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

Form 10-Q

(Mark One)

x Quarterly Report pursuant to section 13 or 15(d) of the securities exchange act of 1934

For the quarterly period ended September 30, 2006

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		(IRS employer identification
incorporation or organization)		number)

233 Kansas Street		90245
El Segundo, California		(Zip Code)
(Address of principal executive offices)

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 x No o

Indicate by check mark whether the registrant is an a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the exchange act. (check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer 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 x

There were 72,159,715 shares of the registrant’s common stock, par value $1.00 per share, outstanding on November 7, 2006.

Table of Contents



PART I.		FINANCIAL INFORMATION

ITEM 1.		Financial Statements

		Unaudited Consolidated Statements of Income for the Three Months Ended September 30, 2006 and 2005

		Unaudited Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2006 and 2005

		Unaudited Consolidated Balance Sheets as of September 30, 2006 and June 30, 2006

		Unaudited Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2006 and 2005

		Notes to Unaudited Consolidated Financial Statements

ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk

ITEM 4.		Controls and Procedures

PART II.		OTHER INFORMATION

ITEM 1A.		Risk Factors

ITEM 6.		Exhibits

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
	2006			2005

Revenues	$	344,243		$	272,573
Cost of sales	205,826			161,680
Gross profit	138,417			110,893

Selling and administrative expense	53,498			45,166
Research and development expense	32,049			25,212
Amortization of acquisition-related intangibles	926			1,453
Impairment of assets, restructuring and severance charges	5,237			4,293
Other expense, net	801			124
Interest income, net	(2,504		)	(1,552		)
Income before income taxes	48,410			36,197

Provision for income taxes	14,281			9,954
Net income	$	34,129		$	26,243

Net income per common share — basic	$	0.47		$	0.37

Net income per common share — diluted	$	0.47		$	0.36

Average common shares outstanding — basic	72,052			70,329

Average common shares and potentially dilutive securities outstanding — diluted	72,630			72,277

The accompanying notes are an integral part of these statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended September 30,
	2006			2005

Net income	$	34,129		$	26,243

Other comprehensive income (loss):
Foreign currency translation adjustments	8,985			(5,136		)

Unrealized gains (losses) on securities:
Unrealized holding gains on available-for-sale securities, net of tax effect of ($2,305) and $1,686, respectively	3,986			(2,872		)
Unrealized holding gains on foreign currency forward contract, net of tax effect of ($1,375) and ($154), respectively	2,553			263
Less: Reclassification adjustments of net gains on available-for-sale securities and foreign currency forward contract	(419		)	(23		)

Other comprehensive income (loss)	15,105			(7,768		)

Comprehensive income	$	49,234		$	18,475

The accompanying notes are an integral part of these statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30,		June 30,
	2006		2006(1)
ASSETS
Current assets:
Cash and cash equivalents	$	446,261	$	482,907
Short-term cash investments	117,999		120,872
Trade accounts receivable, less allowance for doubtful accounts	210,605		182,774
Inventories, net	218,833		214,094
Short-term deferred income taxes	22,539		23,353
Prepaid expenses and other receivables	59,408		51,456

Total current assets	1,075,645		1,075,456
Long-term cash investments	512,997		488,849
Property, plant and equipment, net	596,647		576,380
Goodwill	155,460		155,148
Acquisition-related intangible assets, net	31,022		31,994
Long-term deferred income taxes	83,193		85,754
Other assets	97,840		91,442
Total assets	$	2,552,804	$	2,505,023

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Bank loans	$	3,591	$	6,501
Long-term debt, due within one year	539,005		627
Accounts payable	86,606		85,009
Accrued salaries, wages and commissions	40,221		57,643
Other accrued expenses	124,603		104,870
Total current liabilities	794,026		254,650
Long-term debt, less current maturities	81,805		617,540
Other long-term liabilities	18,322		28,501
Total liabilities	894,153		900,691

Stockholders’ equity:
Common stock	72,111		71,988
Capital contributed in excess of par value of shares	930,584		925,603
Retained earnings	576,411		542,301
Accumulated other comprehensive income	79,545		64,440
Total stockholders’ equity	1,658,651		1,604,332
Total liabilities and stockholders’ equity	$	2,552,804	$	2,505,023

The accompanying notes are an integral part of these statements.

(1) The consolidated balance sheet as of June 30, 2006 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

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

	Three Months Ended
	September 30,
	2006			2005

Cash flows from operating activities:
Net income	$	34,129		$	26,243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	20,580			20,043
Amortization of acquisition-related intangible assets	926			1,453
Stock compensation expense	2,031			491
Unrealized gains on derivatives	(625		)	(1,175		)
Deferred income taxes	3,732			4,270
Tax benefits from options exercised	552			6,980
Excess tax benefits from options exercised	(150		)	(4,083		)
Change in operating assets and liabilities, net	(49,922		)	(44,477		)
Net cash provided by operating activities	11,253			9,745

Cash flows from investing activities:
Additions to property, plant and equipment	(34,818		)	(37,009		)
Proceeds from sale of property, plant and equipment	21			2
Sale or maturities of cash investments	83,555			110,987
Purchase of cash investments	(99,481		)	(105,277		)
Change in other investing activities, net	(1,268		)	(3,785		)
Net cash used in investing activities	(51,991		)	(35,082		)

Cash flows from financing activities:
(Repayments of) proceeds from short-term debt, net	(2,824		)	2,457
Repayments of capital lease obligations, net	(129		)	(59		)
Proceeds from exercise of stock options and stock purchase plan	2,520			21,782
Excess tax benefits from options exercised	150			4,083
Other, net	147			(4,492		)
Net cash (used in) provided by financing activities	(136		)	23,771

Effect of exchange rate changes on cash and cash equivalents	4,228			726
Net decrease in cash and cash equivalents	(36,646		)	(840		)
Cash and cash equivalents, beginning of period	482,907			359,978

Cash and cash equivalents, end of period	$	446,261		$	359,138

The accompanying notes are an integral part of these statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006

1. Certain Accounting Policies

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, 2006, and the consolidated results of operations and the consolidated cash flows for the three months ended September 30, 2006 and 2005. The results of operations for the three months ended September 30, 2006 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, 2006.

The Company operates on a 52-53 week fiscal year under which the three months ended September 2006 and 2005 consisted of 13 weeks ending October 1, 2006 and October 2, 2005, 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 2007 will consist of 52 weeks ending July 1, 2007.

Certain previous year’s presentation has been restated to conform to current year presentation. As part of the planned Power Control Systems divestiture (see Note 15, “Divestiture”), approximately $6 million of product revenues previously disclosed in the Focus Products group have been restated as Non-Focus Products, reflecting how our Chief Operating Decision Maker reviews the segments as of September 30, 2006.

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, 2006 and 2005 (in thousands except per share amounts):

	Net Income (Numerator)		Shares (Denominator)	Per Share Amount

Three months ended September 30, 2006:
Net income per common share — basic	$	34,129	72,052	$	0.47
Effect of dilutive securities:
Stock options	—		578	—
Net income per common share — diluted	$	34,129	72,630	$	0.47
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

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, 2006 and 2005, since such effect would be anti-dilutive.

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, 2006 and June 30, 2006, 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, 2006 and June 30, 2006, no investment was in a material loss position for greater than one year.

Cash, cash equivalents and cash investments as of September 30, 2006 and June 30, 2006 are summarized as follows (in thousands):

	September 30,		June 30,
	2006		2006
Cash and cash equivalents	$	446,261	$	482,907
Short-term cash investments	117,999		120,872
Long-term cash investments	512,997		488,849
Total cash, cash equivalents and cash investments	$	1,077,257	$	1,092,628

Available-for-sale securities as of September 30, 2006 are summarized as follows (in thousands):

Short-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	62,930	$	—	$	(267	)	$	62,663
U.S. government and agency obligations	55,669		—		(333		)	55,336
Other debt	—		—		—			—
Total short-term cash investments	$	118,599	$	—	$	(600	)	$	117,999

Long-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	191,358	$	—	$	(259	)	$	191,099
U.S. government and agency obligations	158,631		—		(855		)	157,776
Other debt	164,388		—		(266		)	164,122
Total long-term cash investments	$	514,377	$	—	$	(1,380	)	$	512,997

Available-for-sale securities as of June 30, 2006 are summarized as follows (in thousands):

Short-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	66,233	$	—	$	(551	)	$	65,682
U.S. government and agency obligations	50,914		—		(492		)	50,422
Corporate auction rate preferred securities	4,508		—		—			4,508
Other debt	260		—		—			260
Total short-term cash investments	$	121,915	$	—	$	(1,043	)	$	120,872

Long-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	165,598	$	40	$	(1,973	)	$	163,665
U.S. government and agency obligations	184,882		—		(3,125		)	181,757
Other debt	144,457		37		(1,067		)	143,427
Total long-term cash investments	$	494,937	$	77	$	(6,165	)	$	488,849

The Company holds as strategic investments the common stock of two Japanese companies traded on the Tokyo Stock Exchange. The Company accounts for these available-for-sale investments under SFAS No. 115. Dividend income from the two companies was $0.4 million and $0.3 million during the three months ended September 30, 2006 and 2005, respectively. The market values of the equity investments included in other long-term assets at September 30, 2006 and June 30, 2006 were $54.1 million and $52.9 million, respectively, compared to their purchase cost of $18.8 million. Mark-to-market gains (losses), net of tax, for the three months ended September 30, 2006 and 2005, were $0.7 million and ($2.9) million, respectively, and were included in other comprehensive income, a separate component of equity.

