International Rectifier Reports Fiscal Fourth Quarter Results
Thursday July 29, 4:32 pm ET
Gross Margin Up 160 Basis Points from Prior Quarter, Near Record Level
Business Outlook Remains Strong
EL SEGUNDO, Calif.--(BUSINESS WIRE)--July 29, 2004--International Rectifier (NYSE:IRF - News) today reported pro forma earnings of $36.6 million (or $0.52 per share) in the June quarter (after including the dilutive impact of $0.01 per share from the first-time inclusion of 7.4 million shares underlying the Company's convertible debenture). This compares to $29.8 million (or $0.43 per share) in the March quarter and $15.4 million (or $0.24 per share) in the prior-year quarter.
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The pro forma June quarter earnings excluded a $9.5 million pretax charge for ongoing severance and restructuring activities. The pro forma March quarter earnings excluded $9.9 million in restructuring-related pretax charges and $5.9 million pretax gain related to the Hitachi settlement. The prior-year June quarter pro forma earnings excluded $3.8 million in restructuring-related pretax charges.
On a GAAP basis, net income was $29.4 million (or $0.42 per share) in the June quarter versus $26.7 million (or $0.39 per share) in the March quarter and $13.2 million (or $0.20 per share) in the prior-year quarter. The calculation of June quarter GAAP earnings per share included the dilutive impact of 7.4 million shares underlying the Company's convertible debenture.
Revenues were $298.6 million in the June quarter, up 8 percent from $275.4 million in the March quarter, and up 31 percent from $228.4 million in the prior-year quarter. In the June quarter, we discontinued $14 million of commodity product revenues as previously announced. If included, these revenues would have meant an overall growth rate of about 13 percent. Revenues were up across all regions, led by Asia Pacific, up 14 percent over the March quarter and 60 percent from the prior-year quarter. Sales of high performance analog ICs and advanced circuit devices grew 10 percent from the prior quarter and 57 percent from the prior-year quarter. Overall, orders rose 5 percent from the March quarter and 37 percent over the prior-year quarter to reach a new record level.
Chief Executive Officer Alex Lidow stated, "Orders grew steadily throughout the quarter with June being the strongest month. Our backlog is the highest in the Company's history. It has grown steadily every quarter for the past seven quarters climbing to over $400 million, up 65 percent from $245 million in the prior year. Our record backlog of unfilled orders reflects, in part, the success of our proprietary products in the new generation of desktops, notebooks and servers combined with the strong growth of corporate IT spending. Our IT revenue grew 20 percent sequentially and 69 percent from a year ago."
Distributor shipments of IR products to their customers hit a record level in the June quarter, up 11 percent over March and 49 percent from the prior-year quarter. IR shipments to distributors increased 4 percent from the March quarter and 32 percent from the prior-year quarter, and represented 29 percent of revenues. Pricing was firm in the June quarter, consistent with earlier guidance.
Royalties in the June quarter were $10.9 million, up slightly from the March quarter. Cash from operations was $80 million for the quarter and $163 million for the fiscal year. The Company's cash and cash investments totaled $836 million at the end of the June quarter.
June quarter gross margin expanded 160 basis points from the March quarter to 41.2 percent, or within a fraction of IR's all-time record level. Gross margin on incremental sales exceeded expectations at 59 percent, primarily resulting from a richer mix of proprietary products.
IR secured over $170 million in design wins in the June quarter reaching an all-time record. During the quarter, IR won significant new business in target markets:
For information technology applications, IR's ICs and advanced circuit devices including XPhase(TM), DirectFET(TM), DCBus(TM), and iPOWIR(TM) won leading positions at seven of the top PC and server companies and two of the top communications networking companies. In notebooks and desknotes, IR won 22 new designs for Intel's latest Dothan platform and 23 P4 mobile-based designs. In desktops, IR secured three additional designs based on Intel's new Grantsdale platform. In high performance servers, IR won 26 new designs in platforms using Intel's Nocona processor and Lindenhurst chipset, and an additional 15 designs in other processor platforms. IR won 27 new proprietary product designs at the leading communication networking companies. Across each of these new platforms, IR's value and unit content is significantly higher than in previous generations.
In consumer electronics, Samsung, LG, and Matsushita chose high performance proprietary analog ICs and advanced circuit devices from IR to power their plasma, LCD and DLP digital televisions.
In energy-efficient appliances, IR won new designs for Sanyo, Miele, Hitachi, and Carrier programs.
IR was selected for upcoming Bosch, Delphi, Motorola Automotive, Siemens VDO, Continental, and TRW programs and for BMW, Volkswagen, Audi, Ford and DaimlerChrysler vehicles for integrated starter alternators, electric power steering, engine preheat systems, and direct fuel injection systems.
Power systems and advanced circuit devices won new designs for satellites and defense systems for Lockheed-Martin, General Dynamics, Honeywell, NASA, and Northrop-Grumman.
Outlook
Alex Lidow noted, "In July, orders continue strong, up dramatically from the prior-year quarter, with normal seasonal business patterns being reflected on a sequential basis, most notably in the automotive and European markets. We have more than 90 percent backlog coverage of our target revenue for the September quarter. A PC upgrade cycle is clearly visible, fueled by business customers as noted in the latest CIO surveys as well as by the leaders in microprocessors, software, and PCs. Within this backdrop of very promising market prospects, IR continues to discontinue or divest commodity, non-strategic product business. Looking at the September quarter, revenues are expected to grow 1 to 3 percent sequentially taking into account the planned divestiture of approximately $11 million of products which, if included, would translate into an equivalent of a 5 to 7 percent growth rate for the overall company. We expect our overall gross margins to increase 150 basis points or more, setting record levels in September.
