SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1998
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-7416
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VISHAY INTERTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (610) 644-1300
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.10 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 26, 1999, assuming conversion of all its Class B
Common Stock held by non-affiliates into Common Stock of the registrant was
$870,908,000.
As of March 26, 1999, registrant had 59,346,433 shares of its Common
Stock and 8,321,654 shares of its Class B Common Stock outstanding.
Portions of the registrant's definitive proxy statement, which will be
filed within 120 days of December 31, 1998, are incorporated by reference into
Part III.
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PART I.
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Item 1. DESCRIPTION OF BUSINESS
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General
Vishay Intertechnology, Inc. (together with its consolidated
subsidiaries, "Vishay" or the "Company") is a leading international manufacturer
and supplier of discrete passive electronic components and discrete active
electronic components, particularly resistors, capacitors, inductors, diodes and
transistors. The Company offers its customers "one-stop" access to one of the
most comprehensive electronic component lines of any manufacturer in the United
States or Europe. Passive electronic components, discrete active electronic
components and integrated circuits are the primary elements of every electronic
circuit. The Company manufactures one of the broadest lines of surface mount
devices, a format for electronic components that has evolved into the standard
required by most customers. In addition, the Company continues to produce
components in the traditional leaded form. Components manufactured by the
Company are used in virtually all types of electronic products, including those
in the computer, telecommunications, military/aerospace, instrument, automotive,
medical and consumer electronics industries.
Since early 1985, Vishay has pursued a business strategy that
principally consists of the following elements:
1. expansion within the electronic components industry, primarily
through the acquisition of other manufacturers with established positions in
major markets, reputations for product quality and reliability and product lines
with which the Company has substantial marketing and technical expertise;
2. reduction of selling, general and administrative expenses through the
integration or elimination of redundant sales offices and administrative
functions at acquired companies;
3. achievement of significant production cost savings through the
transfer and expansion of manufacturing operations to regions, such as Israel,
Mexico, Portugal, the Czech Republic, Taiwan and the People's Republic of China,
where the Company can take advantage of lower labor costs and available tax and
other government-sponsored incentives; and
4. maintaining significant production facilities in those regions where
the Company markets the bulk of its products in order to enhance customer
service and responsiveness.
As a result of this strategy, Vishay has grown during the past fourteen
years from a small manufacturer of precision resistors and strain gages to one
of the world's largest manufacturers and suppliers of a broad line of electronic
components.
In 1997, Vishay entered the discrete active electronic components
business, with its $138 million purchase of a 65% interest in Lite-On Power
Semiconductor Corporation ("LPSC"), a Taiwan-based company that is a major
supplier of discrete active electronic components in Asia. The acquisition,
which closed in July 1997, not only represented Vishay's first step into the $14
billion discrete semiconductor market but also positioned the Company to
increase its penetration of the Asian market with its existing lines of passive
components. Currently, Vishay Lite-On Power Semiconductor Corporation's ("Vishay
LPSC") product line includes small-signal transistors, zeners, transient voltage
suppressors, small-signal diodes, schottkys, rectifiers and bridges.
On March 2, 1998, the Company purchased 80.4% of Siliconix Incorporated
(NASDAQ; SILI) and 100% of TEMIC Semiconductor GmbH for a total of $549,889,000
in cash. On March 4, 1998, the Company sold the Integrated Circuits Division of
TEMIC to Atmel Incorporated for a total of $105,755,000 in cash. Siliconix, is a
publicly traded chip maker based in Santa Clara, California which designs,
markets and manufactures power and analog semiconductor products for computers,
cell
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phones, fixed communications networks, automobiles and other electronic systems.
Siliconix has manufacturing facilities in the United States (in Santa Clara,
California). Siliconix also maintains assembly and testing facilities, which
include a company-owned facility in Taiwan, a joint venture in Shanghai, China
and subcontractors in the Philippines, China and the United States. Siliconix
reported worldwide sales of $ 282.3 million in 1998.
The TEMIC acquisition continues Vishay's expansion efforts in the area
of discrete active electronic components through the addition of TEMIC's product
line, which includes: diodes, RF transistors, MOSFET switches, bipolar power
switches, opto-electronic semiconductors, IRDC (Infrared Data Transceivers),
POWER MOSFET, POWER IC (Integrated Circuits), Signal Processing Switches and
JFETs (junction field-effect transistors).
Vishay continued to accelerate the restructuring of its passive
components business in 1998, which included consolidating its Vishay Electronic
Components operations in the United States, Europe and Asia into one entity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's intention is to
(i) create a single worldwide organization under one management team,
(ii) create further opportunities for synergies among its divisions and
(iii) position the Company for stronger growth by streamlining the
Company's ability to penetrate and create new markets.
Vishay was incorporated in Delaware in 1962 and maintains its principal
executive offices at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2120. The
telephone number is (610) 644-1300.
Products
Vishay designs, manufactures and markets electronic components that
cover a wide range of products and technologies. The products primarily consist
of:
o fixed resistors,
o tantalum capacitors,
o multi-layer ceramic chip capacitors ("MLCC"),
o film capacitors,
o diodes and
o transistors;
and, to a lesser extent:
o inductors,
o aluminum and specialty ceramic capacitors,
o transformers,
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o potentiometers,
o plasma displays and
o thermistors.
The Company offers most of its product types in surface mount format and in the
traditional leaded device format. The Company believes it produces one of the
broadest lines of electronic components available from any single manufacturer.
Unlike integrated circuits (ICs), which combine the functions of many
electronic components in one chip, discrete components perform one specific
function per device. Discrete components can be passive devices or active
(semiconductors) devices. Passive components, such as resistors, capacitors and
inductors, adjust and regulate current or store energy and filter frequencies.
Discrete semiconductor components such as diodes and transistors, convert AC
currents to DC, amplify currents or switch electronic signals.
Resistors are basic components used in all forms of electronic circuitry
to adjust and regulate levels of voltage and current. They vary widely in
precision and cost, and are manufactured in numerous materials and forms.
Resistive components may be either fixed or variable, the distinction being
whether the resistance is adjustable (variable) or not (fixed). Resistors can
also be used as measuring devices, such as Vishay's resistive sensors. Resistive
sensors or strain gages are used in experimental stress analysis systems as well
as in transducers for electronic measurement loads (scales), acceleration and
fluid pressure.
Vishay manufactures virtually all types of fixed resistors, both in
discrete and network forms. These resistors are produced for virtually every
segment of the resistive product market, from resistors used in the highest
quality precision instruments for which the performance of the resistors is the
most important requirement, to resistors for which price is the most important
factor.
Capacitors perform energy storage, frequency control, timing and
filtering functions in most types of electronic equipment. The more important
applications for capacitors are:
o electronic filtering for linear and switching power supplies,
o decoupling and bypass of electronic signals or integrated
circuits and circuit boards, and
o frequency control, timing and conditioning of electronic signals
for a broad range of applications.
The Company's capacitor products primarily consist of: solid tantalum surface
mount chip capacitors, solid tantalum leaded capacitors, wet/foil tantalum
capacitors, MLCC capacitors, and film capacitors. Each capacitor product has
unique physical and electrical performance characteristics that make each type
of capacitor useful for specific applications. Tantalum and MLCC capacitors are
generally used in conjunction with integrated circuits in applications requiring
low to medium capacitance values, "capacitance" being the measure of the
capacitor's ability to store energy. The tantalum capacitor is the smallest and
most stable type of capacitor for its range of capacitance and is best suited
for applications requiring medium capacitance values. MLCC capacitors, on the
other hand, are more cost-effective for applications requiring lower capacitance
values. The Company's MLCC capacitors are known for their particularly high
reliability.
Discrete active devices are components that generate, control, regulate,
amplify, or switch electronic signals or energy and must be interconnected with
passive components. Integrated circuits consist of a number of active and
passive components, interconnected on a single chip, that are intended to
perform multiple functions.
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Diodes are used to convert electrical currents from AC to DC and are
applied in a broad range of electronic equipment that requires such conversion.
Discrete power MOSFETs are used to switch and manage power in a wide range of
electronic systems, including cell phones, portable and desktop computers,
automobiles, instrumentation and industrial applications to switch and manage
power. Power conversion ICs are used in applications where an input voltage from
a battery or other supply source must be switched or converted to a level that
is compatible with logic signals used by microprocessors and other digital
components in a specific system. Motor control ICs control the starting, speed,
or position of electric motors, such as the head-positioning and spindle motors
in hard disk drives.
Vishay has taken advantage of the growth of the surface mount component
market and is an industry leader in designing and marketing surface mount
devices. Surface mount devices adhere to the surface of a circuit board rather
than being secured by leads that pass through holes to the back side of the
board. Surface mounting provides distinct advantages over through-hole mounting.
For example, surface mounting allows the placement of more components on a
circuit board, which is particularly desirable for a growing number of
manufacturers who require greater miniaturization in products such as hand held
computers and cellular telephones. Surface mounting also facilitates automation,
resulting in lower production costs for equipment manufacturers than those
associated with leaded devices. The Company also believes it is a market leader
in the development and production of a wide range of surface mount devices,
including:
o thick film chip resistors,
o thick film resistor networks and arrays,
o metal film leadless resistors (MELFs),
o molded tantalum chip capacitors,
o coated tantalum chip capacitors,
o film capacitors,
o multi-layer ceramic chip capacitors,
o thin film chip resistors,
o thin film networks, wirewound chip resistors,
o power strip resistors,
o bulk metal foil chip resistors,
o current sensing chips,
o chip inductors,
o chip transformers,
o chip trimmers,
o NTC chip thermistors, and
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o certain diodes and transistor products.
The Company also provides a number of component packaging styles to facilitate
automated product assembly by its customers.
Markets
Vishay's products are sold primarily to original equipment manufacturers
("OEMs"), OEM subcontractors that assemble printed circuit boards and
independent distributors that maintain large inventories of electronic
components for resale to OEMs. Its products are used in, among other things,
virtually every type of product containing electronic circuitry, including:
o computer-related products,
o telecommunications,
o measuring instruments,
o industrial equipment,
o automotive applications,
o process control systems,
o military and aerospace applications,
o consumer electronics,
o medical instruments, and
o scales.
For the year ended December 31, 1998, approximately 32.7% of the
Company's net sales was attributable to customers in the United States, while
the remainder was attributable to sales primarily in Europe and Asia.
In the United States, products are marketed through independent
manufacturers' representatives, who are compensated solely on a commission
basis, by the Company's own sales personnel and by independent distributors. The
Company has regional sales personnel in several North American locations that
make sales directly to OEMs and provide technical and sales support for
independent manufacturers' representatives throughout the United States, Mexico
and Canada. In addition, the Company uses independent distributors to resell its
products. Outside North America, products are sold to customers in Germany, the
United Kingdom, France, Israel, Japan, Singapore, Taiwan, South Korea, Brazil
and other European and Pacific Rim countries through Company sales offices,
independent manufacturers' representatives and distributors. In order to better
serve its customers, the Company maintains production facilities in those
regions where it markets the bulk of its products, such as the U.S., Germany,
France and the U.K. In addition, to maximize production efficiencies, the
Company seeks, whenever practicable, to establish manufacturing facilities in
those regions, such as Israel, Mexico, Portugal,the Czech Republic, Taiwan and
the People's Republic of China, where it can take advantage of lower labor costs
and available tax and other government-sponsored incentives.
The Company undertakes to have its products incorporated into the design
of electronic equipment at the
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research and prototype stages. Vishay employs its own staff of application and
field engineers who work with its customers, independent manufacturers'
representatives and distributors to solve technical problems and develop
products to meet specific needs.
The Company has qualified certain products under various military
specifications, approved and monitored by the United States Defense Electronic
Supply Center ("DESC"), and under certain European military specifications.
Classification levels have been established by DESC based upon the rate of
failure of products to meet specifications. In order to maintain the
classification level of a product, tests must be continuously performed, and the
results of these tests must be reported to DESC. If the product fails to meet
the requirements for the applicable classification level, the product's
classification may be reduced to a less stringent level. Various United States
manufacturing facilities from time to time experience a product classification
level modification. During the time that such level is reduced for any specific
product, net sales and earnings derived from such product may be adversely
affected.
The Company is aggressively undertaking to have the quality systems at
most of its major manufacturing facilities approved under the ISO 9001
international quality control standard. ISO 9001 is a comprehensive set of
quality program standards developed by the International Standards Organization.
A majority of the Company's manufacturing operations have already received ISO
9001 approval and others are actively pursuing such approval.
Vishay's largest customers vary from year to year, and no customer has
long-term commitments to purchase products of the Company. No customer accounted
for more than 10% of the Company's sales for the year ended December 31, 1998.
Research and Development
Many of the Company's products and manufacturing processes have been
invented, designed and developed by Company engineers and scientists. The
Company maintains strategically located design centers where proximity to
customers enables it to more easily satisfy the needs of the local market. These
design centers are located in the United States (California, Connecticut, Maine,
Nebraska, North Carolina, Pennsylvania), in Germany (Selb, Heilbronn, Landshut,
Pfafenberg, Backnang), in France (Nice, Evry) and Israel (Dimona, Migdal
Ha-emek). The Company also maintains separate research and development staffs
and promotes separate programs at a number of its production facilities to
develop new products and new applications of existing products, and to improve
manufacturing techniques. This decentralized system encourages individual
product development at individual manufacturing facilities that occasionally
have applications at other facilities. Company research and development costs
(exclusive of purchased in-process research and development) were approximately
$28.9 million for 1998, $7.0 million for 1997 and $10.4 million for 1996,
respectively. The major increase in research and development costs was due to
the acquisition of Siliconix. Siliconix's expenditures were $17.1 million for
the year ended December 31, 1998. Significant effort has been expended on new
power products and power IC's where continued rapid market growth is expected.
These amounts do not include substantial expenditures for the development and
manufacturing of machinery and equipment for new processes and for cost
reduction measures. See "Competition."
Sources of Supplies
Although most materials incorporated in the Company's products are
available from a number of sources, certain materials, particularly tantalum and
palladium, are available only from a relatively limited number of suppliers.
Tantalum, a metal, is the principal material used in the manufacture of
tantalum capacitors. It is purchased in powder and wire form primarily under
annual contracts with domestic suppliers at prices that are subject to
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periodic adjustment. The Company is a major consumer of the world's annual
tantalum production. There are currently three major suppliers that process
tantalum ore into capacitor grade tantalum powder. Although the Company believes
that there is currently a surplus of tantalum ore reserves and a sufficient
number of tantalum processors relative to foreseeable demand, and that the
tantalum required by the Company has generally been available in sufficient
quantities to meet requirements, the limited number of tantalum powder suppliers
could lead to increases in tantalum prices that the Company may not be able to
pass on to its customers.
Palladium is primarily purchased on the spot and forward markets,
depending on market conditions. Palladium is considered a commodity and is
subject to price volatility. The price of palladium has fluctuated in the range
of approximately $114 to $417 per troy ounce during the last three years.
Although palladium is currently found in South Africa and Russia, the Company
believes that there are a sufficient number of domestic and foreign suppliers
from which the Company can purchase palladium. However, an inability on the part
of the Company to pass on increases in palladium costs to its customers could
have an adverse effect on the margins of those products using the metal.
Inventory and Backlog
Although Vishay manufactures standardized products, a substantial
portion of its products are produced to meet customer specifications. The
Company does, however, maintain an inventory of resistors and other components.
Backlog of outstanding orders for the Company's products was $ 309.3 million,
$269.8 million and $237.7 million, respectively, at December 31, 1998, 1997 and
1996. The increase in backlog at December 31, 1998 primarily reflects the
acquisition of TEMIC.
Many of the orders in the Company's backlog may be cancelled by its
customers, in whole or in part, although sometimes subject to penalty. To date,
however, cancellations have not been significant.
Competition
The Company faces strong competition in its various product lines from
both domestic and foreign manufacturers that produce products using technologies
similar to those of the Company. The Company's main competitors for tantalum
capacitors are KEMET Corporation, AVX Corporation and NEC Electronics Inc. For
MLCC capacitors, competitors are KEMET, AVX, Murata and TDK Corp. For thick film
chip resistors, competitors are Rohm Corp., Koa Speer Electronics Inc. and Yageo
Corporation. For wirewound and metal film resistors, competitors are I.R.C.
Inc., Rohm Corp. and Ohmite Manufacturing Company. For discrete active
components, competitors are Philips, N.V., Rohm Corp., Motorola, Inc., Fairchild
Corp., General Semi and Samsung Electro-Mechanics Co., Ltd.
The Company's competitive position depends on its product quality,
know-how, proprietary data, marketing and service capabilities and business
reputation, as well as on price. In respect to certain products, the Company
competes on the basis of its marketing and distribution network, which provides
a high level of customer service. For example, the Company works closely with
its customers to have its components incorporated into their electronic
equipment at the early stages of design and production and maintains redundant
production sites for most of its products to ensure an uninterrupted supply of
products. Further, the Company has established a National Accounts Management
Program, which provides the Company's largest customers with one national
account executive who can cut across Vishay business unit lines for sales,
marketing and contract coordination. In addition, the breadth of the Company's
product offerings enables the Company to strengthen its market position by
providing its customers with "one-stop" access to one of the broadest selections
of passive electronic components available from a direct manufacturing source.
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A number of the Company's customers are contractors or subcontractors on
various United States and foreign government contracts. Under certain United
States Government contracts, retroactive adjustments can be made to contract
prices affecting the profit margin on such contracts. The Company believes that
its profits are not excessive and, accordingly, no provision has been made for
any such adjustment.
Although the Company has numerous United States and foreign patents
covering certain of its products and manufacturing processes, no particular
patent is considered material to the business of the Company.
Manufacturing Operations
The Company strives to balance the location of its manufacturing
facilities. In order to better serve its customers, the Company maintains
production facilities in those regions where it markets the bulk of its
products, such as the United States, Germany, France, Asia and the United
Kingdom. To maximize production efficiencies, the Company seeks whenever
practicable to establish manufacturing facilities in countries, such as Israel,
Mexico, Portugal, the Czech Republic, Taiwan and the People's Republic of China,
where it can take advantage of lower labor and tax costs and, in the case of
Israel, to take advantage of various government incentives, including grants and
tax relief.