The amortized cost and estimated fair value of cash investments at September 30, 2006, by contractual maturity, are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	120,399	$	119,798
Due in 1-2 years	175,619		174,726
Due in 2-5 years	176,504		176,366
Due after 5 years	160,454		160,106
Total cash investments	$	632,976	$	630,996

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 $0.1 million and gross realized losses were $0.3 million for the three months ended September 30, 2006. Gross realized gains were $0.01 million and gross realized losses were $0.3 million for the three months ended September 30, 2005. 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 May 2006, the Company entered into a five-year foreign exchange forward contract (“the Forward Contract”) with BNP Paribas for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by its Japan subsidiary. The Company has designated the May 2006 Forward Contract as a cash flow hedge. Under the terms of the May 2006 Forward Contract, the Company is required to exchange 507.5 million Yen for $5.0 million on a quarterly basis starting in June 2006 and expiring in the March 2011. At September 30, 2006, 18 quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of 101.5 Yen per U.S. dollar. The market value of the May 2006 Forward Contract was $4.5 million at September 30, 2006, included in other assets. The mark-to-market gains, net of tax, of $2.6 million for the three months ended September 30, 2006, have been included in other comprehensive income. Based on effectiveness tests comparing forecasted transactions through the May 2006 Forward Contract expiration date to its cash flow requirements, the Company does not expect to incur a material charge to income during the next twelve months as a result of the May 2006 Forward Contract.

The Company had approximately $123.8 million and $103.1 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at September 30, 2006 and June 30, 2006, respectively. Net realized and unrealized foreign-currency losses recognized in earnings were less than $1 million for the three months ended September 30, 2006 and 2005.

Interest Rate Risk

In December 2001, the Company entered into an interest rate swap transaction (the “December 2001 Transaction”) with the 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 3.03 percent, compared to a coupon of 4.25 percent on the Debt. During the three months ended September 30, 2006, the LIBOR was 5.51 percent, and including certain spreads and mark-to-market adjustments associated with the interest swaps, this arrangement increased interest expense by $1.6 million. During the three months ended September 30, 2005, the LIBOR was 3.60 percent, and including certain spreads and mark-to-market adjustments associated with the interest swaps, this arrangement reduced interest expense by $0.9 million.

Accounted for as fair value hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, the mark-to-market adjustments of the December 2001 and April 2004 Transactions were offset by the mark-to-market adjustments on the Debt, resulting in no material impact to earnings. The market value of the December 2001 Transaction was a liability of $4.7 million and $7.0 million at September 30, 2006 and June 30, 2006, respectively. The market value of the April 2004 Transaction was a liability of $3.0 million and a $4.6 million at September 30, 2006 and June 30, 2006, respectively.

Both Transactions terminate on July 15, 2007 (“Termination Date”), subject to certain early termination provisions. On or after July 18, 2003 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 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 two Transactions, as determined periodically. At September 30, 2006, $16.8 million in letters of credit were outstanding related to the Transactions.

The December 2001 and the April 2004 Transactions 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 Transactions 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, 2006 and 2005, 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 the 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, 2006 and June 30, 2006, was $0.1 million and $0.6 million, respectively, and was included in other long-term assets. Mark-to-market (losses) gains of ($0.5) million and $0.1 million for the three months ended September 30, 2006 and 2005, 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. In accordance with SFAS No. 151, “Inventory Cost” the Company allocates fixed production overheads to inventory based on the normal capacity of the production facilities and abnormal amounts of idle facility expense are recognized as current period charges. Inventories at September 30, 2006 and June 30, 2006 were comprised of the following (in thousands):

	September 30,		June 30,
	2006		2006
Raw materials	$	37,542	$	37,268
Work-in-process	94,401		93,534
Finished goods	86,890		83,292

Total inventories	$	218,833	$	214,094

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, 2006, the Company determined that goodwill was not impaired.

At September 30, 2006 and June 30, 2006 acquisition-related intangible assets included the following (in thousands):

		September 30, 2006					June 30, 2006
	Amortization Periods (Years)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Acquisition-related intangible assets:
Complete technology	4 - 12	$	38,281	$	(15,295	)	$	38,324	$	(14,881	)
Distribution rights and customer lists	5 - 12	15,454		(9,111		)	15,446		(8,744		)
Intellectual property and other	5 - 12	7,963		(6,270		)	7,963		(6,114		)
Total acquisition-related intangible assets		$	61,698	$	(30,676	)	$	61,733	$	(29,739	)

As of September 30, 2006, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal 2007: $2,939; fiscal 2008: $3,503; fiscal 2009: $3,503; fiscal 2010: $3,503, fiscal 2011: $2,715 and fiscal 2012: $1,708.

The carrying amount of goodwill by business segment as of September 30, 2006, is as follows (in thousands):

Energy-Saving Products	$	48,423
Computing and Communications	43,089
Intellectual Property	20,114
Aerospace and Defense	18,997
Commodity Products	15,275
Non-Aligned Products	9,562
Goodwill balance, September 30, 2006	$	155,460

As of September 30, 2006 and June 30, 2006, $43.3 million of goodwill is deductible for income tax purposes, respectively.

The changes in the carrying amount of goodwill for the period ended September 30, 2006 are as follows (in thousands):

	Goodwill
Balance, June 30, 2006	$	155,148
Foreign exchange impact	312
Balance, September 30, 2006	$	155,460

7. Other accrued expenses

Other accrued expenses at September 30, 2006 and June 30, 2006 were comprised of the following (in thousands):

	September 30, 2006		June 30, 2006
Accrued taxes	$	65,230	$	54,497
Short-term severance liability	8,438		7,055
Interest rate swap liability	7,692		—
Accrued Interest	7,455		14,579
Other accrued expenses	35,788		28,739
Total accrued expenses	$	124,603	$	104,870

8. Bank Loans and Long-Term Debt

A summary of the Company’s long-term debt and other loans at September 30, 2006 and June 30, 2006 is as follows (in thousands):

	September 30,		June 30,
	2006		2006
Convertible subordinated notes at 4.25 percent due in 2007 ($550,000 principal amount, plus accumulated fair value adjustment of ($11,675) and ($14,443) at September 30, 2006 and June 30, 2006, respectively)	$	538,325	$	535,557
Other loans and capitalized lease obligations	82,380		82,610
Debt, including current portion of long-term debt ($539,005 and $627 at September 30, 2006 and June 30, 2006, respectively)	620,809		618,167
Foreign revolving bank loans at rates from 1.12% to 3.88%	3,592		6,501

Total debt	$	624,401	$	624,668

In July 2000, the Company sold $550 million principal amount of 4.25 percent Convertible Subordinated Notes due July 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 2006, 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”).

The Company had been a party to a three-year syndicated multi-currency revolving credit facility, led by BNP Paribas, that expires 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, 2006. At September 30, 2006, the Company had no borrowings and $21.1 million letters of credit outstanding under the Facility. At June 30, 2006, the Company had no borrowings and $25.0 million letters of credit outstanding under the Facility. Of the letters of credit outstanding, $16.8 million and $20.7 million were related to the interest rate swap transactions (see Note 4) at September 30, 2006 and June 30, 2006, respectively.

At September 30, 2006, the Company had $169.1 million in total revolving lines of credit, of which $24.7 million had been utilized, consisting of $21.1 million in letters of credit and $3.6 million in foreign revolving bank loans, which are included in the table above.

