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International Rectifier 10-Q 2010 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Commission file number 1-7935
 International Rectifier Corporation
(Exact Name of Registrant as Specified in Its Charter)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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 69,386,570 shares of the registrant’s common stock, par value $1.00 per share, outstanding on October 27, 2010.
TABLE OF CONTENTS
2
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to expectations concerning matters that (a) are not historical facts, (b) predict or forecast future events or results, or (c) embody assumptions that may prove to have been inaccurate. These forward-looking statements involve risks, uncertainties and assumptions. When we use words such as “believe,” “expect,” “anticipate,” “will” or similar expressions, we are making forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give readers any assurance that such expectations will prove correct. The actual results may differ materially from those anticipated in the forward-looking statements as a result of numerous factors, many of which are beyond our control. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the factors discussed in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements attributable to us are expressly qualified in their entirety by the factors that may cause actual results to differ materially from anticipated results. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinion only as of the date hereof. We undertake no duty or obligation to revise these forward-looking statements. Readers should carefully review the risk factors described in this document as well as in other documents we file from time to time with the Securities and Exchange Commission (“SEC”).
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
The accompanying notes are an integral part of these statements.
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
The accompanying notes are an integral part of these statements.
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
The accompanying notes are an integral part of these statements.
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
The accompanying notes are an integral part of these statements.
7
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
International Rectifier Corporation (“IR” or the “Company”) designs, manufactures and markets power management semiconductors. Power management semiconductors address the core challenges of power management, power performance and power conservation, by increasing system efficiency, allowing more compact end-products, improving features on electronic devices and prolonging battery life.
The Company’s products include power metal oxide semiconductor field effect transistors (“MOSFETs”), high voltage analog and mixed signal integrated circuits (“HVICs”), low voltage analog and mixed signal integrated circuits (“LVICs”), digital integrated circuits (“ICs”), radiation-resistant (“RAD-Hard™”) power MOSFETs, insulated gate bipolar transistors (“IGBTs”), high reliability DC-DC converters, automotive products packages, and DC-DC converter type applications.
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), and therefore do not include all information and notes normally provided in audited financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, which are located in North America, Europe and Asia. Intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal recurring accruals and other adjustments) considered necessary for a fair presentation of the Company’s results of operations, financial position, and cash flows have been included. The results of operations for the interim periods presented are not necessarily comparable to the results of operations for any other interim period or indicative of the results that will be recorded for the full fiscal year ending June 26, 2011. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the Company’s annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010 filed with the SEC on August 26, 2010 (the “2010 Annual Report”).
Fiscal Year and Quarter
The Company operates on a 52-53 week fiscal year with the fiscal year ending on the last Sunday in June. The three months ended September 2010 and 2009 consisted of 13 weeks ending on September 26, 2010 and September 27, 2009, respectively.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent Events
The Company evaluates events subsequent to the end of the fiscal quarter through the date the financial statements are filed with the Securities and Exchange Commission for recognition or disclosure in the consolidated financial statements. Events that provide additional evidence about material conditions that existed at the date of the balance sheet are evaluated for recognition in the consolidated financial statements. Events that provide evidence about conditions that did not exist at the date of the balance sheet but occurred after the balance sheet date are evaluated for disclosure in the notes to the consolidated financial statements.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Business, Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Financial Assets and Liabilities Measured at Fair Value
Financial assets and liabilities measured and recorded at fair value on a recurring basis are presented on the Company’s condensed consolidated balance sheet as of September 26, 2010 as follows (in thousands):
The fair value of investments, derivatives, and other assets and liabilities are disclosed in Note 2, Note 3, and Note 9, respectively. During the three months ended September 26, 2010, the Company had no significant measurements of assets or liabilities at fair value on a nonrecurring basis.
During the three months ended September 26, 2010, for each class of assets and liabilities, there were no transfers between those valued using quoted prices in active markets for identical assets (Level 1) and those valued using significant other observable inputs (Level 2). The Company determines at the end of the reporting period whether a given financial asset or liability is valued using Level 1, Level 2 or Level 3 inputs.