At December 31, 1998, approximately 36% of the Company's identifiable
assets were located in the United States, approximately 32% were located in
Europe, approximately 15% were located in Israel, and approximately 17% were
located in Asia. In the United States, the Company's main manufacturing
facilities are located in Nebraska, South Dakota, North Carolina, Pennsylvania,
Maine, Connecticut, Virginia, New Hampshire, Florida and, with the Siliconix
acquisition, California. In Europe, the Company's main manufacturing facilities
are located in Selb, Landshut, and Backnang, Germany; Nice, France; and, with
the TEMIC acquisition, Heilbronn, Germany. In Israel, manufacturing facilities
are located in Holon, Dimona, Beersheva and Migdal Ha-emek. In Asia, with the
Lite-On and TEMIC acquisitions, the Company's main manufacturing facilities are
located in Taiwan (two) and in Shanghai, China (five). The Company also
maintains major manufacturing facilities in Juarez, Mexico and the Czech
Republic. Over the past several years, the Company has invested substantial
resources to increase capacity and to maximize automation in its plants, which
it believes will further reduce production costs.
The Company has expanded, and plans to continue to expand, its
manufacturing operations in Israel, where it benefits from the government's
employment and tax incentive programs designed to increase employment, lower
wage rates and attract a highly-skilled labor force, all of which have
contributed substantially to the growth and profitability of the Company.
Under the terms of the Israeli government's incentive programs, once a
project is approved, the recipient is eligible to receive the benefits of the
related grants for the life of the project, so long as the recipient continues
to meet preset eligibility standards. None of the Company's approved projects
has ever been cancelled or modified and the Company has already received
approval for a majority of the projects contemplated by its capital expenditure
program. However, over the past few years, the government has scaled back or
discontinued some of its incentive programs. Accordingly, there can be no
assurance that in the future the Israeli government will continue to offer new
incentive programs applicable to the Company or that, if it does, such programs
will provide the same level of benefits the Company has historically received or
that the Company will continue to be eligible to take advantage of them.
Although the Company might be materially adversely affected if these incentive
programs were no longer available to the Company for new projects, because a
majority of the Company's projects in Israel already benefit from government
incentive programs, the Company does not anticipate that any cutbacks in the
incentive programs would have an adverse impact on its earnings and operations
for at least several years. In addition, the Company might be materially
adversely affected if hostilities were to occur in the Middle East that
interfere with the Company's operations in Israel. The Company, however, has
never experienced any material interruption in its Israeli operations in its 29
years of production there, in spite of several Middle East crises, including
wars. For
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the year ended December 31, 1998, sales of products manufactured in Israel
accounted for approximately 21.5% of the Company's net sales.
In 1998 the Company accelerated the implementation of its strategy to
shift manufacturing emphasis to higher automation in higher labor cost regions
and to relocate a fair amount of production to regions with lower labor costs.
As a result, the Company incurred significant restructuring costs in the year
ended December 31, 1998 associated with the downsizing and closing of
manufacturing facilities in Europe. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
See Note 14, "Business Segment and Geographic Area Data," of the Notes
to Consolidated Financial Statements for financial information by geographic
area.
Environment, Health and Safety
The Company has adopted an Environmental Health and Safety Corporate
Policy that commits it to achieve and maintain compliance with applicable
environmental laws, to promote proper management of hazardous materials for the
safety of its employees and the protection of the environment, and to minimize
the hazardous materials generated in the course of its operations. This policy
is implemented with accountability directly to the Chairman of the Board of
Directors. In addition, the Company's manufacturing operations are subject to
various federal, state and local laws restricting discharge of materials into
the environment.
The Company is not involved in any pending or threatened proceedings
which would require curtailment of its operations. The Company continually
expends funds to ensure that its facilities comply with applicable environmental
regulations. In regard to its U.S. and European facilities, the Company is
nearing completion of its undertaking to comply with new environmental
regulations relating to the elimination of chlorofluorocarbons (CFCs) and ozone
depleting substances (ODS) and other anticipated compliances with the Clean Air
Act amendments of 1990. In regard to all other facilities, including those
recently acquired, the Company has begun to take steps to implement its
compliance with these programs.
The Company anticipates that it will undertake capital expenditures of
approximately $7,125,000 in fiscal 1999 for general environmental compliance and
enhancement programs, including those to be applied at the TEMIC facilities. The
Company has been named a Potentially Responsible Party (PRP) at nine Superfund
sites which includes two Siliconix facilities. The Company has settled three of
these for minimal amounts and does not expect the others to be material. While
the Company believes that it is in material compliance with applicable
environmental laws, it cannot accurately predict future developments or have
knowledge of past occurrences on sites currently occupied by the Company.
Moreover, the risk of environmental liability and remediation costs is inherent
in the nature of the Company's business and, therefore, there can be no
assurance that material environmental costs, including remediation costs will
not arise in the future.
With each acquisition, the Company undertakes to identify potential
environmental concerns and to minimize, or obtain indemnification for, the
environmental matters it may be required to address. In addition, the Company
establishes reserves for specifically identified potential environmental
liabilities. The Company believes that the reserves it has established are
adequate. Nevertheless, the Company often unavoidably inherits certain
pre-existing environmental liabilities, generally based on successor liability
doctrines. Although the Company has never been involved in any environmental
matter that has had a material adverse impact on its overall operations, there
can be no assurance that in connection with any past or future acquisition the
Company will not be obligated to address environmental matters that could have a
material adverse impact on its operations.
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Employees
As of December 31, 1998, the Company employed approximately 21,522 full
time employees of whom approximately 16,066 were located outside the United
States. Some of the Company's employees outside the U.S. are members of trade
unions. In connection with the Company's 1998 restructuring program, the Company
dismissed approximately 182 employees in its worldwide workforce. No assurance
can be given that if the Company continues to restructure its operations in
response to changing economic conditions that labor unrest or strikes,
especially at European facilities, will not occur. See "Legal Proceedings."
Year 2000 Compliance
Many existing computer systems and software products, including hardware
platforms and software applications used by the Company in its various divisions
world-wide (a portion of which are provided by outside suppliers), accept only
two digit entries in the date code field. As a result, computer programs or
hardware that have date-sensitive software or embedded chips may not properly
distinguish 21st century dates from 20th century dates. This could result in
system failure or miscalculations causing disruption of operations.
The Company has accorded to each of its divisions, including those in
its U.S., Asian, Israeli and European facilities, responsibility for (i)
assessment of each division's business information systems and related business
processes used in its operations for year 2000 readiness and (ii) implementation
of remediation in those areas where year 2000 issues exist. Since each of the
Company's divisions has its own unique hardware and software applications,
different approaches to the year 2000 issue have been required based upon the
circumstances and requirements of each specific division. In some instances, for
example, specific divisions have hired external contractors to assist in
addressing the year 2000 issues while in other instances, internal staff have
focused on remediation of the systems. Where necessary, upgrades to year 2000
compliant versions of third party software have been purchased. In addition, the
Company has begun to use the business application software of SAP for its
Roederstein (U.S.) operations and for TELEFUNKEN's operations to address some of
the issues of year 2000 compliance. While the Company has not yet fully tested
all its systems to determine whether they are year 2000 compliant, each division
is on track in bringing its systems into compliance. The Company is also well
underway in bringing its Asian and Israeli computer systems into year 2000
compliance. Management does not believe the Company will suffer any material
loss of customers or other material adverse effects as a result of any
modifications that are being implemented to make its systems year 2000
compliant.
The Company is also assessing the possible affect on its operations of
the year 2000 readiness of critical suppliers of products and services. The
Company's reliance on its key suppliers, and therefore on the proper functioning
of their information systems and software, is increasing, and there can be no
assurance that another company's failure to address year 2000 issues might not
have an adverse effect on the Company.
The Company currently estimates the total cost of its Year 2000 project
to be $1,400,000. At December 31, 1998, the Company has incurred approximately
$1,000,000 of costs in connection with its Year 2000 project. The Company
believes that it is unlikely to experience a material adverse impact on its
financial condition or results of operations due to year 2000 compliance issues.
However, since the assessment process is ongoing, year 2000 complications are
not fully known, and potential liability issues are not clear, the full
potential impact of the year 2000 on the Company is not known at this time.
Management of the Company believes it has an effective program in place
to resolve the year 2000 issues in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the year 2000 program. In the
event that the Company's systems are not rendered year 2000 compliant in a
timely manner, the Company may experience significant disruptions in its
operations including taking customer orders, manufacturing and shipping
products, invoicing customers or collecting payments. In addition, disruptions
in the economy
- 10 -
<PAGE>
generally resulting from year 2000 issues could also materially affect the
Company. The Company could be subject to litigation for computer systems product
failure, for example, equipment shutdown or failure to properly date business
records. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
The Company has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and adjusting staffing strategies.
Item 2. PROPERTIES
- ------- ----------
As of December 31, 1998, the Company maintains approximately 69
manufacturing facilities. The principal locations of such facilities, along with
available space including administrative offices, are:
Approx. Available
Owned Locations Space (Square Feet)
- --------------- -------------------
United States
-------------
Columbus and Norfolk, NE* 336,000
Sanford, ME 225,000
Santa Clara, CA 220,000
Malvern and Bradford, PA* 215,000
Wendell and Statesville, NC* 193,000
Concord, NH 120,000
Roanoke, VA 120,000
Monroe, CT 91,000
- ----------------
* two locations
Foreign
-------
Germany (13 locations) 1,099,000
Israel (4 locations) 950,000
France (6 locations) 533,000
Portugal 299,000
Republic of China (Taiwan) (3 locations) 257,000
Czech Republic (4 locations) 141,000
Austria 104,000
Vishay owns an additional 272,000 square feet of manufacturing
facilities located in Colorado, Maryland, New York, South Dakota and Florida.
Available leased facilities in the United States include 251,000 square
feet of space located in California, South Dakota, Missouri, New Jersey and
Massachusetts. Foreign leased facilities consist of 121,000 square feet in
Mexico, 188,000 square feet in France, 153,000 square feet in England, 37,000
square feet in Canada, 190,000 square feet in China, 24,000 square feet in the
Philippines, 23,000 square feet in Hungary, 74,000 square feet in the Czech
Republic and 85,000 square feet in Germany. The Company also has facilities in
Japan.
In the opinion of management, the Company's properties and equipment
generally are in good operating condition and are adequate for its present
needs. The Company does not anticipate difficulty in renewing existing leases as
they expire or in finding alternative facilities.
- 11 -
<PAGE>
Item 3. LEGAL PROCEEDINGS
- ------- -----------------
The Company from time to time is involved in routine litigation
incidental to its business. Management believes that such matters, either
individually or in the aggregate, should not have a material adverse effect on
the Company's business or financial condition.
As part of Vishay's 1996 restructuring program, the Company's
subsidiary, Sprague France S.A., laid off certain workers at the company's
facility in Tours, France. The trade union representing the workers claimed that
the layoffs were not economically motivated, and were therefore prohibited under
French law. A court ruled that, although the company would not be required to
rehire the employees, the company would have to pay damages equal to
approximately 10 million French Francs, approximately U.S. $1,660,000 as of
March 26, 1999, to the former employees. The Company has appealed this decision.
In 1996, the Company's 80.4% owned subsidiary, Siliconix, was a party to
two environmental proceedings. The first involved property that Siliconix
vacated in 1972. In July 1989, the California Regional Water Quality Control
Board ("RWQCB") issued Cleanup and Abatement Order No. 89-115 both to Siliconix
and the current owner of the property. The Order alleged that Siliconix
contaminated both the soil and the groundwater on the property by the improper
disposal of certain chemical solvents. The RWQCB considered both parties to be
liable for the contamination and sought to have them decontaminate the site to
acceptable levels. Siliconix subsequently reached a settlement of this matter
with the current owner of the property. The settlement also provided that the
current owner will indemnify Siliconix and its employees, officers, and
directors against any liability that may arise out of any governmental agency
actions brought for environmental cleanup of the subject site, including
liability arising out of RWQCB Order No. 89-115, to which Siliconix remains
nominally subject.
The second proceeding involves Siliconix's Santa Clara, California
facility, which the company has owned and occupied since 1969. In February 1989,
the RWQCB issued Cleanup and Abatement Order No. 89-27 to Siliconix. The Order
is based on the discovery of contamination of both the soil and the groundwater
on the property by certain chemical solvents. The Order calls for Siliconix to
specify and implement interim remedial actions and to evaluate final remedial
alternatives. The RWQCB issued a subsequent order requiring Siliconix to
complete the decontamination. Siliconix is complying with the RWQCB's orders.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders of the Company.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ------------------------------------
The following table sets forth certain information regarding the
executive officers of the Company as of March 26, 1999.
Name Age Positions Held
- ---- --- --------------
Felix Zandman* 70 Chairman of the Board,
Chief Executive Officer
and Director
- 12 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Avi D. Eden* 51 Vice-Chairman of the
Board, Executive
Vice President and
Director
Gerald Paul* 50 Chief Operating Officer, President and Director
Richard N. Grubb* 52 Executive Vice President,
Treasurer, Chief
Financial Officer
and Director
Robert A. Freece* 58 Senior Vice President
and Director
Abraham Inbar 70 Senior Vice President
and Director
Henry V. Landau 52 Vice President;
President -- Measurements Group, Inc., a
subsidiary of Vishay
William J. Spires 57 Vice President and
Secretary
</TABLE>
* Member of the Executive Committee of the Board of Directors.
Dr. Felix Zandman, a founder of the Company, has been the Chief
Executive Officer and a Director of the Company since its inception. Dr. Zandman
had been President of the Company from its inception until March 16, 1998, when
Gerald Paul was appointed President of the Company. Dr. Zandman has been
Chairman of the Board since March 1989.
Avi D. Eden has been a Director and General Counsel of the Company since
June 1988, and has been Vice Chairman of the Board and Executive Vice President
of the Company since August 1996.
Gerald Paul has served as a Director of the Company since May 1993 and
has been Chief Operating Officer and Executive Vice President of the Company
since August 1996. On March 16, 1998, Gerald Paul was appointed President of the
Company. He was President of Vishay Electronic Components, Europe from January
1994 to August 1996. Dr. Paul has been Managing Director of Draloric Electronic
GmbH since January 1991. Dr. Paul has been employed by Draloric since February
1978.
Richard N. Grubb has been a Director, Vice President, Treasurer and
Chief Financial Officer of the Company since May 1994, and has been Executive
Vice President of the Company since August 1996. Mr. Grubb has been associated
with the Company in various capacities since 1972. He is a Certified Public
Accountant who was previously engaged in private practice.
Robert A. Freece has been a Director of the Company since 1972. He was
Vice President of the Company from 1972 until 1994, and has been Senior Vice
President since May 1994.
- 13 -
<PAGE>
Abraham Inbar has been a Senior Vice President of the Company since
August 1996. Mr. Inbar had been President of Vishay Israel, Ltd., a subsidiary
of the Company, since April 1994, and has been employed by the Company since
1973. He has been a Director of the Company since 1998.
Henry V. Landau has been a Vice President of the Company since 1983. Mr.
Landau has been the President and Chief Executive Officer of Measurements Group,
Inc., a subsidiary of the Company, since July 1984. Mr. Landau was an Executive
Vice President of Measurements Group, Inc. from 1981 to 1984 and has been
employed by the Company since 1972.
William J. Spires has been a Vice President and Secretary of the Company
since 1981. Mr. Spires has been Vice President - Industrial Relations since 1980
and has been employed by the Company since 1970.
- 14 -
<PAGE>
PART II
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
Item 5. MATTERS
- ------- -----------------------------------------------------------------
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol VSH. The following table sets forth the high and low sales
prices for the Company's Common Stock as reported on the New York Stock Exchange
Composite Tape for the quarterly periods within the 1998 and 1997 calendar years
indicated. Stock prices have been restated to reflect stock dividends. The
Company does not currently pay cash dividends on its capital stock. Its policy
is to retain earnings to support the growth of the Company's business and the
Company does not intend to change this policy at the present time. In addition,
the Company is restricted from paying cash dividends under the terms of the
Company's revolving credit agreements. See Note 5 to the consolidated financial
statements. Holders of record of the Company's Common Stock totaled
approximately 2,030 at March 26, 1999.
<TABLE>
<CAPTION>
COMMON STOCK MARKET PRICES
Calendar 1998 Calendar 1997
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $22.92 $18.75 $23.81 $19.62
Second Quarter $23.45 $17.26 $29.36 $19.50
Third Quarter $18.38 $10.00 $30.36 $22.09
Fourth Quarter $17.19 $9.19 $26.67 $17.62
</TABLE>
On November 27, 1995, the Company commenced a stock repurchase program
pursuant to which the Company was authorized to repurchase up to 750,000 shares
of its Common Stock for an aggregate amount not to exceed $30 million. The
purchases of Common Stock by the Company under the repurchase program are made
in accordance with the rules of the Securities and Exchange Commission and at
the discretion of management. As of December 31, 1995 the Company had
repurchased 110,000 shares at an approximate cost of $3,578,000. No repurchases
were made in 1996, 1997 or 1998.
In addition, at March 26, 1999 the Company had outstanding 8,321,654
shares of Class B Common Stock, par value $.10 per share (the "Class B Stock"),
each of which entitles the holder to ten votes. The Class B Stock generally is
not transferable and there is no market for those shares. The Class B Stock is
convertible, at the option of the holder, into Common Stock on a share for share
basis. Substantially all such Class B Stock is owned by Dr. Felix Zandman, Mrs.
Luella B. Slaner and trusts for the benefit of Mrs. Slaner's grandchildren,
either directly or beneficially. Dr. Felix Zandman is an executive officer and
director of the Company. Mrs. Luella B. Slaner is a director of the Company.