On November 6, 2006, the Company entered into a new five-year multi-currency revolving credit facility, with a syndicate of lenders including JP Morgan Chase Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG, to replace the BNP Paribas revolving credit facility that would otherwise have expired in November 2006 (the “November 2006 Facility”). The November 2006 Facility expires in November 2011, and provides a credit line of $150 million with an option to increase the facility limit to $250 million. Up to $75 million of the November 2006 Facility may be used for standby letters of credit and up to $10 million may be used for swing-line loans. The November 2006 Facility bears interest at (i) local currency rates plus (ii) a margin between 0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on the Company’s senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the November 2006 Facility ranges between 0.175 and 0.25 percent of the unused portion of the total facility, depending upon the Company’s senior leverage ratio. The Company is required to pledge as collateral shares of certain of its subsidiaries and certain of the Company’s subsidiaries are required to guarantee the credit facility. The Company has no obligation to pledge the securities and the subsidiaries have no obligation to guarantee the facility until December 31, 2006.

9. Impairment of Assets, Restructuring and Severance

During fiscal 2003 second quarter ended December 31, 2002, the Company announced certain 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, 2006.

Total charges associated with the December 2002 restructuring were $277.9 million. These charges consisted of $219.0 million for asset impairment, plant closure and other charges, $6.0 million of raw material and work-in-process inventory, and $52.9 million for severance-related costs.

As discussed in Note 15, “Divestiture”, on November 8, 2006, the Company entered into definitive agreements with Vishay Intertechnology Inc. to sell its Power Control Systems (“PCS”) business, consisting of the Company’s Non-Focus Product segments (see Note 10, “Segment and Geographic Information”), for approximately $290 million (the “PCS Divestiture”). Associated with the PCS Divestiture, the Company plans to realign its sales, distribution and product development functions to a business based solely on its Focus Products. It also plans to configure its manufacturing and support infrastructure to address the initially lower revenue levels following the PCS Divestiture. The Company expects that restructuring-related charges related to these plans will be approximately $10 million to $15 million (including the $4.6 million recorded to date), primarily severance-related costs, which will be recorded as incurred through calendar year-end 2007.

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. The severance charges had been and will continue to be recognized ratably 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.

For the three months ended September 30, 2006, the Company recorded $5.2 million in total restructuring-related charges, consisting of: $0.6 million for plant closure costs and other charges, and $4.6 million for severance-related costs related to the PCS Divestiture and reorganization activities. For the three months ended September 30, 2005, the Company recorded $4.3 million in total restructuring-related charges related to the December 2002 restructuring initiatives, consisting of: $3.1 million for asset impairment, plant closure costs and other charges, and $1.2 million for severance-related costs.

As of September 30, 2006, including the costs associated with the PCS Divestiture and associated reorganization, the Company had recorded $282.5 million in total charges, consisting of: $219.0 million for asset impairment, plant closure costs and other charges, $6.0 million for raw material and work-in-process inventory charges, and $57.6 million for severance-related costs. Components of the $219.0 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. Certain equipment at this facility is being sold as part of the PCS Divestiture. It is expected that these facilities will continue in use to support certain transitional service level agreements as part of the PCS Divestiture until approximately March 2008, and the remaining basis is being depreciated over units of production during this period.

· 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 $13.9 million. This facility is being sold as part of the PCS Divestiture.

· 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 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 June 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 Swansea, Wales; Krefeld, Germany; Borgaro, Italy and Mumbai, India facilities are being sold as part of the PCS Divestiture.

· 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 has also transitioned the assembly and test of non-space power components from its Leominster, Massachusetts facility to its Tijuana, Mexico facility as of December 31, 2005. Associated with

these reductions in manufacturing activities, certain assets with a net book value of $4.0 million were written down by $2.1 million.

· $59.9 million in other miscellaneous items were charged, including $50.7 million in relocation costs and other impaired asset charges and $9.2 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 to their net realizable value. For the three months September 30, 2006 and 2005, the Company disposed of $0.1 million and $0, respectively, of these inventories, which did not have a material impact on gross margin for the period then ended. As of September 30, 2006, no inventory remained to be disposed.

As of September 30, 2006, the Company has recorded $57.5 million in severance-related charges: $44.4 million in severance termination costs related to the December 2002 restructuring and the elimination of approximately 1,300 administrative, operating and manufacturing positions, $8.5 million in pension termination costs at its manufacturing facility in Oxted, England, and $4.6 million for severance-related costs related to the PCS Divestiture and reorganization activities.

The following summarizes the Company’s severance accrual related to the June 2001 restructuring, the December 2002 restructuring, the TechnoFusion acquisition, and the PCS Divestiture for the three months ended September 30, 2006 (in thousands):

	June 2001 Restructuring			December 2002 Restructuring			TechnoFusion Acquisition			PCS Divestiture		Total Severance Liability
Accrued severance, June 30, 2006	$	235		$	6,538		$	282		$	—	$	7,055
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	—			—			—			4,656		4,656
Costs paid	(24		)	(3,250		)	(1		)	—		(3,275		)
Foreign exchange impact	—			—			2			—		2
Accrued severance, September 30, 2006	$	211		$	3,288		$	283		$	4,656	$	8,438

a result of the final transition of the manufacturing to the Newport, Wales facility, expected to be completed and paid by calendar year-end 2007. The TechnoFusion severance liability is related to restructuring of the Company’s Krefeld, Germany facility associated with the acquisition of TechnoFusion GmbH, which is contemplated to be paid or released pending the sale of the PCS business. The PCS Divestiture severance liability relates to approximately 100 operating and finance personnel who have been notified to be impacted by the PCS Divestiture. The associated liability is expected to be paid by calendar year-end 2007.

10. Segment and Geographic Information

As part of the planned Power Control Systems Divestiture (see Note 15, “PCS Divestiture”), approximately $6 million of product revenues for the three months ended September 30, 2006, previously accounted for in the Focus Products group, has been restated in the Non-Focus Products group reflecting how the Chief Operating Decision Maker reviews the segments in light of the pending divestiture of the Company’s Non-Focus Products business. Previous year’s presentation has been restated to conform to current year presentation (in thousands except percentages):

	September 30, 2006				September 30, 2005
Business Segment	Revenues		Gross Profit		Revenues		Gross Profit
Computing and Communications (“C&C”)	$	133,492	40.3	%	$	86,967	41.4	%
Energy-Saving Products (“ESP”)	75,420		49.5		69,262		53.8
Aerospace and Defense (“A&D”)	38,428		50.1		29,401		43.8
Intellectual Property (“IP”)	11,010		100.0		10,440		100.0
Subtotal Focus Products	258,350		47.0		196,070		49.2

Commodity Products (“CP”)	57,501		20.8		47,949		21.2
Non-Aligned Products (“NAP”)	28,392		17.8		28,554		14.6
Subtotal Non-Focus Products	85,893		19.8		76,503		18.7

Consolidated total	$	344,243	40.2	%	$	272,573	40.7	%

Product revenues from unaffiliated customers are based on the location in which the sale originated. One distributor accounted for approximately 11 percent of the Company’s consolidated revenues for the three months ended September 30, 2006. 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. One distributor accounted for approximately 23 percent and 12 percent of the Company’s accounts receivable at September 30, 2006 and June 30, 2006, respectively.

The majority of the Company’s products in the Focus Product segments, including those in the C&C, ESP and A&D segments, are sold directly to OEM customers. Two distributors, individually accounting for greater than ten percent of the C&C

segment revenue, accounted for approximately 38 percent of C&C revenue for the three months ended September 30, 2006. One distributor accounted for approximately 11 percent of A&D segment revenue for the three months ended September 30, 2006.

Two OEM customers, individually accounting for greater than ten percent of NAP segment revenue, accounted for approximately 33 percent of NAP revenue for the three months ended September 30, 2006. Two distributors, individually accounting for greater than ten percent of the CP segment revenue, accounted for approximately 21 percent of CP revenue for the three months ended September 30, 2006. No single OEM customer, distributor or subcontract manufacturer accounted for more than ten percent of the Energy-Saving Products segment revenues for the quarter.

Geographic information for the Company on an aggregate basis, for the three months ended September 30, 2006 and 2005, and June 30, 2006 is presented below (in thousands):

	September 30, 2006		September 30, 2005
Revenues from Unaffiliated Customers
The United States	$	88,416	$	74,611
Asia	168,734		129,628
Europe	76,083		57,894
Subtotal	333,233		262,133
Royalties (unallocated)	11,010		10,440

Total	$	344,243	$	272,573

	September 30, 2006		June 30, 2006
Long-Lived Assets
The United States	$	357,698	$	348,478
Asia	47,653		45,061
Europe	289,136		274,284

Total	$	694,487	$	667,823

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.

