UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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
EL SEGUNDO, CALIFORNIA		90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 726-8000

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

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS 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 72,514,910 SHARES OF THE REGISTRANT’S COMMON STOCK, PAR VALUE $1.00 PER SHARE, OUTSTANDING ON FEBRUARY 2, 2007.

Table of Contents



PART I.		FINANCIAL INFORMATION

ITEM 1.		Financial Statements

		Unaudited Consolidated Statements of Income for the Three and Six Months Ended December 31, 2006 and 2005

		Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2006 and 2005

		Unaudited Consolidated Balance Sheets as of December 31, 2006 and June 30, 2006

		Unaudited Consolidated Statements of Cash Flows for the Six Months Ended December 31, 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 1.		Legal Proceedings

ITEM 1A.		Risk Factors

ITEM 4.		Submission of Matters to a Vote of Security Holders

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 December 31,						Six Months Ended December 31,
	2006			2005			2006			2005

Revenues	$	327,604		$	254,770		$	643,455		$	498,789
Cost of sales	186,864			145,232			369,341			282,523
Gross profit	140,740			109,538			274,114			216,266
Selling and administrative expense	51,397			43,906			102,770			86,898
Research and development expense	34,000			25,661			64,760			49,197
Amortization of acquisition-related intangibles	662			1,205			1,347			2,429
Impairment of assets, restructuring and severance charges	1,587			733			5,749			3,045
Other (income) expense, net	(523		)	1,040			278			1,165
Interest income, net	(1,823		)	(800		)	(4,328		)	(2,354		)
Income from continuing operations, before income taxes	55,440			37,793			103,538			75,886
Provision for income taxes	10,777			9,955			23,868			19,988
Income from continuing operations	44,663			27,838			79,670			55,898
Income (loss) from discontinued operations, net of tax	27,285			(3,582		)	26,408			(5,400		)
Net income	$	71,948		$	24,256		$	106,078		$	50,498

Net income (loss) per common share:
Basic:
Income from continuing operations	$	0.62		$	0.39		$	1.10		$	0.80
Income (loss) from discontinued operations	0.38			(0.05		)	0.37			(0.08		)
Net income	$	1.00		$	0.34		$	1.47		$	0.72

Diluted:
Income from continuing operations	$	0.61		$	0.39		$	1.10		$	0.78
Income (loss) from discontinued operations	0.38			(0.05		)	0.36			(0.08		)
Net income	$	0.99		$	0.34		$	1.46		$	0.70

Average common shares outstanding – basic	72,204			70,816			72,128			70,567

Average common shares and potentially dilutive securities outstanding – diluted	72,854			71,602			72,721			71,663

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 December 31,						Six Months Ended December 31,
	2006			2005			2006			2005

Net income	$	71,948		$	24,256		$	106,078		$	50,498

Other comprehensive income (loss):
Foreign currency translation adjustments	19,081			(8,198		)	28,066			(13,334		)
Unrealized gains (losses) on securities:
Unrealized holding (losses) gains on available-for-sale securities, net of tax effect of $1,996, ($6,920), ($317) and ($5,232), respectively	(3,706		)	11,783			280			8,911
Unrealized holding gains on foreign currency forward contract, net of tax effect of ($522), ($80), ($1,896) and ($235), respectively	969			136			3,522			399
Less: Reclassification adjustments of net losses on available-for-sale securities and foreign currency forward contract	(425		)	(7		)	(844		)	(30		)

Other comprehensive income (loss)	15,919			3,714			31,024			(4,054		)

Comprehensive income	$	87,867		$	27,970		$	137,102		$	46,444

The accompanying notes are an integral part of these statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands)

	December 31,		June 30,
	2006		2006(1)
Assets
Current assets:
Cash and cash equivalents	$	459,276	$	474,965
Short-term cash investments	108,502		120,872
Trade accounts receivable	187,439		177,495
Inventories, net	174,158		160,320
Short-term deferred income taxes	49,209		23,352
Assets held for sale	195,179		166,852
Prepaid expenses and other receivables	78,571		48,070
Total current assets	1,252,334		1,171,926
Long-term cash investments	525,128		488,849
Property, plant and equipment, net	559,583		510,346
Goodwill	132,298		130,361
Acquisition-related intangible assets, net	24,826		26,344
Long-term deferred income taxes	86,884		85,754
Other assets	91,714		91,443
Total assets	$	2,672,767	$	2,505,023

Liabilities and Stockholders’ Equity
Current liabilities:
Bank loans	$	6,994	$	6,450
Long-term debt, due within one year	540,183		627
Accounts payable	79,050		75,117
Accrued salaries, wages and commissions	44,787		49,844
Liabilities related to assets held for sale	24,597		27,150
Other accrued expenses	128,816		102,813
Total current liabilities	824,427		262,001
Long-term debt, less current maturities	81,263		616,964
Other long-term liabilities	12,689		21,726
Total liabilities	918,379		900,691
Stockholders’ equity:
Common stock	72,314		71,988
Capital contributed in excess of par value of shares	938,231		925,603
Retained earnings	648,379		542,301
Accumulated other comprehensive income	95,464		64,440
Total stockholders’ equity	1,754,388		1,604,332
Total liabilities and stockholders’ equity	$	2,672,767	$	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)

	Six Months Ended
	December 31,
	2006			2005

Cash flows from operating activities:
Net income	$	106,078		$	50,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	39,564			40,048
Amortization of acquisition-related intangible assets	1,668			2,885
Stock compensation expense	4,110			1,645
Unrealized gains on swap transactions	(765		)	(1,287		)
Deferred income taxes	(22,768		)	7,415
Tax benefits from options exercised	1,421			8,382
Excess tax benefits from options exercised	(465		)	(4,264		)
Changes in operating assets and liabilities, net	(46,027		)	(56,729		)
Net cash provided by operating activities	82,816			48,593

Cash flows from investing activities:
Additions to property, plant and equipment	(70,380		)	(75,980		)
Proceeds from sale of property, plant and equipment	54			298
Sale or maturities of cash investments	190,475			233,134
Purchase of cash investments	(208,746		)	(300,857		)
Other, net	(3,066		)	(1,859		)
Net cash used in investing activities	(91,663		)	(145,264		)

Cash flows from financing activities:
Proceeds from (repayments of) short-term debt, net	681			(15,236		)
Repayments of long-term debt, net	(642		)	—
Repayments of capital lease obligations, net	`(144`		`)`	—
Proceeds from exercise of stock options and stock purchase plan	6,083			24,504
Excess tax benefits from options exercised	465			4,264
Other, net	515			(6,209		)
Net cash provided by financing activities	6,958			7,323

Effect of exchange rate changes on cash and cash equivalents	5,195			3,067

Net increase (decrease) in cash and cash equivalents	3,306			(86,281		)

Cash and cash equivalents, beginning of period	482,907			359,978

Less: Cash and cash equivalents, held for sale	(26,937		)	(5,370		)

Cash and cash equivalents, end of period	$	459,276		$	268,327

The accompanying notes are an integral part of these statements.

INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006

1. Basis of Consolidation

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

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring adjustments which, in the opinion of the Company’s management, are necessary to state fairly the consolidated financial position of the Company at December 31, 2006, and the consolidated results of operations and the consolidated cash flows for the three and six months ended December 31, 2006 and 2005. The results of operations for the three and six months ended December 31, 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 December 2006 and 2005 consisted of 13 weeks ending December 31, 2006 and January 1, 2006, respectively. For ease of presenting the accompanying consolidated financial statements, the fiscal December quarter-end for all periods presented is shown as December 31. Fiscal June 2006 year-end presented is shown as June 30. Fiscal 2007 will consist of 52 weeks ending July 1, 2007.

As a result of the Power Control Systems business divestiture (see Note 2), the Company’s previously reported consolidated financial statements have been restated to present the discontinued operations separate from continuing operations, and assets held for sale with their related liabilities separate from the remaining assets and their related liabilities. The reclassifications had no impact on the Company’s total assets, total liabilities, stockholders’ equity, cash flows or total consolidated net income reported.

2. Divestiture

On November 8, 2006, the Company entered into definitive agreements with Vishay Intertechnology, Inc. (“Vishay”), to sell its Power Control Systems (“PCS”) business (the “Divestiture”). The Divestiture consists of operations at the Company’s Mumbai, India; Borgaro, Italy; Xian, China; Krefeld, Germany; Swansea, Wales; and Halifax, Canada sites. The 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 business consists of the Company’s Non-Aligned Product and Commodity Product segments. Product lines included in the sale are certain discrete planar MOSFETs, discrete diodes and rectifiers, discrete thyristors, multi-chip modules not including intergrated circuits and certain other specified products. The PCS business is being sold for approximately $290 million in cash, subject to certain adjustments based on the overall level of working capital and the level of cash in the subsidiaries being sold. On January 24, 2007, the waiting period with respect to the sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, and the Company and Vishay have agreed to a closing by April 1, 2007. The closing which remains subject to customary closing conditions.

The transaction agreements for the divestiture contain customary representations and warranties, and provide for the Company to indemnify Vishay, subject to certain exceptions and limitations, for losses resulting from the breach of representations, warranties and covenants of the Company and certain other liabilities. The transaction documents also provide that, for a period of seven years after the closing, the Company will not engage in the PCS Business anywhere in the world, subject to certain specified product exceptions; however, the documents provide that nothing will prevent the Company from competing against the products of the PCS Business with functional or application competitive products, on certain terms and conditions. The Company will enter into license agreements pursuant to which the Company will license certain of its technology related to the PCS business to Vishay on a non-exclusive, perpetual and royalty-free basis, and Vishay, in turn, will license back to the Company the technology that is being provided to it on a non-exclusive, perpetual and royalty-free basis. The transaction also provides for the Company entering into certain transition agreements for, among other things, administrative services, wafer and packaging services, and the sale and purchase of certain products.

As a result of the Divestiture, the Company has reported the Non-Aligned Product segment’s financial results as discontinued operations. As part of the Divestiture, the Company will be involved in the transition of certain of the divested business and assets with Vishay, including providing Commodity Product manufacturing-related and other support services for up to three years. Although the assets and liabilities held for sale include those of both the Non-Aligned Product and Commodity Product segments, the Commodity Product segment results were not included in discontinued operations at this time, as the Company expects to have significant ongoing involvement based on the cash flows to be derived from the transitional services to be provided to Vishay, as described above. The Company’s prior period financial statements have been restated to conform to current period presentation. The reclassifications had no impact on the Company’s total assets, total liabilities, stockholders’ equity, cash flows or total consolidated net income reported.