- 15 -
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information of the Company for the fiscal years ended December 31, 1998, 1997,
1996, 1995 and 1994. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1998 /1/ 1997 /2/ 1996 /3/ 1995 1994 /4/
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(in thousands, except per share amounts)
Net sales............................... $1,572,745 $1,125,219 $1,097,979 $1,224,416 $987,837
Interest expense........................ 49,038 18,819 17,408 29,433 24,769
Earnings before
income taxes ......................... 38,836 87,469 70,357 122,974 74,116
Income taxes ........................... 30,624 34,167 17,741 30,307 15,169
Net earnings............................ 8,212 53,302 52,616 92,667 58,947
Total assets............................ 2,462,744 1,719,648 1,558,515 1,543,331 1,345,070
Long-term debt.......................... 814,838 347,463 229,885 228,610 402,337
Working capital......................... 639,783 455,134 434,199 411,286 328,322
Stockholders' equity.................... 1,002,519 959,648 945,230 907,853 565,088
Basic and diluted earnings
per share /5/......................... $0.12 $0.79 $0.78 $1.48 $1.04
Weighted average
shares outstanding -
assuming dilution /5/................... 67,625 67,682 67,582 62,892 56,838
</TABLE>
- --------
/1/ Includes the results from March 1, 1998 of TEMIC and special charges after
taxes of $55,335,000 ($0.82 per share).
/2/ Includes the results from July 1, 1997 of Lite-On Power Semiconductor
Corporation and special charges after taxes of $27,692,000 ($0.41 per
share).
/3/ Includes restructuring expense of $38,030,000 ($0.39 per share).
/4/ Includes the results from July 1, 1994 of Vitramon.
/5/ Adjusted to reflect 2-for-1 stock split distributed June 16, 1995 and 5%
stock dividends paid on June 11, 1998, June 9, 1997, June 7, 1996, March
31, 1995, and June 13, 1994.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
Item 7. RESULTS OF OPERATIONS
- ------- -----------------------------------------------------------------
Introduction and Background
The Company's sales and net earnings increased significantly through
1995 primarily as a result of its acquisitions. Following each acquisition, the
Company implemented programs to take advantage of distribution and operating
synergies among its businesses. This implementation was reflected in increases
in the Company's sales and in the decline in selling, general, and
administrative expenses as a percentage of the Company's sales.
However, beginning with the last quarter of 1995 and through 1998 the
Company experienced a decline in demand for its commodity-related products
(fixed resistors, MLCC and tantalum capacitors) which account for approximately
50% of the Company's revenues. Such decline in demand has resulted in a decrease
in revenues, earnings and backlogs of these products. The Company believes this
may be primarily a result of the worldwide slowdown in demand for tantalum and
multi-layer ceramic chip capacitors, and the oversupply of such products
resulting in price erosion.
In order to address the slowdown in demand and price erosion resulting
from an oversupply of tantalum and multi-layer ceramic chip capacitors, the
Company implemented a restructuring program beginning in 1996 that included the
downsizing and closing of manufacturing facilities in North America and Europe.
In connection with the restructuring, the Company incurred $38,030,000 of pretax
charges for the year ended December 31, 1996 relating to employee termination
and facility closure costs. In 1997 the Company incurred $12,605,000 of
restructuring expenses relating to employee termination and facility closure
costs in Europe. In 1998 the Company incurred $6,244,000 of restructuring
expenses. Depending on future economic conditions, the Company may continue to
downsize or close existing facilities in North America, Europe or elsewhere.
The Company's strategy contemplates transferring some of its
manufacturing operations from countries with high labor costs and tax rates,
such as the United States, France and Germany, to Israel, Mexico, Portugal, the
Czech Republic, Taiwan and the People's Republic of China in order to benefit
from lower labor costs and, in the case of Israel, to take advantage of various
government incentives, including government grants and tax incentives. The
Company may further reduce its costs in the face of a decline in demand by
accelerating the transfer of production to countries with lower labor costs and
more favorable tax environments.
The Company realizes approximately 67.3% of its revenues outside the
United States. As a result, fluctuations in currency exchange rates can
significantly affect the Company's reported sales and to a lesser extent
earnings. Currency fluctuations impact the Company's net sales and other income
statement amounts, as denominated in U.S. dollars, including other income as it
relates to foreign exchange gains or losses. Generally, in order to minimize the
effect of currency fluctuations on profits, the Company endeavors to:
1. borrow money in the local currencies and markets where it conducts
business, and
2. minimize the time for settling intercompany transactions.
In connection with its day-to-day operations, the Company does not purchase
foreign currency exchange contracts or other derivative instruments to hedge
foreign currency exposures.
As a result of the increased production by the Company's operations in
Israel over the past several years, the low tax rates in Israel (as compared to
the statutory rate in the United States) have had the effect of increasing the
Company's net earnings. The more favorable Israeli tax rates are applied to
specific approved projects and normally continue to be available for a period of
ten years or, if the investment in the project is over $20 million, for a period
of 15 years, which has been the case for most of the Company's projects in
Israel since 1994. New
- 17 -
<PAGE>
projects are continually being introduced. In addition, the Israeli government
offers certain incentive programs in the form of grants designed to increase
employment in Israel. However, the Israeli government has recently scaled back
or discontinued some of its incentive programs. Accordingly, there can be no
assurance that in the future the Israeli government will continue to offer new
incentive programs applicable to the Company or that, if it does, such programs
will provide the same level of benefits the Company has historically received or
that the Company will continue to be eligible to take advantage of them.
Although the Company might be materially adversely affected if these incentive
programs were no longer available to the Company for new projects, because a
majority of the Company's projects in Israel already benefit from government
incentive programs, the Company does not anticipate that any cutbacks in the
incentive programs would have an adverse impact on its earnings and operations
for at least several years.
Israeli government grants, recorded as a reduction of costs of products
sold, were $13,116,000 for the year ended December 31, 1998, as compared to
$11,352,000 for the prior year. If the Israeli government continues its grant
and incentive programs, future benefits offered to the Company by the Israeli
government will likely depend on the Company's continuing to increase capital
investment and the number of the Company employees in Israel.
Results of Operations
Income statement captions as a percentage of sales and the effective tax
rates were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Costs of products sold 75.6% 76.3% 75.2%
Gross profit 24.4 23.7 24.8
Selling, general and
administrative expenses 14.9 12.2 12.9
Operating income 6.0 9.7 7.8
Earnings before income taxes 2.5 7.8 6.4
Effective tax rate 78.9 39.1 25.2
Net earnings 0.1 4.7 4.8
</TABLE>
Year ended December 31, 1998 compared to
Year ended December 31, 1997
Net Sales
Net sales for the year ended December 31, 1998 increased $447,526,000 or
39.8% from the prior year. The increase in net sales relates primarily to the
acquisition of TEMIC, which became effective March 1, 1998. Net sales of TEMIC
for the ten months ended December 31, 1998 included in the Company's reported
sales were $474,188,000. LPSC was acquired by Vishay effective July 1, 1997.
LPSC's sales for the year ended December 31, 1998 were $70,655,000 compared to
$38,290,000 for the six months ended December 31, 1997. Exclusive of TEMIC and
LPSC, net sales would have decreased by $97,317,000 or 8.6%. The strengthening
of the U.S. dollar against foreign currencies for the year ended December 31,
1998 in comparison to the prior year, resulted in decreases in reported sales of
$16,131,000. Moreover, the Company's net sales of passive components and
semiconductor components were negatively affected by substantial price erosion
resulting from oversupply of tantalum and multi-layer chip capacitors and the
economic downturn in Asia.
- 18 -
<PAGE>
Costs of Products Sold
Costs of products sold for the year ended December 31, 1998 were 75.6%
of net sales, as compared to 76.3% for the prior year. Gross profit, as a
percentage of net sales, for the year ended December 31, 1998 increased from the
comparable prior year period mainly due to the acquisition of TEMIC. TEMIC
reported gross profit margins of 30.1% for the ten months ended December 31,
1998. The passive components business gross profit margins were 22.5% for the
year ended December 31, 1998 as compared to 24.0% for the prior year reflecting
a weakness in the passive components business. Profitability for the passive
components business was negatively affected by price erosion from an oversupply
of tantalum and multi-layer chip capacitors and the depressed Asian market. The
results for semiconductor components were also negatively affected by decrease
in demand for products in the semiconductor industry, adjustments of high
inventory levels at distributors, the depressed Asian market, and a substantial
price erosion.
Israeli government grants, recorded as a reduction of costs of products
sold, were $13,116,000 for the year ended December 31, 1998, as compared to
$11,352,000 for the prior year. Future grants and other incentive programs
offered to the Company by the Israeli government will likely depend on the
Company's continuing to increase capital investment and the number of the
Company's employees in Israel. Deferred income at December 31, 1998 relating to
Israeli government grants was $59,264,000 as compared to $59,300,000 at December
31, 1997.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the year ended
December 31, 1998 were 14.9% of net sales, as compared to 12.2% for the prior
year. The increased selling, general and administrative expenses were primarily
due to the acquisition of TEMIC, for which selling, general and administrative
expenses were 19.6% for the ten months ended December 31, 1998.
Unusual Items
The Company incurred unusual items of $29,301,000 for the year ended
December 31, 1998. Approximately $23,057,000 of these expenses relate to
impairment losses related to certain joint ventures in China and Japan. The
remaining $6,244,000 of unusual items relate to the Company's restructuring of
European operations ($5,944,000) and closing of two U.S. sales offices
($300,000). See Note 2 of the Notes to Consolidated Financial Statements for
additional information on the Company's impairment losses and restructuring
programs.
Purchased In-Process Technology
In connection with the acquisition of TEMIC, the Company expensed $13.3
million representing purchased in-process technology that had not yet reached
technological feasibility and had no alternative future use (see Note 2 to
Consolidated Financial Statements).
The in-process technology acquired in the TEMIC acquisition was
segmented into two categories, process technology and product technology.
Process technology is the process by which multiple products can be
manufactured. Three separate process technologies were identified, (i)
Bondwireless, (ii) 1789M Cell, and (iii) PIC .8 micron 15V Product technology is
the technology behind the development of products. TEMIC has three primary
product categories, (i) Power MOS, (ii) Power IC, and (iii) Standard Products.
Introduction of these processes, if successful, are expected to improve the
efficiency and effectiveness of TEMIC's MOSFET products and introduce new IC
technology which will reduce die size by approximately 66%. This should lower
production costs per unit and increase margins. Introduction of the product
technologies, if successful, is expected to optimize the performance of certain
MOSFETs, diodes and power ICs and introduce new applications for certain of
TEMIC's products. These research and development projects are expected to reach
completion and
- 19 -
<PAGE>
begin generating revenues during periods ranging from 1999 to 2003. At the
acquisition date, TEMIC's research and development projects ranged in completion
from approximately 1% to 86% with total continuing research and development
commitments to complete the projects of approximately $7.4 million. These
estimates are subject to change and, given the uncertainties of the development
process, no assurances can be given that the deviations from these estimates
will not occur. Additionally, these projects will require maintenance
expenditures when and if they reach a state of technological and commercial
feasibility.
Management believes the Company is positioned to complete each of the
major research and development programs. However, there is risk associated with
the completion of the projects, and there is no assurance that any project will
meet either technological or commercial success. The substantial delay or
outright failure of the TEMIC research and development could adversely impact
the Company's financial condition.
The value assigned to purchased in-process research and development was
determined by estimating the costs to develop TEMIC's purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such projects, and discounting the net cash flows back to their
present values. The revenue estimates used to value the in-process research and
development were based on estimates of the relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of new
product introductions by the Company and its competitors. The estimates for
costs of products sold, research and development, selling, general and
administrative expenses and income taxes were calculated as a percentage of
revenue and were based on historical amounts and were adjusted to reflect
competition and advancing technology in the industry.
The rates utilized to discount the net cash flows to their present value
are based on weighted average cost of capital and venture capital rates of
return. Given the nature of the risks associated with the estimated growth,
profitability and development projects, a discount rate of 20% was deemed
appropriate for TEMIC's in- process projects. This discount rate is intended to
be commensurate with the specific risks of achieving technological feasibility
and the uncertainties in the economic estimates described above.
The estimates used by the Company in valuing in-process research and
development were based on assumptions the Company believes to be reasonable but
which are inherently uncertain and unpredictable. The Company's assumptions may
be incomplete or inaccurate, and no assurances can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the projected results. Any such variance may result in a material adverse
effect on the financial condition and results of operations of the Company.
Interest Expense
Interest costs increased by $30,219,000 for the year ended December 31,
1998, from the prior year due to the increase in bank borrowings necessary to
fund the TEMIC and LPSC acquisitions. The Company had net borrowings of
$444,000,000 and $130,000,000, respectively, from a group of banks to finance
the acquisitions of TEMIC and LPSC.
Other Income
Other income decreased by $3,737,000 for the year ended December 31,
1998 as compared to the prior year primarily due to reduced foreign exchange
gains. Foreign exchange gains for the year ended December 31, 1998 were $495,000
compared to $3,657,000 for the year ended December 31, 1997. The Company also
incurred losses of $6,269,000 and $5,295,000, in 1998 and 1997, respectively,
relating to a forward exchange contract, which was entered into to set the
purchase price in connection with the TEMIC acquisition, since the purchase
price was denominated in German Marks and payable in U.S. Dollars.
- 20 -
<PAGE>
Income Taxes
The effective tax rate for the year ended December 31, 1998 was 78.9% as
compared to 39.1% for the prior year. The higher tax rate for the year ended
December 31, 1998 was incurred primarily due to the non-tax deductibility of the
in-process research and development expense in the fourth quarter 1998 and a
$10,000,000 increase in a valuation allowance for a deferred tax asset for net
operating loss carryforwards in Germany. Exclusive of the effect of special
charges, the tax rate for the year ended December 31, 1998 would have been
29.0%. The continuing effect of low tax rates in Israel, as compared to the
statutory rate in the United States, resulted in increases in net earnings of
$15,166,000 and $10,685,000 for the years ended December 31, 1998 and 1997,
respectively. The more favorable Israeli tax rates are applied to specific
approved projects and normally continue to be available for a period of ten
years or fifteen years. See "Description of Business -- Manufacturing
Operations."
Year ended December 31, 1997 compared to
Year ended December 31, 1996
Net Sales
Net sales for the year ended December 31, 1997 increased $27,240,000 or
2.5% from the prior year. The increase in net sales relates primarily to the
acquisition of LPSC, which became effective on July 1, 1997. Net sales of Vishay
LPSC for the six months ended December 31, 1997 were $38,290,000. Exclusive of
LPSC, net sales would have decreased by $11,050,000 or 1.0%. The strengthening
of the U.S. dollar against foreign currencies for the year ended December 31,
1997 in comparison to the prior year, resulted in a decrease in reported sales
of $55,424,000. Net sales, exclusive of foreign currency fluctuations and the
acquisition of LPSC, would have increased by 4.0% over the prior year.
Costs of Products Sold
Costs of products sold for the year ended December 31, 1997 were 76.3%
of net sales, as compared to 75.2% for the prior year. Gross profit, as a
percentage of net sales, for the year ended December 31, 1997 decreased from the
prior year mainly due to a difficult pricing environment and also, as part of
the Company's fourth quarter 1997 restructuring program, recorded inventory
writeoffs of $5,576,000. Exclusive of the inventory writeoff, the gross profit,
as a percentage of net sales, would have been 24.2% for the year ended December
31, 1997. The acquisition of LPSC did not have a significant impact on the gross
margin percentage.
Israeli government grants, recorded as a reduction of costs of products
sold, were $11,352,000 for the year ended December 31, 1997, as compared to
$8,943,000 for the prior year. Future grants and other incentive programs
offered to the Company by the Israeli government will likely depend on the
Company's continuing to increase capital investment and the number of the
Company's employees in Israel. Deferred income at December 31, 1997 relating to
Israeli government grants was $59,300,000.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the year ended
December 31, 1997 were 12.2% of net sales, as compared to 12.9% for the prior
year. LPSC's selling, general and administrative expenses did not have a
significant impact on the percentage. Exclusive of LPSC's selling, general, and
administrative expenses, the expenses decreased by $8,611,000 as compared to the
prior year. This decrease relates to the cost reduction program instituted in
1996.
- 21 -
<PAGE>
Unusual Items
The Company incurred unusual items of $14,503,000 for the year ended
December 31, 1997. Approximately $10,357,000 of these expenses relate to
employee termination costs covering approximately 324 employees located in
Germany and France. In addition, the Company recorded a charge of $1,625,000
resulting from a judgment rendered by a French court against Sprague France,
S.A. The Vishay subsidiary was ordered to make additional payments to certain
workers laid off in the last half of 1996 as part of Vishay's restructuring
programs. As of December 31, 1998 no payment has been made to the former
employees. See "Legal Proceedings." The Company also incurred an unusual item of
$1,898,000 relating to a settlement with the United States government
representing reimbursements for overcharges relating to military products
produced prior to 1993 at one of the Company's U.S. subsidiaries. The remaining
$623,000 relates to closing a facility in France. At December 31, 1997
$11,982,000 of restructuring costs are included in other accrued expenses.
When fully implemented, the 1997 restructuring program is expected to
reduce the Company's costs by approximately $10,000,000 annually.
Interest Expense
Interest costs increased by $1,411,000 for the year ended December 31,
1997 from the prior year due to the acquisition of LPSC. The Company borrowed
$130,000,000 from a group of banks to finance the acquisition of LPSC.
Other Income
Other income decreased by $4,255,000 for the year ended December 31,
1997 from the prior year due to an unrealized noncash loss of $5,295,000
relating to a forward exchange contract, which was entered into in connection
with the TEMIC acquisition, the purchase price of which was denominated in
German Marks and payable in U.S. Dollars.
Income Taxes
The effective tax rate for the year ended December 31, 1997 was 39.1% as
compared to 25.2% for the prior year. The higher tax rate for the year ended
December 31, 1997 was due to a charge of $10,000,000 for various tax
uncertainties in the fourth quarter of 1997. Without this charge, the effective
tax rate for 1997 would have been 27.6%. The continuing effect of low tax rates
in Israel, as compared to the statutory rate in the United States, has been to
increase net earnings by $10,685,000 and $10,109,000 for the years ended
December 31, 1997 and 1996, respectively. The more favorable Israeli tax rates
are applied to specific approved projects and normally continue to be available
for periods of either ten or fifteen years. See "Description of Business --
Manufacturing Operations."
