SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-7416
VISHAY INTERTECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-1686453
- --------------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
63 Lincoln Highway, Malvern, Pennsylvania 19355
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 644-1300
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 /_/
As of August 12, 1999 registrant had 74,245,218 shares of its Common Stock and
10,375,246 shares of its Class B Common Stock outstanding.
<PAGE>
VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q JUNE 30, 1999
CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets - 3-4
June 30, 1999 and December 31, 1998
Consolidated Condensed Statements of 5
Operations - Three Months Ended
June 30, 1999 and 1998
Consolidated Condensed Statements of 6
Operations - Six Months Ended
June 30, 1999 and 1998
Consolidated Condensed Statements of 7
Cash Flows - Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated Condensed 8-10
Financial Statements
Item 2. Management's Discussion and Analysis 11-18
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 19
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VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited - In thousands)
June 30 December 31
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 93,855 $ 113,729
Accounts receivable 298,802 276,270
Inventories:
Finished goods 164,892 196,551
Work in process 132,111 136,393
Raw materials 122,141 113,194
Deferred income taxes 51,679 53,389
Prepaid expenses and other current assets 81,328 67,045
----------- -----------
TOTAL CURRENT ASSETS 944,808 956,571
PROPERTY AND EQUIPMENT - AT COST
Land 55,351 59,146
Buildings and improvements 255,232 270,095
Machinery and equipment 1,060,747 1,039,050
Construction in progress 65,910 69,534
Allowance for depreciation (488,482) (440,758)
----------- -----------
948,758 997,067
GOODWILL 412,153 432,558
OTHER ASSETS 65,008 76,548
----------- -----------
$ 2,370,727 $ 2,462,744
=========== ===========
See notes to consolidated condensed financial statements
3
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June 30 December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
CURRENT LIABILITIES
Notes payable to banks $ 32,900 $ 20,253
Trade accounts payable 81,004 92,656
Payroll and related expenses 76,102 70,490
Other accrued expenses 102,712 111,420
Income taxes 18,895 17,425
Current portion of long-term debt 17,673 4,544
----------- -----------
TOTAL CURRENT LIABILITIES 329,286 316,788
LONG-TERM DEBT 751,983 814,838
DEFERRED INCOME TAXES 66,719 68,933
DEFERRED INCOME 55,633 59,264
MINORITY INTEREST 56,581 51,858
OTHER LIABILITIES 25,356 25,174
ACCRUED PENSION COSTS 111,862 123,370
STOCKHOLDERS' EQUITY
Common stock 7,424 5,935
Class B common stock 1,038 832
Capital in excess of par value 989,029 990,328
Retained earnings 35,353 14,354
Accumulated other comprehensive income (58,273) (7,799)
Unearned compensation (1,264) (1,131)
----------- -----------
973,307 1,002,519
----------- -----------
$ 2,370,727 $ 2,462,744
=========== ===========
See notes to consolidated condensed financial statements
4
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VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Three Months Ended
June 30,
1999 1998
----------- -----------
Net sales $ 425,323 $ 412,844
Costs of products sold 316,642 310,452
----------- -----------
GROSS PROFIT 108,681 102,392
Selling, general, and administrative expenses 61,775 64,354
Amortization of goodwill 3,221 3,266
----------- -----------
OPERATING INCOME 43,685 34,772
Other income (expense):
Interest expense (13,115) (12,856)
Other (2,925) 1,371
----------- -----------
(16,040) (11,485)
----------- -----------
EARNINGS BEFORE INCOME TAXES 27,645 23,287
Income taxes 7,464 6,521
----------- -----------
NET EARNINGS $ 20,181 $ 16,766
=========== ===========
Basic and diluted earnings per share $ 0.24 $ 0.20
=========== ===========
Weighted average shares outstanding -
assuming dilution 85,282 84,541
See notes to consolidated condensed financial statements
5
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VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Six Months Ended
June 30,
1999 1998
-------------- ------------
Net sales $ 848,381 $ 761,588
Costs of products sold 639,810 573,992
----------- -----------
GROSS PROFIT 208,571 187,596
Selling, general, and administrative expenses 124,272 110,288