Discontinued operations financial results are as follows (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2006			2005			2006			2005

Revenue	$	27,108		$	24,041		$	55,500		$	52,594
Income (loss) before income taxes	472			(4,337		)	784			(6,232		)
Benefit from income taxes (see Note 15, “Income Taxes”)	(26,813		)	(755		)	(25,624		)	(832		)
Income (loss) from discontinued operations	27,285			(3,582		)	26,408			(5,400		)

Assets held for sale and liabilities related to those assets included in the accompanying consolidated balance sheets comprised the entire PCS business (including those of both the Non-Aligned Product and Commodity Product segments), are as follows (in thousands):

	December 31,		June 30,
	2006		2006
ASSETS
Current assets:
Cash and cash equivalents	$	26,937	$	7,942
Trade accounts receivable	6,322		5,278
Inventories, net	57,295		53,774
Prepaid expenses and other receivables	4,720		3,387
Total current assets	95,274		70,381
Property, plant and equipment, net	69,192		66,034
Goodwill	25,157		24,787
Acquisition-related intangible assets, net	5,556		5,650
Total assets	$	195,179	$	166,852

LIABILITIES
Current liabilities:
Short-term debt	$	—	$	51
Accounts payable	10,305		9,892
Accrued salaries, wages and commissions	5,673		7,800
Other accrued expenses	1,329		2,056
Total current liabilities	17,307		19,799
Long-term debt	—		576
Other long-term liabilities	7,290		6,775
Total liabilities	$	24,597	$	27,150

3. Net Income per Common Share

Net income per common share - basic is computed by dividing net income available to common stockholders (the numerator) by the weighted average number of common shares outstanding (the denominator) during the period. In general, the computation of net income per common share - diluted is similar to the computation of net income per common share - basic except that the denominator is increased to include the number of additional common shares that would have been outstanding for the exercise of stock options using the treasury stock method and the conversion of the Company’s 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 (in thousands except per share amounts):

	Three Months Ended December 31, 2006
	Income		Shares	Per Share Amount
	(Numerator)		(Denominator)

Net income per common share – basic:
Income from continuing operations	$	44,663	72,204	$	0.62
Income from discontinued operations	27,285		72,204	0.38
Net income	$	71,948	72,204	$	1.00
Effect of dilutive securities:

Stock options and restricted stock units:
Income from continuing operations			650	$	(0.01	)
Income from discontinued operations			650	—
Net income			650	$	(0.01	)

Net income per common share – diluted:
Income from continuing operations	$	44,663	72,854	$	0.61
Income from discontinued operations	27,285		72,854	0.38
Net income	$	71,948	72,854	$	0.99

	Three Months Ended December 31, 2005
	Income			Shares	Per Share Amount
	(Numerator)			(Denominator)

Net income (loss) per common share – basic:
Income from continuing operations	$	27,838		70,816	$	0.39
Loss from discontinued operations	(3,582		)	70,816	(0.05		)
Net income	$	24,256		70,816	$	0.34
Effect of dilutive securities:
Stock options and restricted stock units:
Income from continuing operations				786	$	—
Income from discontinued operations				786	—
Net income				786	$	—

Net income (loss) per common share – diluted:
Income from continuing operations	$	27,838		71,602	$	0.39
Loss from discontinued operations	(3,582		)	71,602	(0.05		)
Net income	$	24,256		71,602	$	0.34

	Six Months Ended December 31, 2006
	Income		Shares	Per Share Amount
	(Numerator)		(Denominator)

Net income per common share – basic:
Income from continuing operations	$	79,670	72,128	$	1.10
Income from discontinued operations	26,408		72,128	0.37
Net income	$	106,078	72,128	$	1.47
Effect of dilutive securities:
Stock options and restricted stock units:
Income from continuing operations			593	$	—
Income from discontinued operations			593	(0.01		)
Net income			593	$	(0.01	)

Net income per common share – diluted:
Income from continuing operations	$	79,670	72,721	$	1.10
Income from discontinued operations	26,408		72,721	0.36
Net income	$	106,078	72,721	$	1.46

	Six Months Ended December 31, 2005
	Income			Shares	Per Share Amount
	(Numerator)			(Denominator)

Net income (loss) per common share – basic:
Income from continuing operations	$	55,898		70,567	$	0.80
Loss from discontinued operations	(5,400		)	70,567	(0.08		)
Net income	$	50,498		70,567	$	0.72
Effect of dilutive securities:
Stock options and restricted stock units:
Income from continuing operations				1,096	$	(0.02	)
Income from discontinued operations				1,096	—
Net income				1,096	$	(0.02	)

Net income (loss) per common share – diluted:
Income from continuing operations	$	55,898		71,663	$	0.78
Loss from discontinued operations	(5,400		)	71,663	(0.08		)
Net income	$	50,498		71,663	$	0.70

For the three and six months ended December 31, 2006 and 2005, the number of common shares used in computing the diluted per-share amount for income from continuing operations was used as the control number in computing the diluted per-share amount for income (loss) from discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share”. 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 from continuing operations per share for the three and six months ended December 31, 2006 and 2005.

4. 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 December 31, 2006 and June 30, 2006, all of the Company’s marketable securities are classified as available-for-sale. In accordance with 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 related tax effect. Realized gains and losses and declines in value considered to be other than temporary are included in interest income, net. At December 31, 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 December 31, 2006 and June 30, 2006 are summarized as follows (in thousands):

	December 31,		June 30,
	2006		2006
Cash and cash equivalents	$	459,276	$	474,965
Short-term cash investments	108,502		120,872
Long-term cash investments	525,128		488,849
Subtotal	1,092,906		1,084,686
Cash and cash equivalents, held for sale (Note 2)	26,937		7,942
Total cash, cash equivalents and cash investments	$	1,119,843	$	1,092,628

Available-for-sale securities as of December 31, 2006 are summarized as follows (in thousands):

Short-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	44,430	$	—	$	(168	)	$	44,262
U.S. government and agency obligations	64,529		—		(289		)	64,240
Total short-term cash investments	$	108,959	$	—	$	(457	)	$	108,502

Long-Term Cash Investments:

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Market Value
Corporate debt	$	220,698	$	420	$	(915	)	$	220,203
U.S. government and agency obligations	127,209		182		(632		)	126,759
Other debt	178,425		177		(436		)	178,166
Total long-term cash investments	$	526,332	$	779	$	(1,983	)	$	525,128

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

Cash investments with contractual maturity greater than one year for which the Company has the intent and ability to hold for less than one year are classified as short-term investments. The amortized cost and estimated fair value of cash investments at December 31, 2006, by contractual maturity, are as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Due in 1 year or less	$	108,959	$	108,502
Due in 1-2 years	156,765		155,925
Due in 2-5 years	188,534		188,583
Due after 5 years	181,033		180,620
Total cash investments	$	635,291	$	633,630

Gross realized gains were $0.1 million and $0.2 million for the three and six months ended December 31, 2006, respectively, and gross realized losses were ($0.4) million and ($0.7) million for the three and six months ended December 31, 2006, respectively. Gross realized gains were $0.01 million and $0.02 million for the three and six months ended December 31, 2005, respectively, and gross realized losses were ($0.1) million and ($0.4) million for the three and six months ended December 31, 2005, respectively. The cost of marketable securities sold is determined by the weighted average cost method.

The Company holds as strategic investments certain common stock of publicly-traded companies. The Company accounts for these available-for-sale investments under SFAS No. 115. Dividend income from the equity investments was $0.1 million during the three months ended December 31, 2006 and 2005, and $0.6 million and $0.4 million for the six months ended December 31, 2006 and 2005, respectively. The market values of the equity investments at December 31, 2006 and June 30, 2006 were $48.1 million and $52.9 million, respectively, compared to their combined purchase cost of $18.8 million. Mark-to-market (losses) gains, net of tax, of ($3.8) million and $11.8 million for the three months ended December 31, 2006 and 2005, respectively, and ($3.1) million and $8.9 million for the six months ended December 31, 2006 and 2005, respectively, were included in accumulated other comprehensive income, a separate component of equity.

5. 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 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 December 31, 2006, 17 quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of 101.5 Yen per U.S. dollar. The market value of the Forward Contract was $5.3 million and $1.2 million at December 31, 2006 and June 30, 2006, respectively, and is included in other assets. The mark-to-market gains included in other comprehensive income were $1.0 million and $3.5 million, net of tax, for the three and six months ended December 31, 2006, respectively. Based on effectiveness tests comparing forecasted transactions through the Forward Contract expiration date to its cash flow requirements, the Company does not expect to incur a material charge to income during the next twelve months as a result of the Forward Contract.

The Company had approximately $113.1 million and $103.1 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at December 31, 2006 and June 30, 2006, respectively. Net realized and unrealized foreign-currency gains recognized in earnings were $1.5 million and $1.4 million for the three and six months ended December 31, 2006, respectively, and less than $1.0 million for the three and six months ended December 31, 2005.

Interest Rate Risk

In December 2001, the Company entered into an interest rate swap transaction (the “December 2001 Transaction”) with an investment bank, JP Morgan Chase Bank (the “Bank”), to modify the Company’s effective interest payable with respect to $412.5 million of its $550 million outstanding convertible debt (the “Debt”) (see Note 9, “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 swap transactions, 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 3.34 percent, compared to a coupon of 4.25 percent on the Debt. During the three months ended December 31, 2006, the LIBOR was 5.37 percent, and including certain spreads and mark-to-market adjustments associated with the interest swaps, this arrangement increased (decreased) interest expense by $2.5 million and $0.8 million, for the three months ended December 31, 2006 and 2005,

respectively, and $4.1 million and ($0.1) million for the six months ended December 31, 2006 and 2005, respectively. Our obligation to provide letter of credit support for certain obligations under the December 2001 Transaction and April 2004 Transaction ceased with the November 6, 2006 consumation of the new five-year multi-currency revolving credit facility (See Note 9, “Bank Loans and Long-Term Debt’’).

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 swaps was a liability of $6.3 million and $11.6 million at December 31, 2006 and June 30, 2006, respectively.

The December 2001 Transaction and the April 2004 Transaction 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, the 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.

The December 2001 Transaction and the April 2004 Transaction qualify as fair value hedges under SFAS No. 133. To test effectiveness of the hedge, regression analysis is performed quarterly comparing the change in fair value of the 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 and six months ended December 31, 2006 and 2005, the hedges were highly effective and the ineffective portion did not have a material impact on earnings.

