International Rectifier Corporation (IRF)

IRF 
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International Rectifier (IRF)

Q4 2011 Results

August 17, 2011 5:00 p.m. ET

Executives

Chris Toth – Investor Relations

Ilan Daskal – CFO, EVP

Oleg Khaykin – President, CEO, Director

Analysts

Ramesh Misra – Brigantine Advisors

James Schneider – Goldman Sachs

Alex Gauna - JMP Securities

Kevin Cassidy - Stifel Nicolaus

Stephen Chin – UBS

Brian Piccioni – BMO Capital Markets

Steve Smigie – Raymond James

Craig Berger – FBR Capital Markets

Presentation

Operator

Good afternoon. At this time I would like to welcome everyone to the International Rectifier fourth quarter and full year fiscal 2011 conference call. [Operator instructions.] I would now like to turn the conference over to Chris Toth, Investor Relations. Thank you. Mr. Toth, you may begin your conference.

Chris Toth

Thank you operator, and good afternoon. If you have not already read through our press release issued earlier today, it can be found on our website at investor.irf.com in the Investor Relations section. This call is being broadcast over the internet and can also be found through the IR’s web address. A conference call replay will be available following this call through August 24, 2011. After our prepared comments, we will open the line for questions.

Our discussion today will include some forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. We caution that such statements are subject to a number of uncertainties and actual results may differ materially. Risk factors that could affect the company's actual results are included in our press release issued today and the company's filings with the SEC, including the most recent forms 10-K and 10-Q.

Before we begin, I would also like to mention the following upcoming events. On Wednesday, August 24, we will be attending to Morgan Stanley Semiconductor Corporate Access Day in Chicago, and on Wednesday, September 7, we’ll be attending the Citi Technology Conference in New York City.

Now, Ilan will discuss our most recent financials. Ilan?

Ilan Daskal

Thank you Chris. Good afternoon, and thank you all for joining us. For the fourth quarter of fiscal 2011, IR reported a revenue of $317.2 million, which was a 6.9% increase from the prior quarter and a 20.3% increase from the fourth quarter of fiscal 2010.

Revenue growth accelerated as we saw strength in the appliance, industrial, and consumer end markets. Gross margin was 37.2%, resulting from a shift of product mix as our PMD revenue increased sharply from higher demand and our higher-margin HiRel business decreased to timing of shipments.

We reported a net income of $39.6 million or $0.55 per fully diluted share, compared with $49.5 million, or $0.69 per fully diluted share in the March quarter. The June quarter results included a $12.4 million gross tax benefit that benefitted fully diluted earnings per share by $0.18.

The March quarter included a $6.5 million gross tax benefit and a $3.5 million reversal of restructuring charges. In March these two items benefitted fully diluted earnings per share by $0.14.

In the earnings per share calculation please note that even though the company does not pay dividends, accounting rules require us to allocate a portion of net income to any unvested restricted stock units on which we could pay dividend equivalents.

In the June and March quarters, the amount of net income excluded from the earnings per share calculation was $573,000 and $733,000 respectively. If you do not make these adjustments, you will calculate the diluted earnings per share to be $0.01 higher than what we have reported.

For the June quarter, R&D expenses were $32.5 million, which represented 10.2% of revenue. The increase in R&D was primarily from the inclusion of the CHiL acquisition. SG&A expenses were $52.1 million, which represented 16.4% of revenue. The increase from the March quarter was primarily from higher ERP implementation expenses, legal fees, audit expenses, and the addition of CHiL.

Operating income for the quarter was $30.6 million and represented 9.7% of sales for the quarter. Other income net was $1 million in the June quarter and interest income net was $1.9 million, primarily from the sale of our Level 3 investments.

Income tax for the June quarter was a $6.2 million benefit due primarily to a net release of tax reserves on deferred assets and other discrete items totaling $12.4 million. This was partially offset by about $6.2 million in tax accruals in our foreign jurisdictions.

The total cash, cash equivalents, and investments at the end of the fourth quarter was $499.7 million, which included $2.1 million of restricted cash. We have successfully liquidated our Level 3 mortgage and asset-backed securities. We are now down to less than $1 million for these securities at end of the June quarter from about $98 million at the end of the September quarter of 2008.

During the quarter we increased inventory by $9.5 million to $250.2 million. Weeks of inventory decreased about 1 week to 16.3 weeks. Cash from operating activities in the quarter was $62.3 million and free cash flow was $9.6 million.

Cash capital expenditures for the quarter were $52.6 million. For the 2011 fiscal year, cash capital expands were $146.3 million, which represented about 12% of revenue. Of the $146.3 million, about $31 million was related to our ERP implementation.

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