11. Stock-Based Compensation

The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. The following table summarizes the stock option activities for the three months ended September 30, 2006 (in thousands except per share price data):

	Shares		Weighted Average Option Exercise Price Per Share		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding, June 30, 2006	12,075		$	40.35	—		$	45,981
Granted	668		$	35.29	$	13.36	—
Exercised	(111	)	$	21.25	—		$	1,510
Expired	(128	)	$	48.43	—		—
Outstanding, September 30, 2006	12,504		$	40.18	—		$	29,910

For the three months ended September 30, 2006 and 2005 the Company received $2.5 million and $21.8 million, respectively, for stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $0.6 million and $7.0 million for three months ended September 30, 2006 and 2005, respectively.

The following table summarizes the Restricted Stock Unit (“RSU”) activities for the three months ended September 30, 2006 (in thousands except per share data):

	Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding, June 30, 2006	23		$	49.09	$	909
Vested	(2	)	$	35.30	$	71
Expired	(6	)	$	33.61	—
Outstanding, September 30, 2006	15		$	49.07	$	510

The following table summarizes the stock options and RSUs outstanding at September 30, 2006, and related weighted average price and life information (in thousands except years and price data):

	September 30, 2006
	Outstanding				Exercisable
Range of Exercise Price per Share	Number Outstanding	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price
$0.00 to $14.13	404	2.54	$	11.31	390	2.49	$	11.73
$15.62 to $25.35	1,385	2.88	$	20.65	1,385	2.88	$	20.65
$26.00 to $35.90	2,032	4.73	$	34.39	1,309	4.67	$	33.96
$36.39 to $45.87	6,449	3.71	$	42.71	5,859	3.63	$	42.82
$46.19 to $54.69	1,351	3.85	$	50.37	936	3.83	$	51.32
$55.31 to $63.88	898	4.17	$	62.28	898	4.17	$	62.28
	12,519	3.79	$	40.13	10,777	3.68	$	40.13

Additional information relating to the stock option plans, including employee stock options and RSUs, at September 30, 2006 and June 30, 2006 is as follows (in thousands):

	September 30, 2006	June 30, 2006
Options exercisable	10,777	10,813
Options available for grant	3,109	3,696
Total reserved common stock shares for stock option plans	15,628	15,794

For the three months ended September 30, 2006 and 2005, stock-based compensation expense associated with the Company’s stock options is as follows (in thousands):

	September 30, 2006		September 30, 2005
Selling and administrative expense	$	1,199	$	258
Research and development expense	528		82
Cost of sales	200		30

Total stock option expense	$	1,927	$	370

For the three months ended September 30, 2006 and 2005, stock-based compensation expense associated with the Company’s RSUs is as follows (in thousands):

	September 30, 2006		September 30, 2005
Research and development expense	$	52	$	52
Selling and administrative expense	44		61
Cost of sales	8		8

Total RSU expense	$	104	$	121

The total unrecognized compensation expense for outstanding stock options and RSUs was $20.4 million as of September 30, 2006, and will be recognized, in general, over three years. The weighted average number of years to recognize the compensation expense is 1.2 years.

The fair value of the options associated with the above compensation expense for the three months ended September 30, 2006 and June 30, 2006, was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	September 30, 2006		June 30, 2006
Expected life	3.5 years		3.5 years
Risk free interest rate	4.7	%	4.3	%
Volatility	44.3	%	34.3	%
Dividend yield	0.0	%	0.0	%

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.

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 to the Company by the Federal District Court in Los Angeles of infringement by IXYS of its 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 IR patents. Following remand a federal court jury in Los Angeles, California, held on September 15, 2005, that IXYS elongated octagonal MOSFETs and IGBTs infringed on the 4,959,699 patent but did not infringe on the 5,008,725 and 5,130,767 patents. On October 6, 2005, the jury awarded the Company $6.2 million in damages. Based on the jury’s verdict, on February 14, 2006, the District Court entered its final judgment (including permanent injunctions prohibiting IXYS from further infringing sales for the remaining life of the 4,959,699 patent) and found that the Company is entitled to $6.2 million in compensatory damages for infringement through September 30, 2005, plus an additional 6.5 percent of infringing sales after September 30, 2005. On July 14, 2006, the Federal Circuit entered an order vacating that judgment and remanded the IR v. IXYS action so that the District Court could consider whether to reissue a permanent injunction in light of the Supreme Court’s decision in eBay Inc. v. MercExchange, L.L.C., _ U.S. _, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006). The Company then requested that the District Court re-enter the final judgment (and permanent injunction). On September 14, 2006, the District Court granted the Company’s motion and re-entered the final judgment. IXYS failed to timely file notice of appeal of the final judgement and has filed a motion with the District Court seeking additional time in which to file notice of appeal. The Company is opposing the IXYS motion. The Company believes that it is reasonably assured that the value of the judgment is at least $2.5 million.

14. Income Taxes

The Company’s effective tax provision for the three months ended September 30, 2006 and 2005 was 29.5 percent and 27.5 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 state research and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefit.

15. Divestiture

On November 8, 2006, the Company entered into definitive agreements with Vishay Intertechnology, Inc. (“Vishay”), a manufacturer of discrete semiconductors and passive electronic components, to sell its Power Control Systems (“PCS”) business for approximately $290 million (the “PCS Divestiture”). The PCS business consists of the Company’s Non-Focus Product segments (see Note 10, “Segment and Geographic Information”), which include operations at the Company’s Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; and Halifax, Canada sites. The PCS Divestiture will also include certain wafer manufacturing, product assembly and research and development equipment currently located at the Company’s Temecula, California; Tijuana, Mexico; and El Segundo, California locations. The PCS Divestiture is expected to close in February 2007, subject to

various closing conditions including obtaining all necessary governmental approvals or clearances.

As part of the PCS Divestiture, the Company will be involved in the transition of certain of the divested business and assets with Vishay, including providing certain manufacturing, sales, marketing and administrative support services for a period of up to three years.

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, 2006

We report our results in six segments that generally reflect our products’ end-markets: 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 further summarize our segments in two groups, our Focus Products and Non-Focus Products, to reflect our strategic goals and the allocation of our critical resources. 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, 2006, consolidated revenues were $344.2 million compared to $272.6 million in the prior year three months ended September 30, 2005. Revenues for the three months ended September 30, 2006 increased by 26.3 percent compared to the prior year, reflecting growth in Computing and Communications, Energy-Saving Products, Aerospace and Defense and Commodity Products segments, which increased 53.5 percent, 8.9 percent, 30.7 percent, and 19.9 percent, respectively, from the prior year three months ended September 30, 2005.

Revenues for our Focus Products were $258.3 million and $196.1 million for the three months ended September 30, 2006 and 2005, respectively. Focus Product revenues accounted for 75.0 percent of consolidated revenues for the three months ended September 30, 2006, compared to 71.9 percent of consolidated revenues for the three months ended September 30, 2005. Revenues for our Non-Focus Products were $85.9 million and $76.5 million for the three months ended September 30, 2006 and 2005, respectively. Non-Focus Product revenues for the fiscal quarter ended September 30, 2006, included approximately $6 million of product revenues previously accounted for in the Focus Products group and restated in the Non-Focus Products group, to align with how we review the segments, in light of the pending divestiture of our Non-Focus Products business. Prior period has been restated to conform to current year presentation.

Revenues as a percentage of total product revenues based on sales location were approximately 27 percent, 51 percent and 22 percent for the United States, Asia and Europe, respectively, for the three months ended September 30, 2006. Revenues as a percentage of total product revenues based on sales location were approximately 28 percent, 50 percent and 22 percent for the United States, Asia and Europe, respectively, for the three months ended September 30, 2005.

We operated at over 90 percent of our worldwide in-house wafer fabrication and assembly manufacturing capacities, without considering subcontract or foundry capacity. We have added capacity during calendar year 2006 and are planning to add incremental production capacity of $100 million to $150 million in annual revenue potential by June 2007. As part of our expansion plans, we announced in October 2006 a foundry agreement with Tower Semiconductor for capacity capable of addressing many of our Focus Products.

Gross profit margin was 40.2 percent for the three months ended September 30, 2006, and 40.7 percent for the prior year three months ended September 30, 2005. The gross profit margin declined primarily due to product mix. Gross margin decline also reflected increased costs associated with the ramp-up of major new product families at our Newport, Wales facility. Gross profit margin for our Focus Products was 47.0 percent for the three months ended September 30, 2006, and 49.2 percent for the prior year three months ended September 30, 2005. Gross profit margin for our Non-Focus Products was 19.8 percent and 18.7 percent for the three months ended September 30, 2006 and 2005, respectively.