In April 2002, the Company entered into an interest rate contract (the “Contract”) with an investment bank, Lehman Brothers (“Lehman”), to reduce the variable interest rate risk of the December 2001 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 December 31, 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 gains (losses) of $0.03 million and ($0.05) million, for the three months ended December 31, 2006 and 2005, respectively, and ($0.5) million and $0.1 million, for the six months ended December 31, 2006 and 2005, respectively, were charged to interest expense.

6. 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 December 31, 2006 and June 30, 2006 were comprised of the following (in thousands):

	December 31,		June 30,
	2006		2006

Raw materials	$	29,072	$	25,704
Work-in-process	74,819		71,661
Finished goods	70,267		62,955
Sub-total	174,158		160,320
Inventories, held for sale (Note 2)	57,295		53,774
Total inventories	$	231,453	$	214,094

7. 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 and when events and circumstances warrant an impairment test. 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. In order to test goodwill and acquisition-related intangible assets, the Company identified its reporting units, which is the lowest level of the Company for which there is discrete information and whose results are regularly reviewed by the Company’s Chief Operating Decision Maker as defined by SFAS No. 142. Although the Company does not allocate assets to its reporting units in order to assess the performance of those units, for purposes of this impairment test, the Company determined the carrying value of each reporting unit by assigning the assets and liabilities including the existing goodwill and intangible assets to the reporting units.

In the first of the two-step goodwill impairment test, the Company determined the fair value of the 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.

As described in Note 2, the Company is divesting its PCS business, which is comprised of the Non-Aligned Product and Commodity Product segments. As a result of the contemplated sale, the Company performed an impairment test of these reporting units in the fiscal quarter ended December 31, 2006, in addition to the fourth quarter of fiscal year ended June 30, 2006, to determine whether certain of the goodwill assets may be impaired. Based on these impairment tests, the Company determined that goodwill was not impaired at December 31, 2006 or June 30, 2006.

At December 31, 2006 and June 30, 2006 acquisition-related intangible assets included the following (in thousands):

		December 31, 2006					June 30, 2006
	Amortization Periods	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
	(Years)
Acquisition-related intangible assets:
Complete technology	4 – 12	$	28,681	$	(11,377	)	$	28,678	$	(10,885	)
Distribution rights and customer lists	5 – 12	15,446		(9,459		)	15,446		(8,744		)
Intellectual property and other	5 – 12	7,960		(6,425		)	7,963		(6,114		)
Sub-total		52,087		(27,261		)	52,087		(25,743		)
Acquisition-related intangible assets, held for sale (Note 2)	4 – 12	9,646		(4,090		)	9,646		(3,996		)
Total acquisition-related intangible assets		$	61,733	$	(31,351	)	$	61,733	$	(29,739	)

As of December 31, 2006, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal 2007: $1,459; fiscal 2008: $2,515; fiscal 2009: $2,515; fiscal 2010: $2,515; fiscal 2011: $1,689 and fiscal 2012: $812.

The carrying amount of goodwill by business segment as of December 31, 2006, is as follows (in thousands):

	December 31, 2006
Energy-Saving Products	$	49,045
Aerospace and Defense	19,240
Computing and Communications	43,641
Intellectual Property	20,372
Sub-total	132,298
Goodwill, held for sale (Note 2)	25,157
Total goodwill	$	157,455

As of December 31, 2006 and June 30, 2006, $43.3 million of goodwill is deductible for income tax purposes.

The changes in the carrying amount of goodwill including assets held for sale for the period ended December 31, 2006 and June 30, 2006 are as follows (in thousands):

	Goodwill
Balance, June 30, 2006	$	130,361
Foreign exchange impact	1,937
Subtotal	132,298
Goodwill, held for sale (Note 2)	25,157
Total goodwill	$	157,455

8. Other accrued expenses

Other accrued expenses at December 31, 2006 and June 30, 2006 were comprised of the following (in thousands):

	December 31,		June 30,
	2006		2006
Accrued taxes	$	61,910	$	54,497
Other accrued expenses	66,906		48,316
Sub-total	128,816		102,813
Accrued expenses, held for sale (Note 2)	1,329		2,056
Total accrued expenses	$	130,145	$	104,869

9. Bank Loans and Long-Term Debt

A summary of the Company’s long-term debt and other loans at December 31, 2006 and June 30, 2006 is as follows (in thousands):

	December 31,		June 30,
	2006		2006
Convertible subordinated notes at 4.25% due in 2007 ($550,000 principal amount, plus accumulated fair value adjustment of ($10,393) and ($14,443) at December 31, 2006 and June 30, 2006, respectively)	$	539,607	$	535,557
Other loans and capitalized lease obligations	81,839		82,034
Debt, including current portion of long-term debt ($540,000 and $627 at December 31, 2006 and June 30, 2006, respectively)	621,446		617,591
Foreign revolving bank loans at rates from 0.81% to 1.63%	6,994		6,450
Sub-total	628,440		624,041
Debt, held for sale (Note 2)	—		627
Total debt	$	628,440	$	624,668

In July 2000, the Company sold $550 million principal amount of 4.25 percent Convertible Subordinated Notes due 2007. The interest rate is 4.25 percent per year on the principal amount, payable in cash in arrears semi-annually on January 15 and July 15. The notes are subordinated to all of the Company’s existing and

future debt. The notes are convertible into shares of the Company’s common stock at any time on or before July 15, 2007, at a conversion price of $73.935 per share, subject to certain adjustments. The Company may redeem any of the notes, in whole or in part, subject to certain call premiums on or after July 18, 2003, as specified in the notes and related indenture agreement. In December 2001 and April 2004, the Company entered into swap 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 swaps and underlying hedged convertible notes be marked to market (see Note 5, “Derivative Financial Instruments”).

The Company had been a party to a three-year syndicated multi-currency revolving credit facility led by BNP Paribas (the “BNP Facility”) that expired in November 2006. The BNP Facility provided a credit line of $150 million of which up to $150 million could have been used for standby letters of credit. At June 30, 2006, the Company had no borrowings and $25.0 million letters of credit outstanding under the BNP Facility.

On November 6, 2006, the Company entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including of JP Morgan Chase Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG (the “Facility”), to replace the BNP Facility. The 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 Facility may be used for standby letters of credit and up to $10 million may be used for swing-line loans. The Facility bears interest at (i) local currency rates plus (ii) a margin between 0 percent and 0.25 percent for base rate advances and a margin between 0.875 percent and 1.25 percent for Euro-currency rate advances, based on the Company’s senior leverage ratio. Other advances bear interest as set forth in the credit agreement. The annual commitment fee for the Facility ranges between 0.175 and 0.25 percent of the unused portion of the total facility, depending upon the Company’s senior leverage ratio. After December 31, 2006, 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 Facility also contains certain financial and other covenants, with which the Company was in compliance at December 31, 2006. At December 31, 2006, the Company had no borrowings and $4.3 million letters of credit outstanding under the Facility.

At December 31, 2006, including the new Facility, the Company had $171.0 million in total revolving lines of credit, of which $11.3 million had been utilized, consisting of $4.3 million in letters of credit and $7.0 million in foreign revolving bank loans, which are included in the preceding table.

10. Impairment of Assets, Restructuring and Severance

The Company accounts for the impairment of assets, restructuring and severance costs in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and SFAS No. 146, “Accounting for the Costs Associated with Exit or Disposal Activities”. Severance charges are recognized ratably over the future service period, as applicable. The Company measures the total termination benefits at the communication date based on the fair value of the

liability as of the termination date. A change resulting from a revision to either the timing or the amount of estimated cash over the future service period will be measured using the credit-adjusted risk-free rate that was used to initially measure the liability. The cumulative effect of the change will be recognized as an adjustment to the liability in the period of the change.

During fiscal 2003 second quarter ended December 31, 2002, the Company announced certain restructuring initiatives. Charges associated with these initiatives were completed as of December 31, 2006. Of such charges primarily accrued severance liability has not been paid or released as of December 31, 2006. The company anticipates that the remaining severance liability will be paid or released as appropriate by fiscal year end June 30, 2007.

As discussed in Note 2, “Divestiture”, on November 8, 2006, the Company entered into definitive agreements with Vishay Intertechnology, Inc. to sell its Power Control Systems business consisting of the Company’s Non-Aligned Product and Commodity Product segments (the “Divestiture”). Associated with the 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 Divestiture. The Company expects that there may be certain impairments of assets, severance and other restructuring-related charges associated with the Divestiture and subsequent reorganization, which will be recorded as incurred. The Company has estimated that total severance-related charges will be approximately $10 million, of which approximately $5.3 million has been recognized over the retention period as of December 31, 2006, in accordance with SFAS No. 146. The Company is currently evaluating other potential charges associated with the Divestiture pending its closure.

For the three months ended December 31, 2006, the Company recorded $2.0 million in total restructuring-related charges of which $1.3 million was related to the December 2002 restructuring initiatives and $0.7 million was associated with the Divestiture including $0.4 million reported in discontinued operations. The $2.0 million charge consisted of $1.7 million severance-related costs and $0.3 million facility move-related costs and other charges. For the six months ended December 31, 2006, the Company recorded $7.2 million of restructuring-related charges of which $1.9 million was related to the December 2002 restructuring initiatives and $5.3 million was associated with the Divestiture including $1.4 million reported in discontinued operations. The $7.2 million charge consisted of $6.3 million for severance-related costs and $0.9 million for facility move-related costs.

For the three months ended December 31, 2005, the Company recorded $3.1 million in December 2002 restructuring charges including $2.3 reported in discontinued operations. The $3.1 million charge consisted of $2.1 for million facility move-related costs, contract termination and asset impairment charges and $1.0 million for severance-related costs. For the six months ended December 31, 2005, the Company recorded $7.4 million in December 2002 restructuring charges including $4.3 million reported in discontinued operations. The $7.4 million charge consisted of $5.1 million for facility move-related costs, contract termination and asset impairment charges, and $2.3 million for severance costs.

As of December 31, 2006, charges associated with the December 2002 restructuring activities were completed. Total charges were $279.1 million of which

approximately $108 million were cash charges. These charges consisted of $219.2 million for asset impairment, plant closure and other charges, $6.0 million of raw material and work-in-process inventory, and $53.9 million for severance-related costs. Components of the $219.2 million asset impairment, plant closure and other charges included the following items:

· As the Company emphasized more advanced generation planar products, it expected 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 with the Divestiture. The Company expects to continue to use these facilities until approximately March 2008, to support certain transitional service level agreements associated with the Divestiture, and the remaining basis will be depreciated over units of production over this period.