"We continue to see broad end-market demand for our high performance analog ICs and advanced circuit device orders which are up 54 percent year-over-year. IR's leading design positions will continue to drive our growth."
For the fiscal year just ended, pro forma net income was $110.8 million (or $1.61 per share) on revenues of $1.06 billion, compared to prior-year pro forma net income of $48.5 million (or $0.75 per share) on revenues of $864.4 million. The calculation of fiscal 2004 pro forma earnings per share included a $0.01 dilutive impact from the 7.4 million shares underlying the Company's convertible debenture. On a GAAP basis, IR reported a net income of $89.8 million (or $1.31 per share) for fiscal 2004 compared to a net loss of $89.6 million (or $1.40 per share) for fiscal 2003.
In addition to disclosing results that are determined in accordance with Generally Accepted Accounting Principles (GAAP), IR also discloses pro forma or non-GAAP results of operations that exclude costs related to restructuring activities and one-time income/loss items. IR discloses both pro forma and actual results of operations in order to allow the users of its financial statements to assess the Company's operating results with and without charges associated with the Company's ongoing restructuring initiatives previously announced in March 2002, and with and without the $5.9 million one-time net pretax gain from the settlement with Hitachi. In connection with the restructuring activities, among other things, the Company is de-emphasizing some parts of its commodity business and accelerating the move to its proprietary products. The Company expects to record severance and restructuring charges as incurred in accordance with SFAS 146, "Accounting for the Costs Associated with Exit or Disposal Activities," through approximately calendar year-end 2004.
The following reconciles reported net income and earnings per share to pro forma net income and earnings per share for the fiscal quarters ended June 30, 2004, March 31, 2004, and June 30, 2003, and the years ended June 30, 2004 and 2003 (in thousands, except per share amounts):
For the Quarter Ended
June 30, March 31, June 30,
2004 2004 2003
-------- -------- --------
Net income $29,407 $26,745 $13,238
Costs from restructuring activities (net of
tax benefit) 7,213 7,509 2,157
Other income, net of expenses, from Hitachi
settlement (net of tax benefit) - (4,448) -
-------- -------- --------
Pro forma net income 36,620 29,806 15,395
Conversion of subordinated notes (net of tax
benefit) 2,629 - -
-------- -------- --------
Pro forma net income, diluted $39,249 $29,806 $15,395
======== ======== ========
EPS, basic $0.44 $0.41 $0.21
Effect of dilutive securities (0.02) (0.02) (0.01)
-------- -------- --------
EPS, diluted(1) 0.42 0.39 0.20
Costs from restructuring activities 0.11 0.11 0.04
Other income, net of expenses, from Hitachi
settlement - (0.07) -
Effect of dilutive securities (0.01) - -
-------- -------- --------
Pro forma EPS, diluted(1) $0.52 $0.43 $0.24
======== ======== ========
Basic EPS shares 66,196 65,826 64,165
Effect of dilutive securities:
Convertible subordinated notes 7,439 - -
Stock options 2,554 3,306 1,220
-------- -------- --------
Diluted EPS shares(1) 76,189 69,132 65,385
======== ======== ========
(1) June 30, 2004 quarter includes the dilutive effect from the
conversion of the Company's outstanding convertible subordinated
notes into 7,439,000 shares of common stock, which negatively
impacted actual and pro forma EPS by $0.01 for the quarter. The
conversion effect has not been included in the computation of
actual or pro forma diluted EPS for the quarters ended March 31,
2004 and June 30, 2003, since such effect would be anti-dilutive.
For the Year Ended
June 30, June 30,
2004 2003
--------- ---------
Net income $89,770 $(89,639)
Costs from restructuring activities (net of tax
benefit) 25,453 138,168
Other income, net of expenses, from Hitachi
settlement (net of tax benefit) (4,448) -
--------- ---------
Pro forma net income 110,775 48,529
Conversion of subordinated notes (net of tax
benefit) 11,275 -
--------- ---------
Pro forma net income, diluted $122,050 $48,529
========= =========
EPS, basic $1.37 $(1.40)
Effect of dilutive securities (0.06) -
--------- ---------
EPS, diluted 1.31 (1.40)
Costs from restructuring activities 0.39 2.16
Other income, net of expenses, from Hitachi
settlement (0.07) -
Effect of dilutive securities (0.02) (0.01)
--------- ---------
Pro forma EPS, diluted(2) $1.61 $0.75
========= =========
Basic EPS shares 65,459 63,982
Effect of dilutive securities 2,904 -
--------- ---------
Diluted EPS shares 68,363 63,982
Effect of dilutive securities 7,439 859
--------- ---------
Pro forma diluted EPS shares(2) 75,802 64,841
========= =========
(2) June 30, 2004 pro forma EPS includes the dilutive effect from the
conversion of the Company's outstanding convertible subordinated
notes into 7,439,000 shares of common stock, which impacted fiscal
2004 pro forma EPS by $0.01. The conversion effect has not been
included in the computation of fiscal 2004 actual diluted EPS or
fiscal 2003 actual and pro forma diluted EPS, since such effect
would be anti-dilutive. |
