, 2005 and June 30, 2005, was $0.2 million and $0.1 million, respectively, and was included in other long-term assets.  Mark-to-market gains (losses) of $0.1 million and ($0.3) million for the three months ended September 30, 2005 and 2004, respectively, were charged to interest expense.

5.Inventories

Inventories are stated at the lower of cost (principally first-in, first-out) or market.  Inventories are reviewed for excess and obsolescence based upon demand forecast within a specific time horizon and reserves are established accordingly.  Inventories at September 30, 2005 and June 30, 2005 were comprised of the following (in thousands):

	September 30,			June 30,
	2005			2005
Raw materials	$	36,322		$		33,328
Work-in-process	82,727			82,802
Finished goods	74,732			61,430
Total inventories	$		193,781	$	177,560

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6.Goodwill and Acquisition-Related Intangible Assets

The Company accounts for goodwill and acquisition-related intangible assets in accordance with SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”.  The Company classifies the difference between the purchase price and the fair value of net assets acquired at the date of acquisition as goodwill.  The Company classifies intangible assets apart from goodwill if the assets have contractual or other legal rights or if the assets can be separated and sold, transferred, licensed, rented or exchanged.  Depending on the nature of the assets acquired, the amortization period may range from four to twelve years for those acquisition-related intangible assets subject to amortization.

The Company evaluates the carrying value of goodwill and acquisition-related intangible assets, including the related amortization period, in the fourth quarter of each fiscal year.  In evaluating goodwill and intangible assets not subject to amortization, the Company completes the two-step goodwill impairment test as required by SFAS No. 142.  The Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units, in order to assess goodwill for impairment.  A reporting unit is the lowest level of the Company for which there is discrete information and whose results are regularly reviewed by the Company.

In the first of a two-step impairment test, the Company determined the fair value of these reporting units using a discounted cash flow valuation model.  The Company compared the discounted cash flows for the reporting unit to its carrying value.  If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is considered not impaired and no further testing is required.  If the fair value does not exceed the carrying value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any.  The second step compared the implied fair value of the reporting unit with the carrying amount of that goodwill.  Based on its annual impairment test in the fourth quarter of fiscal year ended June 30, 2005, the Company determined that goodwill was not impaired.

At September 30, 2005 and June 30, 2005 acquisition-related intangible assets included the following (in thousands):

		September 30, 2005					June 30, 2005
	Amortization Periods (Years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquisition-related intangible assets:
Complete technology	4 – 12	$	35,962	$	(11,948	)	$	36,665	$	(11,859	)
Distribution rights and customer lists	5 – 12	15,667		(7,634		)	15,667		(7,243		)
Intellectual property and other	5 – 12	7,313		(5,498		)	7,313		(5,189		)
Total acquisition-related intangible assets		$	58,942	$	(25,080	)	$	59,645	$	(24,291	)

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As of September 30, 2005, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal 2006: $3,015; fiscal 2007: $2,899; fiscal 2008: $2,527; fiscal 2009: $2,489, fiscal 2010: $2,489 and fiscal 2011: $1,710.

The carrying amount of goodwill by business segment as of September 30, 2005, is as follows (in thousands):

	September 30, 2005
Energy-Saving Products	$	70,310
Aerospace and Defense	45,765
Computing and Communications	28,803
Non-Aligned Products	4,190
Intellectual Property	3,261
Total goodwill	$	152,329

As of September 30, 2005 and June 30, 2005, $43.3 million of goodwill is deductible for income tax purposes.

The changes in the carrying amount of goodwill for the period ended September 30, 2005 and June 30, 2005 are as follows (in thousands):

	Goodwill
Balance, June 30, 2004	$	139,919
New acquisition	12,958
Foreign exchange impact	(420		)
Balance, June 30, 2005	$	152,457
Foreign exchange impact	(128		)
Balance, September 30, 2005	$	152,329

New acquisitions in the fiscal year ended June 30, 2005, primarily relates to the acquisition of the specialty silicon epitaxial services business from Advanced Technology Materials, Inc.  The goodwill associated with this acquisition has been assigned to the Computing and Communications, Energy-Saving Products and Intellectual Property segments based on revenues.

7.Other accrued expenses

Other accrued expenses at September 30, 2005 and June 30, 2005 were comprised of the following (in thousands):

	September 30,		June 30,
	2005		2005
Accrued taxes	$	41,165	$	46,704
Other accrued expenses	41,250		44,624
Total accrued expenses	$	82,415	$	91,328

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8.Bank Loans and Long-Term Debt

A summary of the Company’s long-term debt and other loans at September 30, 2005 and June 30, 2005 is as follows (in thousands):

	September 30,			June 30,
	2005			2005
Convertible subordinated notes at 4.25% due in 2007 ($550,000 principal amount, plus accumulated fair value adjustment of ($8,351) and ($3,360) at September 30, 2005 and June 30, 2005, respectively)	$		541,649	$	546,640
Other loans and capitalized lease obligations	3,069			782
Debt, including current portion of long-term debt ($47 and $163 at September 30, 2005 and June 30, 2005, respectively)	544,718			547,422
Foreign revolving bank loans at rates from 1.38% to 3.88%	18,088			18,168
Total debt	$	562,806		$		565,590

In July 2000, the Company sold $550 million principal amount of 4.25 percent Convertible Subordinated Notes due 2007. The interest rate is 4.25 percent per year on the principal amount, payable in cash in arrears semi-annually on January 15 and July 15.  The notes are subordinated to all of the Company’s existing and future debt. The notes are convertible into shares of the Company’s common stock at any time on or before July 15, 2007, at a conversion price of $73.935 per share, subject to certain adjustments.  The Company may redeem any of the notes, in whole or in part, subject to certain call premiums on or after July 18, 2004, as specified in the notes and related indenture agreement.  In December 2001 and April 2005, the Company entered into two transactions with JP Morgan Chase Bank for $412.5 million and $137.5 million in notional amounts, respectively, which had the effect to the Company of converting the interest rate to variable and requiring that the convertible notes be marked to market (see Note 4, “Derivative Financial Instruments”).

In November 2003, the Company entered into a three-year syndicated multi-currency revolving credit facility, led by BNP Paribas, expiring in November 2006 (the “Facility”).  The Facility provides a credit line of $150 million of which up to $150 million may be used for standby letters of credit.  The Facility bears interest at (i) local currency rates plus (ii) a margin between 0.75 percent and 2.0 percent for base rate advances and a margin of between 1.75 percent and 3.0 percent for euro-currency rate advances.  Other advances bear interest as set forth in the credit agreement.  The annual commitment fee for the Facility is subject to a leverage ratio as determined by the credit agreement and was 0.375 percent of the unused portion of the total facility at each period-end.  The Company pledged as collateral shares of certain of its subsidiaries.  The Facility also contains certain financial and other covenants, with which the Company was in compliance at September 30, 2005.  At September 30, 2005, the Company had $16.9 million borrowings and $20.2 million letters of credit outstanding under the Facility.  At June 30, 2005, the Company had $17.1 million borrowings and $16.4 million letters of credit outstanding under the Facility.  Of the letters of credit outstanding, $15.8

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million and $12.0 million were related to the interest rate swap transactions (see Note 3) at September 30, 2005 and June 30, 2005, respectively.

At September 30, 2005, the Company had $166.6 million in total revolving lines of credit, of which $38.2 million had been utilized, consisting of $20.2 million in letters of credit and $18.0 million in foreign revolving bank loans, which are included in the table above.

9.Impairment of Assets, Restructuring and Severance

During fiscal 2003 second quarter ended December 31, 2002, the Company announced its restructuring initiatives. Under these initiatives, the goal was to reposition the Company to better fit the market conditions and de-emphasize its commodity business. The Company’s restructuring plan included consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products within its Focus Product segments.  The Company also planned to lower overhead costs across its support organizations.  The Company has substantially completed these restructuring activities as of September 30, 2005.  The Company expects to complete the remaining activities, primarily the closing of a fabrication line at El Segundo, California by fiscal year end 2006 or sooner.

Total charges associated with the December 2002 initiatives are expected to be approximately $280 million. These charges will consist of approximately $220 million for asset impairment, plant closure and other charges, $6 million of raw material and work-in-process inventory, and $54 million for severance-related costs.

For the three months ended September 30, 2005, the Company recorded $4.3 million in total restructuring-related charges, consisting of: $3.1 million for asset impairment, plant closure costs and other charges, and $1.2 million for severance-related costs.  For the three months ended September 30, 2004, the Company recorded $6.7 million in total restructuring-related charges, consisting of: $4.9 million for impairment, plant closure costs and other charges, and $1.8 million for severance-related costs.  Restructuring-related costs were charged as incurred in accordance with SFAS No. 146, “Accounting for the Costs Associated with Exit or Disposal Activities”.  Asset impairments were calculated in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”.  In determining the asset groups, the Company grouped assets at the lowest level for which independent identifiable cash flows were available. In determining whether an asset was impaired the Company evaluated undiscounted future cash flows and other factors such as changes in strategy and technology. The undiscounted cash flows from the Company’s initial analyses were less than the carrying amount for certain of the asset groups, indicating impairment losses.  Based on this, the Company determined the fair value of these asset groups using the present value technique, by applying a discount rate to the estimated future cash flows that was consistent with the rate used when analyzing potential acquisitions.

As of September 30, 2005, the Company had recorded $265.7 million in total charges, consisting of: $213.2 million for asset impairment, plant closure costs and

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other charges, $6.0 million for raw material and work-in-process inventory charges, and $46.5 million for severance-related costs.  Components of the $213.2 million asset impairment, plant closure and other charges included the following items:

•As the Company emphasizes more advanced generation planar products, it expects the future revenue stream from its less advanced facilities in Temecula, California to decrease significantly.  These facilities had a net book value of $138.3 million and were written down by $77.7 million.  It is expected that these facilities will continue in use until approximately December 2007 and the remaining basis is being depreciated over units of production during this period. It is assumed that salvage value will equal disposition costs.

•As the Company emphasizes more advanced generation trench products, it expects the future revenue stream from its less advanced facility in El Segundo, California to decrease significantly. This facility had a net book value of $59.5 million and was written down by $57.2 million.  This facility had significantly reduced production as of fiscal year ended June 30, 2003 and is used primarily for research and development activities.

•As the Company emphasizes more advanced generation Schottky products, it expects the future revenue stream from its less advanced facility in Borgaro, Italy to decrease significantly. This facility had a net book value of $20.5 million and was written down by $13.5 million.  It is expected that this facility will continue in use until approximately December 2007 and the remaining basis is being depreciated over units of production during this period.  It is assumed that salvage value will equal disposition costs.

•The Company restructured its manufacturing activities in Europe.  Based on a review of its Swansea, Wales facility, a general-purpose module facility, the Company determined in the December 2002 quarter that this facility would be better suited to focus only on automotive applications.  The general-purpose module assets at this facility, with a net book value of $13.6 million, were written down by $8.2 million.  In addition, the Company has completed the move of its manufacturing activities from its automotive facility in Krefeld, Germany to its Swansea, Wales and Tijuana, Mexico facilities as of September 30, 2005. The Company has also moved the production from its Venaria, Italy facility to its Borgaro, Italy and Mumbai, India facilities, which was completed as of December 31, 2003.  The Company stopped manufacturing products at its Oxted, England facility as of September 30, 2003.

•The Company has eliminated the manufacturing of its non-space military products in its Santa Clara, California facility as of July 31, 2004. Currently, subcontractors handle the Company’s non-space qualified products previously manufactured in this facility. The Company is also transitioning the assembly and test of non-space Power Components from its Leominster, Massachusetts facility to its Tijuana, Mexico facility, and expects to complete this activity by calendar year end 2005.  Associated with these reductions in manufacturing activities, certain assets with a net book value of $4.0 million were written down by $2.0 million.

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•$54.6 million in other miscellaneous items were charged, including $45.8 million in relocation costs and other impaired asset charges and $8.8 million in contract termination and settlement costs.

As a result of the restructuring initiatives, certain raw material and work-in-process inventories were impaired, including products that could not be completed in other facilities, materials that were not compatible with the processes used in the alternative facilities, and materials such as gases and chemicals that could not readily be transferred. Based on these factors the Company wrote down these inventories, with a carrying value of $98.2 million, by $6.0 million. For the three months ended September 30, 2005 and 2004, the Company disposed of $0 and $0.5 million, respectively, of these inventories, which did not have a material impact on gross margin for the periods then ended.  As of September 30, 2005, $1.2 million of these inventories remained to be disposed.

As of September 30, 2005, the Company has recorded $46.5 million in severance-related charges:  $41.3 million in severance termination costs related to approximately 1,200 administrative, operating and manufacturing positions, and $5.1 million in pension termination costs at its manufacturing facility in Oxted, England.  The severance charges associated with the elimination of positions, which included the persons notified to date, had been and will continue to be recognized over the future service period, as applicable, in accordance with SFAS No. 146.  The Company measured the total termination benefits at the communication date based on the fair value of the liability as of the termination date.  A change resulting from a revision to either the timing or the amount of estimated cash over the future service period will be measured using the credit-adjusted risk-free rate that was used to initially measure the liability.  The cumulative effect of the change will be recognized as an adjustment to the liability in the period of the change.

During fiscal 2002, the Company had recorded an estimated $5.1 million in severance costs associated with the acquisition of TechnoFusion GmbH in Krefeld, Germany.  In fiscal 2003, the Company finalized its plan and determined that total severance would be approximately $10 million, and accordingly, the Company adjusted purchased goodwill by $4.8 million.  The Company communicated the plan and the elimination of approximately 250 positions primarily in manufacturing to its affected employees at that time.  The associated severance is expected to be paid by calendar year end 2005.