Amortization of goodwill 6,513 5,539
----------- -----------
OPERATING INCOME 77,786 71,769
Other income (expense):
Interest expense (25,995) (21,084)
Loss on disposal of subsidiary (10,073) --
Other (4,212) (4,108)
----------- -----------
(40,280) (25,192)
----------- -----------
EARNINGS BEFORE INCOME TAXES 37,506 46,577
Income taxes 16,507 13,275
----------- -----------
NET EARNINGS $ 20,999 $ 33,302
=========== ===========
Basic and diluted earnings per share $ 0.25 $ 0.39
=========== ===========
Weighted average shares outstanding -
assuming dilution 85,168 84,535
See notes to consolidated condensed financial statements
6
<PAGE>
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
Six Months Ended
June 30,
1999 1998
----------- -----------
OPERATING ACTIVITIES
Net earnings $ 20,999 $ 33,302
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 73,009 61,971
Loss on sale of subsidiary 10,073 0
Other 13,647 (12,086)
Changes in operating assets and liabilities (54,252) (35,735)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 63,476 47,452
INVESTING ACTIVITIES
Purchases of property and equipment (60,504) (60,596)
Proceeds from sale of property and equipment 1,149 3,414
Proceeds from sale of subsidiary 9,118 0
Sale of business 0 100,000
Purchase of businesses, net of cash acquired 0 (520,543)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (50,237) (477,725)
FINANCING ACTIVITIES
Net proceeds(payments) on revolving credit lines (40,189) 489,190
Proceeds from long-term borrowings 3,316 1,590
Payments on long-term borrowings (5,947) (1,611)
Net proceeds on short-term borrowings 13,488 2,550
----------- -----------
NET CASH PROVIDED(USED) BY
FINANCING ACTIVITIES (29,332) 491,719
Effect of exchange rate changes on cash (3,781) (424)
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (19,874) 61,022
Cash and cash equivalents at beginning of period 113,729 55,263
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 93,855 $ 116,285
=========== ===========
See notes to consolidated condensed financial statements
7
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
June 30, 1999
Note 1: Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for
presentation of financial position, results of operations, and cash flows
required by generally accepted accounting principles for complete financial
statements. The information furnished reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair summary of the financial position, results of operations and cash
flows for the interim periods presented. The financial statements should be read
in conjunction with the financial statements and notes thereto filed with Form
10-K for the year ended December 31, 1998.
Note 2: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except earnings per share):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $20,181 $16,766 $20,999 $33,302
------- ------- ------- -------
Denominator:
Denominator for basic
earnings per share - weighted
average shares 84,482 84,444 84,481 84,438
Effect of dilutive securities:
Stock appreciation rights 353 -- 353 --
Employee stock options 392 -- 279 --
Other 55 97 55 97
------- ------- ------- -------
Dilutive potential common shares 800 97 687 97
Denominator for diluted earnings
per share - adjusted weighted
average shares 85,282 84,541 85,168 84,535
Basic earnings per share $ 0.24 $ 0.20 $ 0.25 $ 0.39
======= ======= ======= =======
Diluted earnings per share $ 0.24 $ 0.20 $ 0.25 $ 0.39
======= ======= ======= =======
</TABLE>
For the quarter and six months ended June 30, 1999, options to purchase
3,859,000 and 3,972,000 shares, respectively, at prices ranging from $18.31 to
$32.91 per share were not included in the computation of diluted earnings per
share because the options' exercise price were greater than the average
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market price of the common shares. Earnings per share amounts for all periods
presented reflect the five-for-four stock split paid on June 22, 1999.
In connection with the acquisition of LPSC, the Company issued 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 2,133,000
shares of the Company's stock above $17.52 per share. For the quarter and six
months ended, June 30, 1999, 353,000 shares were included in the calculation of
diluted earnings per share because the closing market price of the common shares
on June 30, 1999 ($21.00) was greater than the strike price of $17.52.