· As the Company emphasized more advanced generation trench products, it expected 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 emphasized more advanced generation Schottky products, it expected 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 with the 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 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 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 with the Divestiture.

· The Company 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 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.

· The Company incurred $60.1 million in other miscellaneous items since December 2002, including $50.9 million in facility move-related 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. As of September 30, 2006, the Company had disposed of all of the inventory.

As of December 31, 2006, the Company has recorded $59.2 million in severance-related charges, including $8.5 million in pension termination costs at its manufacturing facility in Oxted, England, and $5.7 million of severance-related costs associated with the Divestiture. Approximately 2,700 administrative, operating and manufacturing positions are anticipated to be affected, including approximately 1,300 employees associated with the PCS business.

The following table summarizes the Company’s severance accrual related to the June 2001 restructuring, the December 2002 restructuring, and the Divestiture for the six months ended December 31, 2006 (in thousands):

	June 2001 Restructuring			December 2002 Restructuring			The Divestiture		Total Severance Liability
Accrued severance, June 30, 2006	$	235		$	6,538		$	—	$	6,773
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	(211		)	1,244			5,254		6,287
Costs paid	(24		)	(5,109		)	—		(5,133		)
Accrued severance, December 31, 2006	$	—		$	2,673		$	5,254	$	7,927

The June 2001 severance liability is primarily related to certain legal accruals associated with the termination of 29 administrative and operating personnel. The liability was paid or released during the six months ended December 31, 2006. The December 2002 Restructuring severance liability is primarily related to severance-related costs of approximately 130 manufacturing personnel at the El Segundo, California facility and the associated liability is expected to be paid or released by fiscal 2007 year-end. The Divestiture severance liability is associated with the retention of approximately 100 key operating and finance personnel pending successful closing of the Divestiture and the associated liability is expected to be paid by fiscal 2007 year-end.

11. Segment and Geographic Information

As described in Note 2, “Divestiture”, the Company entered into definitive agreements with Vishay Intertechnology, Inc. (“Vishay”), to sell its PCS business, which consists of the Non-Aligned Product and Commodity Product segments. As a result, the Company has included the Non-Aligned Product segment’s financial results in determining income from discontinued operations as of December 31, 2006. Although the assets and liabilities held for sale include those of both the Non-Aligned Product and Commodity Product segments, the Commodity Product segment results were not included in discontinued operations at this time, as the Company expects to have significant ongoing involvement based on the cash flows to be derived from the Commodity Product manufacturing-related and other support services to be provided to Vishay following the Divestiture. Associated with the Divestiture, approximately $6 million of product revenues for the three months ended December 31, 2006, previously accounted for in the Focus Products group, have been reclassified to the Commodity Product segment, reflecting how the Chief Operating Decision Maker reviews the segments in light of the Divestiture.

Segment results for the continuing operations for the three and six months ended December 31, 2006 and 2005 are as follows (in thousands except percentages):

	Three Months Ended
	December 31, 2006				December 31, 2005
	Revenue		Gross Margin		Revenue		Gross Margin

Computing and Communications	$	141,050	41.1	%	$	92,525	41.3	%
Energy-Saving Products	83,268		49.1		72,572		48.8
Aerospace and Defense	39,220		52.1		34,400		50.0
Intellectual Property	10,618		100.0		10,073		100.0
Focus Products	274,156		47.4		209,570		48.1

Commodity Products	53,448		20.2		45,200		19.1

Total revenue	$	327,604	43.0	%	$	254,770	43.0	%

	Six Months Ended
	December 31, 2006				December 31, 2005
	Revenue		Gross Margin		Revenue		Gross Margin

Computing and Communications	$	274,542	40.7	%	$	179,492	41.3	%
Energy-Saving Products	158,688		49.3		141,833		50.3
Aerospace and Defense	77,648		51.1		63,801		47.1
Intellectual Property	21,628		100.0		20,514		100.0
Focus Products	532,506		47.2		405,640		48.7

Commodity Products	110,949		20.5		93,149		20.2

Total revenue	$	643,455	42.6	%	$	498,789	43.4	%

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 and six months ended December 31, 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 or six months ended December 31, 2005. One distributor accounted for approximately 17 percent and 12 percent of the Company’s accounts receivable at December 31, 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, while the majority of the Company’s products in the CP segment are sold through distribution. The following summarizes the type of customers who individually accounted for greater than ten percent of the segment revenue, as a percent of the total segment revenue for the three and six months ended December 31, 2006:

C&C: Two distributors accounted for approximately 35 percent and 37 percent of C&C revenue for the three and six months ended December 31, 2006, respectively.

ESP: No single OEM customer, distributor or subcontract manufacturer accounted for more than ten percent of the ESP revenue for the three or six months ended December 31, 2006.

A&D: One distributor accounted for approximately ten percent of A&D revenue for the three months ended December 31, 2006 and no single original equipment manufacturer (“OEM”), customer, distributor or subcontract manufacturer accounted for more than ten percent of A&D segment revenue for the six months ended December 31, 2006.

CP: Two distributors accounted for approximately 23 percent and 21 percent of CP revenue for the three and six months ended December 31, 2006, respectively.

Geographic information for the Company on an aggregate basis, for the three and six months ended December 31, 2006 and 2005, is presented below. Product revenues from unaffiliated customers are based on the location in which the sale originated, and includes revenue from the Commodity Product segment being sold with the Divestiture (in thousands):

	Three Months Ended December 31,				Six Months Ended December 31,
	2006		2005		2006		2005
Revenue
Asia	$	177,024	$	134,627	$	342,693	$	262,277
The United States	80,114		62,632		159,954		123,807
Europe	59,848		47,438		119,180		92,191

Total product revenue	316,986		244,697		621,827		478,275
Unallocated royalties	10,618		10,073		21,628		20,514

Total revenue	$	327,604	$	254,770	$	643,455	$	498,789

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 (in thousands):

	December 31, 2006		June 30, 2006
Long-Lived Assets
The United States	$	346,626	$	338,698
Asia	39,351		34,866
Europe	265,320		228,225
Sub-total	651,297		601,789

Long-lived assets, held for sale (Note 2)	69,192		66,034
Total long-lived assets	$	720,489	$	667,823

12. Stock-Based Compensation

The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. The following table summarizes the stock option activities for the six months ended December 31, 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	847		$	35.38	$	13.31	—
Exercised	(307	)	$	22.73	—		$	4,607
Expired or canceled	(330	)	$	44.69	—		—
Outstanding, December 31, 2006	12,285		$	40.32	—		$	54,734

For the six months ended December 31, 2006 and 2005 the Company received $6.1 million and $24.5 million, respectively, for stock options exercised. Total tax benefit realized for the tax deductions from stock options exercised was $1.4 million and $8.4 million for the six months ended December 31, 2006 and 2005, respectively.

The following table summarizes the Restricted Stock Unit (“RSU”) activities for the six months ended December 31, 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	)	$	36.52	—
Outstanding, December 31, 2006	15		$	49.07	$	575

The following table summarizes the stock options and RSUs outstanding at December 31, 2006, and related weighted average price and life information (in thousands except year and price data):

	December 31, 2006
	Outstanding				Exercisable
Range of Exercise Price per Share	Number Outstanding	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$0.00 to $14.13	398	2.30	$	11.31	384	$	11.74
$15.62 to $25.35	1,242	2.69	$	20.63	1,243	$	20.63
$26.00 to $35.90	2,140	4.50	$	34.46	1,286	$	33.99
$36.39 to $45.87	6,301	3.46	$	42.70	5,721	$	42.83
$46.19 to $54.69	1,326	3.60	$	50.38	919	$	51.34
$55.31 to $63.88	893	3.92	$	62.29	893	$	62.29
	12,300	3.57	$	40.27	10,446	$	40.37

Additional information relating to the stock option plans, including employee stock options and RSUs, at December 31, 2006 and June 30, 2006 is as follows (in thousands):

	December 31, 2006	June 30, 2006
Options exercisable	10,446	10,813
Options available for grant	3,024	3,696
Total reserved common stock shares for stock option plans	15,323	15,794

For the three and six months ended December 31, 2006 and 2005, stock-based compensation expense associated with the Company’s stock options and RSUs is as follows (in thousands):

	December 31, 2006
	Three Months Ended		Six Months Ended
Stock options:
Selling and administrative expense	$	808	$	2,007
Research and development expense	975		1,504
Cost of sales	196		397
Total	1,979		3,908

RSUs:
Selling and administrative expense	38		82
Research and development expense	52		104
Cost of sales	8		16
Total	98		202

Total stock-based compensation expense:
Selling and administrative expense	846		2,089
Research and development expense	1,027		1,608
Cost of sales	204		413
Total	$	2,077	$	4,110

	December 31, 2005
	Three Months Ended		Six Months Ended
Stock options:
Selling and administrative expense	$	619	$	938
Research and development expense	231		365
Cost of sales	61		99
Total	911		1,402

RSUs:
Selling and administrative expense	61		116
Research and development expense	52		109
Cost of sales	8		18
Total	121		243

Total stock-based compensation expense:
Selling and administrative expense	680		1,054
Research and development expense	283		474
Cost of sales	69		117
Total	$	1,032	$	1,645

The total unrecognized compensation expense for outstanding stock options and RSUs was $22.4 million as of December 31, 2006, and will be recognized, in general, over three years. The weighted average number of years to recognize the compensation expense is 1.3 years.

The fair value of the options associated with the above compensation expense for the three and six months ended December 31, 2006 and 2005, was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	December 31, 2006		December 31, 2005

Expected life	3.5years		3.5years
Risk free interest rate	4.7	%	3.9	%
Volatility	44.0	%	30.0	%
Dividend yield	0.0	%	0.0	%

13. 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 and on the operation of our facilities and equipment. The Company believes it uses reasonable efforts to maintain a system of compliance and controls for these laws and regulations. Despite the Company’s efforts and controls, from time to time, issues may arise with respect to these matters, including the possibility of administrative proceedings for potential non-compliance where penalties might be assessed. 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.

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

The Company and Rachelle Laboratories, Inc. (“Rachelle”), a former operating subsidiary of the Company that discontinued operation 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 November 2006, contractors for the EPA called Rachelle’s counsel requesting Rachelle’s updated contact information.

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.

14. Litigation

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.

On January 17, 2007, the Federal Circuit denied a motion by IXYS to stay the permanent injunction pending appeal, stating that IXYS had failed to show likelihood of success on the merits of any appeal. Accordingly, the permanent injunction will remain in effect until the ’699 patent expires in September 2007, unless it is first vacated by the Federal Circuit’s decision on the merits of the appeal. Although briefing on the appeal has not yet begun, the Company expects to oppose IXYS’s appeal both on the merits and on jurisdictional grounds based on IXYS’s failure to timely file its notice of appeal.