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The following summarizes the Company’s severance accrual related to the June 2001 restructuring, the TechnoFusion acquisition and the December 2002 restructuring plan for the three months ended September 30, 2005 and the fiscal year ended June 30, 2005.  Severance activity related to the elimination of 29 administrative and operating personnel as part of the previously reported restructuring in the fiscal quarter ended June 30, 2001, is also disclosed.  The remaining June 2001 severance relates primarily to certain legal accruals associated with that restructuring, which will be paid or released as the outcome is determined (in thousands):

	June 2001 Restructuring			December 2002 Restructuring			TechnoFusion Severance Liability			Total Severance Liability
Accrued severance, June 30, 2004	$	697		$	7,180		$	6,067		$	13,944
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	—			8,677			—			8,677
Costs paid	(326		)	(7,810		)	(3,770		)	(11,906		)
Foreign exchange impact	—			77			(190		)	(113		)
Accrued severance, June 30, 2005	$	371		$	8,124		$	2,107		$	10,602
Costs incurred or charged to “impairment of assets, restructuring and severance”	—			1,231			—			1,231
Costs paid	(64		)	(3,055		)	(406		)	(3,525		)
Foreign exchange impact	—			(14		)	(14		)	(28		)
Accrued severance, September 30, 2005	$	307		$	6,286		$	1,687		$	8,280

10.Segment and Geographic Information

Revenues for the three months ended September 30, 2005 and 2004, by the three broad product categories, are as follows (in thousands):

	September 30, 2005		September 30, 2004
Power Management ICs and Advanced Circuit Devices	$	175,360	$	169,782
Power Components	54,874		99,586
Power Systems	31,899		32,838
Total product revenues	262,133		302,206
Intellectual Property	10,440		10,019
Total consolidated revenues	$	272,573	$		312,225

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Segment results for the three months ended September 30, 2005 and 2004 and as of September 30, 2005 and June 30, 2005, are as follows (in thousands except percentages):

	September 30, 2005					September 30, 2004
Business Segment	Revenues			Gross Profit		Revenues		Gross Profit
Computing and Communications	$	89,640		41.6	%	$	105,991	43.7	%
Energy-Saving Products	72,386			52.4		73,151		53.6
Aerospace and Defense	29,401			43.8		32,277		41.3
Intellectual Property	10,440			100.0		10,019		100.0
Subtotal Focus Products	201,867			48.8		221,438		49.2
Commodity Products	42,152			19.3		59,524		30.9
Non-Aligned Products	28,554			14.6		31,263		19.6
Subtotal Non-Focus Products	70,706			17.4		90,787		27.0
Consolidated total	$		272,573	40.7	%	$	312,225	42.7	%

Product revenues from unaffiliated customers are based on the location in which the sale originated. The Company includes in long-lived assets, all long-term assets excluding long-term cash investments, long-term deferred income taxes, goodwill and acquisition-related intangibles.

Geographic information for the Company on an aggregate basis, for the three months ended September 30, 2005 and 2004, is presented below (in thousands):

Revenues from Unaffiliated Customers	September 30, 2005		September 30, 2004
North America, primarily United States	$	74,611	$	91,977
Asia	129,628		140,686
Europe	57,894		69,543
Subtotal	262,133		302,206
Unallocated royalties	10,440		10,019
Total	$	272,573	$	312,225

Long-Lived Assets	September 30, 2005			June 30, 2005
North America, primarily United States	$	348,306		$	347,892
Asia	27,500			23,598
Europe	230,467			223,124
Total	$		606,273	$	594,614

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No single original equipment manufacturer (“OEM”), customer, distributor or subcontract manufacturer accounted for more than ten percent of the Company’s consolidated revenues for the three months ended September 30, 2005 or 2004.  For its Focus Product segments as a whole, the Company primarily sells direct to OEM customers.  Three distributors accounted for approximately 41 percent of Computing and Communications segment revenues for the three months ended September 30, 2005.  One distributor accounted for approximately 17 percent of Commodity Products segment revenues for the three months ended September 30, 2005.  Two OEM customers, individually accounting for greater than 10 percent of Non-Aligned Products (“NAP”) revenues, accounted for approximately 35 percent of NAP revenues for the three months ended September 30, 2005.  No single OEM customer, distributor or subcontract manufacturer accounted for more than ten percent of the Company’s other reportable segments revenues for the quarter.  No customer accounted for more than 10 percent of the Company’s accounts receivable at September 30, 2005 and June 30, 2005.

11.Stock-Based Compensation

For the three months ended September 30, 2005, equity-based compensation awards were granted under one of two stock option plans:  the 1997 Employee Stock Incentive Plan (“1997 Plan”) and the 2000 Incentive Plan (“2000 Plan”). Options granted before November 22, 2004, generally became exercisable in annual installments of 25 percent beginning on the first anniversary date, and expire after seven years.  Options granted after November 22, 2004, generally became exercisable in annual installments of 33 percent beginning on the first anniversary date, and expire after five years.

Under the 1997 Plan, options to purchase shares of the Company’s common stock may be granted to the Company’s employees and consultants.  In addition, other stock-based awards (e.g., restricted stock units (“RSUs”), SARs and performance shares) may also be granted.  During the three months ended September 30, 2005 and 2004, non-qualified options and RSUs were issued under the 1997 Plan. As noted below, on November 22, 2004, the Company’s stockholders approved an amendment to the 2000 Plan to increase the authorized number of shares from 7,500,000 to 12,000,000, at which point no awards may be granted under the 1997 Plan.

Under the 2000 Plan, options to purchase shares of the Company’s common stock and other stock-based awards may be granted to the Company’s employees, consultants, officers and directors.  The terms of the 2000 Plan were substantially similar to those under the 1997 Plan. On November 22, 2004, the Company’s shareholders approved an amendment to the 2000 Plan which increased the authorized number of shares to be granted from 7,500,000 to 12,000,000.  The amendment changed the options expiration term on future grants to five years, and contained certain limitations on the maximum number of shares that may be awarded to an individual. No awards may be granted under the 2000 Plan after August 24, 2014. As of September 30, 2005, there were 4,097,698 shares available for future grants.

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The following table summarizes the stock option activities for the period ended September 30, 2005 (in thousands except per share data):

	Shares		Weighted Average Option Exercise Price Per Share		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding, June 30, 2005	13,558		$	38.01	—		$	149,290
Granted	580		$	48.16	$	13.27	—
Exercised	(922	)	$	23.86	—		$	21,339
Expired or canceled	(114	)	$	40.65	—		—
Outstanding, September 30, 2005	13,102		$	39.51	—		$	100,692

The following table summarizes the RSU activities for the period ended September 30, 2005 (in thousands except per share data):

	Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding, June 30, 2005	24	—
Granted	6	$	48.10
Outstanding, September 30, 2005	30	—

The following table summarizes the non-vested stock option and RSU activities for the period ended September 30, 2005 (in thousands):

	Stock Options	Restricted Stock Units
Non-vested shares, June 30, 2005	137	24
Granted	580	6
Non-vested shares, September 30, 2005	717	30

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The following table summarizes the stock options and RSUs outstanding at September 30, 2005, and related weighted average price and life information (in thousands except years and price data):

	September 30, 2005
	Outstanding				Exercisable
Range of Exercise Price per Share	Number Outstanding	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.00 to $15.38	490	3.43	$	11.07	461	$	11.79
$15.62 to $25.35	2,095	3.60	$	20.63	2,095	$	20.63
$26.00 to $35.90	1,484	5.69	$	33.93	1,484	$	33.93
$36.39 to $45.87	6,539	4.65	$	42.78	6,530	$	42.78
$46.50 to $54.69	1,530	4.85	$	50.52	822	$	52.41
$55.31 to $63.88	994	5.15	$	62.01	993	$	62.01
	13,132	4.61	$	39.42	12,385	$	39.00

Additional information relating to the stock option plans, including employee stock options and RSUs, at September 30, 2005 and June 30, 2005 is as follows (in thousands):

	September 30, 2005	June 30, 2005
Options exercisable	12,385	13,422
Options available for grant	4,098	4,632
Total reserved common stock shares for stock option plans	17,229	18,214

Beginning in the fiscal year 2006, the Company adopted SFAS No. 123(R), “Share-Based Payments” (“SFAS No. 123(R)”) on a modified prospective transition method to account for its employee stock options.  The adoption of SFAS No. 123(R) did not affect the stock-based compensation associated with the Company’s RSUs, which were already based on the market price of the stock at date of grant and recognized over the service period.  Under the modified prospective transition method, fair value of new and previously granted but unvested equity awards are recognized as compensation expense in the income statement, and prior period results are not restated.  As a result of the adoption, the Company’s income from continuing operations, which is the same as income before income taxes, decreased by $0.4 million, net income was decreased by $0.3 million, and basic and diluted earnings per share were negatively impacted by $0.01.

For the three months ended September 30, 2005, stock-based compensation expense recognized in the income statement is as follows (in thousands):

	September 30, 2005
Selling and administrative expense	$	258
Research and development expense	82
Cost of sales	30
Total stock-based compensation expense	$	370

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The total compensation expense for outstanding stock options and RSUs was $7.9 million as of September 30, 2005, which will be recognized over a weighted average of approximately three years. The fair value of the options associated with the above compensation expense for the three months ended September 30, 2005, was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	September 30, 2005
Expected life	3.5 years
Risk free interest rate	3.8	%
Volatility	30.0	%
Dividend yield	0.0	%

In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB No. 107”) that provided the Staff’s views regarding valuation of share-based payments pursuant to SFAS No. 123(R).  With respect to volatility, SAB No. 107 clarified that there is not a particular method of estimating volatility and to the extent that the Company has traded financial instruments from which it can derive the implied volatility, it may be appropriate to use only implied volatility in its assumptions.  The Company has certain financial instruments that are publicly traded from which it can derive the implied volatility.  Therefore, beginning in January 2005, the Company used implied volatility for valuing its stock options, whereas previously, it had used historical volatility.  The Company believes implied volatility is a better indicator of expected volatility because it is generally reflective of both historical volatility and expectations of how future volatility will differ from historical volatility.

SAB No. 107 also provided certain “simplified” method for determining expected life in valuing stock options.  To the extent that an entity cannot rely on its historical exercise data to determine the expected life, SAB No. 107 has prescribed a simplified “plain-vanilla” formula.  Subsequent to the 2000 Plan amendments on November 22, 2004, the Company issued stock options having five-year expiration with generally a three-year annual vesting term, whereas, prior to then, the Company granted stock options having seven or ten-year expiration with generally a four or five-year annual vesting term.   Therefore, beginning in January 2005, the Company applied SAB No. 107 “plain-vanilla” method for determining the expected life, whereas previously, it had used historical exercise data to determine the expected life.

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Had the Company accounted for stock-based compensation plans using the fair value based accounting method described by SFAS No. 123 for the periods prior to fiscal year 2006, the Company’s diluted net income per common share–basic and diluted for the three months ended September 30, 2004, would have approximated the following (in thousands except per share data):

	September 30, 2004
Net income	$	37,580
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax	(13,243		)
Pro forma net income	$	24,337
Net income per common share-basic, as reported	$	0.56
Net income per common share-basic, pro forma	$	0.37
Net income per common share-diluted, as reported	$	0.53
Net income per common share-diluted, pro forma	$	0.35

On April 17, 2005, the Company accelerated the vesting of all then outstanding equity awards, including employee stock options and restricted stock units, primarily to avoid recognizing in its income statement approximately $108 million in associated compensation expense in future periods, of which approximately $60 million would have been recognized in fiscal year 2006 upon the adoption of SFAS No. 123(R). As a result of the accelerated vesting, the Company recorded $6.0 million in non-cash compensation charge, of which $3.9 million is related to the excess of the intrinsic value over the fair market value of the Company’s stock on the acceleration date of those options that would have been forfeited or expired unexercised had the vesting not been accelerated, and $2.1 million is related to the recognition of outstanding RSUs, including $0.3 million for the excess of the intrinsic value over the fair market value of the Company’s stock on the acceleration date.  In determining the forfeiture rates of the stock options, the Company reviewed the unvested options’ original life, time remaining to vest and whether these options were held by officers and directors of the Company.  The compensation charge is adjusted in future period financial results as actual forfeitures are realized.  For the three months ended September 30, 2005, there were no material changes in actual forfeitures from estimates.

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12.Environmental Matters

Federal, state, foreign and local 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. The Company does not believe that compliance with such laws and regulations as now in effect will have a material adverse effect on the Company’s results of operations, financial position or cash flows.

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

The Company 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”). IR 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.

In as much as Rachelle has not accepted the settlement, the Company cannot predict whether the EPA or others would attempt to assert an action for contribution or reimbursement for monies expended to perform remedial actions at the OII Site.  The Company cannot predict the likelihood that the EPA or such others would prevail against Rachelle in any such action.  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 and cash flows.

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The Company received a letter in June 2001 from a law firm representing UDT Sensors, Inc. relating to environmental contamination (chlorinated solvents such as trichlorethene) assertedly 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.

13.Litigation

In June 2000, the Company filed suit in Federal District Court in Los Angeles, California against IXYS Corporation, alleging infringement of its key U.S. patents 4,959,699; 5,008,725 and 5,130,767.  The suit sought damages and other relief customary in such matters.  The Federal District Court entered a permanent injunction, effective on June 5, 2002, barring IXYS from making, using, offering to sell or selling in, or importing into the United States, MOSFETs (including IGBTs) covered by the Company’s U.S. patents 4,959,699; 5,008,725 and/or 5,130,767.  In August 2002, the Court of Appeals for the Federal Circuit stayed that injunction, pending appeal on the merits.  In that same year, following trial on damages issues, a Federal District Court jury awarded the Company $9.1 million in compensatory damages.  The Federal District Court subsequently tripled the damages, increasing the award from $9.1 million to approximately $27.2 million, and ruled that the Company is entitled to an additional award of reasonable attorney’s fees for a total monetary judgment of about $29.5 million.  In March 2004, the U.S. Court of Appeals for the Federal Circuit reversed the summary judgment granted the Company by the Federal District Court in Los Angeles of infringement by IXYS of the Company’s U.S. patents 4,959,699; 5,008,725 and 5,130,767. The Federal Circuit reversed in part and vacated in part infringement findings of the District Court, granted IXYS the right to present certain affirmative defenses, and vacated the injunction against IXYS entered by the District Court. The ruling by the Federal Circuit had the effect of vacating the damages judgment obtained against IXYS. The Federal Circuit affirmed the District Court’s rulings in the Company’s favor regarding the validity and enforceability of the three Company patents. Following remand, a federal court jury in Los Angeles, California held on September 15, 2005, that IXYS elongated octagonal MOSFETs and IGBTs infringed the Company’s 4,959,699 patent but did not infringe the Company’s 5,008,725 and 5,130,767 patents. On October 6, 2005 the jury awarded the Company $6.2 million in damages. Further proceedings are required in the trial court before final judgment can be entered. The Company anticipates that IXYS will appeal the judgment.  No amount has been recognized in the income statement from the pending litigation for the three months ended September 30, 2005.

14.Income Taxes

The Company’s effective tax provision for the three months ended September 30, 2005 and 2004 was 27.5 percent and 24.0 percent, respectively, rather than the U.S. federal statutory tax provision of 35 percent as a result of lower statutory tax rates in certain foreign jurisdictions, the benefit of foreign tax credits and research

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and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefit.