Financial Condition and Liquidity
Cash flows from operations were $169,450,000 for the year ended December
31, 1998 compared to $177,158,000 for the prior year. The decrease in cash flows
from operations is primarily attributable to a decrease in net earnings for the
year ended December 31, 1998 as compared to the year ended December 31, 1997.
Net purchases of property and equipment for the year ended December 31, 1998
were $151,682,000 compared to $78,074,000 in the prior year. The increase in
expenditures for property, plant and equipment is due primarily to capital
expenditures by TEMIC. Net cash provided by financing activities of $450,408,000
for the year ended December 31, 1998 includes approximately $550,000,000 used to
finance the acquisition of TEMIC. In March 1998, the Company finalized the sale
of the IC Division of TEMIC and received $105,755,000.
- 22 -
<PAGE>
The Company incurred restructuring expense of $12,605,000 for the year
ended December 31, 1997. Approximately $10,357,000 of this expense related to
employee termination costs covering approximately 324 employees located in
Germany and France. As of December 31, 1998, approximately 173 of such employees
have been terminated and $6,158,000 of the termination costs have been paid. The
restructuring plan is expected to be completed by December 31, 1999. In
connection with the acquisition of TEMIC, Vishay recorded restructuring
liabilities of $30,471,000. Approximately $25,197,000 of this liability relates
to employee termination costs covering approximately 498 technical, production,
administrative and support employees located in the United States, Europe, and
the Far East. The remaining $5,274,000 relates to provisions for certain assets,
contract cancellations and other costs. As of December 31, 1998, 86 employees
have been terminated and $10,651,000 of the termination costs were paid.
Additionally, $960,000 has been charged against the liability for the write down
of certain assets and other costs. The balance of $18,860,000 is reflected in
the consolidated financial statements in other accrued expenses and is expected
to be paid out in the next year.
The Company's financial condition at December 31, 1998 is strong, with a
current ratio of 3.02 to 1. The Company's ratio of long-term debt, less current
portion, to stockholders' equity was .81 to 1 at December 31, 1998 and .36 to 1
at December 31, 1997.
On March 2, 1998, the Company and certain of its subsidiaries obtained a
$1.1 billion revolving credit facility made available to Vishay under the:
1. Vishay Intertechnology, Inc. $825,000,000 Long Term Revolving Credit
Agreement, dated as of March 2, 1998 (the "LT Agreement"), and
2. Vishay Intertechnology, Inc. $275,000,000 Short Term Revolving Credit
Agreement, dated as of March 2, 1998 (the "ST Agreement" and collectively with
the LT Agreement, the "Loan Agreements") each by and among Vishay, Comerica
Bank, NationsBanc Montgomery Securities LLC and the other banks signatory
thereto (collectively, the "Banks"), and Comerica Bank, as administrative agent
for the Banks (the "Agent"). The Loan Agreements replace all prior loans made to
Vishay by the Banks.
The LT Agreement provides for an $825,000,000 loan, comprising a
revolving credit facility and a swing line facility that mature on March 2,
2003, subject to Vishay's right to request year-to-year renewals. The 364-day ST
Agreement provides for a $275,000,000 revolving credit facility that matures on
March 1, 1999. This agreement was amended on December 29, 1998 to extend the
maturity date to June 1, 1999 at which time the Company can request year to year
renewals. Borrowings under the Loan Agreements will bear interest at variable
rates based, at the option of Vishay, on the prime rate or a eurocurrency rate
and in the case of any swing line advance, the quoted rate. The borrowings under
the Loan Agreements are secured by certain pledges of stock in certain
significant subsidiaries and indirect subsidiaries of Vishay and certain
guaranties by significant subsidiaries. The Company is restricted from paying
cash dividends and must comply with certain financial covenants.
Management believes that available sources of credit, together with cash
expected to be generated from operations, will be sufficient to satisfy the
Company's anticipated financing needs for working capital and capital
expenditures during the next twelve months.
Year 2000 Compliance
Many existing computer systems and software products, including hardware
platforms and software applications used by the Company in its various divisions
world-wide (a portion of which are provided by outside suppliers), accept only
two digit entries in the date code field. As a result, computer programs or
hardware that have date-sensitive software or embedded chips may not properly
distinguish 21st century dates from 20th century dates. This could result in
system failure or miscalculations causing disruption of operations.
- 23 -
<PAGE>
The Company has accorded to each of its divisions, including those in
its U.S., Asian, Israeli and European facilities, responsibility for (i)
assessment of each division's business information systems and related business
processes used in its operations for year 2000 readiness and (ii) implementation
of remediation in those areas where year 2000 issues exist. Since each of the
Company's divisions has its own unique hardware and software applications,
different approaches to the year 2000 issue have been required based upon the
circumstances and requirements of each specific division. In some instances, for
example, specific divisions have hired external contractors to assist in
addressing the year 2000 issues while in other instances, internal staff have
focused on remediation of the systems. Where necessary, upgrades to year 2000
compliant versions of third party software have been purchased. In addition, the
Company has begun to use the business application software of SAP for its
Roederstein (U.S.) operations and for TELEFUNKEN's operations to address some of
the issues of year 2000 compliance. While the Company has not yet fully tested
all its systems to determine whether they are year 2000 compliant, each division
is on track in bringing its systems into compliance. The Company is also well
underway in bringing its Asian and Israeli computer systems into year 2000
compliance. Management does not believe the Company will suffer any material
loss of customers or other material adverse effects as a result of any
modifications that are being implemented to make its systems year 2000
compliant.
The Company is also assessing the possible affect on its operations of
the year 2000 readiness of critical suppliers of products and services. The
Company's reliance on its key suppliers, and therefore on the proper functioning
of their information systems and software, is increasing, and there can be no
assurance that another company's failure to address year 2000 issues could not
have an adverse effect on the Company.
The Company currently estimates the total cost of its Year 2000 project
to be $1,400,000. At December 31, 1998, the Company has incurred approximately
$1,000,000 of costs in connection with its Year 2000 project. The Company
believes that it is unlikely to experience a material adverse impact on its
financial condition or results of operations due to year 2000 compliance issues.
However, since the assessment process is ongoing, year 2000 complications are
not fully known, and potential liability issues are not clear, the full
potential impact of the year 2000 on the Company is not known at this time.
Management of the Company believes it has an effective program in place
to resolve the year 2000 issues in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the year 2000 program. In the
event that the Company's systems are not rendered year 2000 compliant in a
timely manner, the Company may experience significant disruptions in its
operations including taking customer orders, manufacturing and shipping
products, invoicing customers or collecting payments. In addition, disruptions
in the economy generally resulting from year 2000 issues could also materially
affect the Company. The Company could be subject to litigation for computer
systems product failure, for example, equipment shutdown or failure to properly
date business records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
The Company has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and adjusting staffing strategies.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the euro. The Company is
currently evaluating issues raised by the introduction and initial
implementation of the euro on January 1, 2002. The Company does not expect costs
of system modifications to be material, nor does it expect the introduction and
use of the euro to materially and adversely affect its financial condition or
results of operations. The Company will continue to evaluate the impact of the
euro introduction.
- 24 -
<PAGE>
Inflation
Normally, inflation does not have a significant impact on the Company's
operations. The Company's products are not generally sold on long-term
contracts. Consequently, selling prices, to the extent permitted by competition,
can be adjusted to reflect cost increases caused by inflation.
Safe Harbor Statement
From time to time, information provided by the Company, including but
not limited to statements in this report, or other statements made by or on
behalf of the Company, may contain "forward-looking" information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. The cautionary statements set forth
below identify important factors that could cause actual results to differ
materially from those in any forward-looking statements made by or on behalf of
the Company.
The Company offers a broad variety of products and services to its
customers. Changes in demand for, or in the mix of, products and
services comprising revenues could cause actual operating results
to vary from those expected.
The Company's future operating results are dependent, in part, on
its ability to develop, produce and market new and innovative
products, to convert existing products to surface mount devices
and to customize certain products to meet customer requirements.
There are numerous risks inherent in this complex process,
including the need for the Company to timely bring to market new
products and applications to meet customers' changing needs.
The Company operates in a highly competitive environment, which
includes significant competitive pricing pressures and intense
competition for entry into new markets.
A slowdown in demand for passive electronic components or
recessionary trends in the global economy in general or in
specific countries or regions where the Company sells the bulk of
its products, such as the U.S., Germany, France or the Pacific
Rim, could adversely impact the Company's results of operations.
This factor was particularly evident in 1998 and appears to be
continuing in early 1999.
Many of the orders in the Company's backlog may be canceled by its
customers without penalty. Customers may on occasion double and
triple order components from multiple sources to ensure timely
delivery when backlog is particularly long. The Company's results
of operations may be adversely impacted if customers were to
cancel a material portion of such orders.
Approximately 67% of the Company's revenues are derived from
operations and sales outside the United States. As a result,
currency exchange rate fluctuations, inflation, changes in
monetary policy and tariffs, potential changes in laws and
regulations affecting the Company's business in foreign
jurisdictions, trade restrictions or prohibitions,
intergovernmental disputes, increased labor costs and reduction or
cancellation of government grants, tax benefits or other
incentives could impact the Company's results of operations.
Specifically, as a result of the increased production by the
Company's operations in Israel over the past several years, the
low tax rates in Israel, as compared to the statutory rates in the
U.S., have had the effect of increasing the Company's net
earnings. In addition, the Company takes advantage
- 25 -
<PAGE>
of certain incentive programs in Israel in the form of grants
designed to increase employment in Israel. Any significant
increase in the Israeli tax rates or reduction or elimination of
any of the Israeli grant programs, such as described in
"Description of Business--Manufacturing Operations", could have an
adverse impact on the Company's results of operations.
The Company may experience underutilization of certain plants and
factories in high labor cost regions and capacity constraints in
plants and factories located in low labor cost regions, resulting
initially in production inefficiencies and higher costs. Such
costs include those associated with work force reductions and
plant closings in the higher labor cost regions, as described in
the Introduction and Background to this Item,) and start-up
expenses, manufacturing and construction delays, and increased
depreciation costs in connection with the start of production in
new plants and expansions in lower labor cost regions. Moreover,
capacity constraints may limit the Company's ability to continue
to meet demand for any of the Company's products. During 1998,
restructuring costs were particularly high as a result of the
Company's accelerated effort to streamline operations in response
to the continued weakness in the international electronic
components market.
When the Company restructures its operations in response to
changing economic conditions, particularly in Europe, labor unrest
or strikes may occur, which could have an adverse effect on the
Company.
The Company's results of operations may be adversely impacted by:
1. difficulties in obtaining raw materials, supplies,
power, natural resources and any other items needed for the
production of the Company's products;
2. the effects of quality deviations in raw materials,
particularly tantalum powder, palladium and ceramic dielectric
materials; and
3. the effects of significant price increases for tantalum
or palladium, or an inability to obtain adequate supplies of
tantalum or palladium from the limited number of suppliers.
The Company's historic growth in revenues and net earnings have
resulted in large part from its strategy to expand through
acquisitions. However, there is no assurance that the Company will
find or consummate transactions with suitable acquisition
candidates in the future. From time to time, when the Company is
in the process of pursuing a strategic acquisition, the Company or
the acquisition target may feel compelled for securities and other
legal reasons to announce the potential acquisition or the
Company's desire to enter into a certain market prior to entering
into formal agreements. As a result, there can be no assurance
that the Company will consummate any such acquisition.
The Company's strategy also focuses on the reduction of selling,
general and administrative expenses through the integration or
elimination of redundant sales offices and administrative
functions at acquired companies and achievement of significant
production cost savings through the transfer and expansion of
manufacturing operations to lower cost regions such as Israel,
Mexico, Portugal, the Czech Republic, Taiwan and the People's
Republic of China. The Company's inability to achieve any of these
goals could have an adverse effect on the Company's results of
operations.
- 26 -
<PAGE>
The Company may be adversely affected by the costs and other
effects associated with
1. legal and administrative cases and proceedings,
whether civil, such as environmental and product-related, or
criminal;
2. settlements, investigations, claims, and changes in
those items;
3. developments or assertions by or against the Company
relating to intellectual property rights and intellectual property
licenses; and
4. adoption of new, or changes in, accounting policies and
practices and the application of such policies and practices.
The Company's results of operations may also be affected by:
1. changes within the Company's organization, particularly
at the executive officer level, or in compensation and benefit
plans; and
2. the amount, type and cost of the financing which the
Company maintains, and any changes to the financing.
The inherent risk of environmental liability and remediation costs
associated with the Company's manufacturing operations may result
in large and unforeseen liabilities.
The Company's operations may be adversely impacted by:
1. the effects of war or severe weather or other acts of
God on the Company's operations, including disruptions at
manufacturing facilities;
2. the effects of a disruption in the Company's
computerized ordering systems; and
3. the effects of a disruption in the Company's
communications systems.
Management of the Company believes it has an effective program in
place to resolve the year 2000 issues in a timely manner. As noted
above, the Company has not yet completed all necessary phases of
the year 2000 program. In the event that the Company's systems are
not rendered year 2000 compliant in a timely manner, the Company
may experience significant disruptions in its operations including
taking customer orders, manufacturing and shipping products,
invoicing customers or collecting payments. In addition,
disruptions in the economy generally resulting from year 2000
issues could also materially affect the Company. The Company could
be subject to litigation for computer systems product failure, for
example, equipment shutdown or failure to properly date business
records. The amount of potential liability and lost revenue cannot
be reasonably estimated at this time.
- 27 -
<PAGE>
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -------- ---------------------------------------------------------
Market Risk Disclosure
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in foreign currency exchange rates and interest rates.
The Company manages its exposure to these market risks through internally
established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. The Company's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. The Company
does not use financial instruments for trading purposes for trading purposes and
is not a party to any leveraged derivatives. The Company monitors its underlying
market risk exposures on an ongoing basis and believes that it can modify or
adapt its hedging strategies as needed.
The Company is exposed to changes in U.S. dollar LIBOR interest rates on
its floating rate revolving credit facility. At December 31 1998, the
outstanding balance under this facility was $777,400,000. On a selective basis,
the Company from time-to-time, enters into interest rate swap or cap agreements
to reduce the potential negative impact increases in interest rates could have
on its outstanding variable rate debt. The impact of interest rate instruments
on the Company's results of operations in each of the three years ended December
31, 1998 was not significant. See Note 5 and 12 of the Notes to Consolidated
Financial Statements for components of the Company's long-term debt and interest
rate swap arrangements.
In 1998, the Company entered into an interest rate swap transaction with
a term of five years, beginning in August 1998. Pursuant to these agreements,
the Company paid a fixed interest rate of 6.35% on a notional amount of
$300,000,000 and received interest on the $300,000,000 notional amount based on
a three month LIBOR rate set quarterly beginning in 1998. The fair value of
these swap transactions at December 31, 1998 was (7,572,000).
Foreign Exchange Risk
The Company is exposed to foreign currency exchange rate risks. The
Company's significant foreign subsidiaries are located in Germany, France,
Israel and the Far East. The Company continues to reduce its exposure to foreign
currencies by borrowing funds in local currency to balance its foreign assets
and liabilities. The Company in most locations, has introduced a "netting"
policy where subsidiaries pay all intercompany balances within thirty days.
However, in the normal course of business, the financial position of the
Company is routinely subjected to a variety of risks, including market risks
associated with interest rate movements, currency rate movements on non-U.S.
dollar denominated assets and liabilities and collectibility of accounts
receivable. The Company does not anticipate material losses in these areas.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The following Consolidated Financial Statements of the Company and its
subsidiaries, together with the report of independent auditors thereon, are
presented under Item 14 of this report:
Report of Independent Auditors
Consolidated Balance Sheets -- December 31, 1998 and 1997.
Consolidated Statements of Operations -- for the years ended
December 31, 1998, 1997 and 1996.
- 28 -
<PAGE>
Consolidated Statements of Cash Flows -- for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity -- for the years
ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements -- December 31, 1998.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
Item 9. FINANCIAL DISCLOSURE
- ------- ------------------------------------------------------------------
None.
- 29 -
<PAGE>
PART III
--------
Information with respect to Items 10, 11, 12 and 13 on Form 10-K is set
forth in the Company's definitive proxy statement, which will be filed within
120 days of December 31, 1998, the Company's most recent fiscal year. Such
information is incorporated herein by reference, except that information with
respect to Executive Officers of Registrant is set forth in Part I, Item 4A
hereof under the caption, "Executive Officers of the Registrant."
- 30 -
<PAGE>
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ---------------------------------------------------------------
(a) (1) All Consolidated Financial Statements of the
Company and its subsidiaries for the year ended
December 31, 1998 are filed herewith. See Item 8 of
this Report for a list of such financial
statements.
(2) All financial statement schedules for which
provision is made in the applicable accounting
regulation of the Securities and Exchange
Commission are not required under the related
instructions or are inapplicable and therefore have
been omitted.
(3) Exhibits -- See response to paragraph (c) below.
(b) None.
(c) Exhibits:
2.1 Stock Purchase Agreement Among Lite-On Semiconductor Corporation,
Silitek Corporation, Lite-On Technology Corporation, Dyna
Investment Co., Ltd., Lite-On Inc. and Other Shareholders as
Sellers and Vishay Intertechnology, Inc. as Purchaser, dated as of
April 25, 1997. Incorporated by reference to Exhibit A to Schedule
13D filed on July 28, 1997.
2.2 Joint Venture Agreement, dated April 25, 1997, by and between
Vishay Intertechnology, Inc. and Lite-On (JV Co.). Incorporated by
reference to Exhibit B to Schedule 13D filed on July 28, 1997.
2.3 Amendment No. 1 to Joint Venture Agreement. Incorporated by
reference to Exhibit C to Schedule 13D filed on July 28, 1997.
2.4 Stock Purchase Agreement, dated December 16, 1997, among TEMIC
TELEFUNKEN microelectronic GmbH, Delengate Limited, Daimler-Benz
Aerospace Aktiengesellschaft, Daimler-Benz Technology Corporation,
Vishay TEMIC Semiconductor Acquisition Holdings Corp., "PAMELA"
Verwaltungsgesellschaft GmbH and Vishay Intertechnology.
Incorporated by reference to Exhibit A to Schedule 13D filed
December 24, 1997.