Note 3: Business Segment Information
The Company 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) and Active
Electronic Components (Actives). 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. The
corporate component of operating income represents corporate selling, general,
and administrative expenses.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Business Segment Information
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net Sales:
Passives $ 246,440 $ 256,263 $ 497,972 $ 536,277
Actives 178,883 156,581 350,409 225,311
--------- --------- --------- ---------
$ 425,323 $ 412,844 $ 848,381 $ 761,588
--------- --------- --------- ---------
Operating Income:
Passives $ 23,202 $ 32,904 $ 39,821 $ 70,196
Actives 25,991 9,326 49,329 14,728
Corporate (2,287) (4,192) (4,851) (7,616)
Amortization of goodwill (3,221) (3,266) (6,513) (5,539)
--------- --------- --------- ---------
$ 43,685 $ 34,772 $ 77,786 $ 71,769
--------- --------- --------- ---------
</TABLE>
9
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Note 4: Comprehensive Income
Total comprehensive income (loss) includes the following components (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 20,181 $ 16,766 $ 20,999 $ 33,302
Other comprehensive income (loss):
Foreign currency translation adjustment (10,292) 4,089 (52,441) (7,306)
Pension liability adjustment, net of tax 1,433 (84) 1,967 55
-------- -------- -------- --------
Total other comprehensive income (loss) (8,859) 4,005 (50,474) (7,251)
-------- -------- -------- --------
Comprehensive income (loss) $ 11,322 $ 20,771 ($29,475) $ 26,051
-------- -------- -------- --------
</TABLE>
Note 5: Income Taxes
The effective tax rate for the six months ended June 30, 1999 was 44.0%
as compared to 28.5% for the six months ended June 30, 1998. The unusual
effective tax rate for the six months ended June 30, 1999 was due to the
following: (i) the non tax deductibility of the pretax loss on the sale of
Nicolitch, S.A. ($10,073,000); (ii) the tax expense recorded on the sale of
Nicolitch, S.A.($1,416,000); and (iii) the change in the tax rate in Germany
($1,939,000). Exclusive of these items, the effective tax rate for the six
months ended June 30, 1999 would have been 27%.
Note 6: Sale of Subsidiary
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 $9,118,000 and
recorded a non cash book loss of $11,489,000, including tax expense of
$1,416,000.
Note 7: Other Income
For the six months ended June 30, 1998, the Company recorded a pretax
loss of $6,269,000 related to a forward exchange contract entered into to set
the purchase price in connection with the TEMIC acquisition.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Income statement captions as a percentage of sales and the effective
tax rates were as follows:
Three Months ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Cost of products sold 74.4% 75.2% 75.4% 75.4%
Gross profit 25.6 24.8 24.6 24.6
Selling, general and
administrative expenses 14.5 15.6 14.6 14.5
Operating income 10.3 8.4 9.2 9.4
Earnings before income taxes 6.5 5.6 4.4 6.1
Effective tax rate 27.0 28.0 44.0 28.5
Net earnings 4.7 4.1 2.5 4.4
Net Sales
Net sales for the quarter and six months ended June 30, 1999 increased
$12,479,000 or 3.0% and $86,793,000 or 11.4% from the comparable periods of the
prior year. The increase in net sales for the quarter and six months ended June
30, 1999, as compared to the prior year's periods, relates primarily to the
acquisition of TEMIC, which became effective March 1, 1998. Net sales of TEMIC
for the quarter and six months ended June 30, 1999 were $161,207,000 and
$315,985,000 as compared to $137,708,000 and $187,655,000, respectively, in the
prior year's periods. The results of operations of TEMIC have been included in
the Company's results from March 1, 1998. Exclusive of TEMIC for the six months
ended June 30, 1999 and 1998, respectively, net sales would have decreased by
$41,537,000 or 7.2%. The strengthening of the U.S. dollar against foreign
currencies for the quarter ended June 30, 1999, in comparison to the prior
year's period, resulted in a decrease in reported sales of $4,271,000. For the
six months ended June 30, 1999, the impact of the U. S. dollar against foreign
currencies, in comparison to the prior year's period, was immaterial. The
passive components business net sales were $246,440,000 and $497,972,000 for the
quarter and six months ended June 30, 1999, respectively, compared to
$256,263,000 and $536,277,000, respectively, for the prior year's periods. Net
sales of the passive components business were negatively affected primarily by
capacity constraints for high volume, lower margin tantalum capacitor products.
Costs of Products Sold
Costs of products sold for the quarter and six months ended June 30,
1999 were 74.4% and 75.4% of net sales, respectively, as compared to 75.2% and
75.4% of net sales, for the quarter and six months ended June 30, 1998,
respectively. Gross profit, as a percentage of net sales, increased to 25.6% for
the quarter ended June 30, 1999 as compared to 23.6% for the quarter ended March
31, 1999.Gross profit, as a percentage of net sales, for the quarter ended June
30, 1999 increased from the prior
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year's period mainly due to the semiconductor components business. The
semiconductor components gross margins were 30.6% and 30.4%, respectively, for
the quarter and six months ended June 30, 1999 as compared to 24.9% and 24.7%,
respectively, for the prior year's periods.
The increase in the gross margins of the semiconductor components
business is due to the TEMIC acquisition, which recorded gross margins of 32.5%
and 32.1%, respectively, for the quarter and six months ended June 30, 1999 as
compared to gross margins of 26.5% and 27.0%, respectively, for the quarter and
four months ended June 30, 1998. The increase in gross margins is mainly due to
our Siliconix operation, where their gross margins have increased substantially
as a result of stronger capacity utilization, an improved product mix and
increased fab efficiencies. The passive components business gross profit margins
were 21.9% and 20.8%, respectively, for the quarter and six months ended June
30, 1999 as compared to 24.7% and 24.6%, respectively, for the prior year's
periods. Profitability for the passive components business was negatively
affected by significant price erosion, which began in the second quarter of
1998.