In December 2004, the FASB issued FASB Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004”, which introduces a limited time 85 percent dividends received deduction on the repatriation of certain foreign earnings to a U.S. tax payer (“repatriation provision”), provided certain criteria are met.  The Company is currently evaluating the range of possible amounts of unremitted earnings that may be repatriated as a result of the repatriation provision; the related range of income tax effects of such repatriation cannot be reasonably estimated at this time.

15.Related Party Transactions

As discussed in Note 3, the Company holds as strategic investment common stock of Nihon Inter Electronics Corporation (“Nihon”), a related party.  At September 30, 2005 and June 30, 2005, the Company owned approximately 17.5 percent of the outstanding shares of Nihon.  As previously reported, the Company’s Chief Financial Officer was the Chairman of the Board and a director of Nihon until June 28, 2005.  In addition, the general manager of the Company’s Japan subsidiary is a director of Nihon.  Although the Company has a member on the Board of Directors of Nihon, it does not exercise significant influence, and accordingly, the Company records its interest in Nihon based on readily determinable market values in accordance with SFAS No. 115 (see Note 3, “Cash and Investments”).

16.Subsequent Event

On November 1, 2005, the Company’s Board of Directors authorized and the Company announced a stock repurchase program, under which up to $100 million of the Company’s common shares may be repurchased without prior notice, through block trades or otherwise.  The Company intends that any shares repurchased will be held as treasury shares that may be used for general corporate purposes.  From the date of the repurchase through the following thirty days, no amounts under the Company’s $150 million credit facility will be available.  Shares repurchased will be paid with the Company’s existing cash and cash investments.  As of November 11, 2005, no shares had been repurchased under the program.

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

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

Overview of Results of Operations for the Three Months Ended September 30, 2005

We report our results in six segments: Computing and Communications (“C&C”), Energy-Saving Products (“ESP”), Aerospace and Defense (“A&D”), Intellectual Property (“IP”), Commodity Products (“CP”) and Non-Aligned Products (“NAP”).  We include our C&C, ESP, A&D and IP segments in our Focus Product group, and our CP and NAP segments in our Non-Focus Product group.

For the three months ended September 30, 2005, consolidated revenues were $272.6 million compared to $312.2 million in the prior year three months ended September 30, 2004.  Revenues for our Focus Products were $201.9 million (74.1 percent of revenues) and $221.4 million (70.9 percent of revenues) for the three months ended September 30, 2005 and 2004, respectively.  Revenues for our Non-Focus Products were $70.7 million (25.9 percent of revenues) and $90.8 million (29.1 percent of revenues) for the three months ended September 30, 2005 and 2004, respectively.  Revenues for the three months ended September 30, 2005 were lower than the prior year.  Some of the factors that adversely affected revenues for the quarter ended September 30, 2005 included price pressure on certain component products, changes in distributor purchasing patterns and a logistics bottleneck that delayed certain shipments at the end of the fiscal quarter in our A&D segment.  Additionally, in our C&C and ESP segments, revenues were inhibited by and lower due to capacity constraints and an inventory mix that was different than the demand for certain products.  For the three months ended December 31, 2005, we expect our overall revenues to increase by only one to four percent, in part, reflecting continuing capacity limitations in our C&C and ESP segments.

For the quarter ended September 30, 2005, total inventory increased by $16.2 million to $193.8 million from $177.6 million at June 30, 2005.  Finished goods increased by $13.3 million as a result of an inventory build that was different than the demand for certain products principally within our C&C and ESP segments in the fiscal first quarter.

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For the three months ended September 30, 2005, gross profit margin was 40.7 percent compared to 42.7 percent for the prior year three months ended September 30, 2004.  Gross profit margin for our Focus Products were 48.8 percent and 49.2 percent for the three months ended September 30, 2005 and 2004, respectively.  Gross profit margin for our Non-Focus Products was 17.4 percent and 27.0 percent for the three months ended September 30, 2005 and 2004, respectively.  The gross profit margin declined primarily due to price declines, product mix, and profit sharing and employee stock option expense.  We expect our overall Company gross margin for the three months ended December 31, 2005 to be approximately two percentage points lower than the three months ended September 30, 2005, largely due to pricing pressures, product mix and costs associated with our Newport, Wales facility.

Revenues as a percentage of total product revenues based on sales location were approximately 28 percent, 50 percent and 22 percent for North America (primarily United States), Asia and Europe, respectively, for the three months ended September 30, 2005.  Revenues as a percentage of total product revenues based on sales location were approximately 30 percent, 47 percent and 23 percent for North America (primarily United States), Asia and Europe, respectively, for the three months ended September 30, 2004.

As of September 30, 2005, we have substantially completed our restructuring activities previously announced in 2002 and 2003.  For the three months ended September 30, 2005, we recorded $4.3 million in total restructuring-related charges, consisting of: $3.1 million for asset impairment, plant closure costs and other charges and $1.2 million for severance-related costs.  We estimate that charges associated with the restructuring will be approximately $280 million.  These charges will consist of approximately $220 million for asset impairment, plant closure costs and other charges, $6 million of raw material and work-in-process inventory, and approximately $54 million for severance-related charges.  Of the $280 million in total charges, we expect cash charges to be approximately $110 million.  As of September 30, 2005, we have realized annualized savings of approximately $80 million from the restructuring activities, with approximately 70 percent of that savings affecting cost of goods sold.  We are also continuing with our plan to review product lines and products not aligned with our long-term objectives to increase our overall gross margins.

As of September 30, 2005, demand for our Focus Products, primarily those reported in our C&C and ESP segments, exceeded our worldwide capacity.  To help address our capacity limitations, we are starting production on our new eight-inch sub-micron wafer fabrication facility in Newport, Wales in the December 2005 quarter.  During the three months ended September 30, 2005, we spent $37.0 million in capital expenditure, of which $13.9 million was at the Newport, Wales facility.  We anticipate that nearly 70 percent of capital expenditures for fiscal year 2006 will be in the first half of the year.

We adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”) that became effective for us in the fiscal first quarter ended September 30, 2005.  SFAS No. 123(R) required that we recognize the fair value of equity awards granted to our employees as compensation expense in the income statement over the requisite service period.  For the three months ended September 30, 2005, we recognized $0.4 million in stock-based compensation expense as a result of the adoption of SFAS No. 123(R).  As a consequence of SFAS No. 123(R), we have reduced

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the number of employees who will receive stock options.  To offset the impact of the option grant reduction and to continue to attract and retain the industry’s best qualified technical, sales, marketing and managerial personnel, we have established a new profit sharing plan that became effective beginning in the fiscal year 2006.  For the three months ended September 30, 2005, we recognized $2.8 million in profit sharing plan expense.

During the three months ended September 30, 2005, operating activities generated cash flow of $13.8 million.  Our cash, cash equivalents and cash investments totaled $931.9 million at September 30, 2005.  Additionally, we have $128.3 million in unused credit facilities for operating needs.

On November 1, 2005, our Board of Directors authorized and we announced a stock repurchase program, under which up to $100 million of our common shares may be repurchased without prior notice, through block trades or otherwise.  We intend that any shares repurchased will be held as treasury shares that may be used for general corporate purposes.  As of November 11, 2005, no shares had been repurchased under the program.

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Results of Operations for the Three Months Ended September 30, 2005 Compared with the Three Months Ended September 30, 2004

The following table sets forth certain items as a percentage of revenues (in millions except percentages):

	Three Months Ended September 30,
	2005					2004
Revenues	$	272.6		100.0	%	$	312.2		100.0	%
Cost of sales	161.7			59.3		178.8			57.3
Gross profit	110.9			40.7		133.4			42.7
Selling and administrative expense	45.2			16.7		46.4			14.9
Research and development expense	25.2			9.2		25.4			8.1
Amortization of acquisition-related intangible assets	1.5			0.5		1.4			0.5
Impairment of assets, restructuring and severance charges	4.3			1.6		6.7			2.1
Other expense (income), net	0.1			0.0		(0.0		)	(0.0	)
Interest (income) expense, net	(1.6		)	(0.6	)	1.7			0.5
Income before income taxes	36.2			13.3		51.8			16.6
Provision for income taxes	10.0			3.7		14.2			4.6
Net income	$	26.2		9.6	%	$	37.6		12.0	%

Revenues and Gross Margin

For the three months ended September 30, 2005, consolidated revenues decreased by 12.7 percent from the prior year three months ended September 30, 2004.  Revenues for the three months ended September 30, 2005 were lower than the prior year, due to combination of price pressure on certain component products, changes in distributor purchasing patterns, and a logistics bottleneck that delayed certain shipments at the end of the fiscal quarter in our A&D segment.  Additionally, in our C&C and ESP segments, revenues were inhibited by and lower due to capacity constraints and an inventory mix that was different than the demand for certain products.  Gross profit margin was 40.7 percent for the three months ended September 30, 2005, compared to 42.7 percent in the prior year three months ended September 30, 2004.  The gross profit margin declined primarily due to price declines, product mix, profit sharing and employee stock options expense.  In general, our wafer manufacturing facilities serve all business units as necessary and their operating costs are reflected in the segments’ cost of revenues on the basis of product cost.  General manufacturing overhead and variances are allocated to the segments based on the percentage of total revenues.

For the quarter ended September 30, 2005, total inventory increased by $16.2 million to $193.8 million from $177.6 million at June 30, 2005.  Finished goods increased by $13.3 million as a result of an inventory build that was different than the demand for certain products principally within our C&C and ESP segments in the fiscal first quarter.

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Revenues as a percentage of total product revenues based on sales location were approximately 28 percent, 50 percent and 22 percent for North America (primarily United States), Asia and Europe, respectively, for the three months ended September 30, 2005.  Revenues as a percentage of total product revenues based on sales location were approximately 30 percent, 47 percent and 23 percent for North America (primarily United States), Asia and Europe, respectively, for the three months ended September 30, 2004.

Revenues for our Focus Products were $201.9 million (74.1 percent of revenues) and $221.4 million (70.9 percent of revenues) for the three months ended September 30, 2005 and 2004, respectively.  Revenues for our Non-Focus Products were $70.7 million (25.9 percent of revenues) and $90.8 million (29.1 percent of revenues) for the three months ended September 30, 2005 and 2004, respectively.

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

	Three Months Ended
	September 30, 2005						September 30, 2004
Business Segment	Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Computing and Communications	$	89,640	32.9	%	41.6	%	$	105,991	33.9	%	43.7	%
Energy-Saving Products	72,386		26.6		52.4		73,151		23.4		53.6
Aerospace and Defense	29,401		10.8		43.8		32,277		10.4		41.3
Intellectual Property	10,440		3.8		100.0		10,019		3.2		100.0
Subtotal Focus Products	201,867		74.1		48.8		221,438		70.9		49.2
Commodity Products	42,152		15.4		19.3		59,524		19.1		30.9
Non-Aligned Products	28,554		10.5		14.6		31,263		10.0		19.6
Subtotal Non-Focus Products	70,706		25.9		17.4		90,787		29.1		27.0
Consolidated total	$	272,573	100.0	%	40.7	%	$	312,225	100.0	%	42.7	%

Computing and Communications (“C&C”)

Our Computing and Communication segment is comprised of our Power Management ICs, Advanced Circuit Devices, including iPowir^TM multi-chip modules and DirectFET^TM solutions, and Power Components (primarily MOSFET Power Components) that address servers and high-end desktops, notebooks, communications networking, and digitally-oriented consumer products like game consoles.  Our C&C products are also used in digital television, liquid crystal displays (“LCDs”), portable handheld devices and cellular phones.

C&C revenues declined by $16.4 million, 15.4 percent, compared to the prior year three months ended September 30, 2004, primarily reflecting price pressures on certain of our component products and changes in our distributor purchasing patterns.  Additionally, C&C revenues were inhibited by and lower due to capacity constraints and an inventory mix that was different than the demand for certain products.  To help address our capacity limitations, we are starting production

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on our new eight-inch sub-micron wafer fabrication facility in Newport, Wales in the December 2005 quarter.

Gross margin for C&C was 41.6 percent for the three months ended September 30, 2005, compared to 43.7 percent for the prior year three months ended September 30, 2004.  Gross margin declined reflecting price declines, product mix, profit sharing and employee stock options expense, partially offset by increased sales of higher margin DirectFETs and FlipFETs into the computing and communications market.

Energy-Saving Products (“ESP”)

Our Energy-Saving Product segment is comprised of our Power Management ICs, Advanced Circuit Devices and Power Components (primarily HEXFET and IGBT Power Components) that provide solutions for variable speed motion control in energy-saving appliances (such as washing machines, refrigerators and air conditioners), and industrial systems (such as fans, pumps and compressors), advanced lighting products (including fluorescent lamps, high intensity discharge (“HID”) lamps, cold cathode fluorescent (“CCFL”) tubes and light emitting diodes (“LED”) lighting), advanced automotive solutions (primarily diesel injection, electric-gasoline hybrid and electric power steering systems), and consumer applications (for example, plasma TVs and digital-audio units).

ESP revenues for the three months ended September 30, 2005, declined by $0.8 million, 1.0 percent, compared to the prior year three months ended September 30, 2004, primarily due to price pressures on certain of our component products and changes in our distributor purchasing patterns.  Additionally, ESP revenues were inhibited by capacity constraints and an inventory mix that was different than the demand.  The negative impact on the ESP segment’s revenues from these factors was partially offset by increased sales of our high voltage ICs into the consumer and automotive markets.

Gross margin for ESP was 52.4 percent for the three months ended September 30, 2005, compared to 53.6 percent for the three months ended September 30, 2004.  The gross margin decline reflected primarily price declines, product mix, profit sharing and employee stock options expense.

Aerospace and Defense (“A&D”)

The Aerospace and Defense segment is comprised of advanced power management solutions, such as radiation-hardened power management modules, radiation-hardened Power Components, and other high-reliability Power Components that address power management requirements in satellites, launch vehicles, aircrafts, ships, submarines and other defense and high-reliability applications.  Revenues for the three months ended September 30, 2005, declined by $2.9 million, 8.9 percent, from the three months ended September 30, 2004, primarily reflecting a logistics bottleneck that delayed shipments at the end of the fiscal quarter.  This revenue is included in the fiscal second quarter ending December 31, 2005 operating results, and we expect A&D revenues to increase from the September 2005 quarter.

Gross margin for the A&D segment increased to 43.8 percent for the fiscal quarter ended September 30, 2005, from 41.3 percent in the comparable prior year period,

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reflecting manufacturing efficiencies and restructuring cost savings.  Gross margin improvement was partially offset by profit sharing and employee stock option expense.