15. Income Taxes

The Company’s effective tax provision related to continuing operations was 19.4 percent and 26.3 percent for the three months ended December 31, 2006 and 2005, respectively, and 23.1 percent and 26.3 percent for the six months ended December 31, 2006 and 2005, respectively. The Company’s effective tax rates were lower than the U.S. federal statutory tax rate of 35 percent, as a result of lower statutory tax rates in certain foreign jurisdictions, the benefit of foreign tax credits and research and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefit. For the three and six months ended December 31, 2006, the Company recognized $4.3 million of retroactive research and development tax benefit for the January 2006 to September 2006 period, as a result of Congress reinstating the research and development tax credit retroactive to the beginning of January 2006.

The Company’s effective tax provision for the three and six months ended December 31, 2006 excluded $26.5 million of tax benefit for the recognition of deferred tax assets tied to the difference in book and tax basis of certain subsidiaries being sold as part of the Divestiture (see Note 2). The $26.5 million of tax benefit has been recognized as part of income from discontinued operations for the three and six months ended December 31, 2006.

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”, in Part II, Item 1A, “Risk Factors”, and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by 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 December 31, 2006

We have previously reported in the following segments: the Computing and Communications (“C&C”), Energy-Saving Products (“ESP”), Aerospace and Defense (“A&D”) and Intellectual Property (“IP”) segments also referred to as our Focus-Products group; and the Commodity Product (“CP”) and the Non-Aligned Product segments, which are included in the Power Control Systems (“PCS”) business expected to be sold as further described below.

On November 8, 2006, we entered into definitive agreements with Vishay Intertechnology, Inc. (“Vishay”), to sell our Power Control Systems (“PCS”) business (the “Divestiture”). Product lines included in the sale are certain discrete planar MOSFETs, discrete diodes and rectifiers, discrete thyristors, multi-chip modules not including intergrated circuits and certain other specified products. The PCS business is being sold for approximately $290 million in cash, subject to certain adjustments based on the overall level of working capital and the level of cash in the subsidiaries being sold. On January 24, 2007, the waiting period with respect to the sale under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expired, and we have agreed with Vishay to a closing by April 1, 2007, which is subject to customary closing conditions (See Note 2, “Divestiture’’).

As part of the Divestiture, we will be involved in the transition of certain of the divested business and assets with Vishay, including providing Commodity Product manufacturing-related and other support services for up to three years. As a result of the Divestiture, we have reported the Non-Aligned Product segment’s financial results as discontinued operations. Although the assets and liabilities held for sale include those of both the Non-Aligned Product and Commodity Product segments, the Commodity Product segment results were not included in discontinued operations at this time, as we expect to have significant ongoing involvement based on the cash flows to be derived from the transitional services to be provided to Vishay as previously described. Our prior period financial statements have been restated to conform to current period presentation. The reclassifications had no impact on our total assets, total liabilities, stockholders’ equity, cash flows or total consolidated net income reported.

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 will be more profitable than our business as a whole prior to the Divestiture. 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, 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 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, while managing the impact of the transition services to be provided to Vishay in the PCS Divestiture.

For the three months ended December 31, 2006, revenue was $327.6 million, compared to $254.8 million for the three months ended December 31, 2005. Revenue for the three months ended December 31, 2006 increased by 28.6 percent compared to the prior year, reflecting growth in Computing and Communications, Energy-Saving Products, Aerospace and Defense and Commodity Products segments, which increased 52.4 percent, 14.7 percent, 14.0 percent, and 18.2 percent, respectively, from the three months ended December 31, 2005.

Focus Product revenue was $274.2 million (83.7 percent of revenue) for the three months ended December 31, 2006, compared to $209.6 million (82.3 percent of revenue) for the three months ended December 31, 2005. Commodity Product revenue was $53.4 million (16.3 percent of revenue) for the three months ended December 31, 2006, compared to $45.2 million (17.7 percent of revenue) for the three months ended December 31, 2005.

For the three months ended December 31, 2006 and 2005, gross profit margin was 43.0 percent. Gross profit margin for our Focus Products was 47.4 percent for the three months ended December 31, 2006, compared to 48.1 percent for the three months ended December 31, 2005. The gross profit margin decline primarily reflected product mix. Gross profit margin for our Commodity Products was 20.2 percent for the three months ended December 31, 2006, compared to 19.1 percent for the three months ended December 31, 2005. As previously discussed, we have entered into definitive agreements with Vishay to sell our PCS business and will be providing Commodity Product manufacturing-related and other support for up to three years. We anticipate that the gross profit margin from these transitional services will be lower than our Focus Products.

For the three months ended December 31, 2006, selling and administrative expense was $51.4 million (15.7 percent of revenue) compared to $43.9 million (17.2 percent of revenue) for the three months ended December 31, 2005, reflecting variable costs paid on a higher revenue base such as sales commissions, profit sharing, stock option and other employee benefit expenses.

For the three months ended December 31, 2006, research and development expense was $34.0 million (10.4 percent of revenue) compared to $25.7 million (10.1 percent of revenue) for the three months ended December 31, 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. As of December 31, 2006, charges associated with these initiatives were completed and we expect that the associated severance liability at December 31, 2006 will be paid or released as appropriate by fiscal 2007 year-end.

Associated with the Divestiture as previously described, 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 Divestiture. We expect that there may be impairment of assets, severance and other restructuring-related charges associated with the Divestiture and subsequent reorganization, which will be recorded as incurred. We estimate that total severance-related charges will be approximately $10 million, of which approximately $5.3 million has been recognized over the retention period as of December 31, 2006, in accordance with SFAS No. 146. We are currently evaluating other potential charges associated with the Divestiture pending its closure.

For the three months ended December 31, 2006, we have recorded $2.0 million in total restructuring-related charges of which $1.3 million was related to the December 2002 restructuring initiatives and $0.7 million was associated with the Divestiture including $0.4 million included in discontinued operations. The $2.0 million consisted of $1.7 million of severance-related costs and $0.3 million facility move-related costs.

In December 2006, Congress reinstated the research and development tax credit retroactive to the beginning of January 2006. As a result, we recognized $4.3 million of retroactive research and development tax credit, which lowered our effective tax rate from 29.5 percent to 19.4 percent for the three months ended December 31, 2006. We anticipate that our effective tax rate for the remaining fiscal 2007 will be approximately 27.0 percent, plus or minus half a percent. In addition, we recognized $26.5 million of deferred tax assets tied to the difference in book and tax basis of certain subsidiaries being sold as part of the Divestiture, which is included in income from discontinued operations for the three and six months ended December 31, 2006.

We spent $35.6 million in capital expenditures, of which $14.9 million was at our Newport, Wales facility, during the three months ended December 31, 2006. We are operating at over 90 percent of our worldwide in-house wafer fabrication and assembly manufacturing capacities, without considering subcontract or foundry capacity. As of December 31, 2006, we have completed the second phase of our capacity expansion, which provided approximately $300 million in annual revenue output potential. In October 2006, we announced a new foundry agreement with Tower Semiconductor for capacity capable of addressing many of our Focus Products. Including the Tower agreement, we expect to add another $150 million in revenue potential to be completed by June 2007.

Operating activities generated cash flow of $71.6 million for the three months ended December 31, 2006. Our cash, cash equivalents and cash investments totaled $1.1 billion at December 31, 2006. 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, 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 the proceeds from the sale of our PCS business and our existing cash and cash investments.

Results of Operations for the Three and Six Months Ended December 31, 2006 Compared with the Three and Six Months Ended December 31, 2005

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

	Three Months Ended December 31,										Six Months Ended December 31,
	2006					2005					2006					2005
Revenue	$	327.6		100.0	%	$	254.8		100.0	%	$	643.4		100.0	%	$	498.8		100.0	%
Cost of sales	186.9			57.0		145.2			57.0		369.3			57.4		282.5			56.6

Gross profit	140.7			43.0		109.6			43.0		274.1			42.6		216.3			43.4
Selling and administrative expense	51.4			15.7		43.9			17.2		102.8			16.0		86.9			17.4
Research and development expense	34.0			10.4		25.7			10.1		64.8			10.0		49.2			9.9
Amortization of acquisition-related intangible assets	0.6			0.2		1.2			0.5		1.3			0.2		2.4			0.5
Impairment of assets, restructuring and severance charges	1.6			0.5		0.7			0.3		5.7			0.9		3.0			0.6
Other (income) expense, net	(0.5		)	(0.2	)	1.1			0.4		0.4			0.1		1.2			0.2
Interest income, net	(1.8		)	(0.6	)	(0.8		)	(0.3	)	(4.3		)	(0.7	)	(2.3		)	(0.4	)
Income from continuing operations, before income taxes	55.4			17.0		37.8			14.8		103.4			16.1		75.9			15.2
Provision for income taxes	10.8			3.3		9.9			3.9		23.8			3.7		20.0			4.0
Income from continuing operations	44.6			13.7		27.9			10.9		79.6			12.4		55.9			11.2
Income (loss) from discontinued operations, net of tax	27.3			8.3		(3.6		)	(1.4	)	26.4			4.1		(5.4		)	(1.1	)

Net income	$	71.9		22.0	%	$	24.3		9.5	%	$	106.0		16.5	%	$	50.5		10.1	%

Revenues and Gross Margin

For the three months ended December 31, 2006, revenue increased by 28.6 percent from the three months ended December 31, 2005. For the six months ended December 31, 2006, revenue increased by 29.0 percent from the six months ended December 31, 2005. For the three months ended December 31, 2006, Focus Product revenue increased by 30.8 percent from the three months ended December 31, 2005. Focus Product revenue for the three months ended December 31, 2006 was $274.2 million (83.7 percent of revenue), compared to $209.6 million (82.3 percent of revenue) for the three months ended December 31, 2005. For the six months ended December 31, 2006, Focus Product revenue increased by 31.2 percent from the six months ended December 31, 2005. Focus Product revenue for the six months ended December 31, 2006 was $532.5 million (82.8 percent of revenue), compared to $405.6 million (81.3 percent of revenue) for the six months ended December 31, 2005. Revenue for the three and six months ended December 31, 2006 increased compared to the prior year periords, reflecting growth in the Computing and Communication, Energy-Saving Product, Aerospace and Defense and Commodity Product segments, which increased 52.4 percent, 14.7 percent, 14.0 percent, and 18.2 percent, respectively, for the three months ended December 31, 2006, and 53.0 percent, 11.9 percent, 21.7 percent, and 19.1 percent, respectively, for the six months ended December 31, 2006.