2.5 Share Sale and Transfer Agreement, between "PAMELA"
Verwaltungsgesellschaft GmbH, Vishay Intertechnology, Inc., ATMEL
Corporation and Atmel Holding GmbH i.G. Incorporated by reference
to Exhibit 2.2 to Form 8-K filed on March 17, 1998.
3.1 Composite Amended and Restated Certificate of Incorporation of the
Company dated August 3, 1995. Incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarter ended June 30, 1995 (the "1995
Form 10-Q"). Certificate of Amendment of Composite Amended and
Restated Certificate of Incorporation of the Company. Incorporated
by reference to Exhibit 3.1 to Form 10-Q for the quarter ended
June 30, 1997 (the "1997 Form 10-Q").
- 31 -
<PAGE>
3.2 Amended and Restated Bylaws of Registrant. Incorporated by
reference to Exhibit 3.2 to Registration Statement No. 33-13833 of
Registrant on Form S-2 under the Securities Act of 1933 (the "Form
S-2") and Amendment No. 1 to Amended and Restated Bylaws of
Registrant Incorporated by reference to Exhibit 3.2 to Form 10-K
file number 1-7416 for fiscal year ended December 31, 1993 (the
"1993 Form 10-K").
10.1 Performance-Based Compensation Plan for Chief Executive Officer of
Registrant. Incorporated by reference to Exhibit 10.1 to the 1993
Form 10-K.
10.2 Vishay Intertechnology, Inc. $825,000,000 Long Term Revolving
Credit Agreement, dated as of March 2, 1998, by and among Vishay,
Comerica Bank, Nationsbanc Montgomery Securities LLC and the other
banks signatory thereto, and Comerica Bank, as administrative
agent. Incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed on March 17, 1998.
10.3 Vishay Intertechnology, Inc. $275,000,000 Short Term Revolving
Credit Agreement, dated as of March 2, 1998, by and among Vishay,
Comerica Bank, Nationsbanc Montgomery Securities LLC and the other
banks signatory thereto, and Comerica Bank, as administrative
agent. Incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K filed on March 17, 1998.
10.4 Company Guaranty (Long Term), dated March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.3 to the Current Report on
Form 8-K filed on March 17, 1998.
10.5 Domestic Guaranty (Long Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as administrative
agent. Incorporated by reference to Exhibit 10.4 to the Current
Report on Form 8-K filed on March 17, 1998.
10.6 Foreign Guaranty (Long Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as administrative
agent. Incorporated by reference to Exhibit 10.5 to the Current
Report on Form 8-K filed on March 17, 1998.
10.7 Company Guaranty (Short Term), dated March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.6 to the Current Report on
Form 8-K filed on March 17, 1998.
10.8 Domestic Guaranty (Short Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as administrative
agent. Incorporated by reference to Exhibit 10.7 to the Current
Report on Form 8-K filed on March 17, 1998.
10.9 Employment Agreement, dated as of March 15, 1985, between the
Company and Dr. Felix Zandman. Incorporated by reference to
Exhibit (10.12) to the Form S-2.
10.10 Vishay Intertechnology 1995 Stock Option Program. Incorporated by
reference to the Company's Registration Statement on Form S-8 (No.
33-59609).
10.11 1986 Employee Stock Plan of the Company. Incorporated by reference
to Exhibit 4 to the Company's Registration Statement on Form S-8
(No. 33-7850).
10.12 1986 Employee Stock Plan of Dale Electronics, Inc. Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on
Form S-8 (No. 33-7851).
- 32 -
<PAGE>
10.13 Money Purchase Plan Agreement of Measurements Group, Inc.
Incorporated by reference to Exhibit 10(a)(6) to Amendment No. 1
to the Company's Registration Statement on Form S-7 (No.
2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
- 33 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of Section 13 or 15(d) 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.
VISHAY INTERTECHNOLOGY, INC.
March 26, 1999 /s/Felix Zandman
------------------------
Felix Zandman, Director, Chairman
of the Board, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
<S> <C>
March 26, 1999 /s/Felix Zandman
------------------------
Felix Zandman, Director, Chairman
of the Board, and Chief
Executive Officer
(Principal Executive Officer)
March 26, 1999 /s/Avi D. Eden
------------------------
Avi D. Eden, Director,Vice-Chairman of the Board and
Executive Vice President
March 26, 1999 /s/Gerald Paul
------------------------
Gerald Paul, Director, President
and Chief Operating Officer
March 26, 1999 /s/Richard N. Grubb
------------------------
Richard N. Grubb, Director,
Executive Vice President, Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
March 26, 1999 /s/Robert A. Freece
------------------------
Robert A. Freece, Director,
Senior Vice President
March 26, 1999 /s/Abraham Inbar
------------------------
Abraham Inbar, Director
Senior Vice President
- 34 -
<PAGE>
March 26, 1999 /s/Eli Hurvitz
------------------------
Eli Hurvitz, Director
March 26, 1999 /s/Edward B. Shils
------------------------
Edward B. Shils, Director
March 26, 1999 /s/Luella B. Slaner
------------------------
Luella B. Slaner, Director
March 26, 1999 /s/Mark I. Solomon
------------------------
Mark I. Solomon, Director
March 26, 1999 /s/Jean-Claude Tine
------------------------
Jean-Claude Tine, Director
</TABLE>
- 35 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number in
Exhibit sequentially
No. Description Numbered Copy
- --- ----------- -------------
<S> <C> <C>
2.1 Lite-on Stock Purchase Agreement, dated as of April 25, 1997,
among Lite-On Semiconductor Corporation, Silitek
Corporation, Lite-On Technology Corporation, Dyna
Investment Co., Ltd., Lite-On Inc. and other shareholders as
Sellers and Vishay Intertechnology, Inc. as Purchaser.
Incorporated by reference to Exhibit A to Schedule 13D filed
on July 28, 1997.
2.2 Joint Venture Agreement, dated April 25, 1997, by and
between Vishay Intertechnology, Inc. and Lite On [JV Co.].
Incorporated by reference to Exhibit B to Schedule 13D filed
on July 28, 1997.
2.3 Amendment No. 1 to Joint Venture Agreement. Incorporated
by reference to Exhibit C to Schedule 13D filed on July 28,
1997.
2.4 Stock Purchase Agreement, dated December 16, 1997, among
TEMIC TELEFUNKEN microelectronic GmbH, Delengate
Limited, Daimler-Benz Aerospace Aktiengesellschaft,
Daimler-Benz Technology Corporation, Vishay TEMIC
Semiconductor Acquisition Holdings Corp., "PAMELA"
Verwaltungsgesellschaft GmbH and Vishay Intertechnology.
Incorporated_by reference to Exhibit A to Schedule 13D filed
December 24, 1997.
2.5 Share Sale and Transfer Agreement, between "PAMELA"
Verwaltungsgesellschaft GmbH, Vishay Intertechnology, Inc.,
ATMEL Corporation and Atmel Holding GmbH i.G.
Incorporated by reference to Exhibit 2.2 to Form 8-K filed on
March 17, 1998.
3.1 Composite Amended and Restated Certificate of Incorporation
of the Company dated August 3, 1995. Incorporated by
reference to Exhibit 3.1 to Form 10-Q for the quarter ended
June 30, 1995 (the "1995 Form 10-Q"). Certificate of
Amendment of Composite Amended and Restated Certificate of
Incorporation of the Company. Incorporated by reference to
Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 1997
(the "1997 Form 10-Q").
- 36 -
<PAGE>
3.2 Amended and Restated Bylaws of Registrant. Incorporated by
reference to Exhibit 3.2 to Registration Statement No. 33-13833
of Registrant on Form S-2 under the Securities Act of 1933 (the
"Form S-2") and Amendment No. 1 to Amended and Restated
Bylaws of Registrant Incorporated by reference to Exhibit 3.2
to Form 10-K file number 1-7416 for fiscal year ended
December 31, 1993 (the "1993 Form 10-K").
10.1 Performance-Based Compensation Plan for Chief Executive
Officer of Registrant. Incorporated by reference to Exhibit
10.1 to the 1993 Form 10-K.
10.2 Vishay Intertechnology, Inc. $825,000,000 Long Term
Revolving Credit Agreement, dated as of March 2, 1998, by
and among Vishay, Comerica Bank, NationsBanc Montgomery
Securities LLC and the other banks signatory thereto, and
Comerica Bank, as administrative agent. Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K
dated March 17, 1998.
10.3 Vishay Intertechnology, Inc. $275,000,000 Short Term
Revolving Credit Agreement, dated as of March 2, 1998, by
and among Vishay, Comerica Bank, NationsBanc Montgomery
Securities LLC and the other banks signatory thereto, and
Comerica Bank, as administrative agent. Incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K
dated March 17, 1998.
10.4 Company Guaranty (Long Term), dated March 2, 1998, by
Vishay Intertechnology, Inc. to Comerica Bank, as
administrative agent. Incorporated by reference to Exhibit 10.3
to the Current Report on Form 8-K dated March 17, 1998.
10.5 Domestic Guaranty (Long Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as
administrative agent. Incorporated by reference to Exhibit 10.4
to the Current Report on Form 8-K filed on March 17, 1998.
10.6 Foreign Guaranty (Long Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as
administrative agent. Incorporated by reference to Exhibit 10.5
to the Current Report on Form 8-K filed on March 17, 1998.
10.7 Company Guaranty (Short Term), dated March 2, 1998, by
Vishay Intertechnology, Inc. to Comerica Bank, as
administrative agent. Incorporated by reference to Exhibit 10.6
to the Current Report on Form 8-K filed on March 17, 1998.
- 37 -
<PAGE>
10.8 Domestic Guaranty (Short Term), dated March 2, 1998, by the
Guarantors signatory thereto to Comerica Bank, as
administrative agent. Incorporated by reference to Exhibit 10.7
to the Current Report on Form 8-K filed on March 17, 1998.
10.9 Employment Agreement, dated as of March 15, 1985, between
the Company and Dr. Felix Zandman. Incorporated by
reference to Exhibit (10.12) to the Form S-2.
10.10 Vishay Intertechnology 1995 Stock Option Program.
Incorporated by reference to the Company's Registration
Statement on Form S-8 (No. 33-59609).
10.11 1986 Employee Stock Plan of the Company. Incorporated by
reference to Exhibit 4 to the Company's Registration Statement
on Form S-8 (No. 33-7850).
10.12 1986 Employee Stock Plan of Dale Electronics, Inc.
Incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 (No. 33-7851).
10.13 Money Purchase Plan Agreement of Measurements Group, Inc.
Incorporated by reference to Exhibit 10(a)(6) to Amendment
No. 1 to the Company's Registration Statement on Form S-7
(No. 2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
</TABLE>
- 38 -
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Vishay Intertechnology, Inc.
We have audited the accompanying consolidated balance sheets of Vishay
Intertechnology, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended December_31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vishay
Intertechnology, Inc. at December_31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
February 8, 1999, except for Note 16,
as to which the date is March 26, 1999
1
<PAGE>
Vishay Intertechnology, Inc.
Consolidated Balance Sheets
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
December 31
1998 1997
--------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 113,729 $ 55,263
Accounts receivable, less allowances
of $9,758 and $4,143 276,270 186,687
Inventories:
Finished goods 196,551 158,933
Work in process 136,393 84,245
Raw materials 113,194 96,193
Deferred income taxes 53,389 16,115
Prepaid expenses and other current
assets 67,045 48,535
--------------------------------------
Total current assets 956,571 645,971
Property and equipment--at cost:
Land 59,146 41,378
Buildings and improvements 270,095 230,772
Machinery and equipment 1,039,050 744,983
Construction in progress 69,534 50,400
--------------------------------------
1,437,825 1,067,533
Less allowances for depreciation (440,758) (358,391)
--------------------------------------
997,067 709,142
Goodwill 432,558 286,923
Other assets 76,548 77,612
--------------------------------------
$2,462,744 $ 1,719,648
======================================
2
<PAGE>
December 31
1998 1997
--------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks $ 20,253 $ 29,926
Trade accounts payable 92,656 47,925
Payroll and related expenses 70,490 44,039
Other accrued expenses 111,420 52,485
Income taxes 17,425 12,003
Current portion of long-term debt 4,544 4,459
--------------------------------------
Total current liabilities 316,788 190,837
Long-term debt--less current portion 814,838 347,463
Deferred income taxes 68,933 41,701
Deferred income 59,264 59,300
Minority interest 51,858 17,930
Other liabilities 25,174 38,287
Accrued pension costs 123,370 64,482
Stockholders' equity:
Preferred Stock, par value $1.00 a share:
Authorized--1,000,000 shares; none issued
Common Stock, par value $.10 a share:
Authorized--75,000,000 shares;
59,347,496 and 56,460,565 shares
outstanding after deducting 17,191 and
14,127 shares in treasury 5,935 5,646
Class B convertible Common Stock, par
value $.10 a share: Authorized--
15,000,000 shares; 8,321,654 and
7,925,394 shares outstanding after
deducting 149,677
and 205,649 shares in treasury 832 793
Capital in excess of par value 990,328 920,165
Retained earnings 14,354 75,587
Unearned compensation (1,131) (644)
Accumulated other comprehensive income (7,799) (41,899)
--------------------------------------
1,002,519 959,648
--------------------------------------
$2,462,744 $ 1,719,648
======================================
</TABLE>
See accompanying notes.
3
<PAGE>
Vishay Intertechnology, Inc.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
-----------------------------------------------------
<S> <C> <C> <C>
Net sales $1,572,745 $ 1,125,219 $ 1,097,979
Costs of products sold 1,189,107 858,020 825,866
-----------------------------------------------------
Gross profit 383,638 267,199 272,113
Selling, general, and
administrative expenses 234,840 136,876 141,765
Amortization of goodwill 12,272 7,218 6,494
Unusual items 29,301 14,503 38,030
Purchased research and development 13,300 - -
-----------------------------------------------------
93,925 108,602 85,824
Other income (expense):
Interest expense (49,038) (18,819) (17,408)
Other (6,051) (2,314) 1,941
-----------------------------------------------------
(55,089) (21,133) (15,467)
-----------------------------------------------------
Earnings before income taxes 38,836 87,469 70,357
Income taxes 30,624 34,167 17,741
-----------------------------------------------------
Net earnings $ 8,212 $ 53,302 $ 52,616
=====================================================
Basic and diluted earnings per share $ 0.12 $ 0.79 $ 0.78
=====================================================
Weighted average shares
outstanding--assuming dilution 67,625,000 67,682,000 67,582,000
=====================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Vishay Intertechnology, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
--------------------------------------------
<S> <C> <C> <C>
Operating activities
Net earnings $ 8,212 $ 53,302 $ 52,616
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 127,947 81,874 77,247
Loss on disposal of property and
equipment 712 1,245 174
Purchased research and development 13,300 - -
Asset impairment losses 23,057 - -
Loss on forward exchange contract (5,295) 5,295 -
Changes in operating assets and
liabilities, net of effects from
acquisitions:
Accounts receivable 13,827 (23,339) 10,073
Inventories 13,304 19,501 (11,575)
Prepaid expenses and
other current
assets (23,206) 20,496 3,438
Accounts payable 1,575 6,882 (31,573)
Other current liabilities (25,842) 5,897 1,526
Other 21,859 6,005 26,759
--------------------------------------------
Net cash provided by operating
activities 169,450 177,158 128,685
Investing activities
Purchases of property and equipment (151,682) (78,074) (136,276)
Purchases of businesses, net of cash
acquired (423,031) (122,468) -
Proceeds from sale of property and
equipment 11,650 959 5,793
--------------------------------------------
Net cash used in investing activities (563,063) (199,583) (130,483)
Financing activities
Proceeds from long-term borrowings 5,030 4,100 3,476
Principal payments on long-term debt (7,068) (82,076) (86,026)
Net proceeds on revolving credit lines 462,214 155,729 76,502
Net changes in short-term borrowings (9,768) (17,152) 10,066
--------------------------------------------
Net cash provided by financing
activities 450,408 60,601 4,018
Effect of exchange rate changes on
cash 1,671 (3,858) (859)
--------------------------------------------
Increase in cash and cash equivalents 58,466 34,318 1,361
Cash and cash equivalents at beginning
of year 55,263 20,945 19,584
--------------------------------------------
Cash and cash equivalents at end of
year $113,729 $ 55,263 $ 20,945
============================================
</TABLE>
See accompanying notes.
5
<PAGE>
Vishay Intertechnology, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Class B Accumulated
Convertible Capital in Other Total
Common Common Excess of Retained Unearned Comprehensive Stockholders=
Stock Stock Par Earnings Compensation Income Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $5,114 $ 722 $ 734,316 $ 146,370 $ (364) $ 21,695 $ 907,853
Net earnings -- -- -- 52,616 -- -- 52,616
Foreign currency translation
adjustment -- -- -- -- -- (19,381) (19,381)
Pension liability adjustment -- -- -- -- -- 3,446 3,446
--------------
Comprehensive income 36,681
--------------
Stock issued (10,556 shares) 1 -- 618 -- (262) -- 357
Stock dividends (2,558,069;
361,108 shares) 256 36 90,932 (91,224) -- -- --
Conversions from Class B to
common (19,423 shares) 2 (2) -- -- -- -- --
Tax effects relating to
stock plan -- -- 83 -- -- -- 83
Amount expensed during the
year -- -- -- -- 256 -- 256
-------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,373 756 825,949 107,762 (370) 5,760 945,230
Net earnings -- -- -- 53,302 -- -- 53,302
Foreign currency translation
adjustment -- -- -- -- -- (46,693) (46,693)
Pension liability adjustment -- -- -- -- -- (966) (966)
--------------
Comprehensive income 5,643
--------------
Stock issued (28,486 shares) 3 -- 778 -- (566) -- 215
Stock dividends (2,687,692;
378,187 shares) 269 38 85,170 (85,477) -- -- --
Conversions from Class B to
common (16,513 shares) 1 (1) -- -- -- -- --
Stock appreciation rights -- -- 8,200 -- -- -- 8,200
Tax effects relating to stock
plan -- -- 68 -- -- -- 68
Amount expensed during the
year -- -- -- -- 292 -- 292
-------------------------------------------------------------------------------------------
Balance at December 31, 1997 5,646 793 920,165 75,587 (644) (41,899) 959,648
Net earnings -- -- -- 8,212 -- -- 8,212
Foreign currency translation
adjustment -- -- -- -- -- 38,174 38,174
Pension liability adjustment -- -- -- -- -- (4,074) (4,074)
--------------
Comprehensive income 42,312
--------------
Stock issued (62,221 shares) 6 -- 1,056 -- (1,062) -- --
Stock dividends (2,824,701;
396,270 shares) 283 39 69,123 (69,445) -- -- --
Conversions from Class B to
common (10 shares) -- -- -- -- -- -- --
Tax effects relating to
stock plan -- -- (16) -- -- -- (16)
Amount expensed during the
year -- -- -- -- 575 -- 575
-------------------------------------------------------------------------------------------
Balance at December 31, 1998 $5,935 $832 $990,328 $14,354 $(1,131) $(7,799) $ 1,002,519
===========================================================================================
</TABLE>
6
See accompanying notes.