Intellectual Property (“IP”)

The Intellectual Property segment reports our royalty income from licensing our intellectual property to third parties, which may include claims settlement from successful defense of our licenses.  Our licensed MOSFET patents expire between 2005 and 2010, with the broadest remaining in effect until 2007 and 2008.  We continue to commit to research and development to generate new patents and other intellectual property and concentrate on incorporating our technologies into our Focus Products.

IP revenues were $10.4 million and $10.0 million for the three months ended September 30, 2005 and 2004, respectively.

Commodity Products (“CP”)

The Commodity Product segment is comprised primarily of older-generation Power Components that are sold with margins generally below our strategic targets and are typically commodity in nature.  These products have widespread use throughout the power management products industry and are often complementary to many of our Focus Products offerings or allow us to provide a full range of customer or application offerings.  We often offer these products to take advantage of cross-selling opportunities for our other product families.

For the three months ended September 30, 2005, CP revenues were $42.2 million, down 29.1 percent from $59.5 million for the three months ended September 30, 2004, reflecting a one-month shut down at one of our European facilities in the current year versus a one-week shut down in the prior year quarter, changes in our distributor purchasing patterns, price pressures on our component products and discontinuation of certain business opportunities since the prior year.

Gross margin for CP was 19.3 percent for the fiscal quarter ended September 30, 2005, compared to 30.9 percent in the comparable prior year quarter, reflecting price pressures, profit sharing and employee stock option expense.

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Non-Aligned Products (“NAP”)

The Non-Aligned Product segment includes businesses, product lines or products that we are targeting for realignment, whether by changing the business model for how we participate in the business, or by divestiture or other strategic transactions, such as joint venture or partnership.  We plan to support our Non-Focus Products to the extent we believe appropriate, to manage, maintain or increase their value in line with our long-term goals for those segments.  Currently, product lines reported in this segment include certain modules, rectifiers, diodes and thyristors used in the automotive, industrial, welding and motor control applications.

Revenues for the three months ended September 30, 2005 were $28.6 million, decreasing 8.7 percent from $31.2 million in the three months ended September 30, 2004, reflecting negative impacts from the restructuring of certain of our European facilities and the Euros foreign currency fluctuations.

Gross margin for our NAP segment was 14.6 percent for the three months ended September 30, 2005, compared to 19.6 percent for the three months ended September 30, 2004, reflecting lower manufacturing efficiency and product mix.

Selling and Administrative Expense

For the three months ended September 30, 2005, selling and administrative expense was $45.2 million (16.6 percent of revenues), compared to $46.4 million (14.9 percent of revenues) for the three months ended September 30, 2004.  The increase in the selling and administrative expense ratio primarily reflected a lower revenue base in the current year.  The absolute selling and administrative expense decreased reflecting lower sales commissions and other variable costs paid on a lower revenue base, partially offset by higher Sarbanes-Oxley Rule 404 compliance, profit sharing and employee stock options expense.

Research and Development Expenses

For the three months ended September 30, 2005 and 2004, research and development expense was $25.2 million and $25.4 million (9.2 percent and 8.1 percent of revenues), respectively, reflecting primarily continued development activities on our Focus Products.

Impairment of Assets, Restructuring and Severance

During fiscal 2003 second quarter ended December 31, 2002, we announced our restructuring initiatives.  Under our restructuring initiatives, our goal was to reposition us to better fit the market conditions and de-emphasize the commodity business.  Our restructuring plan included consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products.  We also planned to lower overhead costs across our support organizations.  We have substantially completed these restructuring activities as of September 30, 2005.  We expect to complete the remaining activities, primarily the closing of a fabrication line at El Segundo, California by fiscal year end 2006 or sooner.

We estimate that charges associated with the restructuring will be approximately $280 million.  These charges will consist of approximately $220 million for asset impairment,

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plant closure costs and other charges, $6 million of raw material and work-in-process inventory, and approximately $54 million for severance.  Of the $280 million in total charges, we expect cash charges to be approximately $110 million.  As of September 30, 2005, we have realized annualized savings of approximately $80 million from the restructuring activities, with approximately 70 percent of that savings affecting cost of goods sold.

For the three months ended September 30, 2005, we recorded $4.3 million in total restructuring-related charges, consisting of: $3.1 million for asset impairment, plant closure costs and other charges and $1.2 million for severance-related costs.  For the three months ended September 30, 2004, we recorded $6.7 million in total restructuring-related charges, consisting of: $4.9 million for impairment, plant closure costs and other charges, and $1.8 million for severance-related costs.  Restructuring-related costs were measured in accordance with SFAS No. 146, “Accounting for the Costs Associated with Exit or Disposal Activities”.  Asset impairments were calculated in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  In determining the asset groups, we grouped assets at the lowest level for which independent identifiable cash flows information was available.  In determining whether an asset was impaired we evaluated undiscounted future cash flows and other factors such as changes in strategy and technology.  The undiscounted cash flows from our initial analyses were less than the carrying amount for certain of the asset groups, indicating impairment losses.  Based on this, we determined the fair value of these asset groups 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.

As of September 30, 2005, we had recorded $265.7 million in total charges, consisting of: $213.2 million for asset impairment, plant closure costs and other charges, $6.0 million for raw material and work-in-process inventory charges, and $46.5 million for severance-related costs.  Components of the $213.2 million asset impairment, plant closure and other charges included the following items:

•As we emphasize more advanced generation planar products, we expect the future revenue stream from our less advanced facilities in Temecula, California to decrease significantly.  These facilities had a net book value of $138.3 million and were written down by $77.7 million.  It is expected that these facilities will continue in use until approximately December 2007 and the remaining basis is being depreciated over units of production during this period.  It is assumed that salvage value will equal disposition costs.

•As we emphasize more advanced generation trench products, we expect the future revenue stream from our less advanced facility in El Segundo, California to decrease significantly.  This facility had a net book value of $59.5 million and was written down by $57.2 million.  This facility had significantly reduced production as of fiscal year ended June 30, 2003, and is being used primarily for research and development activities.

•As we emphasize more advanced generation Schottky products, we expect the future revenue stream from our less advanced facility in Borgaro, Italy to decrease significantly.  This facility had a net book value of $20.5 million and was written down by $13.5 million.  It is expected that this facility will continue in use until approximately

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December 2007 and the remaining basis is being depreciated over units of production during this period.  It is assumed that salvage value will equal disposition costs.

•We are restructuring our manufacturing activities in Europe.  Based on a review of our Swansea, Wales facility, a general-purpose module facility, we determined in the December 2002 quarter that this facility would be better suited to focus only on automotive applications.  The general-purpose assembly assets in this facility, with a net book value of $13.6 million, were written down by $8.2 million.  In addition, we have completed the move of our manufacturing activities at our automotive facility in Krefeld, Germany to our Swansea, Wales and Tijuana, Mexico facilities as of September 30, 2005.  We have also moved the production from our Venaria, Italy facility to our Borgaro, Italy and Mumbai, India facilities, which was completed as of December 31, 2003.  We stopped manufacturing activities in our Oxted, England facility as of September 30, 2003.

•We have eliminated the manufacturing of our non-space military products in our Santa Clara, California facility as of July 31, 2004. Currently, subcontractors handle our non-space qualified products formerly manufactured in this facility.  We are also transitioning the assembly and test of non-space Power Components from our Leominster, Massachusetts facility to our Tijuana, Mexico facility, and expect to complete this activity by calendar year end 2005.  Associated with this reduction in manufacturing activities, certain assets with a net book value of $4.0 million were written down by $2.0 million.

•$54.6 million in other miscellaneous items were charged, including $45.8 million in relocation costs and other impaired asset charges and $8.8 million in contract termination and settlement costs.

As a result of the restructuring initiatives, certain raw material and work-in-process inventories were impaired, including products that could not be completed in other facilities, materials that were not compatible with the processes used in the alternative facilities, and materials such as gases and chemicals that could not readily be transferred.  Based on these factors we wrote down these inventories, with a carrying value of $98.2 million, by $6.0 million.  For the three months ended September 30, 2005 and 2004, we had disposed of $0 and $0.5 million, respectively, of these inventories, which did not have a material impact on gross margin for the three months then ended.  As of September 30, 2005, $1.2 million of these inventories remained to be disposed.

Our restructuring activities are expected to result in severance charges of approximately $54 million through June 2006.  Below is a table of approximate severance charges by major activity and location:

Location	Activity	Amount
El Segundo, California	Close manufacturing facilities	$		10 million
Santa Clara, California and Leominster, Massachusetts	Eliminate certain manufacturing activities	4 million
Oxted, England	Close manufacturing facility	9 million
Venaria, Italy	Move manufacturing to India and discontinue certain products	11 million
Company-wide	Realign business processes	20 million
Total		$	54 million

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To date, of the $54 million noted above, we have recorded $46.5 million in severance-related charges: $41.4 million in severance termination costs related to approximately 1,200 administrative, operating and manufacturing positions, and $5.1 million in pension termination costs at our manufacturing facility in Oxted, England.  The severance charges associated with the elimination of positions, which included the 1,200 persons notified to date, had been and will continue to be recognized over the future service period, as applicable, in accordance with SFAS No. 146, “Accounting for the Costs Associated with Exit or Disposal Activities”.  We measured the total termination benefits at the communication date based on the fair value of the liability as of the termination date.  A change resulting from a revision to either the timing or the amount of estimated cash over the future service period will be measured using the credit-adjusted risk-free rate that was used to initially measure the liability.  The cumulative effect of the change will be recognized as an adjustment to the liability in the period of the change.

In fiscal 2002, we had recorded an estimated $5.1 million in severance costs associated with the acquisition of TechnoFusion GmbH in Krefeld, Germany.  In fiscal 2003, we finalized our plan and determined that total severance would be approximately $10 million, and accordingly, we adjusted purchased goodwill by $4.8 million.  We communicated the plan and the elimination of approximately 250 positions primarily in manufacturing to its affected employees at that time.  The associated severance is expected be paid by calendar year end 2005.

The following summarizes our severance accrued related to the June 2001 restructuring, the TechnoFusion acquisition and the December 2002 restructuring plan for the three months ended September 30, 2005 and the fiscal year ended June 30, 2005.  Severance activity related to the elimination of 29 administrative and operating personnel as part of the previously reported restructuring in the fiscal quarter ended June 30, 2001, is also disclosed.  The remaining June 2001 severance relates primarily to certain legal accruals associated with that restructuring, which will be paid or released as the outcome is determined (in thousands):

	June 2001 Restructuring			December 2002 Restructuring			TechnoFusion Severance Liability			Total Severance Liability
Accrued severance, June 30, 2004	$	697		$	7,180		$	6,067		$	13,944
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	—			8,677			—			8,677
Costs paid	(326		)	(7,810		)	(3,770		)	(11,906		)
Foreign exchange impact	—			77			(190		)	(113		)
Accrued severance, June 30, 2005	$	371		$	8,124		$	2,107		$	10,602
Costs incurred or charged to “impairment of assets, restructuring and severance”	—			1,231			—			1,231
Costs paid	(64		)	(3,055		)	(406		)	(3,525		)
Foreign exchange impact	—			(14		)	(14		)	(28		)
Accrued severance, September 30, 2005	$	307		$	6,286		$	1,687		$	8,280

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Other Income and Expenses

Other income (expense) income was $0.1 million and ($0.04) million for the three months ended September 30, 2005 and 2004, respectively.

Interest Income and Expenses

Interest income was $7.1 million and $3.3 million for the three months ended September 30, 2005 and 2004, respectively, reflecting higher prevailing interest rates on higher average cash and cash investment balance in the current year.

Interest expense was $5.5 million and $5.1 million for the three months ended September 30, 2005 and 2004, respectively, primarily reflecting higher effective interest rate payable on our $550 million convertible subordinated notes outstanding, partially offset by higher income from the mark-to-market adjustments on our interest rate swaps (see Notes 4, “Derivative Financial Instruments” and 8, “Bank Loans and Long-Term Debt” of the Notes to the unaudited consolidated financial statements, regarding the modification of the effective interest payable on our convertible notes).

Income Taxes

Our effective tax provision for the three months ended September 30, 2005 and 2004 was 27.5 percent and 24.0 percent, respectively, rather than the U.S. federal statutory tax provision of 35 percent, as a result of lower statutory tax rates in certain foreign jurisdictions, the benefit of foreign tax credits and research and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefits.

In December 2004, the FASB issued FASB Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creations Act of 2004”, which introduces a limited time 85 percent dividends received deduction on the repatriation of certain foreign earnings to a U.S. tax payer (“repatriation provision”), provided certain criteria are met.  We are currently evaluating the range of possible amounts of unremitted earnings that may be repatriated as a result of the repatriation provision; the related range of income tax effects of such repatriation cannot be reasonably estimated at this time.

Liquidity and Capital Resources

At September 30, 2005, we had cash and cash equivalent balances of $359.1 million and cash investments in marketable debt securities of $572.8 million.  We also have $128.3 million in unused credit facilities.  Our investment portfolio consists of available-for-sale fixed-income, principally investment-grade securities as of September 30, 2005.

For the three months ended September 30, 2005, cash provided by operating activities was $13.8 million compared to $23.1 million in the comparable prior year three months ended September 30, 2004.  Depreciation and amortization adjusted cash flows from operations by $21.5 million.  Changes in operating assets and liabilities decreased cash by $44.5 million during the three months ended September 30, 2005.  The increase in working capital reflected the increase in our inventory balance as a result of the build up of inventory that was different than the demand for certain products principally within our C&C and

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ESP segments during the fiscal first quarter, and the timing of accounts and other receivable collections, and taxes, salaries, wages and other accrued expense payments.

For the three months ended September 30, 2005, cash used in investing activities was $35.1 million.  We purchased $105.3 million and sold $111.0 million of cash investments.  Certain prior year’s amounts have been reclassified to conform to the current-year presentation.  Auction rate securities are now classified as available-for-sale securities and reported as short-term cash investments instead of cash and cash equivalents, for all periods presented.  For the three months ended September 30, 2004, proceeds from the sale of auction rate securities decreased net cash used in investing activities by $49.6 million.

During the three months ended September 30, 2005, we spent $37.0 million in capital expenditure, of which $13.9 million was at the Newport, Wales facility.  We anticipate that nearly 70 percent of capital expenditures for fiscal year 2006 will be in the first half of the year.  As of September 30, 2005, demand for our Focus Products exceeded our worldwide capacity.  To help address our capacity limitations, we are starting production on our new eight-inch sub-micron wafer fabrication facility in Newport, Wales in the December 2005 quarter.  Purchase order commitments for capital expenditures were $26.0 million as of September 30, 2005.  We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand, anticipated cash flow from operations and available credit facilities.