Commodity Product revenue was $53.4 million (16.3 percent of revenue) and $45.2 million (17.7 percent of revenue) for the three months ended December 31, 2006 and 2005, respectively, and $110.9 million (17.2 percent of revenue) and $93.1 million (18.7 percent of revenue) for the six months ended December 31, 2006 and 2005, respectively. Revenue increased reflecting improved market conditions.

Revenue as a percentage of total product revenue, based on sales location, was approximately 25 percent, 56 percent and 19 percent for United States, Asia and Europe, respectively, for the three months ended December 31, 2006, and 26 percent, 55 percent and 19 percent for United States, Asia and Europe, respectively, for the three months ended December 31, 2005. Revenue as a percentage of total product revenue based on sales location was approximately 26 percent, 55 percent and 19 percent for the United States, Asia and Europe, respectively, for the six months ended December 31, 2006 and 2005.

Gross profit margin was 43.0 percent for the three months ended December 31, 2006 and 2005, and 42.6 percent and 43.4 percent for the six months ended December 31, 2006 and 2005, respectively. Gross profit margin for our Focus Products was 47.4 percent and 48.1 percent for the three months ended December 31, 2006 and 2005, respectively, and 47.2 percent and 48.7 percent for the six months ended December 31, 2006 and 2005, respectively. Gross margin declined slightly over prior year reflecting product mix. Gross profit margin for our Commodity Products was 20.2 percent and 19.1 percent for the three months ended December 31, 2006 and 2005, respectively, 20.5 percent and 20.2 percent for the six months ended December 31, 2006 and 2005, respectively, reflecting improved market conditions. As previously discussed, we have entered into definitive agreements with Vishay to sell our PCS business and will be providing Commodity Product manufacturing-related and other support services for up to three years following the close of the sale. We anticipate that the gross profit margin from these transitional services will be lower than our Focus Products.

Revenue and gross margin by business segments within our continuing operations for the three and six months ended December 31, 2006, are as follows (in thousands except percentages):

	Three Months Ended
	December 31, 2006						December 31, 2005
Business Segment	Revenue		Percentage of Total Revenue		Gross Margin		Revenue		Percentage of Total Revenue		Gross Margin
Computing and Communications	$	141,050	43.1	%	41.1	%	$	92,525	36.3	%	41.3	%
Energy-Saving Products	83,268		25.4		49.1		72,572		28.5		48.8
Aerospace and Defense	39,220		12.0		52.1		34,400		13.5		50.0
Intellectual Property	10,618		3.2		100.0		10,073		4.0		100.0

Focus Products	274,156		83.7		47.4		209,570		82.3		48.1
Commodity Products	53,448		16.3		20.2		45,200		17.7		19.1

Total revenue	$	327,604	100.0	%	43.0	%	$	254,770	100.0	%	43.0	%

	Six Months Ended
	December 31, 2006						December 31, 2005
Business Segment	Revenue		Percentage of Total Revenue		Gross Margin		Revenue		Percentage of Total Revenue		Gross Margin
Computing and Communications	$	274,542	42.7	%	40.7	%	$	179,492	36.0	%	41.3	%
Energy-Saving Products	158,688		24.7		49.3		141,833		28.4		51.3
Aerospace and Defense	77,648		12.1		51.1		63,801		12.8		47.1
Intellectual Property	21,628		3.3		100.0		20,514		4.1		100.0

Focus Products	532,506		82.8		47.2		405,640		81.3		48.7
Commodity Products	110,949		17.2		20.5		93,149		18.7		20.2

Total revenue	$	643,455	100.0	%	42.6	%	$	498,789	100.0	%	43.4	%

Computing and Communications (“C&C”)

Our Computing and Communication segment is comprised of our Power Management ICs, Advanced Circuit Devices, 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 television, liquid crystal displays (“LCDs”), portable handheld devices and cellular phones.

C&C revenue for the three months ended December 31, 2006, increased by $48.5 million (52.4 percent), compared to the three months ended December 31, 2005. C&C revenue for the six months ended December 31, 2006, increased by $95.1 million (53.0 percent) compared to the six months ended December 31, 2005. The revenue increase reflected strength in the latest generation game stations from the top two manufacturers

and new business related to Microsoft’s Vista introduction at the notebook and desktop levels, as well as, strength in new families of Intel and AMD-based servers.

Gross margin for C&C was 41.1 percent and 41.3 percent for the three months ended December 31, 2006 and 2005, respectively, and 40.7 percent and 41.3 percent for the six months ended December 31, 2006 and 2005, respectively. Gross margin declined primarily reflecting adverse changes in product mix and costs associated with the ramp-up of new products.

Energy-Saving Products (“ESP”)

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

ESP revenue for the three months ended December 31, 2006, increased by $10.7 million (14.7 percent) compared to the three months ended December 31, 2005. ESP revenue for the six months ended December 31, 2006, increased by $16.9 million (11.9 percent) compared to the six months ended December 31, 2005. The revenue increase reflected strong demand for flat panel televisions and energy-efficient appliances.

Gross margin for ESP was 49.1 percent for the three months ended December 31, 2006, compared to 48.8 percent for the three months ended December 31, 2005, primarily reflecting a more favorable product mix. Gross margin for the six months ended December 31, 2006 and 2005 was 49.3 percent and 50.3 percent, respectively.

Aerospace and Defense (“A&D”)

The Aerospace and Defense segment is comprised of advanced power management solutions, such as radiation-hardened power management modules, radiation-hardened Power Components, and other high-reliability Power Components that address power management requirements in satellites, launch vehicles, aircrafts, ships, submarines and other defense and high-reliability applications.

A&D revenue for the three months ended December 31, 2006, increased by $4.8 million (14.0 percent) from the three months ended December 31, 2005. Revenue for the six months ended December 31, 2006, increased by $13.8 million (21.7 percent) from the six months ended December 31, 2005. The A&D revenue increase primarily reflected new design wins for commercial satellites.

Gross margin for the A&D segment increased to 52.1 percent for the three months ended December 31, 2006, from 50.0 percent in the three months ended December 31, 2005, and to 51.1 percent for the six months ended December 31, 2006, from 47.1 percent for the six months ended December 31, 2005. The gross margin improvement

reflected primarily a more favorable product mix and manufacturing efficiencies and restructuring cost savings.

Intellectual Property (“IP”)

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

IP revenue was $10.6 million and $10.1 million for the three months ended December 31, 2006 and 2005, respectively, and $21.6 million and $20.5 million for the six months ended December 31, 2006 and 2005, respectively. We expect that with the expiration of our key MOSFET patents in the calendar years 2007 and 2008, our IP revenue will be reduced substantially and our gross profit will be adversely impacted accordingly. We are continuing our strategy of generating new patents and licensing agreements to supplement our IP revenue.

Commodity Products (“CP”)

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

For the three months ended December 31, 2006, CP revenue was $53.4 million, up 18.2 percent from $45.2 million for the three months ended December 31, 2005. For the six months ended December 31, 2006, CP revenue was $110.9 million, up 19.1 percent from $93.1 million for the six months ended December 31, 2005. The Commodity Product segment is being sold as part of the Divestiture, and as part of the Divestiture, we will be providing Commodity Product manufacturing-related and other support services for up to three years. Although the assets and liabilities classified as held for sale include both the Non-Aligned Product and Commodity Product segments, the Commodity Product segment results were not included in discontinued operations at this time, as we expect to have significant ongoing involvement based on the cash flows to be derived from the transitional services to be provided to Vishay.

Gross margin for CP was 20.2 percent and 19.1 percent for the three months ended December 31, 2006 and 2005, respectively, and 20.5 percent and 20.2 percent for the six months ended December 31, 2006 and 2005, respectively. We anticipate that the gross profit margin from the Commodity Product manufacturing-related and other support services to be provided to Vishay following closing of the Divestiture will be lower than our Focus Products, and we expect overall revenues from such services to be significantly less than historic CP segment revenues.

Discontinued Operations

Discontinued operations are comprised of our Non-Aligned Product segment. Product lines included in this segment include certain modules, rectifiers, diodes and thyristors used in the automotive, industrial, welding and motor control applications.

Selling and Administrative Expense

Selling and administrative expense was $51.4 million (15.7 percent of revenue) and $43.9 million (17.2 percent of revenue) for the three months ended December 31, 2006 and 2005, respectively, and $102.8 million (16.0 percent of revenue) and $86.9 million (17.4 percent of revenue) for the six months ended December 31, 2006 and 2005, respectively. Selling and administrative expense increased primarily 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

Research and development expense was $34.0 million (10.4 percent of revenue) and $25.7 million (10.0 percent of revenue) for the three months ended December 31, 2006 and 2005, respectively, and $64.8 million (10.0 percent of revenue) and $49.2 million (9.9 percent of revenue) for the six months ended December 31, 2006 and 2005, respectively. We continue to concentrate our research and development activities on our Focus Products, which includes developing our power management ICs and new architectures for the next-generation applications, such as 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. Charges associated with these initiatives were completed as of December 31, 2006. Of such charges, primarily accrued severance liability has not been paid or released as of December 31, 2006. The Company anticipates that the remaining severance liability will be paid or released as appropriate by fiscal year end June 30, 2007.

As discussed in Note 2, “Divestiture” of Notes to Unaudited Consolidated Financial Statements, on November 8, 2006, we entered into definitive agreements with Vishay Intertechnology, Inc. to sell our Power Control Systems business consisting of our Non-Aligned Product and Commodity Product segments (the “Divestiture”). Associated with the 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 Divestiture. We expect that there may be impairment of assets, severance and other restructuring-related charges associated with the Divestiture and subsequent reorganization, which will be recorded as incurred. We have estimated that total severance-related charges will be approximately $10 million, of which approximately $5.3 million has been recognized over the retention period as of December 31, 2006, in accordance with SFAS No. 146. We are currently evaluating other potential charges associated with the Divestiture pending its closure.

For the three months ended December 31, 2006, we recorded $2.0 million in total restructuring-related charges of which $1.3 million was related to the December 2002

restructuring initiatives and $0.7 million was associated with the Divestiture including $0.4 million reported in discontinued operations. The $2.0 million charge consisted of $1.7 million for severance-related costs and $0.3 million for facility move-related costs. For the six months ended December 31, 2006, we recorded $7.2 million of restructuring-related charges of which $1.9 million was related to the December 2002 restructuring initiatives and $5.3 million was associated with the Divestiture including $1.4 million reported in discontinued operations. The $7.2 million charge consisted of $6.3 million of severance-related costs and $0.9 million for facility move-related costs.