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
Vishay Intertechnology, Inc. is an international manufacturer and supplier of
passive electronic components and discrete active electronic components,
particularly resistors, capacitors, inductors, diodes, and transistors.
Electronic components manufactured by the Company are used in virtually all
types of electronic products, including those in the computer,
telecommunications, military/aerospace, instrument, automotive, medical, and
consumer electronics industries.
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Vishay Intertechnology, Inc. include
the accounts of the Company and its majority-owned subsidiaries, after
elimination of all significant intercompany transactions, accounts, and profits.
The Company's investments in 20% to 50%-owned companies, in which it has the
ability to exercise significant influence over operating and financial policies,
are accounted for on the equity method. Investments in other companies are
carried at cost.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ significantly from those estimates.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
Depreciation
Depreciation is computed principally by the straight-line method based upon the
estimated useful lives of the assets. Depreciation of capital lease assets is
included in total depreciation expense. Depreciation expense was $114,592,000,
$73,329,000, and $68,688,000 for the years ended December 31, 1998, 1997, and
1996, respectively.
7
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Construction in Progress
The estimated cost to complete construction in progress at December 31, 1998 is
$18,470,000.
Goodwill
Goodwill (excess of purchase price over net assets acquired) is being amortized
principally over periods ranging from 30-40 years using the straight-line
method. The recoverability of goodwill is evaluated at the operating unit level
by an analysis of operating results and consideration of other significant
events or changes in the business environment. If an operating unit has current
operating losses and based upon projections there is a likelihood that such
operating losses will continue, the Company will determine whether impairment
exists on the basis of undiscounted expected future cash flows from operations
before interest for the remaining amortization period. If impairment exists,
goodwill will be reduced by the estimated shortfall of discounted cash flows.
Accumulated amortization amounted to $48,407,000 and $35,273,000 at December 31,
1998 and 1997, respectively.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers demand
deposits and all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
Research and Development Expenses
The amount charged to expense (exclusive of purchased in-process research and
development) aggregated $28,857,000, $7,023,000, and $10,429,000 for the years
ended December 31, 1998, 1997, and 1996, respectively. The Company spends
additional amounts for the development of machinery and equipment for new
processes and for cost reduction measures.
8
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
Grants
Grants received from governments by certain foreign subsidiaries, primarily in
Israel, are recognized as income in accordance with the purpose of the specific
contract and in the period in which the related expense is incurred. Grants from
the government of Israel recognized as a reduction of costs of products sold
were $13,116,000, $11,352,000, and $8,943,000 for the years ended December 31,
1998, 1997, and 1996, respectively. Grants receivable of $12,828,000 and
$8,909,000 are included in other current assets at December 31, 1998 and 1997,
respectively. Deferred grant income is $59,264,000 and $59,300,000 at
December 31, 1998 and 1997, respectively. The grants are subject to conditions,
including maintaining specified levels of employment for periods up to ten
years. Noncompliance with such conditions could result in repayment of grants,
however, management expects that the Company will comply with all terms and
conditions of grants.
Share and Per Share Amounts
Statement of Financial Accounting Standards No. 128, Earnings Per Share requires
net earnings per share to be presented under two calculations, basic earnings
per share and diluted earnings per share. Basic earnings per share is computed
using the weighted average number of common shares outstanding during the
periods presented. Diluted earnings per share is computed using common and
dilutive potential common shares outstanding during the periods presented. The
Company's potential common shares consist of stock options granted under the
Company's 1995, 1997, and 1998 stock option plans (see Note 10) and stock
appreciation rights issued in connection with the LPSC acquisition (see Notes 2
and 6). The number of shares used in the calculation of basic earnings per
common share was 67,554,000 in 1998, 67,534,000 in 1997, and 67,537,000 in 1996.
The number of shares used in the calculation of diluted earnings per common
share was 67,625,000 in 1998, 67,682,000 in 1997, and 67,582,000 in 1996.
Options to purchase 2,746,000 shares of common stock at prices ranging from
$20.42 to $41.13 per share were outstanding during 1998, and options to purchase
1,218,000 shares at prices ranging from $22.89 to $41.13 per share were
outstanding during 1997, and 1996, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. Earnings per
share amounts for all periods presented reflect 5% stock dividends paid on June
11, 1998, June 9, 1997, and June 7, 1996.
9
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), encourages entities to record compensation expense
for stock-based employee compensation plans at fair value but provides the
option of measuring compensation expense using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"). The Company accounts for stock-based
compensation in accordance with APB 25. Pro forma results of operations as if
SFAS 123 had been used to account for stock-based compensation plans are
presented in Note 10.
Interest Rate Swap Agreements
The Company uses interest rate swap agreements for purposes other than trading
and they are treated as off-balance-sheet items. Interest rate swap agreements
are used by the Company to modify variable rate obligations to fixed rate
obligations, thereby reducing the exposure to market rate fluctuations. The
interest rate swap agreements are designated as hedges, and effectiveness is
determined by matching the principal balances and terms with that specific
obligation. Such an agreement involves the exchange of amounts based on fixed
interest rates for amounts based on variable interest rates over the life of the
agreement without an exchange of the notional amount upon which payments are
based. The differential to be paid or received as interest rates change is
accounted for on the accrual method of accounting. The related amount payable to
or receivable from counterparties is included as an adjustment to interest
expense and to accrued interest in other accrued expenses. Gains and losses on
terminations of interest rate swap agreements are deferred as an adjustment to
interest expense related to the obligation over the term of the original
contract life of the terminated swap agreement. In the event of early
extinguishment of the obligation, any realized or unrealized gain or loss from
the swap would be recognized in income at the time of extinguishment.
Other Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("SFAS 130"), which
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of SFAS 130 had no impact on the Company's
net income or
10
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
shareholders' equity. SFAS 130 requires the Company's pension liability
adjustment, and foreign currency translation adjustments which prior to adoption
were reported separately in shareholders' equity, to be included in accumulated
other comprehensive income. Prior-year amounts have been reclassified to conform
to the requirements of SFAS 130.
Segment Data
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS 131).
SFAS 131 establishes new standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial statements. SFAS 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information. (See
Note 14.)
Accounting Pronouncements Pending Adoption
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires entities to record all derivative instruments on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges will be recognized in
earnings. The Company is required to adopt SFAS 133 effective January 1, 2000.
Based on current derivative usage and hedging activities, the Company does not
expect the adoption of SFAS 133 to have a material impact on its future earnings
or financial position.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the current
presentation.
11
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions
On March 2, 1998, the Company purchased 80.4% of Siliconix Incorporated
(NASDAQ:SILI) and 100% of TEMIC Semiconductor GmbH for a total of $549,889,000
in cash. On March 4, 1998, the Company sold the Integrated Circuits division of
TEMIC to Atmel Incorporated for a total of $105,755,000 in cash.
The purchase of TEMIC and Siliconix ("TEMIC") was funded from the Company's $1.1
billion revolving credit facilities made available to Vishay on March 2, 1998.
The acquisition was accounted for under the purchase method of accounting. Under
purchase accounting, the assets and liabilities of TEMIC are required to be
adjusted from historical amounts to their estimated fair values. Purchase
accounting adjustments have been preliminarily estimated by management based
upon currently available information.
Management estimated that $13,300,000 of the TEMIC purchase price represents
purchased in-process technology that had not reached technological feasibility
and had no alternative future use. Accordingly, this amount was expensed with no
tax benefit upon consummation of the acquisition. The value assigned to
purchased in-process technology was determined by identifying research projects
in areas for which technological feasibility had not been established. The value
was determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net cash
flows from such projects, and discounting the net cash flows back to their
present value. The discount rate included a factor that takes into account the
uncertainty surrounding the successful development of the purchased in-process
technology. If these projects are not successfully developed, future revenue and
profitability of Vishay may be adversely affected. Additionally, the value of
other intangible assets acquired may become impaired.
In connection with the TEMIC acquisition, the Company recorded restructuring
liabilities of $30,471,000 in connection with an exit plan that management began
to formulate prior to the acquisition date. Approximately $25,197,000 of these
liabilities relates to employee termination costs covering approximately 498
technical, production, administrative and support employees located in the
United States, Europe, and the Pacific Rim. The remaining $5,274,000 relates to
provisions for contract cancellations and other costs. As of December 31, 1998,
86 employees have been terminated and $10,651,000 of the termination costs were
paid. Additionally, $960,000 of contract cancellation charges and other costs
were paid. The balance of
12
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
$18,860,000 is reflected in the consolidated financial statements in other
accrued expenses and is expected to be paid in the next year.
The results of operations of TEMIC have been included in the Company's results
from March 1, 1998. Excess of cost over the fair value of assets acquired
($154,866,000) is being amortized principally over periods ranging from 30-40
years using the straight-line method.
In July 1997, the Company purchased 65% of the common stock of Lite-On Power
Semiconductor Corporation (LPSC), a Republic of China (Taiwan) company, for
$130,000,000 in cash and stock appreciation rights with a fair value (at the
time of issuance) of $8,200,000. LPSC is a producer of discrete active
electronic components with manufacturing facilities in Taiwan, China and the
United States. LPSC owns 40.2% of Diodes, Inc. (AMEX:DIO). The Company utilized
existing credit facilities to finance the cash portion ($130,000,000) of the
purchase price. The acquisition was accounted for under the purchase method of
accounting.
The results of operations of LPSC have been included in the Company's results
from July 1, 1997. Excess of cost over the fair value of net assets acquired
($110,978,000) is being amortized on a straight-line method over an estimated
useful life of forty years.
Had the TEMIC and LPSC acquisitions been made at the beginning of the respective
periods, the Company's pro forma unaudited results would have been (in
thousands, except per share amounts):
Year ended December 31
1998 1997
-------------------------------------
Net sales $ 1,655,197 $ 1,723,818
Net earnings 6,528 41,394
Basic and diluted earnings per share .10 .61
The pro forma information includes adjustments for interest expense that would
have been incurred to finance the acquisitions, additional depreciation based on
the fair value of property, plant, and equipment acquired, writeoff of
purchased in-process research and development, amortization of goodwill, and
related tax effects.
The unaudited pro forma results are not necessarily indicative of the results
that would have been attained had the acquisitions occurred at the beginning of
the periods presented.
13
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Unusual Items
Unusual items in 1998 consist of the following components:
Impairment losses:
China $19,556,000
Nikkohm 3,501,000
Restructuring of European operations 5,944,000
Closing of two U.S. sales offices 300,000
---------------------
$29,301,000
=====================
In May 1996, the Company signed letters of intent with the China National
Non-Ferrous Metals Industry Corporation Nanchang Branch (CNNC) and United
Development, Inc. to enter into joint ventures to mine, process and refine
tantalum at a site in China and to build a plant in China to manufacture dipped
radial and chip tantalum capacitors. Management viewed this investment in China
as strategic as it would provide a presence in the Far East, another source of
low-cost labor, and a stable, low-cost supply of tantalum. Through March 31,
1998, the Company continued to negotiate the terms of the joint ventures with
the CNNC and conduct feasibility tests on the mine. As of March 31, 1998, the
Company had removed from existing production lines and packaged for shipment to
China $18.9 million of equipment to be used in the manufacture of dipped radial
and chip tantalum capacitors at the proposed plant. In addition, the Company had
deferred $1.7 million in consulting costs incurred in evaluating the potential
joint venture. During fiscal 1998, several events occurred which led to the
eventual abandonment of the projects in China. First, the CNNC was disbanded by
the Chinese government and replaced by a smaller organization which had much
less control over the various Chinese partners that would be involved in the
joint ventures. The individual Chinese partners, no longer under the central
control of the CNNC, began demanding to renegotiate the joint venture agreements
in ways that were not acceptable to the Company. Second, the Asian economy
experienced a significant downturn and demand for the Company's tantalum
capacitors dropped significantly. The reduction in demand for the Company's
tantalum capacitors made the building of a large factory financially
impractical. Instead, the Company downsized its plans and opened a small
finishing plant for tantalum capacitors in one of the Company's existing
Shanghai facilities that it had acquired in 1997. Third, suppliers of tantalum
outside of China were forced to lower prices due to a significant increase in
supply primarily due to competition from Chinese suppliers. Fourth, in 1997 and
1998, Vishay acquired two companies that had established
14
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Unusual Items (continued)
facilities in China with approximately 2,000 employees in five factories. These
factories served to establish Vishay as a major components manufacturer in China
without additional investment by the Company. During the fourth quarter of
fiscal 1998, management evaluated the proposed joint ventures and concluded
that, due to the factors described above, the Company would discontinue
negotiations and abandon the proposed joint ventures. Management also concluded
that the equipment had a net realizable value of $1 million and the deferred
costs were not recoverable and in accordance with the Company's accounting
policy, recorded an impairment loss of $19.6 million. Management expects to have
disposed of this equipment by December 31, 1999.
In March 1995, the Company acquired a 49% interest in Nikkohm, a Japanese
manufacturer and distributor of passive electronic components. The Company's
investment in Nikkohm totaled $4 million. Like the proposed Chinese joint
ventures, management considered its investment in Nikkohm strategic because it
provided the Company with an entry into certain Far East markets. Following the
acquisition of its interest, Vishay worked with the management of Nikkohm to
build Nikkohm's business and improve its profitability. Through December 31,
1997, the Company recognized a cumulative loss on its investment in Nikkohm of
$499,800 (1995-$304,000; 1996- $141,800; 1997-$54,000). Management had been
encouraged by Nikkohm's trend in earnings and had proposed certain marketing
programs intended to further improve operating results. However, Nikkohm's
results of operations began to deteriorate in fiscal 1998 due to a decrease in
demand for the Company's products, particularly thin film resistors, and a
downturn in the Asian economy. In addition, a significant member of Nikkohm's
management resigned due to health concerns. Also, the Company's acquisitions in
1997 and 1998 had established Vishay as a major electronics components
manufacturer in the Far East. During the fourth quarter of fiscal 1998,
management evaluated these recent developments and concluded that the carrying
amount of the investment in Nikkohm was not recoverable and in accordance with
the Company's accounting policy, recorded an impairment loss of $3.5 million.
Restructuring of European operations which resulted from the Company's recent
acquisitions consists of $5,694,000 of employee termination costs covering
approximately 182 technical, production, administrative and support employees
located in Germany and the United Kingdom. The remaining $250,000 relates to
lease buyout expense associated with the closing of a facility in the United
Kingdom. The restructuring plan is expected to be completed by the end of 1999.
At December 31, 1998, approximately 15 employees had been terminated and
$471,000 of this severance had been paid. The remainder is included in other
accrued expenses.
The remaining $300,000 of restructuring expense consists of termination costs of
15
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Unusual Items (continued)
$130,000 and lease buyout and other expenses of $170,000 relating to the closing
of two U.S. sales offices.
Unusual items expense of $14,503,000 in 1997 consists of restructuring expense
of $12,605,000 and a settlement with the United States Government in the amount
of $1,898,000 representing reimbursements for overcharges relating to military
products produced prior to 1993 at one of the Company's U.S. subsidiaries.
Restructuring expense of $12,605,000 in 1997 results from a downsizing of the
Company's European operations. Approximately $10,357,000 of this expense relates
to employee termination costs covering approximately 324 technical, production,
administrative, and support employees located in Germany and France.
Approximately $623,000 of the restructuring expense relates to facility closure
costs in France. The remaining $1,625,000 relates to additional payments to
certain employees laid off in the last half of fiscal 1996 in connection with
Vishay's fiscal 1996 restructuring program. The payments were a result of a
judgment rendered by a French court against a subsidiary of the Company. The
court ruled that these employees were due additional payments under France's
mandated social plan. At December 31, 1998, approximately 173 employees had been
terminated and $6,158,000 of termination costs were paid. The remaining
$5,824,000 of termination costs are included in other accrued expenses at
December 31, 1998. This remaining accrual is considered adequate to complete the
restructuring program and is expected to be paid by December 31, 1999.
Unusual items in 1996 represents restructuring expense of $38,030,000, which
resulted from a downsizing of the Company's worldwide operations. Approximately
$9,077,000 of restructuring expense relates to facility closure costs in North
America and Europe. The remaining $28,953,000 of these expenses relate to
employee termination costs covering approximately 2,600 technical, production,
administrative, and support employees located in the United States, Canada,
France, and Germany. This downsizing was completed during the year ended
December 31, 1998.