Financing activities for the three months ended September 30, 2005 generated $19.7 million. Proceeds from the exercise of employee stock options and stock participation plan contributed $21.8 million.  As of September 30, 2005, we had revolving, equipment and foreign credit facilities of $166.6 million, against which $38.2 million had been used.  As discussed in Note 4 of the unaudited consolidated financial statements, we are required to obtain irrevocable standby letters of credit in favor of JP Morgan Chase Bank, for $7.5 million plus the collateral requirement for the interest rate swap transactions, as determined periodically.  At September 30, 2005, $15.8 million in letters of credit were outstanding related to the transactions.  The collateral requirement of the transactions may be adversely affected by an increase in the five-year LIBOR curve, a decrease in our stock price, or both.  We cannot predict what the collateral requirement of the transactions and the letter of credit requirement will be over time.  To illustrate the potential impact, had a 10 percent increase in the five-year LIBOR curve and a 10 percent decrease in our stock price occurred at the close of the fiscal quarter ended September 30, 2005, our letter of credit commitment would have increased by $4.9 million to $20.7 million.  We do not have any off balance sheet arrangements as of September 30, 2005.

On November 1, 2005, our Board of Directors authorized and we announced a stock repurchase program, under which up to $100 million of our common shares may be repurchased without prior notice, through block trades or otherwise.  Any shares repurchased will be paid with our existing cash and cash investments.

Our $550 million convertible subordinated notes are due in July 2007.  We anticipate that this debt will be refinanced through public or private offerings of debt or equity, or be paid down with our existing cash and cash investments.

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We believe that our current cash and cash investment balances, cash flows from operations and borrowing capacity, including unused amounts under the $150 million Credit Facility as discussed in Note 8 of the unaudited consolidated financial statements, will be sufficient to meet our operations in the next twelve months.  Although we believe that our current financial resources will be sufficient for normal operating activities, we may also consider the use of funds from other external sources, including, but not limited to, public or private offerings of debt or equity.

Recent Accounting Pronouncements

On October 18, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position on Financial Accounting Standard No. 123(R)-2 (“FSP FAS No. 123(R)-2”). FSP FAS No. 123(R)-2 provides guidance on the application of grant date as defined in FASB Statement No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”).  As a practical accommodation, in determining the grant date of an award, assuming all other criteria in the grant date definition have been met, FSP FAS No. 123(R)-2 provides that a mutual understanding of the key terms and conditions of an award to an individual employee shall be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements (that is, by the Board or management with the relevant authority) if both of the following conditions are met:

a. The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer.

b. The key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period¹ from the date of approval.

The guidance in this FSP is effective upon initial adoption of SFAS No. 123(R) or if an entity has adopted SFAS No. 123(R) prior to the issuance of this FSP and did not apply the provisions of FSP FAS 123(R)-2, this FSP will be effective in the first reporting period after October 18, 2005, the date the FSP was posted to the FASB website.  We have applied the provisions under FSP FAS 123(R)-2 in accounting for our equity awards as of July 4, 2005, the start of our fiscal year 2006.

Critical Accounting Policies and Estimates

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported.  Actual results could differ from those estimates.  Information with respect to our critical accounting policies which we believe could have the most significant effect on our reported results and require subjective or complex judgments is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended June 30, 2005.  We believe that at September 30, 2005, there has been no material change to this information.

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

Factors that May Affect Future Results

Changes in end market demand or downturns in the highly cyclical semiconductor industry could affect our operating results and the value of our business.

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

In addition, the semiconductor industry is highly cyclical and the value of our business may decline during the down portion of these cycles.  We have experienced these conditions in our business in the recent past and we cannot predict when we may experience such downturns in the future.  Future downturns in the semiconductor industry, or any failure of the industry to recover fully from its recent downturns could seriously impact our revenues and harm our business, financial condition and results of operations.  Although markets for our semiconductors appear stable, we cannot assure you that they will continue to be stable or that our markets will not experience renewed, possibly more severe and prolonged, downturns in the future.

Consumer and/or corporate spending for the end market applications which incorporate our products may be reduced due to increased oil prices or otherwise.

Our revenues and gross margin guidance is dependent on certain level of consumer and/or corporate spending for the specific mix of products we produce and have the capacity to produce If our projections of these expenditures fail to materialize, or materialize in a mix different from that for which we anticipate and build inventory, whether due to reduced consumer or corporate spending from increased oil prices or otherwise, our revenues and gross margin could be adversely impacted.

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

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With certain exceptions related to products within our Aerospace and Defense and Non-Aligned Product segments, 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, our revenues and our operating results generally.

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 usable at a future date.

At the end of fiscal quarter ended September 30, 2005, we reported net inventories of approximately $194 million.  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.  If we do not project and build the proper mix and amount of inventory, our revenues and gross margins may be adversely affected.  Additionally, if we produce or have produced inventory that does not meet current or future demand, we may determine at some point that certain of the inventory may only be sold at a discount or may not be sold at all, resulting in the reduction in the carrying value of our inventory and an adverse effect on our financial condition and operating results.

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

The semiconductor industry, including the sectors in which we do business, is highly competitive.  Competition is based on price, product performance, technology platform, product availability, quality, reliability and customer service.  Price pressures often emerge as competitors attempt to gain a greater market share by lowering prices or by offering a more desirable technological solution. Pricing and other competitive pressures can adversely affect our revenues 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.

Failure to timely complete our expansion plans for our wafer fabrication facility could adversely affect our revenue growth and ability to achieve our margin targets.

We are operating in the mid to high 90s percent of our worldwide semiconductor fabrication and assembly/module manufacturing capacities, without taking into account subcontract or foundry capacity.  We are also expanding our most advanced wafer fabrication facility in Newport, Wales to provide additional capacity to support the growth of our Focus Products. We expect to start production on certain of such new facilities by the end of the December 2005 quarter, and expect to complete our expansion of that facility in about calendar year 2006. If we fail to timely execute on those plans in advance of demand for our products, that failure could adversely affect our revenue

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growth and ability to achieve our margin targets.  We cannot assure you that we will complete our plans timely, that the ramp-up of the expanded facilities will occur effectively and without error or delay, or that sufficient third party sources would be available to satisfy our ability to meet customer demand.  Even if we fully execute and implement our plans, we cannot guarantee that we will have sufficient worldwide semiconductor fabrication and assembly/module manufacturing capacities to meet demand and there may be unforeseen factors that could adversely impact our operating results.

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

Our manufacturing efficiency has been and will be an important factor in our future profitability, and we may not be able to maintain or increase our manufacturing efficiency.  Our manufacturing and testing processes are complex, require advanced and costly equipment and are continually being modified in our efforts to improve yields and product performance.  Difficulties in the manufacturing process can lower yields.  Technical or other problems could lead to production delays, order cancellations and lost revenue.  In addition, any problems in achieving acceptable yields, construction delays, or other problems in upgrading or expanding existing facilities, building new facilities, problems in bringing other new manufacturing capacity to full production or changing our process technologies, could also result in capacity constraints, production delays and a loss of future revenues and customers.  Our operating results also could be adversely affected by any increase in fixed costs and operating expenses related to increases in production capacity if net sales in the appropriate mix do not increase proportionately, or in the event of a decline in demand for some or all of our products.

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

Our future financial performance and success are largely dependent on our ability to implement our business strategy successfully of transforming our business to one led by our Focus Products and succeeding on our plans to restructure our company.  We cannot assure you that we will continue to successfully implement our business strategy or that implementing our strategy will sustain or improve our results of operations.

The failure to execute on our plans to divest or discontinue product lines that are not consistent with our business objectives, and replace those revenues with higher-margin product sales could adversely affect our operating results.

We have announced the divestiture, discontinuation or change in business model of certain of our Non-Focus Products that are not consistent with our business objectives or margin targets.  Our plan is to replace the divested or discontinued revenues with (or change the business model to achieve) higher-margin product sales and target gross margin of greater 50 percent.  We cannot assure you that we will complete our plans or achieve our target gross margin.  The activities involved with the divestiture, discontinuation and re-alignment of product sales could involve changes to various aspects of our business which could adversely affect our profitability to an extent we have not anticipated.  Even if we fully execute and implement our plans, there may be unforeseen factors that could adversely impact our operating results.

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The failure to implement and complete our restructuring programs and accomplish planned cost reductions could adversely affect our business.

In December 2002, we announced a number of restructuring initiatives.  Our goal was to reposition our company to better fit the market conditions, de-emphasize our commodity business and accelerate the move to what we categorize as our proprietary products, which refer to our Power Management ICs, Advanced Circuit Devices, and Power Segments.  The restructuring includes consolidating and closing certain manufacturing sites, upgrading equipment and processes in designated facilities and discontinuing production in a number of others that cannot support more advanced technology platforms or products.  The restructuring also includes lowering overhead costs across our support organization.  We cannot assure you that these restructuring initiatives will achieve their goals, accomplish the cost reductions planned, or be accomplished within our expectations as to the amount of charges to be taken in connection with that activity.  Additionally, because our restructuring activities involve changes to many aspects of our business, the activities could adversely affect productivity and sales to an extent we have not anticipated.  Even if we fully execute and implement these restructuring activities, and they generate the anticipated cost savings, there may be other unforeseen factors that could result in the amount of charges to be taken in connection with our restructuring activities or otherwise adversely impact our profitability and business.

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 rigorous quality control systems, we shipped large quantities of semiconductor devices in 2004 to a wide range of customers around the world, in a variety of high profile and critical applications.  In the ordinary course of our business we receive warranty 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 revenues and profits 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 a significant alleged quality or performance issues in our products, 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 claims.  In addition, any perception that our products are defective would likely result in reduced sales of our products, loss of customers and harm to our business and reputation.

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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, one of our largest OEM customers, 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.

If some original equipment manufacturers (“OEMs”) do not design our products into their equipment, a portion of our revenue may be adversely affected.

A “design win” from a customer does not guarantee future sales to that customer.  We also are unable to guarantee that we will be able to convert design wins into sales for the life of any particular program, or at all, or that the revenues from such wins would be significant.  We also cannot guarantee that we will achieve the same level of design wins as we have in the past, or at all.  Without design 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 wins with that OEM’s product platform because changing suppliers involves significant cost, time, effort and risk.  Achieving a design win with a customer does not ensure that we will receive significant revenue from that customer and we may be unable to convert design wins into actual sales.

Corporate investment and expenditures in the Information Technology sector and in Information Technology purchases may not materialize as we have planned.

Our revenues and gross margin guidance is dependent on a certain level of corporate investment and expenditures in the Information Technology sector and in Information Technology purchases.  If our projections of these expenditures fail to materialize, whether due to increased oil prices or otherwise, our revenues and gross margin could be adversely impacted.

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 revenues 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 research and development.  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

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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.

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

Our future success and competitive position may depend in part upon our ability to obtain or maintain certain proprietary technologies used in our principal products, which is achieved in part by defending and maintaining the validity of our patents and defending claims by our competitors of intellectual property infringement.  We license certain patents owned by others.  We have also been notified that certain of our products may infringe the patents of third parties.  Although licenses are generally offered in such situations, we cannot eliminate the risk of litigation alleging patent infringement.  We are currently a defendant in intellectual property claims and we could become subject to other lawsuits in which it is alleged that we have infringed upon the intellectual property rights of others.

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

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

We have traditionally relied on our patents and proprietary technologies.  Patent litigation settlements and royalty income substantially contribute to our financial results.  Enforcement of our intellectual property rights is costly, risky and time-consuming.  We cannot assure you that we can successfully continue to protect our intellectual property rights, especially in foreign markets.  Our key MOSFET patents expire between 2005 and 2010, although our broadest MOSFET patents expire in 2007 and 2008.

Our royalty income is largely dependent on the following factors: the remaining terms of our MOSFET patents; the continuing introduction and acceptance of products that are not covered by our patents; remaining covered under unexpired MOSFET patents; the defensibility and enforceability of our patents; changes in our licensees’ unit sales, prices or die sizes; the terms, if any, upon which expiring license agreements are renegotiated; and our ability to obtain revenues from new licensing opportunities.  Market conditions and

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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 revenues will be consistent with actual results.  We also cannot guaranty 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 international operations expose us to material risks.

We expect revenues from foreign markets to continue to represent a significant portion of total revenues.  We maintain or contract with significant operations in foreign countries.  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; and foreign currency fluctuations.

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

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

Delays in initiation of production at new facilities, implementing new production techniques 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 from time to time 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 or experience product delivery delays in the future as a result of, among other things, capacity constraints, construction delays, upgrading or expanding

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existing facilities or changing our process technologies, any of which could result in a loss of future revenues.  Our operating results could also be adversely affected by the increase in fixed costs and operating expenses related to increases in production capacity if revenues do not increase proportionately.

We are transferring manufacturing from our Krefeld, Germany to our Swansea, Wales and Tijuana, Mexico facilities.  We are ramping up our Newport, Wales facility, and anticipate to transfer our El Segundo manufacturing to the Newport, Wales facility by fiscal year end June 2006 or sooner.  We have experienced some delays and/or technical problems in moving our various facilities.  Continued delays and/or technical problems in completing the remaining transfers could lead to increased costs, reduced yields, delays in product deliveries, order cancellations and/or lost revenue.

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

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

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.

Also, some of our products are assembled and tested by third party subcontractors.  We do not have any long-term assembly agreements with these subcontractors.  As a result, we do not have immediate control over our product delivery schedules or product quality.  Due to the amount of time often required to qualify assemblers and testers and the high cost of qualifying multiple parties for the same products, we could experience delays in the shipment of our products if we are forced to find alternative third parties to assemble or test them.  Any product delivery delays in the future could have a material adverse effect on our operating results and financial condition.  Our operations and ability to satisfy customer obligations could be adversely affected if our relationships with these subcontractors were disrupted or terminated.

We 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.

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

Historically, a significant portion of our revenues 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 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.  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 or that we will be successful in attracting, assimilating or retaining other highly qualified technical, sales, marketing and managerial personnel in the future.  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 are acquiring and may continue to acquire other companies and may be unable to successfully integrate such companies with our operations.

We have acquired several companies over the past three years.  We may continue to expand and diversify our operations with additional acquisitions.  If we are unsuccessful in integrating these companies with our operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse effect on our business, financial condition and results of operations.

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

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

Our investments in certain securities expose us to market risks.

We invest excess cash in marketable securities consisting primarily of commercial paper, corporate notes, corporate bonds and governmental securities.  We also hold as strategic investments the common stock of two publicly-traded Japanese companies, one of

52

which is Nihon Inter Electronics Corporation.  The value of these investments is subject to market fluctuations, which if adverse, could have a material adverse effect on our operating results and financial condition.