Israeli government grants, recorded as a reduction of costs of products
sold, were $3,544,000 and $6,966,000 for the quarter and six months ended June
30, 1999, respectively, as compared to $3,288,000 and $6,271,000 for the prior
year's periods. 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 June 30, 1999 relating to Israeli government grants
was $55,633,000 as compared to $59,264,000 at December 31, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter and six
months ended June 30, 1999 were 14.5% and 14.6% of net sales, as compared to
15.6% and 14.5% of net sales for the quarter and six months ended June 30, 1998,
and 14.8% of net sales for the quarter ended March 31, 1999. The decrease in
selling, general and administrative expenses for the quarter ended June 30, 1999
as compared to the prior year's period, was primarily due to the restructuring
programs implemented at TEMIC. TEMIC's selling, general and administrative
expenses were 16.6% and 16.8%, of net sales, for the quarter and six months
ended June 30, 1999, as compared to 20.1% and 19.7% of net sales, respectively,
for the quarter and four months ended June 30, 1998.
Interest Expense
Interest costs increased by $4,911,000 for the six months ended June
30, 1999, from the comparable prior year period, due to the increase in bank
borrowings necessary to fund the TEMIC acquisition. The Company had net
borrowings of $444,000,000 from a group of banks to finance the acquisition of
TEMIC.
Other Income
Included in other income for the six months ended June 30, 1998 is a
loss of $6,269,000 related to a forward exchange contract (entered into to set
the purchase price in connection with the TEMIC acquisition). Other income also
includes a charge for minority interest of $2,652,000 and $5,171,000 for the
quarter and six months ended June 30, 1999, respectively, as compared to
$688,000 and
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$1,059,000 for the quarter and six months ended June 30, 1998, respectively.
Foreign exchange gains (losses) for the quarter and six months ended June 30,
1999, were $(903,000) and $(569,000), respectively, as compared to $661,000 and
$644,000 for the comparable prior year's periods.
Loss on Sale of Subsidiary
The Company recognized a pre-tax loss of $10,073,000 relating to the
previously announced sale of Nicolitch, S.A., a French manufacturer of printed
circuit boards to Leonische Drahwerke AG of Nuremberg, Germany, which was
completed on March 26, 1999.
Income Taxes
The effective tax rate for the six months ended June 30, 1999 was 44.0%
as compared to 28.5% for the comparable prior year period. The higher tax rate
for the six months ended June 30,1999 was primarily due to the non tax
deductibility of the loss on the sale of Nicolitch, S.A. Tax expense on the sale
of Nicolitch, S.A. was $1,416,000. Also, a tax rate change in Germany resulted
in a decrease in German deferred tax assets, which increased tax expense by
$1,939,000. Exclusive of the effect of the sale of Nicolitch, S.A. and the tax
rate change in Germany, the effective tax rate for the six months ended June 30,
1999 would have been 27.0%. 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 $3,168,000 and $4,187,000 for the quarters ended June 30, 1999
and 1998, respectively and $6,166,000 and $7,577,000 for the six months ended
June 30, 1999 and 1998, 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.
Financial Condition and Liquidity
Cash flows from operations were $63,476,000 for the six months ended
June 30, 1999 compared to $47,452,000 for the comparable prior year period. Net
purchases of property and equipment for the six months ended June 30, 1999 were
$60,504,000 compared to $60,596,000 in the prior year's period. Net cash
provided by financing activities of $491,719,000 for the six months ended June
30, 1998 included approximately $550,000,000 used to finance the acquisition of
TEMIC.
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 June 30, 1999, approximately 281 of such employees
have been terminated and $9,189,000 of the termination costs has been paid. The
restructuring plan is expected to be completed by December 31, 1999. The Company
incurred restructuring expense of $5,694,000 for the year ended December 31,
1998. The expense consisted of employee termination costs covering approximately
182 technical, production, administrative and support employees located in
Germany and the United Kingdom. As of June 30, 1999, approximately 148 employees
have been terminated and $3,108,000 of this severance has 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,
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and the Far East. The remaining $5,274,000 relates to provisions for certain
assets, contract cancellations and other costs. As of June 30, 1999,
approximately 121 of such employees have been terminated and $13,641,000 of the
termination costs has been paid. The balance of $15,870,000 is reflected in the
consolidated financial statements in other accrued expenses and is expected to
be paid out by December 31, 1999.