16
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes
Earnings before income taxes consists of the following components (in
thousands):
Year ended December 31
1998 1997 1996
------------------------------------------------
Domestic $ (45,337) $ 45,832 $ 42,406
Foreign 84,173 41,637 27,951
------------------------------------------------
$ 38,836 $ 87,469 $ 70,357
================================================
Significant components of income taxes are as follows (in thousands):
Year ended December 31
1998 1997 1996
------------------------------------------------
Current:
U.S. Federal $ 1,590 $ 20,296 $ 13,836
Foreign 12,370 6,494 8,098
State 987 2,103 1,586
------------------------------------------------
14,947 28,893 23,520
Deferred:
U.S. Federal (44) 1,476 1,632
Foreign 15,708 3,547 (7,793)
State 13 251 382
------------------------------------------------
15,677 5,274 (5,779)
------------------------------------------------
$30,624 $ 34,167 $ 17,741
================================================
17
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
-----------------------------------
<S> <C> <C>
Deferred tax assets:
Pension and other retiree obligations $ 27,839 $ 23,150
Net operating loss carryforwards 109,545 82,510
Tax credit carryforwards 8,535 -
Restructuring reserves 7,937 5,283
Other accruals and reserves 40,643 22,767
-----------------------------------
Total deferred tax assets 194,499 133,710
Less: Valuation allowance (59,329) (40,447)
-----------------------------------
Net deferred tax assets 135,170 93,263
Deferred tax liabilities:
Tax over book depreciation 99,890 71,122
Other--net 11,645 12,031
-----------------------------------
Total deferred tax liabilities 111,535 83,153
-----------------------------------
Net deferred tax assets $ 23,635 $ 10,110
===================================
</TABLE>
18
<PAGE>
A reconciliation of income tax expense at the U.S. federal statutory income tax
rate to actual income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Tax at statutory rate $ 13,593 $ 30,612 $ 24,625
State income taxes, net of U.S. federal
tax benefit 649 1,619 1,413
Effect of foreign operations (228) (10,325) (9,717)
Benefit of net operating loss carryforwards - (207) (817)
Provision for estimated tax uncertainties - 10,000 -
Increase in valuation allowance for foreign
net operating loss carryforwards 10,000 - -
Purchased research and development
expense 4,655 - -
Other 1,955 2,468 2,237
-----------------------------------------------
$ 30,624 $ 34,167 $ 17,741
===============================================
</TABLE>
19
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
At December 31, 1998, the Company has the following net operating loss
carryforwards for tax purposes:
Expires
------------------------------
U.S. Federal $ 54,000,000 2018
Germany 145,020,000 No expiration
France 21,042,000 2000 to unlimited
Portugal 4,712,000 1999-2001
Austria 8,110,000 No expiration
Approximately $70,892,000 of the carryforward in Germany resulted from the
Company's acquisition of Roederstein, GmbH in 1993 and $7,667,000 of the
carryforward in Austria resulted from the Company's acquisition of TEMIC.
Valuation allowances of $57,054,000 and $40,447,000 have been recorded at
December 31, 1998 and 1997, respectively, for deferred tax assets related to
foreign net operating loss carryforwards. In 1998, tax benefits recognized
through reductions of the valuation allowance had the effect of reducing
goodwill of acquired companies by $446,000. If additional tax benefits are
recognized in the future through further reduction of the valuation allowance,
$27,523,000 of such benefits will reduce goodwill.
At December_31, 1998, no provision has been made for U.S. federal and state
income taxes on approximately $339,959,000 of foreign earnings which are
expected to be reinvested indefinitely. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
Income taxes paid were $36,488,000, $24,879,000, and $22,141,000, for the years
ended December 31, 1998, 1997, and 1996, respectively.
20
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt
Long-term debt consisted of the following (in thousands):
December 31
1998 1997
----------------------------------
Multicurrency Revolving Credit Loans $ 777,400 $ 284,666
Deutsche Mark Revolving Credit Loans -- 22,365
Other Debt and Capital Lease Obligations 41,982 44,891
----------------------------------
819,382 351,922
Less current portion 4,544 4,459
----------------------------------
$ 814,838 $ 347,463
==================================
At December 31, 1997, two facilities were available under the Company's amended
and restated Revolving Credit and Term Loan and Deutsche Mark Revolving Credit
and Term Loan agreements with a group of banks; a multicurrency revolving credit
loan (interest 6.25% on U.S. Dollar borrowings and 3.95% on Deutsche Mark
borrowings at December 31, 1997), and a Deutsche Mark revolving credit loan
(interest 3.95% at December 31, 1997).
On March 2, 1998, the Company entered into two revolving credit agreements with
a group of banks, which replaced the agreements in effect at December 31, 1997.
The Company entered into the new loan agreements with the banks to finance the
Siliconix and TEMIC acquisitions (see Note 2). The first agreement provides for
an $825,000,000 loan comprising a revolving credit facility and a swing line
facility that mature on March 2, 2003, subject to Vishay's right to request
year-to-year renewals. Interest is payable at prime or other interest rate
options. The Company is required to pay certain facility fees on this facility.
The second agreement provides for a $275,000,000 364-day multicurrency revolving
credit facility which matures on March 1, 1999. This agreement was amended on
December 29, 1998 to extend the maturity date to June 1, 1999, at which time,
the Company can request year-to-year renewals. Interest is payable at prime or
other interest rate options. The Company is required to pay certain facility
fees on this facility. As of December 31, 1998, the Company had $777,400,000
outstanding under the five-year revolving credit facility (interest 5.87%).
After giving effect to interest rate swaps, the interest rate on $300,000,000 of
the Company's five-year multicurrency revolving credit facility was 6.35% at
December 31, 1998.
21
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
Borrowings under the loan agreements are secured by certain pledges of stock in
certain significant subsidiaries and indirect subsidiaries of Vishay and certain
guaranties by significant subsidiaries. The Company is restricted from paying
cash dividends and must comply with other covenants, including the maintenance
of specific financial ratios.
Other debt and capital lease obligations include borrowings under short-term
credit lines of $10,470,000 and $12,141,000 at December 31, 1998 and 1997,
respectively, which are classified as long-term based on the Company's intention
and ability to refinance the obligations on a long-term basis.
Aggregate annual maturities of long-term debt, are as follows:
1999--$4,544,000; 2000--$4,212,000; 2001--$6,160,000; 2002--$1,873,000;
2003--$778,458,000; thereafter--$24,135,000.
At December 31, 1998, the Company has committed and uncommitted short-term
credit lines with various U.S. and foreign banks aggregating $171,388,000, of
which $140,665,000 was unused. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1998 and 1997 was 6.11% and 6.50%,
respectively.
Interest paid was $48,105,000, $18,699,000, and $17,736,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
6. Stockholders' Equity
On May 19, 1997, the Company's shareholders approved an increase in the number
of shares of Common Stock, $.10 par value, which the Company is authorized to
issue, from 65,000,000 shares to 75,000,000 shares.
The Company's Class B Stock carries ten votes per share while the Common Stock
carries one vote per share. Class B shares are transferable only to certain
permitted transferees while the Common Stock is freely transferable. Class B
shares are convertible on a one-for-one basis at any time to Common Stock.
In connection with the acquisition of LPSC (see Note 2), the Company issued
22
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
stock appreciation rights (SARs) to the former owners of LPSC. The SARs
represent the right to receive in stock the increase in value on the equivalent
of 1,706,000 shares of the Company's stock above $21.90 per share. The SARs may
be exercised at any time prior to July 17, 2007 at the option of the former
owners of LPSC. The Company may force redemption of the SARs if the Company's
stock trades above the "Strike Price" ($45.05 per share effective July 17,
1998). The Strike Price increases by 10% each year. At a market price of $45.05
per share for the Company's stock, the SARs would entitle the former owners of
LPSC to 876,668 shares of the Company's Common Stock. The fair value of the SARs
as of July 17, 1998 was determined to be $8,200,000 using the binomial option
pricing model.
Unearned compensation relating to Common Stock issued under employee stock plans
is being amortized over periods ranging from three to five years. At December
31, 1998, 166,868 shares are available for issuance under stock plans.
7. Other Income (Expense)
Other income (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Foreign exchange gains $ 495 $ 3,657 $ 371
Loss on forward exchange contract (6,269) (5,295) -
Investment income 4,687 2,353 1,586
Minority interest in income of subsidiaries (3,810) (2,092) (489)
Equity in net income of affiliates 1,084 1,090 318
Loss on sale of fixed assets (712) (1,245) (174)
Other (1,526) (782) 329
---------------------------------------------
$ (6,051) $ (2,314) $ 1,941
=============================================
</TABLE>
In connection with the Company's acquisition of all of the common stock of TEMIC
Semiconductor GmbH and 80.4% of the common stock of Siliconix Incorporated, the
Company entered into a forward exchange contract in December 1997 to protect
against the impact of fluctuations in the exchange rate between the U.S. Dollar
and the Deutsche Mark since the purchase price was denominated in Deutsche Marks
and payable in U.S. Dollars. At December 31, 1997, the Company had an unrealized
loss on this contract of $5,295,000 which resulted from marking the contract to
market value. On March 2, 1998, the forward exchange contract was settled and
the Company recognized an additional loss of $6,269,000.
23
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
8. Other Comprehensive Income
The income tax effects allocated to and the cumulative balance of each component
of other comprehensive income (loss) are as follows (in thousands):
<TABLE>
<CAPTION>
Before- Tax Net-of-
Beginning Tax (Benefit) Tax Ending
Balance Amount Expense Amount Balance
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Pension liability adjustment $ (4,312) $(9,090) $(5,016) $ (4,074) $(8,386)
Currency translation
adjustment (37,587) 38,174 - 38,174 587
--------------------------------------------------------------------------
$(41,899) $29,084 $(5,016) $34,100 $(7,799)
==========================================================================
December 31, 1997
Pension liability adjustment $ (3,346) $(2,714) $(1,748) $ (966) $(4,312)
Currency translation
adjustment 9,106 (46,693) - (46,693) (37,587)
--------------------------------------------------------------------------
$5,760 $(49,407) $(1,748) $(47,659) $(41,899)
==========================================================================
December 31, 1996
Pension liability adjustment $(6,792) $3,446 $ - $3,446 $(3,346)
Currency translation
adjustment 28,487 (19,381) - (19,381) 9,106
--------------------------------------------------------------------------
$21,695 $(15,935) $ - $(15,935) $5,760
==========================================================================
</TABLE>
24
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits
The Company maintains several defined benefit pension and nonpension
postretirement plans which cover substantially all full-time U.S. employees. The
following table sets forth a reconciliation of the benefit obligation, plan
assets, and accrued benefit cost related to these plans (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
-----------------------------------------------
1998 1997 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $98,991 $87,740 $7,796 $6,977
Service cost 3,828 2,999 287 252
Interest cost 6,726 6,266 494 499
Employee contributions 1,782 1,969 - -
Actuarial losses (gains) 7,057 5,850 (94) 356
Benefits paid (7,419) (5,833) (506) (288)
-----------------------------------------------
Benefit obligation at end of year $110,965 $ 98,991 $ 7,977 $ 7,796
===============================================
</TABLE>
Change in plan assets:
Fair value of plan assets at
beginning of year $98,388 $87,368
Actual return on plan assets 707 12,753
Company contributions 2,070 2,114
Plan participants' contributions 1,782 1,969
Benefits paid (7,412) (5,816)
-------------------------
Fair value of plan assets at end of year $ 95,535 $ 98,388
=========================
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Funded status $(15,430) $ (603) $ (7,977) $ (7,796)
Unrecognized net actuarial loss 15,184 370 547 641
Unrecognized transition obligation 27 137 2,993 3,207
Unamortized prior service cost 173 368 279 310
-----------------------------------------------
Net amount recognized $ (46) $ 272 $ (4,158) $ (3,638)
===============================================
</TABLE>
<TABLE>
<CAPTION>
Amounts recognized in the consolidated balance sheet consist of:
<S> <C> <C> <C> <C>
Prepaid benefit cost $4,452 $3,984 $ - $ -
Accrued benefit liability (7,816) (3,712) (4,158) (3,638)
Accumulated other comprehensive
income 3,318 - - -
-----------------------------------------------
Net amount recognized $ (46) $ 272 $ (4,158) $ (3,638)
===============================================
</TABLE>
25
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Weighted-average assumptions
as of December 31
Discount rate 6.50% 6.75% 6.50% 6.75%
Expected return on plan
assets 8.50% - 9.50% 8.50% - 9.50%
Rate of compensation
increase 4.50% 4.50%
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost:
Annual service cost $5,830 $ 4,849 $5,091 $287 $ 252 $236
Less employee
contribution 2,002 1,850 1,842 - - -
----------------------------------------------------------------------
Net service cost 3,828 2,999 3,249 287 252 236
Interest cost 6,726 6,266 6,014 494 499 485
Expected return on
plan assets (8,463) (7,511) (6,634) - - -
Amortization of prior
service cost 195 233 - 31 31 31
Amortization of
transition
obligation 311 311 311 214 214 214
Amortization of
(gains) losses (201) (201) (201) - 5 19
----------------------------------------------------------------------
Net periodic pension cost $2,396 $2,097 $2,739 $1,026 $1,001 $985
======================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $98,043,000, $91,596,000, and $83,739,000,
respectively, as of December 31, 1998 and $1,266,889, $1,184,489, and $0,
respectively, as of December 31, 1997.
26
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with projected benefit obligations in
excess of plan assets were $110,965,000, $101,414,000 and $95,535,000,
respectively, as of December 31, 1998 and $79,852,000, $70,565,000, and
$77,023,000, respectively, as of December 31, 1997.
The Company's nonpension postretirement plan is funded as costs are incurred.
The plan is contributory, with employee contributions adjusted for general
inflation or inflation in costs under the plan. The plan was amended in 1993 to
cap employer contributions at 1993 levels. The impact of a one-percentage-point
change in assumed health care cost trend rates on the net periodic benefit cost
and postretirement benefit obligation is immaterial.
Many of the Company's U.S. employees are eligible to participate in 401(k)
savings plans, some of which provide for Company matching under various
formulas. The Company's matching expense for the plans was $4,672,000,
$2,l26,000, and $2,250,000 for the years ended December 31, 1998, 1997, and
1996, respectively. The Company's matching expense for 1998 reflects $2,920,000
of expense related to Siliconix Incorporated, which was acquired effective March
2, 1998.
The Company provides pension and similar benefits to employees of certain
foreign subsidiaries consistent with local practices. German subsidiaries of the
Company have defined benefit pension plans. The Company acquired 100% of TEMIC
Semiconductor GmbH on March 2, 1998, including its pension plan. The following
table sets forth a reconciliation of the benefit obligation, plan assets, and
accrued benefit cost related to the German plans.
<TABLE>
<CAPTION>
Pension Benefits
-------------------------------------
1998 1997
--------------------------------------
(In Thousands)
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 64,758 $ 70,398
Service cost 510 107
Interest cost 6,025 4,261
Actuarial losses 6,855 3,177
Acquisition 34,536 -
Benefits paid (5,036) (3,273)
Foreign currency translation 4,122 (9,912)
--------------------------------------
Benefit obligation at end of year $ 111,770 $ 64,758
======================================
Change in plan assets:
Fair value of plan assets at beginning of year $ 13,735 $ 13,734
Actual return on plan assets 624 259
Company contributions 2,754 2,551
Benefits paid (2,872) (2,426)
Foreign currency translation 986 (383)
--------------------------------------
Fair value of plan assets at end of year $ 15,227 $ 13,735
======================================
</TABLE>
27
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
<TABLE>
<CAPTION>
Pension Benefits
-------------------------------------
1998 1997
--------------------------------------
(In Thousands)
<S> <C> <C>
Funded status $ (96,543) $ (51,023)
Unrecognized net actuarial losses 7,002 4,657
Unrecognized transition obligation (asset) (19) (21)
Unamortized prior service cost 168 254
--------------------------------------
Net amount recognized $ (89,392) $ (46,133)
======================================
Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability $ (99,476) $ (52,193)
Accumulated other comprehensive income 10,084 6,060
--------------------------------------
Net amount recognized $ (89,392) $ (46,133)
======================================
Weighted-average assumptions as of December 31
Discount rate 6.50% 7.00%
Rate of compensation increase 3.00% 2.50%
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits
---------------------------------------------
1998 1997 1996
------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Components of net periodic benefit cost:
Service cost $ 510 $ 107 $126
Interest cost 6,025 4,261 5,082
Expected return on plan assets (476) (1,179) (1,174)
Amortization of prior service cost 86 106 133
Amortization of transition obligation (2) (4) -
Amortization of (gains) losses 62 - -
------------------------------------------------
Net periodic pension cost $6,205 $3,291 $4,167
================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the German pension plans with accumulated benefit obligations
and projected benefit obligations in excess of plan assets were $111,770,000,
$111,871,000, and $15,227,000, respectively, as of December 31, 1998 and
$64,758,000, 64,449,000, and $13,735,000, respectively, as of December 31, 1997.
28
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options
The Company has three stock option programs. Under the 1995 Stock Option
Program, certain key executives of the Company were granted options on March 3,
1995, to purchase 1,218,000 shares of the Company's common stock. The options
were fully vested on the date of grant and expire March 1, 2000, with one-third
exercisable at $22.89, one-third exercisable at $28.79, and one-third
exercisable at $41.13. At December 31, 1998, all 1,218,000 options remain
outstanding.
Under the 1997 Stock Option Program, certain executive officers, key employees,
and consultants of the Company were granted options on May 21, 1998, to purchase
1,528,000 shares of the Company's common stock. The options were fully vested on
the date of grant and expire June 1, 2008, with one-third exercisable at $20.42,
one-third at $23.48, and one-third at $25.52. At December 31, 1998, all
1,528,000 options remain outstanding.
Under the 1998 Stock Option Program, certain executive officers and key
employees were granted options on October 6, 1998 to purchase 852,000 shares of
the Company's common stock. The options, which are exercisable at $10.50, vest
evenly over a six-year period and expire March 16, 2008. At December 31, 1998,
all 852,000 options remain outstanding and 648,000 options are available for
grant under the Program.
The following table summarizes information concerning outstanding options at
December 31, 1998:
<TABLE>
<CAPTION>
Number of Weighted Weighted
Range of Options Average Average
Exercise Outstanding at Remaining Exercise
Prices 12/31/98 Contractual Life Price
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$10.50 852,000 9.76 $10.50
$20.42-$28.79 2,340,000 6.52 $24.07
$41.13 406,000 1.17 $41.13
---------------------------------------------------------------------
Total 3,598,000 6.70 $22.79
=====================================================================
</TABLE>
29
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options (continued)
The following is provided to comply with the disclosure requirements of SFAS
123. If compensation cost for these programs had been determined using the
fair-value method prescribed by SFAS 123, the Company's results for the year
ended December 31, 1998 would have been reduced to the pro forma amounts
indicated below (in thousands, except per share amount):
Net (loss) $(1,906)
Basic and diluted (loss) per share $ (0.03)
The weighted average fair value of the options granted in 1998 was estimated
using the Black-Scholes option pricing model, with the assumptions presented
below. For options granted in 1998 with an exercise price equal to the market
value, the weighted average fair value was $6.52 and the weighted average
exercise price was $14.51. For options granted in 1998 with an average exercise
price greater than the market value, the weighted average fair value was $7.22
and the weighted average exercise price was $25.87.