For the three months ended September 30, 2006, selling and administrative expense was $53.5 million (15.5 percent of revenues) compared to $45.2 million (16.7 percent of revenues) for the prior year three months ended September 30, 2005, reflecting variable costs paid on a higher revenue base such as sales commissions, and profit sharing, stock option and other employee benefit expenses.

For the three months ended September 30, 2006, research and development expense was $32.0 million (9.3 percent of revenues) compared to $25.2 million (9.2 percent of revenues) for the prior year three months ended September 30, 2005, reflecting our continued commitment to developing our power management ICs and new architectures for the next-generation applications, including new game stations, digital televisions, high-performance servers, hybrid vehicles and energy-efficient appliances.

During fiscal 2003 second quarter ended December 31, 2002, we announced certain restructuring initiatives. We have substantially completed the December 2002 restructuring activities as of September 30, 2006. For the three months ended September 30, 2006, we recorded $5.2 million in total restructuring-related charges, consisting of: $0.6 million for plant closure costs and other charges related to the completion of the December 2002 restructuring plans, and $4.6 million for severance-related costs related to the divestiture of our Non-Focus Products business and related reorganization activities (see “Divestiture” below).

During the three months ended September 30, 2006, operating activities generated cash flow of $11.3 million. Our cash, cash equivalents and cash investments totaled $1,077.3 million at September 30, 2006. As of September 30, 2006, we had $144.3 million in unused credit facilities for operating needs. Our Credit Facility with BNP

Paribas was scheduled to expire in November 2006. On November 6, 2006, we replaced this facility with a new five-year multi-currency revolving credit facility with a syndicate of lenders including JP Morgan Chase Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG, for $150 million, with an option to increase the facility limit to $250 million.

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

Divestiture

On November 8, 2006, we entered into definitive agreements with Vishay Intertechnology, Inc. (“Vishay”), a manufacturer of discrete semiconductors and passive electronic components, to sell our Power Control Systems (“PCS”) business for approximately $290 million (the “PCS Divestiture”). The PCS business consists of our Non-Focus Product segments, which include operations at our Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; and Halifax, Canada sites. The PCS Divestiture will also include certain wafer manufacturing, product assembly and research and development equipment currently located at our Temecula, California; Tijuana, Mexico; and El Segundo, California locations. The PCS Divestiture is expected to close in February 2007, subject to various closing conditions including obtaining all necessary governmental approvals or clearances.

When the PCS Divestiture is completed, it is our goal that within the next couple of years, the remaining revenues from our Focus Products would grow faster and the remaining business would be more profitable. We do not believe that the completion of the PCS Divestiture will substantially alter the customer base that we serve or the competition that we face currently. However, to achieve our goals, for a few quarters following a successful completion of the PCS Divestiture, we plan to more fully develop our Focus Products by realigning our sales, distribution and product development functions to a business based solely on our Focus Products. We also plan to configure our manufacturing and support infrastructure to address the initially lower revenue levels following the PCS Divestiture. We expect that restructuring-related charges with regards to these plans will be approximately $10 million to $15 million (including the $4.6 million recorded to date), consisting of primarily severance-related costs, which will be recorded as incurred in accordance with SFAS No. 146 through approximately calendar year-end 2007.

As part of the PCS Divestiture, we will be involved in the transition of certain of the divested business and assets with Vishay, including providing certain manufacturing, sales, marketing and administrative support services for up to three years.

Results of Operations for the Three Months Ended September 30, 2006 Compared with the Three Months Ended September 30, 2005

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

	Three Months Ended September 30,
	2006					2005
Revenues	$	344.2		100.0	%	$	272.6		100.0	%
Cost of sales	205.8			59.8		161.7			59.3
Gross profit	138.4			40.2		110.9			40.7
Selling and administrative expense	53.5			15.5		45.2			16.7
Research and development expense	32.0			9.3		25.2			9.2
Amortization of acquisition-related intangible assets	1.0			0.3		1.5			0.5
Impairment of assets, restructuring and severance charges	5.2			1.5		4.3			1.6
Other expense, net	0.8			0.2		0.1			0.0
Interest income, net	(2.5		)	(0.7	)	(1.6		)	(0.6	)
Income before income taxes	48.4			14.1		36.2			13.3
Provision for income taxes	14.3			4.2		10.0			3.7
Net income	$	34.1		9.9	%	$	26.2		9.6	%

Revenues and Gross Margin

Revenues for our Focus Products were $258.3 million and $196.1 million for the three months ended September 30, 2006 and 2005, respectively. Focus Product revenues accounted for 75.0 percent of consolidated revenues for the three months ended September 30, 2006, compared to 71.9 percent of consolidated revenues for the three months ended September 30, 2005. Revenues for our Non-Focus Products were $85.9 million and $76.5 million for the three months ended September 30, 2006 and 2005, respectively. Non-Focus Product revenues for the fiscal quarter ended September 30, 2006, included approximately $6 million of certain complementary products previously accounted for in the Focus Products group and restated in Non-Focus Products, to align with how we review the segments in light of the pending divestiture of our Non-Focus Products business. Prior period has been restated to conform to current year presentation.

28 percent, 50 percent and 22 percent for the United States, Asia and Europe, respectively, for the three months ended September 30, 2005.

Segment results for the three months ended September 30, 2006 and 2005 are as follows (in thousands except percentages):

	Three Months Ended
	September 30, 2006						September 30, 2005
Business Segment	Revenues		Percentage of Total		Gross Margin		Revenues		Percentage of Total		Gross Margin
Computing and Communications	$	133,492	38.8	%	40.3	%	$	86,967	31.9	%	41.4	%
Energy-Saving Products	75,420		21.9		49.5		69,262		25.4		53.8
Aerospace and Defense	38,428		11.1		50.1		29,401		10.8		43.8
Intellectual Property	11,010		3.2		100.0		10,440		3.8		100.0
Subtotal Focus Products	258,350		75.0		47.0		196,070		71.9		49.2

Commodity Products	57,501		16.7		20.8		47,949		17.6		21.2
Non-Aligned Products	28,392		8.3		17.8		28,554		10.5		14.6
Subtotal Non-Focus Products	85,893		25.0		19.8		76,503		28.1		18.7

Consolidated total	$	344,243	100.0	%	40.2	%	$	272,573	100.0	%	40.7	%

Computing and Communications (“C&C”)

The Computing and Communication segment is comprised of our power management ICs, including iPowirTM multi-chip modules and DirectFETTM 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 televisions, liquid crystal displays (“LCDs”), portable handheld devices and cellular phones.

C&C revenues increased by $46.5 million, 53.5 percent, compared to the prior year three months ended September 30, 2005, reflecting strength in the latest generation game stations from the top two manufacturers and in the new generation of Intel and AMD-based servers.

Gross margin for C&C was 40.3 percent for the three months ended September 30, 2006, compared to 41.4 percent for the prior year three months ended September 30, 2005. Gross margin declined primarily reflecting product mix and costs associated with the ramp-up of new products.

Energy-Saving Products (“ESP”)

The Energy-Saving Product segment is comprised of our power management ICs 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, 2006, increased by $6.2 million, 8.9 percent, compared to the prior year three months ended September 30, 2005, primarily reflecting strength in the notebook market and increased sales of our IGBTs and high-voltage ICs.

Gross margin for ESP was 49.5 percent for the three months ended September 30, 2006, compared to 53.8 percent for the three months ended September 30, 2005. The gross margin decline reflected primarily product mix and certain end-market application price declines.

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, aircraft, ships, submarines and other defense and high-reliability applications.

A&D revenues for the three months ended September 30, 2006, increased by $9.0 million, 30.7 percent, from the three months ended September 30, 2005, reflecting a higher demand for our power components and advanced power management solutions for commercial and defense satellites, military and other high reliability applications.

Gross margin for the A&D segment increased to 50.1 percent for the fiscal quarter ended September 30, 2006, from 43.8 percent in the comparable prior year period, primarily reflecting product mix, manufacturing efficiencies and restructuring cost savings.

Intellectual Property (“IP”)

The Intellectual Property segment reports ongoing and one-time royalty income from licensing and activities related to the enforcement of our patents and other intellectual property, which may include claims settlement from the successful defense of our licenses.

IP revenues were $11.0 million and $10.4 million for the three months ended September 30, 2006 and 2005, respectively. Included in the IP revenues were one-time royalty income from the licensing of our patents of $3.0 million and $2.0 million for the three months ended September 30, 2006 and 2005, respectively. Our licensed MOSFET patents expire between 2006 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.