For the three months ended December 31, 2005, we recorded $3.1 million in December 2002 restructuring charges including $2.3 million reported in discontinued operations. The $3.1 million charge consisted of $2.1 million of facility move-related costs, contract termination and asset impairment charges and $1.0 million in severance-related costs. For the six months ended December 31, 2005, we recorded $7.4 million in December 2002 restructuring charges including $4.3 million reported in discontinued operations. The $7.4 million charge consisted of $5.1 million for facility move-related costs, contract termination and asset impairment charges, and $2.3 million for severance costs.

As of December 31, 2006, charges associated with the December 2002 restructuring activities were completed. Total charges were $279.1 million of which $108 million were cash charges. These charges consisted of $219.2 million for asset impairment, plant closure and other charges, $6.0 million of raw material and work-in-process inventory, and $53.9 million for severance-related costs. Components of the $219.2 million asset impairment, plant closure and other charges included the following items:

· As we emphasized more advanced generation planar products, we expected 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 with the Divestiture. We expect to continue to use these facilities until approximately March 2008, to support certain transitional service level agreements associated with the Divestiture, and the remaining basis will be depreciated over units of production over this period.

· As we emphasized more advanced generation trench products, we expected 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 emphasized more advanced generation Schottky products, we expected 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 with the 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 completed the move of our manufacturing activities from its automotive facility in Krefeld, Germany to our Swansea, Wales and Tijuana, Mexico facilities as of June 30, 2005. We 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 with the Divestiture.

· We 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 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.

· We incurred $60.1 million in other miscellaneous items since December 2002, including $50.9 million in facility move-related 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. As of September 30, 2006, we had disposed of all of the inventory.

As of December 31, 2006, we have recorded cumulatively $59.2 million in severance-related charges, including $8.5 million in pension termination costs at our manufacturing facility in Oxted, England, and $5.3 million of severance-related costs associated with the Divestiture. Approximately 2,700 administrative, operating and manufacturing positions are anticipated to be affected, including approximately 1,300 persons associated with the PCS business.

Our restructuring activities are expected to result in severance charges, including the estimated amount related to the Divestiture, of approximately $64 million through calendar year-end 2007. Below is a table of expected total severance charges since December 2002 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, Caliornia	Power Control systems divestiture	10 million
Company-wide	Realign business procuesses, manufacturing and support infrastructure	16 million
Total		$	64 million

The following table summarizes our severance accrual related to the June 2001 restructuring, the December 2002 restructuring, and the Divestiture for the six months ended December 31, 2006 (in thousands):

	June 2001 Restructuring		December 2002 Restructuring		The Divestiture	Total Severance Liability
Accrued severance, June 30, 2006	$ 235		$ 6,538		$ —	$ 6,773
Costs incurred or charged to “impairment of assets, restructuring and severance charges”	(211	)	1,244		5,254	6,287
Costs paid	(24	)	(5,109	)	—	(4,672	)
Accrued severance, December 31, 2006	$ —		$ 2,673		$ 5,254	$ 7,927

The June 2001 severance liability is primarily related to certain legal accruals associated with the termination of 29 administrative and operating personnel. The liability was paid or released during the six months ended December 31, 2006. The December 2002 Restructuring severance liability is primarily related to severance-related costs of approximately 130 manufacturing personnel at the El Segundo, California facility and the associated liability is expected to be paid or released by fiscal 2007 year-end. The Divestiture severance liability is associated with the retention of approximately 100 key operating and finance personnel pending successful closing of the Divestiture. The associated liability is expected to be paid by fiscal year-end 2007.

Other Income and Expenses

Other (income) expense was ($0.5) million and $1.0 million for the three months ended December 31, 2006 and 2005, respectively, and $0.3 million and $1.2 million for the six months ended December 31, 2006 and 2005, respectively. Other (income) expense includes the impact of foreign currency fluctuations, dividend income from our equity investments, and litigation and claims settlement costs.

Interest Income and Expenses

Interest income was $12.7 million and $7.8 million for the three months ended December 31, 2006 and 2005, respectively, and $25.3 million and $14.9 million for the six months ended December 31, 2006 and 2005, respectively, reflecting higher prevailing interest rates on higher average cash and cash investment balances in the current year.

Interest expense was $10.9 million and $7.0 million for the three months ended December 31, 2006 and 2005, respectively, and $20.9 million and $12.6 million for the six months ended December 31, 2006 and 2005, respectively, primarily reflecting a higher effective interest rate payable on our $550 million convertible subordinated notes outstanding, partially offset by higher income from the mark-to-market adjustments on our interest rate swaps.

Income Taxes

Our effective tax provision related to continuing operations was 19.4 percent and 26.3 percent for the three months ended December 31, 2006 and 2005, respectively, and 23.1 percent and 26.3 percent for the six months ended December 31, 2006 and 2005, respectively. Our effective tax rates were lower than the U.S. federal statutory tax rates of 35 percent, as a result of lower statutory tax rates in certain foreign jurisdictions, the benefit of foreign tax credits and research and development credits, partially offset by state taxes and certain foreign losses without foreign tax benefit. For the three and six months ended December 31, 2006, we recognized $4.3 million of retroactive research and development tax benefit for the January 2006 to September 2006 period, as a result of Congress reinstating the research and development tax credit retroactive to the beginning of January 2006. We anticipate that our effective tax rate for the remaining fiscal 2007 will be approximately 27.0 percent, plus or minus half a percent.

Our effective tax provision for the three and six months ended December 31, 2006 excluded $26.5 million of tax benefit for the recognition of deferred tax assets tied to the difference in book and tax basis of certain subsidiaries being sold as part of the Divestiture as previously described (see Note 2). The $26.5 million of tax benefit has been recognized as part of income from discontinued operations for the three and six months ended December 31, 2006.

Liquidity and Capital Resources

At December 31, 2006, we had cash and cash equivalent balances of $459.3 million and cash investments in marketable debt securities of $633.6 million. We also had $159.6 million in unused credit facilities. Our investment portfolio consisted of available-for-sale fixed-income, principally investment-grade securities as of December 31, 2006.

For the six months ended December 31, 2006, cash provided by operating activities was $82.8 million compared to $48.4 million in the six months ended December 31, 2005. Depreciation and amortization adjusted cash flows from operations by $39.6 million. Changes in operating assets and liabilities decreased cash by $46.0 million during the six months ended December 31, 2006. The increase in working capital reflected an increase in our accounts and other receivables as a result of lengthening payment terms in certain foreign regions based on the business practices there and in general, timing of collections, and higher inventory balances due to increases in raw material and work-in-process inventory to support our new generation of products.

For the six months ended December 31, 2006, cash used in investing activities was $9.6 million. We purchased $208.7 million and sold $190.5 million of cash investments. We invested $70.4 million in capital expenditures, of which approximately one-third was utilized at the Newport, Wales facility. Purchase order commitments for capital expenditures were $13.2 million as of December 31, 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 six months ended December 31, 2006 generated $7.0 million. Proceeds from the exercise of employee stock options and the stock participation plan contributed $6.1 million.

As of December 31, 2006, we had revolving, equipment and foreign credit facilities of $171.0 million, against which $11.3 million had been used. On November 6, 2006, following the expiration of our BNP Facility as discussed in Note 5, we entered into a new five-year multi-currency revolving credit facility with a syndicate of lenders including of JP Morgan Chase Bank, Bank of America, N.A., HSBC Bank USA, and Deutsche Bank AG. The new facility 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 cash and cash investments. We do not have any off balance sheet arrangements as of December 31, 2006.

We expect to close the sale of our PCS business for approximately $290 million subject to certain adjustments based on the overall level of working capital and the level of cash in the subsidiaries being sold by April 1, 2007. We intend to use the proceeds from the sale to fund various transactions, which may include the repayment of our $550 million convertible notes, acquisitions, and general operating requirements.

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 September 30, 2006.

The adoption of SAB No. 108 did not have an impact on our condensed consolidated statement of operations and financial condition.

In September 2006, the FASB issued Staff Position (FSP) AIG AIR-1, “Accounting for Planned Major Maintenance Activities” (“FSP AUG AIR-1”). FSP AUG AIR-1 addresses the accounting for planned major maintenance activities. Specifically, the FSP prohibits the practice of the accrue-in-advance method of accounting for planned major maintenance activities. FSP AUG AIR-1 is effective for us beginning in our fiscal year 2008 in July 2007. We do not believe the adoption of FSP AUG AIR-1 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 2, 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 December 31, 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 and set forth 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. From time to time we may update or modify the risk factors set forth below from that set forth in our Annual Report on Form 10-K for fiscal year ended June 30, 2006, filed on September 15, 2006. However, 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.

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.

With certain exceptions related to products within our Aerospace and Defense and Non-Aligned Product segments, we manufacture primarily pursuant to purchase orders for current delivery or to forecast, rather than pursuant to long-term supply contracts. The semiconductor industry is subject to rapid changes in customer outlooks or unexpected build ups of inventory in the supply channel as a result of shifts in end-market demand generally or in the mix of that demand. Accordingly, many of these purchase orders or forecasts may be revised or canceled without penalty. As a result, we must commit resources to the manufacturing of products, and a specific mix of products, without any advance purchase commitments from customers. Our inability to sell products after we devote significant resources to build them could have a material adverse effect on our

levels of inventory (the value of our inventory), our revenue and our operating results generally.

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

At the end of fiscal quarter ended December 31, 2006, we reported net inventories of $174.2 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. As of December 31, 2006, we have completed the second phase of our capacity expansion, which provided approximately $300 million in annual revenue output potential. In October 2006, we announced a new foundry agreement with Tower Semiconductor for capacity capable of addressing many of our Focus Products. Including the Tower agreement, we expect to add another $150 million in revenue potential to be completed by June 2007. 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. 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.

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, one of our largest customers, is currently one such customer). Such events could have an adverse effect on our operating results if our receivables applicable to that customer become uncollectible in whole or in part, or if our customers’ financial situation result in reductions in whole or in part of our ability to continue to sell our products or services to such customers at the same levels or at all.

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

A “design win” 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 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:

i. 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;

ii. trade restrictions;

iii. transportation delays;

iv. work stoppages;

v. economic and political instability;

vi. 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 extend lead times, limit supplies or increase prices due to capacity constraints or other factors. We have a limited number of suppliers for some materials, parts and equipment, and any interruption could materially impair our operations.