1998 Stock 1997 Stock
Option Option
Program Program
-----------------------------------
Expected dividend yield - -
Risk-free interest rate 4.2% 5.7%
Expected volatility 48.3% 48.3%
Expected life (in years) 4.5 8
11. Leases
Total rental expense under operating leases was $23,703,000, $9,413,000, and
$9,679,000, for the years ended December 31, 1998, 1997, and 1996, respectively.
Future minimum lease payments for operating leases with initial or remaining
noncancelable lease terms in excess of one year are as follows:
1999--$20,097,000; 2000--$17,026,000; 2001--$14,288,000; 2002--$12,523,000;
2003--$12,182,000; thereafter--$61,512,000.
30
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
12. Financial Instruments
The Company uses financial instruments in the normal course of its business,
including derivative financial instruments, for purposes other than trading.
These financial instruments include debt and interest rate swap agreements. The
notional or contractual amounts of these commitments and other financial
instruments are discussed below.
Concentration of Credit Risk
Financial instruments with potential credit risk consist principally of accounts
receivable. Concentrations of credit risk with respect to receivables are
limited due to the Company's large number of customers and their dispersion
across many countries and industries. At December 31, 1998 and 1997, the Company
had no significant concentrations of credit risk.
Interest Rate Swap Agreements
In connection with its multicurrency revolving line of credit, the Company
entered into several interest rate swap agreements in August 1998 to exchange
variable and fixed rate interest payment obligations without the exchange of the
underlying principal amounts. As of December 31, 1998, the Company was a party
to five interest rate swap agreements with a total notional amount of
$300,000,000. Under these agreements, the Company paid a fixed rate of 6.35% and
received a variable rate of 5.83% at December 31, 1998. These interest rate swap
agreements mature in August 2003. There were no interest rate swap agreements
outstanding at December 31, 1997. The fair value of the interest rate swap
agreements at December 31, 1998 was ($7,572,000).
Cash and Cash Equivalents, Notes Payable, and Long-Term Debt
The carrying amounts reported in the consolidated balance sheet approximate fair
value.
31
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Current Vulnerability Due to Certain Concentrations
Sources of Supply
Although most materials incorporated in the Company's products are available
from a number of sources, certain materials (particularly tantalum and
palladium) are available only from a relatively limited number of suppliers.
Tantalum, a metal, is the principal material used in the manufacture of tantalum
capacitor products. It is purchased in powder form primarily under annual
contracts with domestic suppliers at prices that are subject to periodic
adjustment. The Company is a major consumer of the worldOs annual tantalum
production. There are currently three major suppliers that process tantalum ore
into capacitor grade tantalum powder. Although the Company believes that there
is currently a surplus of tantalum ore reserves and a sufficient number of
tantalum processors relative to foreseeable demand, and that the tantalum
required by the Company has generally been available in sufficient quantities to
meet requirements, the limited number of tantalum powder suppliers could lead to
increases in tantalum prices that the Company may not be able to pass on to its
customers. Palladium is primarily purchased on the spot and forward markets,
depending on market conditions. Palladium is considered a commodity and is
subject to price volatility. Although palladium is currently found in South
Africa and Russia, the Company believes that there are a sufficient number of
domestic and foreign suppliers from which the Company can purchase palladium.
However, an inability on the part of the Company to pass on increases in
palladium costs to its customers could have an adverse effect on the margins of
those products using the metal.
Geographic Concentration
To address the increasing demand for its products and in order to lower its
costs, the Company has expanded, and plans to continue to expand, its
manufacturing operations in Israel in order to take advantage of that country's
lower wage rates, highly skilled labor force, government-sponsored grants, as
well as various tax abatement programs. These incentive programs have
contributed substantially to the growth and profitability of the Company. The
Company might be materially and adversely affected if these incentive programs
were no longer available to the Company or if hostilities were to occur in the
Middle East that materially interfere with the Company's operations in Israel.
32
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Business Segment and Geographic Area Data
Vishay Intertechnology, Inc. designs, manufactures, and markets electronic
components that cover a wide range of products and technologies. The Company has
two reportable segments: Passive Electronic Components (Passives) consisting
principally of fixed resistors, solid tantalum surface mount chip capacitors,
solid tantalum leaded capacitors, wet/foil tantalum capacitors, multi-layer
ceramic chip capacitors, film capacitors and inductors and Active Electronic
Components (Actives) consisting principally of diodes, transistors, power
MOSFETS, power conversion and motor control integrated circuits.
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income excluding amortization of intangibles and special charges. The accounting
policies of the business segments are the same as those described in the summary
of significant accounting policies (Note 1). The operating results of Actives
reflect the acquisition of 80.4% of Siliconix, Incorporated and 100% of TEMIC
Semiconductor GmbH as of March 2, 1998 and Lite-On Power Semiconductor as of
July 1, 1997. Business segment assets are the owned or allocated assets used by
each business.
The corporate component of operating income represents corporate selling,
general, and administrative expenses. Corporate assets include corporate cash,
property, plant, and equipment, and certain other assets.
<TABLE>
<CAPTION>
December 31
1998 1997 1996
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Business Segment Information
Net Sales:
Passives $1,027,902 $1,086,929 $1,097,979
Actives 544,843 38,290 -
---------------------------------------------------
$1,572,745 $1,125,219 $1,097,979
===================================================
Operating Income:
Passives $114,747 $138,185 $146,212
Actives 51,516 2,959 -
Corporate (17,465) (10,821) (15,864)
Unusual items (29,301) (14,503) (38,030)
Purchased research and development (13,300) - -
Amortization of goodwill (12,272) (7,218) (6,494)
---------------------------------------------------
$93,925 $108,602 $85,824
===================================================
</TABLE>
33
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Business Segment and Geographic Information (continued)
<TABLE>
<CAPTION>
December 31
1998 1997 1996
-----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Business Segment Information
Depreciation Expense:
Passives $74,173 $69,716 $68,513
Actives 40,210 3,409 -
Corporate 209 204 175
-----------------------------------------------------
$114,592 $73,329 $68,688
=====================================================
Total Assets:
Passives $1,693,554 $1,506,191 $1,556,311
Actives 750,875 211,684 -
Corporate 18,315 1,773 2,204
-----------------------------------------------------
$2,462,744 $1,719,648 $1,558,515
=====================================================
Capital Expenditures:
Passives $87,168 $69,617 $135,757
Actives 59,969 8,285 -
Corporate 4,545 172 519
-----------------------------------------------------
$151,682 $78,074 $136,276
=====================================================
</TABLE>
34
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Business Segment and Geographic Information (continued)
The following geographic area data include net sales based on revenues generated
by subsidiaries located within that geographic area and property, plant, and
equipment based on physical location:
<TABLE>
<CAPTION>
d
December 31
1998 1997 1996
---------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Geographic Area Information
Net Sales:
United States $659,845 $624,377 $557,935
Germany 519,114 249,298 286,253
Asia Pacific 185,784 44,647 8,439
France 119,992 114,704 152,525
Other 88,010 92,193 92,827
---------------------------------------------------
$1,572,745 $1,125,219 $1,097,979
===================================================
Property, Plant, and Equipment (Net):
United States $352,007 $205,784 $227,471
Germany 153,423 110,827 156,944
Israel 283,691 271,180 254,171
Asia Pacific 67,051 42,522 94
France 45,461 43,071 61,863
Other 95,434 35,758 10,119
---------------------------------------------------
$997,067 $709,142 $710,662
===================================================
</TABLE>
35
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
15. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
First Quarter Second Quarter Third Quarter Fourth Quarter
1998 1997 1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $348,744 $ 273,262 $ 412,844 $ 272,661 $ 399,499 $285,352 $411,658 $293,944
Gross profit 85,204 65,604 102,392 65,630 97,595 70,392 98,447 65,573
Net earnings (loss) 16,536/1/ 19,658 16,766 19,948 12,121 20,695 (37,211)/2/ (6,999)
Basic and diluted earnings
(loss) per share/4/: $ .24/1/ $ .29 $ .25 $ .30 $ .18 $ .30 $(.55)/2/ $(.10)/3/
Total Year
1998 1997
Net sales $1,572,745 $1,125,219
Gross profit 383,638 267,199
Net earnings (loss) 8,212 53,302
Basic and diluted earnings
(loss) per share/4/: $.12 $.79
</TABLE>
/1/ A forward exchange contract loss ($6,269,000) reduced net earnings by
$3,924,000 or $.06 per share in the first quarter of 1998.
/2/ Charges for restructuring ($6,244,000), impairment losses
($23,057,000), purchased research and development ($13,300,000),
reduction of a deferred tax asset ($10,000,000), and other noncash
charges ($1,815,000) reduced net earnings by $51,411,000 or $.76 per
share in the fourth quarter of 1998.
/3/ Charges for restructuring ($12,605,000), various tax uncertainties
($10,000,000), forward exchange contract loss ($5,295,000), inventory
reserves ($5,576,000), and a government settlement ($1,898,000)
reduced net earnings by $27,692,000 or $.41 per share in the fourth
quarter of 1997.
/4/ Adjusted to give retroactive effect to 5% stock dividends in June 1998
and 1997.
36
<PAGE>
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
16. Subsequent Events
On March 26, 1999, the Company finalized the sale of Nicolitch, S.A., its French
manufacturer of printed circuit boards to Leonische Drahtwerke AG. In connection
with the sale, the Company received proceeds of approxiamtely $9,824,000 and
recorded a noncash book loss of approximately ($11,500,000). Nicolitch had net
sales of $24,000,000 and net loss of ($105,000) for 1998.
37
EXHIBIT 21
COMPANY SUBSIDIARIES
--------------------
<TABLE>
<CAPTION>
Percent
of
Name Jurisdiction Equity*
- ---- ------------ -------
<S> <C> <C>
Vishay Lite-On Holdings PTE Ltd. Singapore 65%
Vishay Lite-On PTE Ltd. Singapore 100%
Lite-On Power Semiconductor Taiwan 100%
Corporation
Fabtech, Inc. Delaware 100%
Diodes, Inc. Delaware 40.24%
Kaihong China 70%
Diodes, Inc. Taiwan Taiwan 100%
Finemind Holding Company Hong Kong 100%
Seefull Electronic China 100%
Company
Pamela Verwaltungsgesellschaft GmbH Germany 100%
Vishay Temic Semiconductor GmbH Germany 100%
Temic Semiconductor Itzehoe GmbH Germany 100%
Temic Telefunken Microelectronic Phillipines 100%
Phillipines, Inc.
Temic Telefunken Microelectronics Austria 100%
GesmbH
Shanghai Temic Discrete China 100%
Semiconductors Ltd.
Shanghai Temic Opto Semiconductors China 70%
Ltd.
Vishay Hungary Budapest 100%
Vishay Temic Acquisition Holding Corporation Delaware 100%
Siliconix, Inc. Delaware 80.4%
Siliconix Technology C.V. Netherlands 100%
Siliconix Ltd. England 100%
Siliconix Hong Kong Ltd. Hong Kong 100%
Temic PTE Ltd. Singapore 100%
Siliconix Taiwan Ltd. Taiwan 100%
Shanghai Simconix Electronic Company Ltd. China 90%
Temic Japan KK Japan 100%
Temic of North America, Inc. New Jersey 100%
Nippon Vishay, K.K. Japan 100%
Vishay F.S.C., Inc. Barbados 100%
Vishay VSH Holdings, Inc. Delaware 100%
Vishay Roederstein Electronics, Inc. Delaware 100%
- -------------------------
Note: Names of Subsidiaries are indented under name of Parent.
* Certain Directors' or other shares required by statute in foreign
jurisdictions and totalling less than 1% of equity are omitted.
<PAGE>
Percent
of
Name Jurisdiction Equity*
- ---- ------------ -------
Vishay Measurments Group, Inc. Delaware 100%
Vishay MicroMesures SA France 100%
Measurements Group GmbH Germany 100%
Grupo Da Medidas Iberica S.L. Spain 100%
Vishay Israel Limited Israel 100%
Z.T.R. Electronics Ltd. Israel 100%
Vishay International Trade Ltd. Israel 100%
Dale Israel Electronics Israel 100%
Industries, Ltd.
Draloric Israel Ltd. Israel 100%
V.I.E.C. Ltd. Israel 100%
Vilna Equities Holding, B.V. Netherlands 100%
Visra Electronics Financing Netherlands 100%
B.V.
Measurements Group (U.K.) Ltd. England & Wales 100%
Vishay Europe GmbH Germany 57.8%
by
Vishay
Israel;
38.5%
by
Vishay;
2.4% by
Vilna;
1.3% by
Dale
Vishay Electronic GmbH Germany 100%
Roederstein Electronics Portugal 100%
Portugal Lda.
Vishay Bauelemente Germany 78%
Vertrieb GmbH
Vishay Bauelemente Switzerland 100%
Vertrieb A.G.
Vishay Vertrieb Austria 100%
Elektronischer
Bauelemente Ges. mbH
Klevestav-Roederstein Sweden 50%
Festigheter AB
Vishay Components, S.A. Spain 100%
- -------------------------
Note: Names of Subsidiaries are indented under name of Parent.
* Certain Directors' or other shares required by statute in foreign
jurisdictions and totalling less than 1% of equity are omitted.
<PAGE>
Percent
of
Name Jurisdiction Equity*
- ---- ------------ -------
Vishay Components Netherlands 100%
Nederland BV
Vishay Benelux Belgium 100%
Fabrin Roederstein, S.A. Denmark 80%
Vishay Components OY Finland 100%
Okab Roederstein Finland 44.4%
Finland OY
Rogin Electronic S.A. Spain 33%
Roederstein Norge AS Norway 40%
Roederstein-Hilfe-GmbH Germany 100%
Draloric Electronic SPOL Czech Republic 100%
S RO
Vishay S.A. France 99.8%
Sfernice Ltd. England & Wales 100%
Ultronix, Inc. Delaware 100%
Vishay Thin Film, Inc. New York 100%
Vishay Techno Components Corp. Delaware 100%
Components Corp.
E-Sil Components Ltd. England & Wales 100%
Vishay Components (U.K.) Ltd. England & Wales 100%
Grued Corporation Delaware 100%
Con-Gro Corp. Delaware 100%
Gro-Con, Inc. Delaware 100%
Angstrohm Precision, Inc. Delaware 100%
Angstrohm Holdings, Inc. Delaware 100%
Vishay Resistor Products (U.K.) Ltd. England & Wales 100%
Heavybarter, Unlimited England & Wales 100%
Vishay-Mann Limited England & Wales 100%
Vitramon, Ltd. England & Wales 100%
Vishay Dale Holdings, Inc. Delaware 100%
Vishay Dale Electronics, Inc. Delaware 100%
Components Dale de Mexico Mexico 100%
S.A. de C.V.
- -------------------------
Note: Names of Subsidiaries are indented under name of Parent.
* Certain Directors' or other shares required by statute in foreign
jurisdictions and totalling less than 1% of equity are omitted.
<PAGE>
Percent
of
Name Jurisdiction Equity*
- ---- ------------ -------
Electronica Dale de Mexico Mexico 100%
S.A. de C.V.
Vishay Electronic Components Singapore 100%
Asia Pte., Ltd.
Dale Test Laboratories, Inc. South Dakota 100%
Angstrohm Precision, Inc. Maryland 100%
(Maryland)
Vishay Bradford Electronics, Inc. Delaware 100%
Vishay Sprague Holdings Corp. Delaware 100%
Vishay Service Center, Inc. Massachusetts 100%
Vishay Sprague Sanford, Inc. Maine 100%
Vishay Sprague, Inc. Delaware 100%
Vishay Sprague Canada Holdings Inc. Canada 100%
Sprague Electric of Canada Canada 100%
Limited
Sprague France S.A. France 100%
Vishay Sprague Palm Beach, Inc. Delaware 100%
Vishay Acquisition Holdings Corp. Delaware 100%
Vishay Vitramon, Incorporated Delaware 100%
Vitramon Pty. Limited Australia 100%
Vitramon Far East Pte. Ltd. Singapore 100%
</TABLE>
- -------------------------
Note: Names of Subsidiaries are indented under name of Parent.
* Certain Directors' or other shares required by statute in foreign
jurisdictions and totalling less than 1% of equity are omitted.
Exhibit 23
Consent of Ernst & Young, LLP, Independent Auditors
We consent to the incorporation by reference in the following
registration statements on Form-S-8 of Vishay Intertechnology, Inc. and in the
related Prospectuses of our report dated February 8, 1999, (except for Note 16,
as to which the date is March 26, 1999), with respect to the consolidated
financial statements of Vishay Intertechnology, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1998.
Registration
Statement Number Description
- -------------------------------------------------------------------------------
33-7850 1986 Employee Stock Plan of
Vishay Intertechnology, Inc.
33-7851 1986 Employee Stock Plan of
Dale Electronics, Inc.
33-59609 Vishay Intertechnology, Inc.
1995 Stock Option Program
Philadephia, Pennsylvania
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000103730
<NAME> VISHAY INTERTECHNOLOGY INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 113,729
<SECURITIES> 0
<RECEIVABLES> 286,028
<ALLOWANCES> (9,758)
<INVENTORY> 446,138
<CURRENT-ASSETS> 956,571
<PP&E> 1,437,825
<DEPRECIATION> (440,758)
<TOTAL-ASSETS> 2,462,744
<CURRENT-LIABILITIES> 316,788
<BONDS> 814,838
0
0
<COMMON> 5,935
<OTHER-SE> 996,584
<TOTAL-LIABILITY-AND-EQUITY> 2,462,744
<SALES> 1,572,745
<TOTAL-REVENUES> 1,572,745
<CGS> 1,189,107
<TOTAL-COSTS> 1,189,107
<OTHER-EXPENSES> 295,764
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,038
<INCOME-PRETAX> 38,836
<INCOME-TAX> 30,624
<INCOME-CONTINUING> 8,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,212
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