If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of our stock.

Effective internal controls are necessary for us to produce reliable financial reports and are important in our effort to prevent financial fraud.  We are required to periodically evaluate the effectiveness of the design and operation of our internal controls.  These evaluations may result in the conclusion that enhancements, modifications or changes to our internal controls are necessary or desirable.  While management evaluates the effectiveness of our internal controls on a regular basis, we cannot provide absolute assurance that these controls will always be effective.  There are inherent limitations on the effectiveness of internal controls including collusion, management override, and failure of human judgment.  Because of this, control procedures are designed to reduce rather than eliminate business risks.  If we fail to maintain an effective system of internal controls or if management or our independent registered public accounting firm were to discover material weaknesses in our internal controls, we may be unable to produce reliable financial reports or prevent fraud and it could harm our financial condition and results of operations and result in loss of investor confidence and a decline in our stock price.

Large potential environmental liabilities, including those relating to a former operating subsidiary, may adversely impact our financial position.

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.  In addition, 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.  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.  Any failure to comply with environmental laws or regulations could subject us to serious

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liabilities and could have a material adverse effect on our operating results and financial condition.

Some of our facilities are located near major earthquake fault lines.

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.  We could be materially and adversely affected in the event of a major earthquake.  Although we maintain earthquake insurance, we can give you no assurance that we have obtained or will maintain sufficient insurance coverage.

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.

Unforeseen changes in market conditions, tax laws and other factors could impact our judgment about the realizability of our deferred tax assets.

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 the belief that it is more likely than not that we will generate sufficient future taxable income in certain 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, then 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, then the related portion of the valuation allowance will be released to income as a credit to income tax expense.

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

As is common with corporations of our size, we are from time to time under audit by various taxing authorities.  It is often difficult to predict the final outcome or the timing of resolution of any particular tax matter.  We have provided certain tax reserves which have been included in the determination of our financial results.  However, unpredicted

54

unfavorable settlements may require additional use of cash and negatively impact our financial position or results of operations.

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

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ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

We are exposed to various risks, including fluctuations in interest and foreign currency rates.  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” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2005.

Interest Rate Risk

Our financial assets and liabilities subject to interest rate risk are cash investments, convertible debt, credit facilities and interest rate swaps.  Our primary objective is to preserve principal while maximizing yield without significantly increasing risk.  At September 30, 2005, we evaluated the effect that near-term changes in interest rates would have had on these transactions.  A change of as much as ten percent in the London InterBank Offered Rate (“LIBOR”) would have had a favorable impact of approximately $0.4 million on net interest income/expense for the current quarter since the interest income on our cash and cash investments would have outweighed additional interest expense on our outstanding debt.  For our interest rate contract with Lehman Brothers, an increase of ten percent in interest rates would have had a favorable impact of $0.3 million, and a decrease of ten percent in interest rates would have had an adverse impact of ($0.1) million, on net interest income/expense.  These changes would not have had a material impact on our results of operations, financial position or cash flows.

In December 2001, we entered into an interest rate swap transaction (the “Transaction”) with JP Morgan Chase Bank (the “Bank”), to modify our effective interest payable with respect to $412.5 million of our $550 million outstanding convertible debt (the “Debt”) (see Notes 4, “Derivative Financial Instruments,” and 8, “Bank Loans and Long-Term Debt”).  At the inception of the 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.  In April 2005, we entered into an interest rate swap transaction (the “April 2005 Transaction”) with the Bank to modify the effective interest payable with respect to the remaining $137.5 million of the Debt.  The variable interest rate we have paid since the inception of the swap has averaged 2.36 percent, compared to a coupon of 4.25 percent on the Debt.  During the three months ended September 30, 2005 and 2004, this arrangement reduced interest expense by $0.9 million and $2.2 million, respectively.

Accounted for as fair value hedges under SFAS No. 133, the mark-to-market adjustments of the two Transactions were offset by the mark-to-market adjustments on the Debt, resulting in no material impact to earnings.  To measure the effectiveness of the hedge relationship, we used a regression analysis.  To evaluate the relationship of the fair value of the two transactions and the changes in fair value of the Debt attributable to changes in the benchmark rate, we discounted the estimated cash flows by the LIBOR swap rate that corresponds to the Debt’s expected maturity date.  In addition, our ability to call the Debt was considered in assessing the effectiveness of the hedging relationship.  For those years that were projected to include at least a portion of redemption of the convertible debentures, we employed a valuation model known as a Monte Carlo simulation.  This simulation allowed us to project probability-weighted

56

contractual cash flows discounted at the LIBOR swap rate that corresponded to the Debt’s expected maturity date.  The market value of the December 2001 Transaction was a liability of $3.9 million and $0.3 million at September 30, 2005 and June 30, 2005, respectively.  The market value of the April 2005 Transaction was a liability of $3.8 million and $3.4 million at September 30, 2005 and June 30, 2005, respectively.

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 Transaction.  The notional amount of the Contract is $412.0 million, representing approximately 75 percent of the Debt. Under the terms of the Contract, we have 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 market value of the Contract at September 30, 2005 and June 30, 2005, respectively, was $0.2 million and $0.1 million, respectively, and was included in other long-term assets.  Mark-to-market gains (losses) of $0.1 million and ($0.3) million for the three months ended September 30, 2005 and 2004, respectively, were charged to interest expense.

Foreign Currency Risk

We conduct business on a global basis in several foreign currencies, and at various times, we have currency exposure related to the British Pound Sterling, the Euro and the Japanese Yen.  Our risk to the European currencies is partially offset by the natural hedge of manufacturing and selling goods in both U.S. dollars and the European currencies.  Considering our specific foreign currency exposures, we have the greatest exposure to the Japanese Yen, since we have significant yen-based revenues without the yen-based manufacturing costs.  We have established a foreign-currency hedging program using foreign exchange forward contracts, including the Forward Contract described below, to hedge certain foreign currency transaction exposures.  To protect against reductions in value and volatility of future cash flows caused by changes in currency exchange rates, we have established revenue, expense and balance sheet hedging programs.  Currency forward contracts and local Yen and Euro borrowings are used in these hedging programs.  Our hedging programs reduce, but do not always eliminate, the impact of currency exchange rate movements.  We considered an adverse near-term change in exchange rates of ten percent for the British Pound Sterling, the Euro and the Japanese Yen.  Such a change, after taking into account our derivative financial instruments and offsetting positions, would have resulted in an annualized adverse impact on income before taxes of less than $1 million for the three months ended September 30, 2005 and 2004.

In March 2001, we entered into a five-year foreign exchange forward contract (the “Forward Contract”) for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our subsidiary in Japan.  We have designated the Forward Contract as a cash flow hedge under which mark-to-market adjustments are recorded in accumulated other comprehensive income of stockholders’ equity, until the forecasted transactions are recorded in earnings.  Under the terms of the Forward Contract, we are required to exchange 1.2 billion Yen for $11.0 million on a quarterly basis from June 2001 to March 2006.  At September 30, 2005, two quarterly payments of 1.2 billion Yen remained to be swapped at a forward exchange rate of 109.32 Yen per U.S. dollar.  The market value of the forward contract was $0.5 million and $0.1 million at September 30, 2005 and June 30, 2005, respectively, and was included in other long-term assets.  Mark-to-market gains (losses), included in other

57

comprehensive income, net of tax, were $0.3 million and $0.8 million for the three months ended September 30, 2005 and 2004, respectively.  At September 30, 2005, based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to its cash flow requirements, we do not expect to incur a material charge to income during the next six months through its maturity.

We had approximately $111.7 million and $75.9 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at September 30, 2005 and June 30, 2005, respectively.  Net realized and unrealized foreign-currency gains recognized in earnings were less than $1 million for the three months ended September 30, 2005 and 2004.

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ITEM 4.CONTROLS AND PROCEDURES

(a)Evaluation of disclosure controls and procedures

The term “disclosure controls and procedures” refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported, within required time periods.  Our management, with the participation of our Chief Executive Officer, Alexander Lidow, and Chief Financial Officer, Michael P. McGee, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, such controls and procedures are effective at the reasonable assurance level in making known to them material information related to us (including our consolidated subsidiaries) required to be included in this report.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives.  The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures.  These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.

(b)Changes in internal controls

There was no change in our internal controls during the fiscal first quarter 2006 that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II.OTHER INFORMATION

ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds

On November 1, 2005, our Board of Directors authorized a stock repurchase program, under which up to $100 million of our common shares may be repurchased without prior notice, through block trades or otherwise.  We intend that any shares repurchased will be held as treasury shares that may be used for general corporate purposes.  The following lists the number of the shares purchased under the repurchase program and, as of each month, the number of shares that may yet be repurchased under announced plans (in thousands):

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Unites) Purchased as part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that can be Purchased Under the Plans or Programs
Month #1 (November 1 to November 11, 2005)	0	0	0	$	100 million

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ITEM 6.Exhibits

Index:

3.1Certificate of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-8 filed with the Commission on July 19, 2005; Registration No. 333-117489)

3.2Bylaws, as Amended

11.1Statement Regarding Computation of Per Share Earnings (incorporated by reference to Note 2, “Net Income Per Common Share”, of the Notes to Unaudited Consolidated Financial Statements contained herein)

31.1Certification 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

31.2Certification 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

32.1Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

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

INTERNATIONAL RECTIFIER CORPORATION

Registrant

November 11, 2005	/s/ Michael P. McGee
	Michael P. McGee
	Executive Vice President,
	Chief Financial Officer
	(Duly authorized officer and
	principal financial and accounting officer)

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EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

INTERNATIONAL RECTIFIER CORPORATION

(A DELAWARE CORPORATION)

I N D E X

ARTICLE I.	Offices	1
Section 1.	Principal Executive Office	1
Section 2.	Other Offices	1
ARTICLE II.	Stockholders	1
Section 1.	Place of Meetings	1
Section 2.	Annual Meetings	1
Section 3.	Special Meetings	1
Section 4.	Notice of Annual or Special Meeting	2
Section 5.	Notice of Business	2
Section 6.	Notice of Board Candidate	3
Section 7.	Quorum and Adjournment	3
Section 8.	Voting	4
Section 9.	Record Date	4
Section 10.	Proxies	4
Section 11.	Inspectors of Election	5
Section 12.	Stockholder Lists	5
Section 13.	Validation of Defectively Called or Noticed Meetings	5
ARTICLE III.	Directors	6
Section 1.	Powers	6
Section 2.	Number of Directors	6
Section 3.	Classification; Term of Office	7
Section 4.	Vacancies	7
Section 5.	Place of Meeting	7
Section 6.	Annual organizational Meeting	8
Section 7.	Regular Meetings	8
Section 8.	Special Meetings	8
Section 9.	Quorum	8
Section 10.	Participation In Meeting By Conference Telephone	8
Section 11.	Waiver of Notice	9
Section 12.	Adjournment	9
Section 13.	Fees and Compensation	9
Section 14.	Action Without Meeting	9
Section 15.	Committees	9
Section 16.	Rights of Inspection	10
Section 17.	Removal	10
ARTICLE IV.	Officers	10
Section 1.	Officers	10
Section 2.	Election	11
Section 3.	Appointment of Officers	11
Section 4.	Removal and Resignation	11
Section 5.	Vacancies	11
Section 6.	Chairman of the Board	11

ii

Section 7.	Chief Executive Officer	11
Section 8.	President	12
Section 9.	Vice Presidents	12
Section 10.	Corporate Secretary	12
Section 11.	Assistant Secretaries	12
Section 12.	Chief Financial Officer	12
Section 13.	Assistant Financial Officers	13
ARTICLE V.	Stock	13
Section 1.	Form of Stock Certificate	13
Section 2.	Transfers of Stock	14
Section 3.	Lost, Stolen or Destroyed Certificates	14
Section 4.	Registered Stockholders	14
ARTICLE VI.	Other Provisions	14
Section 1.	Endorsement of Documents; Contracts	14
Section 2.	Representation of Shares of Other Corporations	14
Section 3.	Seal	15
Section 4.	Fiscal Year	15
Section 5.	Dividends	15
Section 6.	Checks	15
Section 7.	Rights and Option for Purchasing Stock	15
Section 8.	Definitions	16
ARTICLE VII.	Indemnification	16
Section 1.	Right to Indemnification	16
Section 2.	Right of Claimant to Bring Suit	17
Section 3.	Non-Exclusivity of Rights	17
Section 4.	Insurance	17
Section 5.	Expenses as A Witness	18
Section 6.	Indemnity Agreements	18
Section 7.	Effect of Amendment	18
ARTICLE VIII.	Emergency Provisions	18
Section 1.	General	18
Section 2.	Unavailable Directors	18
Section 3.	Authorized Number of Directors	18
Section 4.	Quorum	19
Section 5.	Creation of Emergency Committee	19
Section 6.	Constitution of Emergency Committee	19
ARTICLE IX.	Amendments	19
Section 1.	Amendments	19

iii

AMENDED AND RESTATED BYLAWS

OF

INTERNATIONAL RECTIFIER CORPORATION

(A DELAWARE CORPORATION)

ARTICLE 1.  OFFICES.

SECTION 1.  PRINCIPAL EXECUTIVE OFFICE.  The principal executive office of the Corporation shall be fixed and located at 233 Kansas Street, City of El Segundo, County of Los Angeles, State of California.  The Board of Directors of the Corporation (the “Board”) is granted full power and authority to change said principal executive office from one location to another within or without the State of California.  Any such change shall be noted in the Bylaws of the Corporation opposite this Section 2 or this Section 2 may be amended to state the new location.

SECTION 2.  OTHER OFFICES.  Branch or subordinate offices may be established at any time by the Board at any place or places.

ARTICLE II.  STOCKHOLDERS.

SECTION 1.  PLACE OF MEETINGS.  Meetings of stockholders shall be held either at the principal executive office of the Corporation or at any other place within or without the State of Delaware which may be designated by the Board.

SECTION 2.  ANNUAL MEETINGS.  The annual meetings of stockholders shall be held on the third Friday in November of each year at 10:00 a.m. (if not a legal holiday) and if a legal holiday, then on the next Friday thereafter ensuing which is a full business day or on such date and at such time as may be fixed by the Board.  At such meetings, directors shall be elected and any other proper business may be transacted.

SECTION 3.  SPECIAL MEETINGS.  Special meetings of the stockholders may be called at any time by a majority of the entire Board, the Chairman of the Board, the Chief Executive Officer or the President.  Special meetings may not be called by any other person or persons. Upon request in writing to the Chairman of the Board, the Chief Executive Officer, the President, any Vice President or the Corporate Secretary by any person (other than the Board) entitled to call a special meeting of stockholders, the officer forthwith shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than thirty-five (35) nor more than sixty (60) days after the

1

receipt of the request.  If the notice is not given within twenty (20) days after receipt of the request, the persons entitled to call the meeting may give the notice.