As of September 26, 2010, the Company’s investments fair valued using Level 2 inputs included commercial paper, corporate bonds and U.S. government agency obligations. These assets and liabilities were valued primarily using an independent valuation firm or using broker pricing models, in each case, based on the market approach. The Company also fair values its foreign currency forward contracts and swap contract using Level 2 inputs and a market valuation approach.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Level 3 Valuation Techniques
The following table provides a reconciliation of the beginning and ending balances of financial assets measured at fair value on a recurring basis that used significant unobservable inputs, or Level 3 inputs, in the valuation of these financial assets for the three months ended September 26, 2010 (in thousands):
When at least one significant valuation model assumption or input used to measure the fair value of financial assets or liabilities is unobservable in the market, they are deemed to be measured using Level 3 inputs. These Level 3 inputs may include pricing models, discounted cash flow methodologies or similar techniques where at least one significant model assumption or input is unobservable. The Company uses Level 3 inputs to value financial assets that include a non-transferable put option on a strategic investment and certain equity investments for which there is limited market activity where the determination of fair value requires significant judgment or estimation. Level 3 inputs are also used to value investment securities that include certain mortgage-backed securities and asset-backed securities for which there was a decrease in the observability of market pricing for these investments. At September 26, 2010, these securities were valued primarily using independent valuation firm or broker pricing models that incorporate transaction details such as maturity, timing and the amount of future cash flows, as well as assumptions about liquidity and credit valuation adjustments of marketplace participants at September 26, 2010.
Gains and losses attributable to financial assets whose fair value is determined by using Level 3 inputs and included in earnings, consist of mark-to-market adjustments for derivatives and other-than-temporary impairments for investments. These gains and losses are included in other expense. Realized gains or losses on the sale of securities are included in interest income.
Adoption of New Accounting Standards
In October 2009, the FASB issued ASC update No. 2009-13, “Revenue Recognition (Topic 605), Multiple-Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force.” This amendment establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The amendments also replace the term “fair value” in the revenue allocation guidance with “selling price” to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. In addition, the amendments eliminate the residual method of allocation and require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The relative selling price method allocates any discount in the arrangement proportionally to each deliverable on the basis of each deliverable’s selling price. The Company adopted ASC update No. 2009-13 as of the beginning of fiscal year 2011, and the adoption did not have a material impact on the Company’s financial statements.
10
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Investments
Available-for-sale investments are carried at fair value, inclusive of unrealized gains and losses, and net of discount accretion and premium amortization computed using the level yield method. Net unrealized gains and losses are included in other comprehensive income (loss) net of applicable income taxes. Gains or losses on sales of available-for-sale investments are recognized on the specific identification basis and are included in other income or interest income depending upon the type of security.
Available-for-sale securities as of September 26, 2010 are summarized as follows (in thousands):
Available-for-sale securities as of June 27, 2010 are summarized as follows (in thousands):
The Company’s investment policy is to manage its total cash and investments balances to preserve principal and maintain liquidity while maximizing the returns on the investment portfolio. 11
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Investments (Continued)
The Company holds as strategic investments the common stock of three publicly traded foreign companies and the common and preferred stock of a private domestic company. The common and preferred investments are shown as “Equity Securities” in the table above and are included in other assets on the consolidated balance sheets. The common shares of the publicly traded companies are traded on either the Tokyo Stock Exchange or the Taiwan Stock Exchange. The Company holds an option on one of the strategic investments to put the shares to the issuer at the price the shares were issued to the Company as adjusted for dividends received. The put option became effective September 1, 2009 and is reported at fair value. As of September 26, 2010, the fair value of the option was $2.0 million, with changes in fair value recorded in other income/expense (See Note 3, “Derivative Financial Instruments”). The Company received no dividend income from these equity investments during the three months ended September 26, 2010, and $0.1 million for the three months ended September 27, 2009.
The Company evaluates securities for other-than-temporary impairment on a quarterly basis. The impairment evaluation considers numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer of the securities; and the intent and ability of the Company to retain the security in order to allow for an anticipated recovery in fair value. If, based upon the analysis, it is determined that the impairment is other-than-temporary, the security is written down to fair value, and a loss is recognized through earnings. Other-than-temporary impairments relating to certain available-for-sale securities for the three months ended September 26, 2010, and September 27, 2009 were $0.5 million and $1.9 million, respectively.
The Company determined that one of its investments in common stock was other-than-temporarily impaired during the first three months of fiscal year 2011. As a result of determining the investment in common stock was other-than-temporarily impaired, the Company recorded an impairment charge of $0.5 million during the first three months of fiscal year 2011. During the first three months of fiscal year 2010, the Company recorded impairment charges of $0.7 million related to its investment in mortgage-back securities and asset-backed securities, and $1.2 million related to an equity investment.