Commodity Products (“CP”)

The Commodity Product segment is comprised primarily of older-generation power components that have widespread use throughout the power management industry, but are typically commodity in nature and sold with margins generally below our strategic targets.

For the three months ended September 30, 2006, CP revenues were $57.5 million, an increase of 19.9 percent from $47.9 million for the three months ended September 30, 2005, primarily reflecting stronger market conditions.

Gross margin for CP was 20.8 percent for the fiscal quarter ended September 30, 2006, compared to 21.2 percent in the comparable prior year quarter, reflecting primarily price pressures.

Non-Aligned Products (“NAP”)

The Non-Aligned Product segment includes businesses, product lines or products that we are targeting for realignment, whether by divestiture or otherwise. Currently, product lines reported in this segment include certain modules, rectifiers, diodes and thyristors used in the automotive, industrial, welding and motor control applications.

NAP revenues for the three months ended September 30, 2006 were $28.4 million, decreasing 0.6 percent from $28.6 million in the three months ended September 30, 2005, reflecting primarily declining demand in the automotive industry.

Gross margin for our NAP segment was 17.8 percent for the three months ended September 30, 2006, compared to 14.6 percent for the three months ended September 30, 2005, reflecting yield improvements and cost reduction plans.

Selling and Administrative Expense

For the three months ended September 30, 2006, selling and administrative expense was $53.5 million (15.5 percent of revenues), compared to $45.2 million (16.7 percent of revenues) for the three months ended September 30, 2005. The decrease in the selling and administrative expense ratio primarily reflected a higher revenue base in the current year. The absolute selling and administrative expense increased reflecting

variable costs paid on a higher revenue base such as sales commissions, and profit sharing, stock option and other employee benefit expenses.

Research and Development Expenses

For the three months ended September 30, 2006 and 2005, research and development expense was $32.0 million and $25.2 million (9.3 percent and 9.2 percent of revenues), respectively, reflecting our continued commitment to developing our power management ICs and new architectures for the next-generation applications, including new game stations, digital televisions, high-performance servers, hybrid vehicles and energy-efficient appliances

Impairment of Assets, Restructuring and Severance

During fiscal 2003 second quarter ended December 31, 2002, we announced certain restructuring initiatives. Under these initiatives, the goal was to reposition us to better fit the market conditions and de-emphasize our 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 within its Focus Product segments. We also planned to lower overhead costs across our support organizations. We have substantially completed the December 2002 restructuring activities as of September 30, 2006.

Associated with the PCS Divestiture (see Note 15, “Divestiture”), we plan to realign our sales, distribution and product development functions to a business based solely on our Focus Products. We also plan to configure our manufacturing and support infrastructure to address the initially lower revenue levels following the PCS Divestiture. We expect that restructuring-related charges related to these plans will be approximately $10 million to $15 million (including the $4.6 million recorded to date), primarily severance-related costs, which will be recorded as incurred through calendar year-end 2007.

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. The severance charges had been and will continue to be recognized ratably over the future service period, as applicable, in accordance with SFAS No. 146. 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.

For the three months ended September 30, 2006, we recorded $5.2 million in total restructuring-related charges, consisting of: $0.6 million for plant closure costs and other charges, and $4.6 million for severance-related costs related to the PCS Divestiture and reorganization activities. For the three months ended September 30, 2005, we recorded $4.3 million in total restructuring-related charges related to the December 2002 restructuring initiatives, consisting of: $3.1 million for asset impairment, plant closure costs and other charges, and $1.2 million for severance-related costs.

As of September 30, 2006, including the costs associated with the PCS Divestiture and associated reorganization, we had recorded $282.5 million in total charges, consisting of: $219.0 million for asset impairment, plant closure costs and other charges, $6.0 million for raw material and work-in-process inventory charges, and $57.6 million for severance-related costs. Components of the $219.0 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. Certain equipment at this facility is being sold as part of the PCS Divestiture. It is expected that these facilities will continue in use to support certain transitional service level agreements as part of the PCS Divestiture until approximately March 2008, and the remaining basis is being depreciated over units of production during this period.

· 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 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 $13.9 million. This facility is being sold as part of the PCS Divestiture.

· We restructured our manufacturing activities in Europe. Based on a review of our Swansea, Wales facility, a general-purpose module facility, we determined 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, we have completed the move of our manufacturing activities from our automotive facility in Krefeld, Germany to our Swansea, Wales and Tijuana, Mexico facilities as of June 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 products at our Oxted, England facility as of September 30, 2003. The Swansea, Wales; Krefeld, Germany; Borgaro, Italy and Mumbai, India facilities are being sold as part of the PCS Divestiture.

· 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 previously manufactured in this facility. We have also transitioned the assembly and test of non-space power components from our Leominster, Massachusetts facility to our Tijuana, Mexico facility as of December 31, 2005. Associated with these reductions in manufacturing activities, certain assets with a net book value of $4.0 million were written down by $2.1 million.

· $59.9 million in other miscellaneous items were charged, including $50.7 million in relocation costs and other impaired asset charges and $9.2 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 to their net realizable value. For the three months September 30, 2006 and 2005, we disposed of $0.1 million and $0, respectively, of these inventories, which did not have a material impact on gross margin for the period then ended. As of September 30, 2006, no inventory remained to be disposed.

As of September 30, 2006, we have recorded $57.5 million in severance-related charges: $44.4 million in severance termination costs related to the December 2002 restructuring and the elimination of approximately 1,300 administrative, operating and manufacturing positions, $8.5 million in pension termination costs at our manufacturing facility in Oxted, England, and $4.6 million for severance-related costs related to the PCS Divestiture and reorganization activities.

Our restructuring activities were expected to result in severance charges of approximately $63 million through calendar year-end 2007. 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	13 million
Veneria, Italy	Move manufacturing to India and discontinue certain products	11 million
Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; Halifax, Canada; Temecula, California; Tijuana, Mexico; and El Segundo, California	Power Control Systems Divestiture	10 million
Company-wide	Realign business processes	15 million
Total		$	63 million

For the three months ended September 30, 2006, we recorded $5.2 million in total restructuring-related charges, consisting of: $0.6 million for plant closure costs and other charges, and $4.6 million for severance-related costs related to the PCS Divestiture and related reorganization activities. For the three months ended September 30, 2005, we recorded $4.3 million in total restructuring-related charges related to the December 2002 restructuring initiatives, consisting of: $3.1 million for asset impairment, plant closure costs and other charges, and $1.2 million for severance-related costs.

The following summarizes our severance accrual related to the June 2001 restructuring, the December 2002 restructuring, the TechnoFusion acquisition and the PCS Divestiture for the three months ended September 30, 2006 (in thousands):

	June 2001 Restructuring			December 2002 Restructuring			TechnoFusion Acquisition			PCS Divestiture		Total Severance Liability
Accrued severance, June 30, 2006	$	235		$	6,538		$	282		$	—	$	7,055
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	—			—			—			4,656		4,656
Costs paid	(24		)	(3,250		)	(1		)	—		(3,275		)
Foreign exchange impact	—			—			2			—		2
Accrued severance, September 30, 2006	$	211		$	3,288		$	283		$	4,656	$	8,438

The June 2001 severance liability is primarily related to certain legal accruals associated with the termination of 29 administrative and operating personnel, which will be paid or released as the outcome is determined. The December 2002 severance liability is primarily related to severance-related costs of approximately 130 operating personnel, who have been notified and targeted to be terminated as a result of the final transition of the manufacturing to the Newport, Wales facility, expected to be completed and paid by calendar year-end 2007. The TechnoFusion severance liability is related to restructuring of our Krefeld, Germany facility associated with the acquisition of TechnoFusion GmbH, which is contemplated to be paid or released pending the sale of the PCS business. The PCS Divestiture severance liability relates to approximately 100 operating and finance personnel who have been notified to be impacted by the PCS Divestiture. The associated liability is expected to be paid by calendar year-end 2007.

Other Income and Expenses

Other expense was $0.8 million and $0.1 million for the three months ended September 30, 2006 and 2005, respectively, reflecting an increase in claim settlement costs.

Interest Income and Expenses

Interest income was $12.6 million and $7.1 million for the three months ended September 30, 2006 and 2005, respectively, reflecting higher prevailing interest rates on higher average cash and cash investment balance in the current year.

Interest expense was $10.1 million and $5.5 million for the three months ended September 30, 2006 and 2005, respectively, primarily reflecting higher effective interest rate payable on our $550 million convertible subordinated notes outstanding.

Income Taxes

Our effective tax provision for the three months ended September 30, 2006 and 2005 was 29.5 percent and 27.5 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 state research and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefits.