The Company's financial condition at June 30, 1999 is strong, with a
current ratio of 2.9 to 1. The Company's ratio of long-term debt (less current
portion) to stockholders' equity was .77 at June 30, 1999 and .81 at December
31, 1998.
Year 2000
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 the 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. The Company has fully tested all its
systems, and as of June 30, 1999, all are year 2000 compliant. 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 June 30, 1999, the Company has incurred approximately
$1,200,000 of costs in connection with its Year 2000 project.
Management of the Company believes it has an effective program in place
to resolve the year 2000 issues. As noted above, the Company has completed all
necessary phases of the year 2000 program. However, 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
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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.
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
customer's changing needs.
The Company operates in a highly competitive environment,
which includes significant competitive pricing pressures and
intense competition for entry into new markets. The Company
has experienced significant price erosion, particularly in its
passive electronics conponents, in large part because of the
competitive environment. Some trends may continue.
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
continued into 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.
15
<PAGE>
The Company's results of operations may be adversely impacted
if customers were to cancel a material portion of such orders.
Approximately 63% 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 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 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 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 internal electronic components market.
When the Company restructures its operations in response to
changing economic conditions, particularly in Europe, labor
unrest 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.
16
<PAGE>
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 a
certain market prior to entering into informal 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.
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 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.
3. the effects of war or severe weather or
other acts of God on the Company's
operations, including disruptions at
manufacturing facilities;
17
<PAGE>
4. the effects of a disruption in the Company's
computerized ordering systems; and
5. 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. However, 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.
Market Risk Disclosure
There has been no material change in the Company's exposure to market
risk since December 31, 1998. 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 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.
18
<PAGE>
VISHAY INTERTECHNOLOGY, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May 20,
1999.
(b) Proxies for the meeting were solicited pursuant to Regulation
14A of the Securities Exchange Act of 1934, as amended. There
was no solicitation in opposition to management's nominees for
the directors as listed in the definitive proxy statement of
the Company dated April 19, 1999, and all such nominees were
elected.
(c) Briefly described below is each matter voted upon at the
Annual Meeting of Stockholders.
(i) Election of the following individuals to hold office
as Directors of the Company until the next Annual
Meeting of Stockholders.
Total Class A Common Stock voted was 47,954,305.
Broker
For Against Abstain Non-votes
--------- ------- ------- ---------
Felix Zandman 47,225,164 729,141 0 0
Avi D. Eden 47,225,379 728,926 0 0
Robert A. Freece 47,222,641 731,664 0 0
Richard N. Grubb 47,222,982 731,323 0 0
Eliyahu Hurvitz 47,149,747 804,558 0 0
Gerald Paul 47,225,379 728,926 0 0
Edward Shils 47,220,662 733,643 0 0
Luella B. Slaner 47,149,973 804,332 0 0
Mark I. Solomon 47,224,930 729,375 0 0
Jean-Claude Tine 47,218,572 735,733 0 0
Total Class B Common Stock voted was 8,272,356 in favor, 0
against, 0 abstained, and 0 broker non-votes.
(ii) Approval of the Company's Amended and Restated Certificate of
Incorporation. Total Class A Common Stock voted was 33,091,432
in favor, 14,729,997 against, 132,876 abstained, and 0 broker
non-votes. Total Class B Common Stock voted was 8,272,356 in
favor, 0 against, 0 abstained, and 0 broker non-votes.
19
<PAGE>
(iii) Approval of the Company's existing performance-based
compensation plan for its Chief Executive Officer. Total Class
A Common Stock voted was 46,060,249 in favor, 1,682,667
against, 211,389 abstained, and 0 broker non-votes. Total
Class B Common Stock voted was 8,272,356 in favor, 0 against,
0 abstained, and 0 broker non-votes.
(iv) Ratification of the appointment of Ernst & Young LLP,
independent certified public accountants, to audit the books
and accounts of the Company for the calendar year ending
December 31, 1999. Total Class A Common Stock voted was
47,689,883 in favor, 187,604 against, 76,818 abstained, and 0
broker non-votes. Total Class B Common Stock voted was
8,272,356 in favor, 0 against, 0 abstained, and 0 broker
non-votes.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Not applicable
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
/s/ Richard N. Grubb
----------------------------------------------
Richard N. Grubb
Executive Vice President, Treasurer
(Duly Authorized and Chief Financial Officer)
Date: August 13, 1999
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