The following table summarizes the fair value and gross unrealized losses related to available-for-sale investments, aggregated by type of investment and length of time that individual securities have been held. The unrealized loss position is measured and determined at each fiscal quarter end (in thousands):
12
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Investments (Continued)
The amortized cost and estimated fair value of investments at September 26, 2010, by contractual maturity, are as follows (in thousands):
In accordance with the Company’s investment policy which limits the length of time that cash may be invested, the expected disposal dates may be less than the contractual maturity dates indicated in the table above.
Gross realized gains and (losses) were $0.5 million and $0 million, respectively, for the three months ended September 26, 2010 and gross realized gains and (losses) were $2.6 million and $0 million, respectively, for the three months ended September 27, 2009. The cost of marketable securities sold was determined using the first-in, first-out method.
For the three months ended September 26, 2010 and September 27, 2009, as a result of sales of available-for-sale securities and recognition of other-than-temporary impairments on available-for-sale securities, the Company reclassified $0.1 million and $0.8 million, respectively, from accumulated other comprehensive income to earnings either as a component of interest expense (income) or other expense depending on the nature of the gain (loss).
Fair Value of Investments
The following table presents the balances of investments measured at fair value on a recurring basis, including cash equivalents, as of September 26, 2010 (in thousands):
13
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Derivative Financial Instruments
The Company is exposed to financial market risks, including fluctuations in interest rates, foreign currency exchange rates and market value risk related to its investments. The Company uses derivative financial instruments primarily to mitigate these risks, and as part of its strategic investment program. In the normal course of business, the Company also faces 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 analysis. In prior periods, the Company has designated certain derivatives as fair value hedges or cash flow hedges qualifying for hedge accounting treatment. As of September 26, 2010 and June 27, 2010, the Company had currency forward contracts and a foreign currency swap contract which were not designated as accounting hedges. In addition, at September 26, 2010, the Company held a put option on one of the Company’s strategic investments (See Note 2, “Investments”).
Interest Rates
The Company is subject to interest rate risk through its investments. The objectives of the Company’s investments in debt securities are to preserve principal and maintain liquidity while maximizing returns. To achieve these objectives, the returns on the Company’s investments in short-term fixed-rate debt will be generally compared to yields on money market instruments such as industrial commercial paper, LIBOR or Treasury Bills. Investments in longer term fixed-rate debt will be generally compared to yields on comparable maturity Government or high-grade corporate securities with an equivalent credit rating.
The Company had no outstanding interest rate derivatives as of September 26, 2010.
Foreign Currency Exchange Rates
The Company generally hedges the risks of foreign currency denominated repetitive working capital positions with offsetting foreign currency denominated exchange transactions, currency forward contracts or currency swaps. Transaction gains and losses on these foreign currency denominated working capital positions are generally offset by corresponding gains and losses on the related hedging instruments, usually resulting in negligible net exposure.
A significant amount of the Company’s revenue, expense, and capital purchasing transactions are conducted on a global basis in several foreign currencies. At various times, the Company has currency exposure related to the British Pound Sterling, the Euro and the Japanese Yen. For example, in the United Kingdom, the Company has a sales office and a semiconductor fabrication facility with revenues primarily in the U.S. Dollar and Euro, and expenses in British Pound Sterling. To protect against exposure to currency exchange rate fluctuations, the Company has established a balance sheet translation risk hedging program. Currency forward contract hedges have generally been utilized in these risk management programs. The Company’s hedging programs seek to reduce, but do not always entirely eliminate, the impact of currency exchange rate movements.
In October 2004, the Company’s Japan subsidiary entered into a currency swap agreement to hedge intercompany payments in U.S. Dollars. The transaction commencement date was March 2005 and the termination date is April 2011. Each month, the Company exchanges JPY 9,540,000 for $100,000. When the applicable currency exchange rate is less than or equal to 95.40, the Company exchanges JPY 18,984,600 for $199,000.
The Company had approximately $59.0 million in notional amounts of forward contracts not designated as accounting hedges at September 26, 2010. The net realized and unrealized foreign-currency gains(losses) related to forward contracts not designated as accounting hedges recognized in earnings, as a component of other expense, were $(0.6) million, and $(1.3) million for the three months ended September 26, 2010, and September 27, 2009, respectively.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Derivative Financial Instruments (Continued)
In the normal course of business, the Company also faces 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 preceding analysis.