Liquidity and Capital Resources

At September 30, 2006, we had cash and cash equivalent balances of $446.3 million and cash investments in marketable debt securities of $631.0 million. We also had $144.3 million in unused credit facilities. Our investment portfolio consisted of available-for-sale fixed-income, principally investment-grade securities as of September 30, 2006.

For the three months ended September 30, 2006, cash provided by operating activities was $11.3 million compared to $9.7 million in the comparable prior year three months ended September 30, 2005. Depreciation and amortization adjusted cash flows from operations by $21.5 million. Changes in operating assets and liabilities decreased cash by $49.2 million during the three months ended September 30, 2006. The increase in working capital primarily reflected an increase in accounts receivable as a result of lengthening payment terms based on business practices in certain foreign regions, and lower accrued salaries and wages due primarily to timing of bonus and profit sharing payments.

For the three months ended September 30, 2006, cash used in investing activities was $54.2 million. We purchased $99.5 million while proceeds from sales or maturities of cash investments were $83.6 million. We invested $34.8 million in capital expenditures, of which approximately one-third was spent at the Newport, Wales facility. Purchase order commitments for capital expenditures were $21.5 million as of September 30, 2006. We intend to fund capital expenditures and working capital requirements through cash and cash equivalents on hand, anticipated cash flows from operations and available credit facilities.

Financing activities for the three months ended September 30, 2006 generated $2.1 million. Proceeds from the exercise of employee stock options and stock participation plan contributed $2.5 million.

As of September 30, 2006, we had revolving, equipment and foreign credit facilities of $169.1 million, against which $24.7 million had been used. As discussed in Note 4 of the unaudited consolidated financial statements, we have been 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, 2006, $16.8 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, 2006, our letter of credit commitment would have increased by $2.2 million to $19.0 million. The letters of credit collateral requirement for future periods have been waived by JP Morgan Chase Bank following the execution of the November 6, 2006 revolving credit facility described below.

On November 6, 2006, we entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including JP Morgan Chase Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG, to replace the BNP Paribas revolving credit facility that would otherwise have expired in November 2006. The new facility expires in November 2011 and provides a credit line of $150 million, with an option to increase the facility limit to $250 million.

Our $550 million convertible subordinated notes are due in July 2007. We anticipate that this subordinated debt will be refinanced through public or private offerings of debt or equity, or be paid down with our existing cash and cash investments. We do not have any off balance sheet arrangements as of September 30, 2006.

We believe that our current cash and cash investment balances, cash flows from operations and borrowing capacity, including unused amounts under our credit facility, 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

In July 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN No. 48”). FIN No. 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold an uncertain tax position is required to meet before being recognized in the financial statements. This Interpretation requires that the impact of a tax position be recognized if it is more likely than not of being sustained in an audit, based on the technical merits of the position. FIN No. 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. In addition, FIN No. 48 excludes income taxes from the scope of SFAS No. 5, “Accounting for Contingencies”. FIN No. 48 is effective beginning with our fiscal first quarter ended September 30, 2007 of fiscal year 2008. We are currently evaluating the impact of FIN No. 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 will be effective for us beginning in the first quarter of fiscal year 2009 ending September 30, 2008. We are currently evaluating the impact of SFAS No. 157.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132R” (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position, and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. SFAS No. 158 also requires an employer to measure the funded status of a plan at the date of its year-end statement of financial position. SFAS 158 will be effective for us beginning in the first quarter of fiscal year 2008 ending September 30, 2007. We do not believe that the adoption of SFAS No. 158 will have a material impact on our consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Section N to Topic 1, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB No. 108”). SAB No. 108 requires the evaluation of prior-year misstatements using both the balance sheet approach and the income statement approach. In the initial year of adoption, should either approach result in quantifying an error that is material in light of quantitative and qualitative factors, SAB No. 108 guidance allows for a one-time cumulative-effect adjustment to beginning retained earnings. In years subsequent to adoption, previously undetected misstatements deemed material shall result in the restatement of previously issued financial statements in accordance with SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements”. SAB No. 108 is effective for us beginning in the fiscal quarter ending December 31, 2006. We do not believe adoption of SAB No. 108 will have an impact on our condensed consolidated statement of operations and financial condition.

Critical Accounting 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, 2006. We believe that at September 30, 2006, there has been no material change to this information.

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 Part II, Item 1A, “Risk Factors” 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.

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 From 10-Q and in our Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

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, 2006, 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 $0.5 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 $1.0 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 2004, we 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 variable interest rate we have paid since the inception of the swap has averaged 3.03 percent, compared to a coupon of 4.25 percent on the Debt. During the three months ended September 30, 2006, the LIBOR was 5.51 percent, and including certain spreads and mark-to-market adjustments associated with the interest swaps, this arrangement increased interest expense by $1.6 million. For the three months ended September 30, 2005, the LIBOR was 3.60 percent, and including certain spreads and mark-to-market adjustments associated with the interest swaps, this arrangement decreased interest expense by $0.9 million.

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 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 $4.7 million and a $7.0 million liability at September 30, 2006 and June 30, 2006, respectively. The market value of the April 2004 Transaction was a $3.0 million and a $4.6 million liability at September 30, 2006 and June 30, 2006, respectively.

In April 2002, we entered into an interest rate contract (the “Contract”) with the 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, 2006 and June 30, 2006 was $0.1 million and $0.6 million, respectively, and was included in other long-term assets. Mark-to-market (losses) gains of ($0.5) million and $0.1 million for the three months ended September 30, 2006 and 2005, 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 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 an adverse 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, 2006 and 2005.

In May 2006, following the expiration of our March 2001 forward contract in March 2006, we entered into a five-year foreign exchange forward contract with BNP Paribas (the “May 2006 Forward Contract”) for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our Japan subsidiary. We have designated the May 2006 Forward Contract as a cash flow hedge. Under the terms of the May 2006 Forward Contract, we are required to exchange 507.5 million Yen for $5.0 million on a quarterly basis starting in June 2006 and expiring in March 2011. At September 30, 2006, 18 quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of 101.5 Yen per U.S. dollar. The market value of the May 2006 Forward Contract was $4.5 million and 1.2 million, included in other assets, at September 30, 2006 and June 30, 2006, respectively. The mark-to-market

gains, net of tax, of $2.6 million for the three months ended September 30, 2006, have been included in other comprehensive income. Based on effectiveness tests comparing forecasted transactions through the May 2006 Forward Contract expiration date to its cash flow requirements, we do not expect to incur a material charge to income during the next twelve months as a result of the May 2006 Forward Contract.

We had approximately $123.8 million and $103.1 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at September 30, 2006 and June 30, 2006, respectively. Net realized and unrealized foreign-currency net losses recognized in earnings were less than $1 million for the three months ended September 30, 2006 and 2005.

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 2007 that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A. Risk Factors

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 revenue 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 revenue and gross margin guidance is dependent on a 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 revenue 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 revenue and margins.

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. For example, in our Computing and Communications segment, we have announced substantial new design or programs in next generation game stations and are currently manufacturing and shipping on that basis. 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 (or the value of our inventory), our revenue and our operating results generally. Additionally, cancellation or significant reduction in significant customer programs, like those for next generation game station or servers, could materially affect our ability to achieve our revenue and margin targets.

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

At the end of fiscal quarter ended September 30, 2006, we reported net inventories of $218.8 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 revenue and gross margin may be adversely affected. Additionally, if we produce or have produced inventory that does not meet current or future demand, we may determine at some point that certain of the inventory may only be sold at a discount or may not be sold at all, resulting in the reduction in the carrying value of our inventory and a material adverse effect on our financial condition and operating results.

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

The semiconductor industry, including the sectors in which we do business, is highly competitive. Competition is based on price, product performance, technology platform, product availability, quality, reliability and customer service. Price pressures often emerge as competitors attempt to gain a greater market share by lowering prices or by offering a more desirable technological solution. Pricing and other competitive pressures can adversely affect our revenue and gross margin, and hence, our profitability. We also compete in various markets with companies of various sizes, many of which are larger and have greater financial and other resources than we have, and thus they may be better able to 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 currently at over 90 percent of our worldwide in-house wafer fabrication and assembly manufacturing capacities, without considering subcontract or foundry capacity. We are planning to add incremental production capacity of $100 million to $150 million in annual revenue potential by June 2007. As part of our expansion plans, we announced in October 2006 a foundry agreement with Tower Semiconductor for capacity capable of

addressing many of our Focus Products. If we fail to timely execute on our plans in advance of demand for our products or fail in our ability to obtain additional capacity, our revenues could be adversely affected which may prevent us from achieving 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 wafer fabrication and assembly manufacturing capacities to meet demand and there may be other 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 revenue 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 revenue 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, including our plan for the sale of our entire Non-Focus Products business. 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, including implementation of the PCS Divestiture, and replace those revenues with higher-margin product sales could adversely affect our operating results.