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

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

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

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

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 certain publicly-traded companies. The value of these investments is subject to market fluctuations, which if adverse, could have a material adverse effect on our operating results and financial condition.

If we fail to maintain an effective system of internal 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 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.

The maturity of our outstanding Convertible Subordinated Notes due 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 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 “Statement of Caution Under the Private Securities Litigation Reform Act of 1995” and Item 1A, “Risk Factors” in this Quarterly Report on Form 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 December 31, 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 $0.6 million and $1.2 million on net interest income/expense for the three and six months ended December 31, 2006, respectively, since the interest income on our cash and cash investments would have outweighed additional interest expense on our outstanding debt.

In December 2001, we entered into an interest rate swap transaction (the “December 2001 Transaction”) with an investment bank, 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 Note 9, “Bank Loans and Long-Term Debt”). 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. We 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, we 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 swap transactions, interest rates were lower than that of the Debt and we believed that interest rates would remain lower for an extended period of time. The variable interest rate paid since the inception of the swaps has averaged 3.34 percent, compared to a coupon of 4.25 percent on the Debt. During the three months ended December 31, 2006, the LIBOR was 5.37 percent, and including certain spread and mark-to-market adjustments associated with the interest swaps, this arrangement increased (decreased) interest expense by $2.5 million and $0.8 million, for the three months ended December 31, 2006 and 2005, respectively, and $4.1 million and ($0.1) million for the six months ended December 31, 2006 and 2005, respectively.

The December 2001 Transaction and the April 2004 Transaction qualify as fair value hedges under SFAS No. 133. To test effectiveness of the hedge, regression analysis is performed quarterly comparing the change in fair value of the 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 our stock prices. For the three and six months ended December 31, 2006 and 2005, the hedges were highly effective and the ineffective portion did not have a material impact on earnings.

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 December 2001 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 December 31, 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 gains (losses) of $0.03 million and ($0.05) million for the three months ended December 31, 2006 and 2005, respectively and ($0.5) and $0.1 million for the six months ended December 31, 2006 and 2005, respectively, were charged to interest expense.

Foreign Currency Risk

We conduct business on a global basis in several foreign currencies and have currency exposure related primarily to the British Pound Sterling, the Euro and the Japanese Yen. Considering our foreign currency risks, we have the greatest exposure to the Japanese Yen, since we have significant Yen-based revenue without the Yen-based manufacturing costs. The risk of our revenues in the European currencies is partially offset by the cost of manufacturing goods in the European currencies.

We have established a foreign-currency hedging program using foreign exchange forward contracts, including the Forward Contract described below, to hedge certain foreign currency transaction exposures. To protect against reductions in value and volatility of future cash flows caused by changes in currency exchange rates, we have established revenue, expense and balance sheet hedging programs. Currency forward contracts and local Yen and Euro borrowings are used in these hedging programs. Our hedging programs reduce, but do not always eliminate, the impact of currency exchange rate movements. We considered an adverse near-term change in exchange rates of ten percent for the British Pound Sterling, the Euro and the Japanese Yen. Such a change, after taking into account our derivative financial instruments and offsetting positions, would have resulted in an annualized adverse impact on income before taxes of less than $1 million for the three and six months ended December 31, 2006 and 2005.

In May 2006, we entered into a five-year foreign exchange forward contract with BNP Paribas (the “Forward Contract”) for the purpose of reducing the effect of exchange rate fluctuations on forecasted intercompany purchases by our Japan subsidiary. We have designated the Forward Contract as a cash flow hedge. Under the terms of the 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 December 31, 2006, 17

quarterly payments of 507.5 million Yen remained to be swapped at a forward exchange rate of 101.5 Yen per U.S. dollar. The market value of the Forward Contract was $5.3 million and $1.2 million at December 31, 2006 and June 30, 2006, respectively, and was included in other long-term assets. Mark-to-market gains, included in other comprehensive income, net of tax, were $1.0 million and $3.5 million for the three and six months ended December 31, 2006, respectively. 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 Forward Contract.

We had approximately $113.1 million and $103.1 million in notional amounts of forward contracts not designated as accounting hedges under SFAS No. 133 at December 31, 2006 and June 30, 2006, respectively. Net realized and unrealized foreign-currency gains recognized in earnings were $1.5 million and $1.4 million for the three and six months ended December 31, 2006 respectively, and less than $1.0 million for the three and six months ended December 31, 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(e). 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 second quarter 2007 that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is, from time to time, involved in litigation incidental to the conduct of its business.

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.

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 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. Despite our efforts and controls, from time to time, issues may arise with respect to these matters, including the possibility of administrative proceedings for potential non-compliance where penalties might be assessed. We do not believe that compliance with such laws and regulations as now in effect will have a material adverse effect on our results of operations, financial position or cash flows (see also Note 13, “Environmental Matters”).

ITEM 1A. Risk Factors

The following items are new risk factors or risk factors that have changed materially from those disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended June 30, 2006, filed on September 15, 2006:

While we have entered into agreements to sell our Power Control Systems business, we cannot guarantee that the transaction will close; and the failure to execute on our plans to divest or discontinue product lines that are not consistent with our business objectives, and replace those revenues with higher-margin product sales could adversely affect our operating results.

We have entered into definitive agreements with Vishay Intertechnology, Inc. to sell our Power Control Systems business consisting of our Commodity Product and Non-Aligned Product segments (the “Divestiture”). While we have entered into definitive agreements, the agreements contain a number of conditions to closing. While a closing is expected by April 1, 2007, we cannot guarantee that closing will take place by then or at all.

If the 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 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 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, the activities and obligations involved with the Divestiture could involve changes to various aspects of our business (including the separation of the PCS business from our remaining 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.

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

As part of the Divestiture, we will be involved in the transition of certain of the divested business and assets with Vishay, including providing certain manufacturing, sales and marketing and administrative support services for a period of up to three years. Such services being transitional nature and related to the Divestiture may not be provided at levels of profitability commensurate with other aspects of our business and there may also be unforeseen factors or other obligations or events arising out of the services which would adversely affect our profitability and operating results.

Additionally, other activities and obligations involved with the Divestiture, including our continuing covenants and obligations under transaction documents, such as our obligations of indemnification and covenant not to compete, could involve changes to various aspects of our business or could involve costs which have a material adverse effect on our profitability and on our operating results to an extent we have not anticipated.

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. 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 our Focus Product segments. We also planned to lower overhead costs across our support organizations.

Additionally, on November 8, 2006, we entered into definitive agreements with Vishay Intertechnology, Inc. for the Divestiture. Associated with the 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 Divestiture. We expect that there may be impairment of assets, severance and other restructuring-related charges associated with the Divestiture and subsequent reorganization, which will be recorded as incurred. We have estimated that total severance-related charges will be approximately $10 million, of which approximately $5.3 million has been recognized over the retention period as of December 31, 2006, in accordance with SFAS No. 146. We are currently evaluating other potential charges associated with the Divestiture pending its closure.

If we do not reconfigure our infrastructure or there are delays in implementing our plans, we could have higher relative costs associated with post Divestiture revenues, adversely affecting our margins and profitability. Additionally, there may be unforeseen factors or other obligations or events arising out of the 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 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. We expect that with the expiration of our key MOFSET patents in calender years 2007 and 2008, our royalty revenue will be reduced substantially and our gross profit will be adversely impacted accordingly.

Our royalty income is also largely dependent on the following factors: the continuing introduction and acceptance of products that are not covered by our patents; remaining 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.

ITEM 4. Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of the Company’s stockholders at its annual meeting of stockholders held on November 20, 2006. All such matters were approved by the Company’s stockholders. Below is a summary of, where applicable, the number of votes cast for, against or withheld, as well as the number of abstentions as to each matter.

Description of Matter		For	Authority Withheld

1.	Election of Directors

	James D. Plummer	63,505,844	3,354,738
	Robert S. Attiyeh	65,098,117	1,762,465
	Philip M. Neches	65,785,039	1,075,543

In addition, the terms of office of the following directors continued after the meeting: Eric Lidow, Alexander Lidow, Jack O. Vance, Rochus E. Vogt, and Minoru Matsuda.

		For	Against	Abstentions

2.	Ratification of	66,699,930	88,802	71,849
	PricewaterhouseCoopersLLP
	as the Company’s
	Independent Registered
	Public Accounting Firm
	For Fiscal Year 2007

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, 2005; Registration No. 333-117489)

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

10.1	First Amendment to Master Purchase Agreement and Stock Purchase Agreement dated January 23, 2007, between International Rectifier Corporation and Vishay International, Inc.

10.2	Second Amendment to the Amended and Restated Rights Agreement dated November 20, 2006, between International Rectifier Corporation and Mellon Investor Services.

10.3	Transition and General Release Agreement, dated October 9, 2006, between Walter Lifsey and International Rectifier Corporation (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 9, 2006).

10.4	Credit Agreement, dated November 6, 2006, among International Rectifier Corporation, the Lenders described therein, Bank of America, N.A. as Syndication Agent and HSBC Bank USA, National Association and Deutsche Bank AG New York Branch as Co-Documentation Agents and JPMorgan Chase Bank, National Association, as Administrative Agent, (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 9, 2006).

10.5	Master Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of the Target Companies and certain of the assets of International Rectifier Corporation (incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.6	Asset Purchase Agreement dated as of November 8, 2006, by and among International Rectifier Corporation, International Rectifier Southeast Asia Pte, Ltd. and Vishay Intertechnology, Inc. with respect to certain assets of its Power Control Systems Business (incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.7	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of International Rectifier Electronic Motion Systems Ltd. (incorporated by reference to Exhibit 2.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.8	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of International Rectifier Canada Limited (incorporated by reference to Exhibit 2.4 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.9	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of IR Germany Holdings GmbH (incorporated by reference to Exhibit 2.5 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.10	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of International Rectifier (India) Limited (incorporated by reference to Exhibit 2.6 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.11	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of International Rectifier Corporation Italiana S.p.A. Incorporated by reference to Exhibit 2.7 to the Company’s Current Report on Form 8-K filed on November 14, 2006.

10.12	Stock Purchase Agreement dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. with respect to all outstanding capital stock of Xi’an IR Micro-Electronics Co., Ltd. (incorporated by reference to Exhibit 2.8 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2006).

10.13	Transition Services Agreement, dated as of November 8, 2006, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 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



February 9, 2007		/s/ Michael P. McGee
		Michael P. McGee
		Executive Vice President,
		Chief Financial Officer
		(Duly authorized officer and
		principal financial and accounting officer)