At September 26, 2010, the fair value carrying amount of the Company’s derivative instruments were as follows (in thousands):
The gain or (loss) recognized in earnings during the three months ended September 26, 2010 was (in thousands):
Fair Value
The following table presents derivative instruments measured at fair value on a recurring basis as of September 26, 2010 (in thousands):
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Supplemental Cash Flow Disclosures
Components in the changes of operating assets and liabilities for the three months ended September 26, 2010 and September 27, 2009 were comprised of the following (in thousands):
Supplemental disclosures of cash flow information (in thousands):
5. Inventories
Inventories at September 26, 2010 and June 27, 2010 were comprised of the following (in thousands):
16
INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Goodwill and Acquisition-Related Intangible Assets On July 30, 2010 we acquired certain intellectual property, including patent and patent rights, as well as 25.0 million shares of preferred stock from a privately held domestic company for a total of $9.0 million. Of the $9.0 million, $7.5 million was allocated to the intellectual property and $1.5 million was allocated to the preferred stock. The allocation was based upon the estimated fair value of the intellectual property and preferred stock as of the acquisition date. The estimated fair values of the acquired patents and patent rights were determined based upon discounted after-tax cash flows adjusted for the probabilities of successful development and commercialization of the related technology. The $7.5 million allocated to the patents and patent rights will be amortized on a straight-line basis over the estimated life of the patents of 11 years.
At September 26, 2010 and June 27, 2010, acquisition-related intangible assets included the following (in thousands):
As of September 26, 2010, estimated amortization expense for the next five years is as follows (in thousands): remainder of fiscal year 2011: $3,417; fiscal year 2012: $2,452; fiscal year 2013: $912; fiscal year 2014: $858; and thereafter $6,089.
Goodwill
The Company evaluates the carrying value of goodwill and other intangible assets annually during the fourth quarter of each fiscal year and more frequently if it believes indicators of impairment exist. In evaluating goodwill, a two-step goodwill impairment test is applied to each reporting unit. The Company identifies reporting units and determines the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. In the first step of the impairment test, the Company estimates the fair value of the reporting unit. If the fair value of the reporting unit is less than the carrying value of the reporting unit, the Company performs the second step which compares the implied fair value of the reporting unit with the carrying amount of that goodwill and writes down the carrying amount of the goodwill to the implied fair value.
The carrying amounts of goodwill by ongoing business segment as of September 26, 2010 and June 27, 2010 are as follows (in thousands):
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Bank Letters of Credit
At September 26, 2010, the Company had $2.4 million of outstanding letters of credit. These letters of credit are secured by cash collateral provided by the Company equal to their face amount.
8. Other Accrued Expenses
Other accrued expenses were comprised of the following as of (in thousands):
Warranty
The Company records warranty liabilities at the time of sale for the estimated costs that may be incurred under the terms of its warranty agreements. The specific warranty terms and conditions vary depending upon the product sold and the country in which the Company does business. In general, for standard products, the Company will replace defective parts not meeting the Company’s published specifications at no cost to the customers. Factors that affect the liability include historical and anticipated failure rates of products sold, and cost per claim to satisfy the warranty obligation. If actual results differ from the estimates, the Company revises its estimated warranty liability to reflect such changes.
The following table details the changes in the Company’s warranty reserve for the three months ended September 26, 2010, which is included in other accrued expenses (in thousands):
9. Other Long-Term Liabilities
Other long-term liabilities were comprised of the following as of (in thousands):
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Other Long-Term Liabilities (Continued)
Fair Value of Long-term Liabilities
The following table presents the long-term liabilities and the related assets measured at fair value on a recurring basis as of September 26, 2010 (in thousands):
10. Stock-Based Compensation
The Company issues new shares to fulfill the obligations under all of its stock-based compensation awards. Such shares are subject to registration under applicable securities laws, including pursuant to the rules and regulations promulgated by the Securities and Exchange Commission, unless an applicable exemption applies.
During the fiscal quarter ended September 26, 2010, the Company granted an aggregate of 18,500 stock options to Company employees under the 2000 Plan. Subject to the terms and conditions of the 2000 Plan and applicable award documentation, such awards generally vest and become exercisable in equal installments over each of the first three anniversaries of the date of grant, with a maximum award term of five years.
The following table summarizes the stock option activities for the three months ended September 26, 2010 (in thousands, except per share price data):
For the three months ended September 26, 2010 and September 27, 2009, the Company received $0.8 million and $0.8 million, respectively, for stock options exercised.