We have entered into definitive agreements with Vishay Intertechnology, Inc. to sell our Power Control Systems business consisting of our entire Non-Focus Product business (the “PCS Divestiture”). While we have entered into definitive agreements, the agreements contain a number of conditions to closing, including governmental and third party approvals. While a closing is expected in February 2007, we cannot guaranty that closing will take place by then if at all.

If the PCS Divestiture is completed, it is our goal that within the next couple of years, the remaining revenues would grow faster and the remaining business would be more profitable. We do not believe that the completion of the PCS Divestiture will substantially alter the customer base that we serve or the competition that we face currently. However, to achieve our goals, for a few quarters following a successful completion of the PCS Divestiture, we plan to more fully develop our Focus Product segments by realigning our

sales, distribution and product development functions. We will also configure our manufacturing and support infrastructure to address at least initially lower revenue levels. Despite our plans and efforts, we cannot assure you that we will be successful in achieving our goals or carrying out plans for realignment.

Additionally as part of the PCS Divestiture, we will be involved in the transition of certain of the divested business and assets with Vishay, including providing certain manufacturing, sales, marketing and administrative support services and purchasing certain products from Vishay for a period of up to three years. There may also be unforeseen factors or other obligations or events arising out of the PCS Divestiture. The activities and obligations involved with the PCS Divestiture could involve changes to various aspects of our business which could have a material adverse effect on 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 have a material adverse impact on our operating results.

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

During fiscal 2003 second quarter ended December 31, 2002, we announced certain restructuring initiatives. We have substantially completed the December 2002 restructuring activities as of September 30, 2006. On November 8, 2006, we entered into definitive agreements with Vishay Intertechnology, Inc. to sell our Power Control Systems (“PCS”) business, consisting of the Non-Focus Product segments, for approximately $290 million (the “PCS Divestiture”). Associated with the PCS Divestiture, we plan to realign our sales, distribution and product development functions to a business based solely on our Focus Products. We also plan to configure our manufacturing and support infrastructure to address the initially lower revenue levels following the PCS Divestiture. We expect that restructuring-related charges related to these plans will be approximately $10 million to $15 million (including the $4.6 million recorded to date) primarily severance-related costs, which will be recorded as incurred through approximately calendar year-end 2007. If we do not reconfigure our infrastructure or there are delays in implementing our plans, we could have higher relative costs associated with post-PCS Divestiture revenues, adversely affecting our margins and profitability. Additionally, there may be unforeseen factors or other obligations or events arising out of the PCS Divestiture (including possible indemnity obligations) that could result in changes in the amount or timing of charges to be taken or otherwise materially adversely impact our margins, 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 have shipped large quantities of semiconductor devices to a wide range of customers around the world, in a variety of high profile and critical applications, and continue to do so. 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 revenue and profit we receive from the products involved. In addition, our ability to reduce such liabilities may be limited by the laws or the customary business practices of the countries where we do business. Even in cases where we do not believe we have legal liability for such claims, we may choose to pay for them to retain a

customer’s business or goodwill or to settle claims to avoid protracted litigation. Our results of operations and business would be adversely affected as a result of a significant alleged quality or performance issues in our products, if we are required or choose to pay for the damages that result. In addition, in our Aerospace and Defense segment, we are sometimes subject to government procurement regulations and other laws that could result in costly investigations and other legal proceedings as a consequence of allegedly defective products or other actions. Although we currently have product liability and other types of insurance, we have certain deductibles and exclusions to such policies and may not have sufficient insurance coverage. We also may not have sufficient resources to satisfy all possible product liability or other types of product claims. In addition, 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.

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

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

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

A “design win” or program award from a customer does not guarantee that the design or program win will become future sales to that customer. For example, in our Computing and Communications segment, we have announced new design or program wins in next generation game stations, and our other segments have had other design or program wins. We also are unable to guarantee that we will be able to convert design or program wins into sales for the life of any particular program, or at all, or that the revenue from such wins would be significant. We also cannot guarantee that we will achieve the same level of design or program wins as we have in the past, or at all. Without design or program wins from OEMs, we would only be able to sell our products to these OEMs as a second source, if at all. Once an OEM designs another supplier’s semiconductor into one of its product platforms, it is more difficult for us to achieve future design or program wins with that OEM’s product platform because changing suppliers involves significant cost, time, effort and risk. Achieving a design or program win with a customer does not ensure that we will receive significant revenue from that customer and we may be unable to convert design or program 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 revenue 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, change in market conditions, or otherwise, our revenue 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 revenue and a loss of market share to our competitors. Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the semiconductor industry. As a result, we must devote significant resources to 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 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 revenue 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 2006 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 revenue from new licensing opportunities. Market conditions and mix of licensee products, as well as sales of non-infringing devices can significantly adversely affect royalty income. We also cannot guarantee that we can obtain new licenses to offset reductions in royalties from existing licenses. While we try to predict the effects of these factors and efforts, often there are variations or factors that can significantly affect results different from that predicted. Accordingly, we cannot guarantee that our predictions of our IP segment revenue will be consistent with actual results. We also cannot guarantee that our royalty income will continue at levels consistent with prior periods. Any decrease in our royalty income could have a material adverse effect on our operating results and financial condition.

Our international operations expose us to material risks.

We expect revenue from foreign markets to continue to represent a significant portion of total revenue. We maintain or contract with significant operations 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.

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

We are continuing to ramp up our Newport, Wales facility for new production. 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 discontinue products, extend lead times, limit supplies or increase prices due to capacity constraints or other factors. We have a limited number of suppliers or sole suppliers for some materials, parts and equipment, and any interruption could materially impair our operations and adversely affect our customer relations.

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

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.

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

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

We may fail to attract or retain the qualified technical, sales, marketing and managerial personnel 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 have acquired 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 few 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 Asian companies. The value of our investments is subject to market fluctuations, which if adverse, could have a material adverse effect on our financial position and if sold at the down turn, could have a material adverse effect on our operating results.

If we fail to maintain an effective system of internal control over financial reporting or discover material weaknesses in our internal control over financial reporting or financial reporting practices, 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 or any assurance that the controls, accounting processes, procedures and underlying assumptions will not be subject to revision. There are also inherent limitations on the effectiveness of internal controls and financial reporting practices, including collusion, management override, and failure of human judgment. Because of this, control procedures and financial reporting practices are designed to reduce rather than eliminate business risks. If we fail to maintain an effective system of internal control over financial reporting or if and for so long as management or our independent registered public accounting firm were to discover material weaknesses in our internal control over financial reporting (or if our system of controls and audits result in a change of practices or new information or conclusions about our financial reporting) like the disclosed material weakness, 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, and on the operation of our facilities and equipment. We believe we use reasonable efforts to maintain a system of compliance and controls for these laws and regulations. However, we cannot provide absolute assurance that these controls will always be effective or that issues with respect to these matters will not from time to time occur. There are also inherent limitations on the effectiveness of controls including the failure of human judgment.

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

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.

Our outstanding Convertible Subordinated Notes maturing in July 2007 may expose us to risks.

We have outstanding in principal $550 million of Convertible Subordinated Notes due in July 2007. While we intend to refinance or pay down such notes prior to maturity, if we decide to refinance such notes, in whole or in part, we cannot guarantee that the terms, including interest rate and costs, would be comparable to the current interest rates and costs, and if higher, could adversely affect our future results. Additionally, if we elect in whole or in part to pay down such notes, it would lower the amount of funds we have available for operations or investment.

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.

Our Aerospace and Defense segment is subject to governmental regulation that exposes us to additional risks.

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

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 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.

ITEM 6. Exhibits

Index:

3.1		Certificate of Incorporation, as amended to date (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-8 filed with the Commission on July 19, 2006; Registration No. 333-117489)

3.2		Bylaws as Amended (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 11, 2005)

10.1		Credit Agreement, dated November 6, 2006, among the Company, the Lenders described therein, Bank of America, N.A., as Syndication Agent and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch as Co-Documentation Agent (incorporated by reference to Exhibit 99.1 to the Company’s current Report on Form 8-K filed on November 9, 2006)

11.1		Statement 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)

31.1		Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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 10, 2006	/s/ Michael P. McGee
	Michael P. McGee
	Executive Vice President,
	Chief Financial Officer
	(Duly authorized officer and
	principal financial and accounting officer)