SECTION 4.  NOTICE OF ANNUAL OR SPECIAL MEETING.  Except as otherwise required by law, written notice of each annual or special meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote thereat.  Such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, shall also state the purpose or purposes for which the meeting is called. Except as otherwise expressly required by law, notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.

Notice of a stockholders’ meeting shall be given either personally or by mail or by other means of written communication, addressed to the stockholder at the address of such stockholder appearing on the books of the Corporation or given by the stockholder to the Corporation for the purpose of notice.  Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient.

SECTION 5.  NOTICE OF BUSINESS.  At any annual meeting of stockholders, only such business shall be conducted as shall have been brought before the meeting (a) by or at the direction of the Board, (b) in accordance with Rule 14a-8 under the Securities Exchange Act of 1934, or (c) by a stockholder of record entitled to vote at such meeting who complies with the notice procedures set forth in this Section 5.  For business to be properly brought before an annual meeting by such a stockholder, the stockholder shall have given timely notice thereof in writing to the Corporate Secretary. To be timely, such notice shall be delivered to or mailed and received at the principal executive office of the Corporation not less than thirty (30) days nor more than ninety (90) days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days’ notice of the date of the meeting is given by the Corporation, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or otherwise given. Such stockholder’s notice to the Corporate Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (w) a brief description of the business desired to be brought before the meeting, and in the event that such business includes a proposal to amend either the Certificate of Incorporation (the “Certificate of Incorporation”) or the Bylaws (the “Bylaws”) of the Corporation, the language of the proposed amendment, (x) the name and address of the stockholder proposing such business, (y) the class and number of shares of stock of the Corporation which are owned by such stockholder and (z) any material personal interest of such stockholder in such business. If notice has not been given pursuant to this Section 5, the Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting

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that the proposed business was not properly brought before the meeting, and such business may not be transacted at the meeting.  The foregoing provisions of this Section 5 do not relieve any stockholder of any obligation to comply with all applicable requirements of the Securities Exchange Act of 1934 and rules and regulations thereunder.

SECTION 6.  NOTICE OF BOARD CANDIDATE.  At any meeting of stockholders, a person may be a candidate for election to the Board only if such person is nominated (a) by or at the direction of the Board, (b) by any nominating committee or person appointed by the Board or (c) by a stockholder of record entitled to vote at such meeting who complies with the notice procedures set forth in this Section 6.  To properly nominate a candidate, a stockholder shall give timely notice of such nomination in writing to the Corporate Secretary.  To be timely, such notice shall be delivered to or mailed and received at the principal executive office of the Corporation not less than thirty (30) days nor more than ninety (90) days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than forty (40) days’ notice of the date of the meeting is given by the Corporation, notice of such nomination to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or otherwise given. Such stockholder’s notice to the Corporate Secretary shall set forth (y) as to each person whom the stockholder proposes to nominate (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that would be required to be disclosed in a solicitation of proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and (z) as to the stockholder giving the notice (i) the name and address of such stockholder and (ii) the class and number of shares of stock of the Corporation beneficially owned by such stockholder. The Corporation may require such other information to be furnished respecting any proposed nominee as may be reasonably necessary to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election by the stockholders as a director at any meeting unless nominated in accordance with this Section 6.

SECTION 7.  QUORUM AND ADJOURNMENT.  The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for holding all meetings of stockholders except as otherwise provided by applicable law or by the Certificate of Incorporation; PROVIDED, HOWEVER, that the stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. If it shall appear that such quorum is not present or represented at any meeting of stockholders, the Chairman of the meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may

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be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The Chairman of the meeting may determine that a quorum is present based upon any reasonable evidence of the presence in person or by proxy of stockholders holding a majority of the outstanding votes, including without limitation, evidence from any record of stockholders who have signed a register indicating their presence at the meeting.

SECTION 8.  VOTING.  In all matters, when a quorum is present at any meeting, the vote of the holders of a majority of the capital stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of applicable law or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Such vote may be by voice vote or by written ballot; PROVIDED, HOWEVER, that the Board may, in its discretion, require a written ballot for any vote.

Unless otherwise provided in or pursuant to the Certificate of Incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder.

SECTION 9.  RECORD DATE.  The Board may fix, in advance, a record date for the determination of the stockholders entitled to notice of any meeting or to vote at such meeting, entitled to vote by written consent on matters approved by the Board or entitled to receive payment of any dividend or other distribution, or any allotment of rights, or to exercise rights in respect of any other lawful actions. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of the meeting, not prior to nor more than ten (10) days after the date of the resolution fixing the record date for votes by written consent and not more than sixty (60) days prior to any other action.

SECTION 10.  PROXIES.  Every person entitled to vote shares has the right to do so either in person or by one or more persons authorized by a proxy, in any form which constitutes a valid means of authorization under the Delaware General Corporation Law, which proxy shall be filed with the Corporate Secretary.  Any proxy duly authorized shall continue in full force and effect until revoked by the person authorizing it prior to the vote pursuant thereto by a writing delivered to the Corporation stating that the proxy is revoked, by the authorization of a subsequent proxy or by attendance at the meeting; PROVIDED, HOWEVER, that no proxy shall be valid after expiration of three (3) years from the date of its execution unless otherwise provided in the proxy.

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SECTION 11.  INSPECTORS OF ELECTION.  The Board shall appoint one or more inspectors of election for any meeting of stockholders.  The inspectors shall, in accordance with the provisions of the Delaware General Corporation Law, (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination by the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery of the State of Delaware upon application by a stockholder shall determine otherwise. No person who is a candidate for an office at an election may serve as an inspector of such election.

SECTION 12.  STOCKHOLDER LISTS.  The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or at the place of the meeting, and the list shall also be available at the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.

SECTION 13.  VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The transactions of any meeting of stockholders, either annual or special, however called and noticed, shall be as valid as though passed at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if either before or after the meeting each of the persons entitled to vote who was not present in person or by proxy signs a written waiver of notice. Attendance of a stockholder at an annual or special meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE III.  DIRECTORS.

SECTION 1.  POWERS.  Subject to the limitations of the Certificate of Incorporation or the Bylaws or the Delaware General Corporation Law relating to action

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required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board. The Board may delegate the management of the day-to-day operation of the business of the Corporation to management or other persons provided that the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Board shall have the following powers in addition to the other powers enumerated in the Bylaws:

(a)To select and remove all the officers, agents and employees of the Corporation, to prescribe the powers and duties for them as may not be inconsistent with law, with the Certificate of Incorporation or the Bylaws and to fix their compensation.

(b)To conduct, manage and control the affairs and business of the Corporation and to make such rules and regulations therefor not inconsistent with law or with the Certificate of Incorporation or the Bylaws, as they may deem best.

(c)To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and such certificates from time to time as in their judgment they may deem best.

(d)To authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such consideration as may be lawful.

(e)To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor.

SECTION 2.  NUMBER OF DIRECTORS.

(a)The number of directors which shall constitute the Board shall be seven (7) until changed by an amendment hereof duly adopted by the Board amending this Section 2.

(b)The Board alone shall have the right, in its sole discretion, to increase or decrease the number of directors constituting the Board at any time, and shall be authorized to classify any director or directors so added to the Board into any of the three classes of directors (into which the directors shall be divided) as it sees fit, provided that the Board shall not be entitled to increase the number of directors by more than one in any twelve month period without the affirmative vote of at least two-thirds of the directors of

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each class of directors or of at least two-thirds of all of the outstanding shares of the Corporation.

(c)Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of the decrease, there shall be vacancies on the Board which are being eliminated by the decrease.

SECTION 3.  CLASSIFICATION; TERM OF OFFICE.  The directors shall be divided into three classes, as nearly equal in numbers as the then total number of directors permits. The term of office of all directors shall be for three years.

At each annual meeting held, directors shall be elected for a full three year term.

Each director shall serve for a term continuing until the annual meeting of the stockholders at which the term of the class to which he was elected expires or, if chosen to fill a vacancy in another class, the expiration of that class, and until his successor shall have been duly elected and qualified or until his earlier resignation or removal.

SECTION 4.  VACANCIES. Any director may resign effective upon giving written notice to the Chairman of the Board, the Chief Executive Officer, the President, the Corporate Secretary or the Board, unless the notice specifies a later time for the effectiveness of such resignation. Vacancies and directorships resulting from an increase in the number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. A director serving in one class may be chosen to fill a vacancy or a new directorship in another class. Any director so chosen, including a sitting director who is chosen to fill a vacancy or newly created directorship in another class, shall hold office until the next election of that class and until his or her successor shall be duly elected and qualified.

If at any time by reason of death or resignation or other cause, the Corporation shall have no directors in office, then any officer or any stockholder, or an executor, administrator, trustee or guardian of the stockholder or other fiduciary entrusted with like responsibility for the person or estate or a stockholder may call a special meeting of stockholders in accordance with the provisions of the Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the Delaware General Corporation Law..

SECTION 5.  PLACE OF MEETING.  Regular or special meetings of the Board shall be held at any place designated from time to time by the Board. In the absence of such designation, regular meetings shall be held at the principal executive office of the Corporation.

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SECTION 6.  ANNUAL ORGANIZATIONAL MEETING.  After each annual election of directors, the newly elected Board shall meet for the election of officers and the transaction of other business, at such place as the annual meeting of the stockholders has been held, promptly following the conclusion of such annual meeting of the stockholders.  No notice to the duly elected directors of such meeting shall be necessary in order legally to constitute the meeting, provided a quorum shall be present.

SECTION 7.  REGULAR MEETINGS.  Regular meetings of the Board shall be held without call at such dates, times and places as the Board may establish from time to time.  Call and notice of all regular meetings of the Board are hereby dispensed with.

SECTION 8.  SPECIAL MEETINGS.  Special meetings of the Board for any purpose or purposes may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, the Corporate Secretary or by any two (2) directors.

Special meetings of the Board shall be held upon forty-eight (48) hours’ written notice or twenty-four (24) hours’ notice given personally or by telephone, telegraph, telex, telecopier or other similar means of communication.  Any such notice shall be addressed or delivered to each director at such director’s address as it is shown upon the records of the Corporation or as may have been given to the Corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held.

Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid.  Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission or actually transmitted by the person giving the notice by electronic means, to the recipient.  Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient.

SECTION 9.  QUORUM.  A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided that such majority shall constitute at least one-third of the whole Board. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number be required by law or by the Certificate of Incorporation.  A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action is approved by at least a majority of the required quorum for such meeting.

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SECTION 10.  PARTICIPATION IN MEETING BY CONFERENCE TELEPHONE. Members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another.

SECTION 11.  WAIVER OF NOTICE.  The transactions of any meeting of the Board, however called and noticed, and wherever held, are as valid as though a meeting had been duly held after regular call and notice if a quorum be present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding such meeting or an approval of the minutes thereof.  All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.

SECTION 12.  ADJOURNMENT.  A majority of the directors present, whether or not a quorum is present, may adjourn any directors’ meeting to another time and place.  Notice of the time and place of holding an adjourned meeting need not be given to absent directors if the time and place be fixed at the meeting adjourned.  If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment.

SECTION 13.  FEES AND COMPENSATION.  Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board.

SECTION 14.  ACTION WITHOUT MEETING.  Any action required or permitted to be taken by the Board or committee thereof may be taken without a meeting if all members of the Board or committee shall individually or collectively consent in writing to such action.  Such consent or consents shall have the same effect as a unanimous vote of the Board or committee and shall be filed with the minutes of the proceedings of the Board or committee.

SECTION 15.  COMMITTEES.  The Board may appoint one (1) or more committees, each consisting of one (1) or more directors, and delegate to such committees any of the authority of the Board except with respect to:

(i)the approval of any action for which the Delaware General Corporation Law also requires stockholders’ approval or approval of the outstanding shares, including but not limited to amending the Certificate of Incorporation (except as otherwise permitted by the Delaware General Corporation Law with respect to shares of stock) and adopting an agreement of merger or consolidation under Section 251 or 252 of the Delaware General Corporation Law;

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(ii)The recommending to the Corporation’s stockholders of the sale, lease or exchange of all or substantially all of the Corporation’s property and assets or a dissolution of the Corporation or a revocation of a dissolution;

(iii)The filling of vacancies on the Board or on any committee;

(iv)The fixing of compensation of the directors for serving on the Board or on any committee;

(v)The amendment or repeal of Bylaws or the adoption of new Bylaws;

(vi)The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; or

(vii)The appointment of other committees of the Board or the members thereof.

Any such committee must be appointed by resolution adopted by a majority of the whole Board and may be designated an Executive Committee or by such other name as the Board shall specify.  The Board shall have the power to prescribe the manner in which the proceedings of any such committee shall be conducted. In the absence of any such prescription such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board or such committee shall otherwise provide, the regular and special meetings and other actions of any such committee shall be governed by the provisions of this Article III applicable to meetings and actions of the Board. Minutes shall be kept of each meeting of each committee.

SECTION 16.  RIGHTS OF INSPECTION.  Every director shall have the absolute right at any reasonable time to inspect and copy all the books, records and documents of every kind and to inspect physical properties of the Corporation and also of its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and obtain extracts.

SECTION 17.  REMOVAL.  A director may be removed, only for cause, by the holders of a majority of shares entitled to vote at an election of directors.

ARTICLE IV.  OFFICERS.

SECTION 1.  OFFICERS.  The officers of the Corporation shall be a Chairman of the Board or a President or both, a Chief Executive Officer, a Corporate Secretary, and a Chief Financial Officer.  The Corporation may also have, at the discretion of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Financial Officers, and such other officers as may be elected or appointed in accordance with the provisions of Section 3 of this Article IV. Any number of offices may be held by the same person.

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SECTION 2.  ELECTION.  The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article IV, shall be chosen annually by, and shall serve at the pleasure of, the Board, and shall hold their respective offices until their resignation, removal, or other disqualification from service, or until their respective successors shall be elected.

SECTION 3.  APPOINTMENT OF OFFICERS.  The Chief Executive Officer may appoint such divisional officers as the Chief Executive Officer deems expedient.  Each of these officers shall hold his or her title for such period, and shall have such authority and perform such duties as the Board or the Chief Executive Officer or the President of the respective division may determine.

SECTION 4.  REMOVAL AND RESIGNATION.  Any officer may be removed, with or without cause, by the Board at any time and, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board. Any such removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer.