During the fiscal quarter ended September 26, 2010, the Company granted awards of 309,462 units of restricted stock units (“RSUs”) with performance based vesting criteria to certain executive officers and key employees pursuant to the Company’s 2000 Incentive Plan, as amended (“2000 Plan”). The awards were valued at the market price of the underlying share of the Company’s common stock on the date of grant. Any vesting of such awards would take place upon the achievement of certain performance goals, and otherwise subject to the terms and conditions of the 2000 Plan and applicable award documentation. The performance goals for the awards vary depending on the executive officer or key employee, and must be achieved generally on or before the end of the Company’s fiscal year 2012 for the awards to vest, although some of the awards provide for achievement of performance goals on or before earlier dates. For the three months ended September 26, 2010, the Company could not determine that achievement of the performance goals was probable within the time established for the awards and, accordingly, the Company recorded no expense related to these awards.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock-Based Compensation (Continued)
In addition to the performance based RSU’s, during the fiscal quarter ended September 26, 2010, the Company granted 491,310 RSU’s to employees, and 30,520 RSU’s to members of the Board of Directors, in each case under the 2000 Plan, and which awards provided for vesting over a period of service, subject to the terms and conditions of the 2000 Plan and applicable award documentation. For the awards made to employees, the vesting of awards generally takes place in equal installments over each of the first three anniversaries of the date of grant. The awards made to members of the Board of Directors were made as part of the Board’s annual director compensation program, under which the vesting of awards takes place on the first anniversary of the date of grant.
The following table summarizes the RSU activities, including those with performance based vesting criteria, for the three months ended September 26, 2010 (in thousands, except per share price data):
The Company's stock based compensation plans and award documentation permits the reduction of a grantee's RSUs for purposes of settling a grantee's income tax obligation. During the three months ended September 26, 2010, the Company withheld RSUs representing 11,661 underlying shares to fund grantees’ income tax obligations.
Additional information relating to the Company’s stock based compensation plans, including employee stock options and RSUs (including RSUs with performance-based vesting criteria) at September 26, 2010 and June 27, 2010 is as follows (in thousands):
For the three months ended September 26, 2010 and September 27, 2009, stock-based compensation expense associated with the Company’s stock options and RSUs (including RSUs with performance-based vesting criteria) was as follows (in thousands):
Certain of the Company’s RSU and option award agreements provide for the vesting of one or more installments upon the satisfaction of certain conditions, among them certain conditions for an awardee’s retirement from service from the Company. For the three months ended September 26, 2010, the Company recorded an aggregate of $0.9 million for awardees determined to be potentially eligible for retirement under applicable award agreements and such amount is included in the total selling, general and administrative, research and development, and cost of sales expense lines above.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Stock-Based Compensation (Continued)
The total unrecognized compensation expense for outstanding stock options and RSUs was $21.2 million as of September 26, 2010. The unrecognized compensation expense for the outstanding stock options and RSUs will generally be recognized over three years, except for the performance-based RSUs, and one stock option award and one RSU award made to the CEO. The unrecognized compensation expense for the CEO’s grants will be recognized over 1.6 years. The unrecognized compensation expense for the outstanding performance based RSUs will be recognized when it is determined that it is probable the goals will be achieved or upon achievement of the goals, whichever event occurs first.
The fair value of the Company stock options issued during the three months ended September 26, 2010 and September 27, 2009, was determined at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
11. Asset Impairment, Restructuring and Other Charges
Asset impairment, restructuring and other charges reflect the impact of various cost reduction programs and initiatives implemented by the Company. These programs and initiatives include the closing of facilities, the termination and relocation of employees and other related activities. Asset impairment, restructuring and other charges include program-specific exit costs, severance benefits pursuant to ongoing benefit arrangements, and special termination benefits.
Asset impairment, restructuring and other charges represent costs related primarily to the following:
The following table summarizes restructuring charges incurred during the three months ended September 26, 2010, and September 27, 2009 related to the restructuring initiatives discussed below. These charges were recorded in asset impairment, restructuring and other charges (in thousands):
In addition to the amounts in the table above, $0.1 million and $0.4 million of workforce reduction expense related to retention bonuses were recorded in cost of sales during the first three months of fiscal years 2011 and 2010, respectively, related to the restructuring initiatives. The Company also incurred approximately $1.4 million of costs to relocate and install equipment for the first three months of fiscal year 2010. These costs are not considered restructuring costs and were recorded in costs of sales.
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INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Asset Impairment, Restructuring and Other Charges (Continued) The following table summarizes changes in the Company's restructuring related accruals for the three months ended September 26, 2010, which are included in other accrued expenses on the balance sheet (in thousands):
The following table summarizes the total asset impairment, restructuring and other charges by initiative for the three months ended September 26, 2010, and September 27, 2009 (in thousands):
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