Any officer may resign at any time by giving written notice to the Corporation, but without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party.  Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 5.  VACANCIES.  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in the Bylaws for regular election or appointment to such office.

SECTION 6.  CHAIRMAN OF THE BOARD.  The Chairman of the Board, if present, shall preside at all meetings of the stockholders and at all meetings of the Board. The Chairman of the Board shall have the general powers usually vested in the office of chairman of the board and such other powers and duties as may be prescribed by the Board.

SECTION 7.  CHIEF EXECUTIVE OFFICER.  The Chief Executive Officer shall be the general manager and chief executive officer of the Corporation and has, subject to the control of the Board, general supervision, direction and control of the business and officers of the Corporation.  The Chief Executive Officer shall have the general powers and duties of management usually vested in the offices of general manager and chief executive officer of a corporation and such other powers and duties as may be prescribed by the Board. The Board shall have the power to appoint more than one person as Chief Executive Officer.

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SECTION 8.  PRESIDENT.  The President shall have the general powers and duties of management usually vested in the offices of president of a corporation and such other powers and duties as may be prescribed by the Board.

SECTION 9.  VICE PRESIDENTS.  In the absence or disability of the President or the Chief Executive Officer, the Vice President or Vice Presidents, if any, in order of their rank as fixed by the Board or, if not ranked, the Vice President designed by the Board, shall perform all duties of the President or the Chief Executive Officer, as the case may be and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President or the Chief Executive Officer, as the case may be. The Vice President or Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board.

SECTION 10.  CORPORATE SECRETARY.  The Corporate Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of all meetings of stockholders, the Board and its committees, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Board and committee meetings, and the number of shares present or represented at stockholders meetings, and the proceedings thereof. The Corporate Secretary shall keep, or cause to be kept, a copy of the Bylaws at the principal executive office or business office.

The Corporate Secretary shall keep, or cause to be kept, at the principal executive office a share register, or a duplicate share register, showing the name of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation.

The Corporate Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board and of any committees thereof required by the Bylaws or by law to be given, shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board.

SECTION 11.  ASSISTANT SECRETARIES.  The Assistant Secretary or Assistant Secretaries, if any, shall, in the absence or disability of the Corporate Secretary, or at his or her request, perform his or her duties and exercise his or her powers and authority, and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

SECTION 12.  CHIEF FINANCIAL OFFICER.  The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, and shall send or cause to be sent to the stockholders of the Corporation such financial statements and

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reports as are by law or the Bylaws required to be sent to them.  The books of account shall at all times be open to inspection by any director.

The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board.  The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board, shall render to the Chairman of the Board, the Chief Executive Officer, the President or any of the directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such powers and duties usually vested in the offices of chief financial officer and chief accounting officer and such other powers and duties as may be prescribed by the Board.

SECTION 13.  ASSISTANT FINANCIAL OFFICERS.  The Assistant Financial Officer or Assistant Financial Officers, if any, shall, in the absence or disability of the Chief Financial Officer, or at his or her request, perform his or her duties and exercise his or her powers and authority, and shall perform such other duties and have such other powers as the Board may from time to time prescribe.

ARTICLE V.  STOCK.

SECTION 1.  FORM OF STOCK CERTIFICATE.  Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer or an Assistant Financial Officer or the Corporate Secretary or an Assistant Secretary certifying the number of shares owned in the Corporation. Any or all of the signatures on the certificate may be a facsimile signature. If any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of the issuance.

If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preference and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock. Except as otherwise provided in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

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SECTION 2.  TRANSFERS OF STOCK.  Upon surrender of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

SECTION 3.  LOST, STOLEN OR DESTROYED CERTIFICATES.  The Board may direct a new certificate or certificates be issued in place of any certificate theretofore issued alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board may, in its discretion and as a condition precedent to the issuance, require the owner of such certificate or certificates, or such person’s legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the lost, stolen or destroyed certificate.

SECTION 4.  REGISTERED STOCKHOLDERS.  The Corporation shall be entitled to treat the holder of record of any share or shares of stock of the Corporation as the holder in fact thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by applicable law.

ARTICLE VI.  OTHER PROVISIONS.

SECTION 1.  ENDORSEMENT OF DOCUMENTS; CONTRACTS.  Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, conveyance or other instrument in writing and any assignment or endorsements thereof executed or entered into between the Corporation and any other person, when signed by the Chief Executive Officer, the President or any Vice President and the Corporate Secretary, any Assistant Secretary, the Chief Financial Officer or any Assistant Financial Officers of the Corporation shall be valid and binding on the Corporation in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the Board, and, unless so authorized by the Board, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount.

SECTION 2.  REPRESENTATION OF SHARES OF OTHER CORPORATIONS.  The Chairman of the Board, the Chief Executive Officer, the President, any Vice President, Corporate Secretary or any other officer or officers authorized by the Board or the Chairman of the Board are each authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation.

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The authority herein granted may be exercised either by any such officer or by any other person authorized so to do by proxy or power of attorney duly executed by said officer.

SECTION 3.  SEAL.  It shall not be necessary to the validity of any instrument executed by any authorized officer or officers of the Corporation that the execution of such instrument be evidenced by the corporate seal, and all documents, instruments, contracts and writings of all kinds signed on behalf of the Corporation by any authorized officer or officers shall be as effectual and binding on the Corporation with the corporate seal, as if the execution of the same had been evidenced by affixing the corporate seal thereto. The Board may give general authority to any officer to affix the seal of the Corporation and to attest the affixing by signature.

SECTION 4.  FISCAL YEAR.  The fiscal year of the Corporation shall be fixed by resolution of the Board.

SECTION 5.  DIVIDENDS.  Dividends on the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board at any regular or special meeting, pursuant to law, and may be paid in cash, in property or in shares of capital stock.

Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall determine to be in the best interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

SECTION 6.  CHECKS.  All checks, drafts or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board.

SECTION 7.  RIGHTS AND OPTION FOR PURCHASING STOCK.  Subject to any provisions in the Certificate of Incorporation, the Corporation may create and issue, whether or not in connection with the issue and sale of any shares of stock or other securities of the Corporation, rights or options entitling the holders thereof to purchase from the Corporation any shares of its capital stock of any class or classes, such rights or options to be evidenced by or in such instrument or instruments as shall be approved by the Board.

The terms upon which, including the time or times, which may be limited or unlimited in duration, at or within which, and the price or prices at which any such shares may be purchased from the Corporation, upon the exercise of any such right or

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option, shall be such as shall be stated in the Certificate of Incorporation, or in a resolution adopted by the Board providing for the creation and issue of such rights or options, and, in every case, shall be set forth or incorporated by reference in the instrument or instruments evidencing such rights or options. In the absence of actual fraud in the transaction, the judgment of the directors as to the consideration for issuance of such rights or options and the sufficiency thereof shall be conclusive.

In case the shares of stock of the Corporation to be issued upon the exercise of such rights or options shall be shares having a par value, the price or prices so to be received therefor shall not be less than the par value thereof.  In case the shares of stock so to be issued shall be shares of stock without par value, the consideration therefor shall be determined in the manner provided in Section 153 of the Delaware General Corporation Law as now set forth or as hereafter amended.

SECTION 8.  DEFINITIONS.  Unless the context otherwise requires, the masculine gender includes the feminine and neuter, the singular number includes the plural, and the plural number includes the singular, and the term “person” includes a corporation as well as a natural person.

ARTICLE VII.  INDEMNIFICATION.

SECTION 1.  RIGHT TO INDEMNIFICATION.  Each person who was or is a party or is threatened to be made a party or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of Delaware as the same exist or may hereafter be amended (but in the case of such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment) against all costs, charges, expenses, liabilities and losses (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this bylaw or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; PROVIDED, HOWEVER, that except as provided in Section 2 of this Article VII, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was initiated or authorized by one or more members of the Board.  The right to indemnification conferred in this

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Section 1 shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; PROVIDED, HOWEVER, that if the Delaware General Corporation Law so requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director of officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 1 or otherwise.  The Corporation may, by action of the Board, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers.

SECTION 2.  RIGHT OF CLAIMANT TO BRING SUIT.  If a claim under Section 1 of this Article VII is not paid in full by the Corporation within thirty (30) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has failed to meet a standard of conduct which makes it permissible under Delaware law for the Corporation to indemnify the claimant for the amount claimed.  Neither the failure of the Corporation (including the Board, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is permissible in the circumstances because he or she has met such standard of conduct, nor an actual determination by the Corporation (including the Board, independent legal counsel or its stockholders) that the claimant has not met such standard of conduct, shall be a defense to the action or create a presumption that the claimant has failed to meet such standard of conduct.

SECTION 3.  NON-EXCLUSIVITY OF RIGHTS.  The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

SECTION 4.  INSURANCE.  The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware law.

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SECTION 5.  EXPENSES AS A WITNESS.  To the extent that any director, officer, employee or agent of the Corporation is by reason of such position, or a position with another entity at the request of the Corporation, a witness in any action, suit or proceeding, he or she shall be indemnified against all costs and expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

SECTION 6.  INDEMNITY AGREEMENTS.  The Corporation may enter into indemnity agreements with the persons who are members of the Board from time to time, and with such officers, employees and agents as the Board may designate, such indemnity agreements to provide in substance that the Corporation will indemnify such persons to the full extent contemplated by this Article VII.

SECTION 7.  EFFECT OF AMENDMENT.  Any amendment, repeal or modification of any provision of this Article VII by the stockholders and the directors of the Corporation shall not adversely affect any right or protection of a director or other officer of the Corporation existing at the time of the amendment, repeal or modification.

ARTICLE VIII.  EMERGENCY PROVISIONS.

SECTION 1.  GENERAL.  The provisions of this Article VIII shall be operative only during a national emergency declared by the President of the United States or the person performing the President’s functions, or in the event of a nuclear, atomic or other attack on the United States or a disaster making it impossible or impracticable for the Corporation to conduct its business without recourse to the provisions of this Article VIII. Said provisions in such event shall override all other Bylaws in conflict with any provisions of this Article VIII, and shall remain operative so long as it remains impossible or impracticable to continue the business of the Corporation otherwise, but thereafter shall be inoperative; PROVIDED, HOWEVER, that all actions taken in good faith pursuant to such provisions shall thereafter remain in full force and effect unless and until revoked by action taken pursuant to the provisions of the Bylaws other than those contained in this Article VIII.

SECTION 2.  UNAVAILABLE DIRECTORS.  All directors of the Corporation who are not available to perform their duties as directors by reason of physical or mental incapacity or for any other reason or who are unwilling to perform their duties or whose whereabouts are unknown shall automatically cease to be directors, with like effect as if such persons had resigned as directors, so long as such unavailability continues.

SECTION 3.  AUTHORIZED NUMBER OF DIRECTORS.  The authorized number of directors shall be the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article VIII, or the minimum number required by law, whichever number is greater.

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SECTION 4.  QUORUM.  The number of directors necessary to constitute a quorum shall be one-third (1/3) of the authorized number of directors as specified in the foregoing Section 3, or such other minimum number as, pursuant to the law or lawful decree then in force, it is possible for the bylaws of a corporation to specify.

SECTION 5.  CREATION OF EMERGENCY COMMITTEE.  In the event the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article VIII is less than the minimum number of authorized directors required by law, then until the appointment of additional directors to make up such required minimum, all the powers and authorities which the Board could by law delegate, including all powers and authorities which the Board could delegate to a committee, shall be delegated to an emergency committee, and the emergency committee shall thereafter manage the affairs of the Corporation pursuant to such powers and authorities as may by law or lawful decrees be conferred on any person or body of persons during a period of emergency.

SECTION 6.  CONSTITUTION OF EMERGENCY COMMITTEE.  The emergency committee shall consist of all the directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article VIII, provided that such remaining directors are not less than three (3) in number. In the event such remaining directors are less than three (3) in number, the emergency committee shall consist of three (3) persons, who shall be the remaining director or directors and either one (1) or two (2) officers or employees of the Corporation, as the remaining director or directors may in writing designate. If there is no remaining director, the emergency committee shall consist of the three (3) most senior officers of the Corporation who are available to serve, and if and to the extent that officers are not available, the most senior employees of the Corporation. Seniority shall be determined in accordance with any designation of seniority in the minutes of the proceedings of the Board, and in the absence of such designation, shall be determined by rate of remuneration. In event that there are no remaining directors and no officers or employees of the Corporation available, the emergency committee shall consist of three (3) persons designated in writing by the stockholder owning the largest number of shares of record as of the date of the last record date.

ARTICLE IX.  AMENDMENTS.

SECTION 1.  AMENDMENTS.  Subject to any contrary or limiting provisions contained in the Certificate of Incorporation, the Bylaws may be amended or repealed, or new Bylaws may be adopted (a) by the affirmative vote of a majority of the shares issued and outstanding and entitled to vote at any annual or special meeting of stockholders, or (b) by the affirmative vote of the majority of the Board at any regular or special meeting; provided that the notice of such meeting of stockholders or directors, whether regular or special, shall specify as one of the purposes thereof the making of such amendment or repeal, and provided further that any amendment of the Bylaws made by the Board may be further amended or repealed by the stockholders.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Alexander Lidow, certify that:

1.I have reviewed this quarterly report on Form 10-Q of International Rectifier Corporation;

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

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

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

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

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

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

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

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

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

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

Date: November 11, 2005	/s/ Alexander Lidow
	Alexander Lidow
	Director and Chief Executive Officer

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EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Michael P. McGee, certify that:

1.I have reviewed this quarterly report on Form 10-Q of International Rectifier Corporation;

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

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

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

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

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

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

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

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

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

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

Date: November 11, 2005	/s/ Michael P. McGee
	Michael P. McGee
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350

The undersigned, Alexander Lidow, the Chief Executive Officer of International Rectifier Corporation (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that, to his knowledge:

(i)the quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2005 (the “Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: November 11, 2005
	/s/ Alexander Lidow
	Alexander Lidow
	Director and Chief Executive Officer

A signed original of the written statement required by Section 906 has been provided to International Rectifier Corporation and will be furnished to the Securities and Exchange Commission or its staff upon request.

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EX-32.2

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350

The undersigned, Michael P. McGee, the Chief Financial Officer of International Rectifier Corporation (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that, to his knowledge:

(i)the quarterly report on Form 10-Q of the Company for the fiscal quarter ended September 30, 2005 (the “Report) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: November 11, 2005
	/s/ Michael P. McGee
	Michael P. McGee
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

A signed original of the written statement required by Section 906 has been provided to International Rectifier Corporation and will be furnished to the Securities and Exchange Commission or its staff upon request.

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