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 March 31, 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 May 14, 1999 registrant had 59,377,186 shares of its Common Stock and
8,321,654 shares of its Class B Common Stock outstanding.
<PAGE>
VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q MARCH 31, 1999
CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets - 3-4
March 31, 1999 and December 31, 1998
Consolidated Condensed Statements of 5
Operations - Three Months Ended
March 31, 1999 and 1998
Consolidated Condensed Statements of 6
Cash Flows - Three Months Ended
March 31, 1999 and 1998
Notes to Consolidated Condensed 7-8
Financial Statements
Item 2. Management's Discussion and Analysis 9-16
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 17
<PAGE>
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited - In thousands)
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1999 1998
-------------------- --------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 91,808 $ 113,729
Accounts receivable 277,548 276,270
Inventories:
Finished goods 180,062 196,551
Work in process 123,135 136,393
Raw materials 122,377 113,194
Deferred income taxes 36,370 53,389
Prepaid expenses and other current assets 77,550 67,045
-------------------- --------------------
TOTAL CURRENT ASSETS 908,850 956,571
PROPERTY AND EQUIPMENT - AT COST
Land 56,240 59,146
Buildings and improvements 256,673 270,095
Machinery and equipment 1,021,343 1,039,050
Construction in progress 59,436 69,534
Allowance for depreciation (447,187) (440,758)
-------------------- --------------------
946,505 997,067
GOODWILL 418,108 432,558
OTHER ASSETS 87,574 76,548
-------------------- --------------------
$2,361,037 $2,462,744
==================== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
March 31 December 31
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
-------------------- --------------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to banks $ 26,455 $ 20,253
Trade accounts payable 75,410 92,656
Payroll and related expenses 69,915 70,490
Other accrued expenses 95,718 111,420
Income taxes 20,108 17,425
Current portion of long-term debt 3,421 4,544
-------------------- --------------------
TOTAL CURRENT LIABILITIES 291,027 316,788
LONG-TERM DEBT 790,580 814,838
DEFERRED INCOME TAXES 66,684 68,933
DEFERRED INCOME 55,757 59,264
MINORITY INTEREST 54,194 51,858
OTHER LIABILITIES 25,868 25,174
ACCRUED PENSION COSTS 115,082 123,370
STOCKHOLDERS' EQUITY
Common stock 5,935 5,935
Class B common stock 832 832
Capital in excess of par value 990,561 990,328
Retained earnings 15,172 14,354
Accumulated other comprehensive income (49,414) (7,799)
Unearned compensation (1,241) (1,131)
-------------------- --------------------
961,845 1,002,519
-------------------- --------------------
$2,361,037 $2,462,744
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
-------------------- --------------------
<S> <C> <C>
Net sales $423,058 $348,744
Costs of products sold 323,168 263,540
-------------------- --------------------
GROSS PROFIT 99,890 85,204
Selling, general, and administrative expenses 62,497 45,934
Amortization of goodwill 3,292 2,273
-------------------- --------------------
OPERATING INCOME 34,101 36,997
Other income (expense):
Interest expense (12,880) (8,228)
Loss on disposal of subsidiary (10,073) -
Other (1,287) (5,479)
-------------------- --------------------
(24,240) (13,707)
-------------------- --------------------
EARNINGS BEFORE INCOME TAXES 9,861 23,290
Income taxes 9,043 6,754
-------------------- --------------------
NET EARNINGS $818 $16,536
==================== ====================
Basic and diluted earnings per share $0.01 $0.24
==================== ====================
Weighted average shares outstanding - assuming dilution 67,730 67,628
</TABLE>
<PAGE>
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 818 $ 16,536
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 35,735 27,739
Loss on sale of subsidiary 10,073 0
Other (7,298) (7,584)
Changes in operating assets and liabilities (31,068) (28,797)
------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,260 7,894
INVESTING ACTIVITIES
Purchases of property and equipment (25,026) (35,001)
Proceeds from sale of property and equipment 723 836
Proceeds from sale of subsidiary 9,118 0
Purchase of businesses, net of cash acquired 0 (479,079)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (15,185) (513,244)
FINANCING ACTIVITIES
Net proceeds(payments) on revolving credit lines (16,735) 526,223
Proceeds from long-term borrowings 296 3,104
Payments on long-term borrowings (1,978) (1,081)
Net proceeds on short-term borrowings 6,689 2,118
------------------- -------------------
NET CASH PROVIDED(USED) BY
FINANCING ACTIVITIES (11,728) 530,364
Effect of exchange rate changes on cash (3,268) (345)
------------------- -------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (21,921) 24,669
Cash and cash equivalents at beginning of period 113,729 55,263
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 91,808 $ 79,932
=================== ===================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
March 31, 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 number of shares used in the calculation of basic earnings per common share
were 67,558,000 and 67,545,000 for the quarters ended March 31, 1999 and 1998,
respectively. The number of shares used in the calculation of diluted earnings
per common share were 67,730,000 and 67,628,000 for the quarters ended March 31,
1999 and 1998, respectively. For the quarter ended March 31, 1999, options to
purchase 3,474,000 shares at prices ranging from $20.42 to $41.14 per share 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 the 5%
stock dividend paid on June 11, 1998.
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.
Three Months Ended
March 31,
1999 1998
------------------------------
(In thousands)
Business Segment Information
Net Sales:
Passives $251,532 $280,014
Actives 171,526 68,730
-------- --------
$423,058 $348,744
-------- --------
<PAGE>
Operating Income:
Passives $ 16,619 $ 37,292
Actives 23,338 5,402
Corporate (2,564) (3,424)
Amortization of goodwill (3,292) (2,273)
-------- --------
$ 34,101 $ 36,997
-------- --------
Note 4: Comprehensive Income
Total comprehensive income (loss) includes the following components (in
thousands):
Three Months Ended
March 31,
1999 1998
------------------------------
Net Income $ 818 $ 16,536
Other comprehensive income (loss):
Foreign currency translation adjustment (42,149) (11,395)
Pension liability adjustment, net of tax 534 139
-------- --------
Total other comprehensive income (loss) (41,615) (11,256)
-------- --------
Comprehensive income (loss) $(40,797) $ 5,280
-------- --------
Note 5: Income Taxes
The effective tax rate for the quarter ended March 31, 1999 was 91.7% as
compared to 29.0% for the quarter ended March 31, 1998. The unusual effective
tax rate for the quarter ended March 31, 1999 was due to the following: (i) the
non tax deductibility on the pre tax 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 quarter ended March 31,
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 quarter ended March 31, 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.
<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:
Quarter ended March 31,
1999 1998
---- ----
Cost of products sold 76.4% 75.6%
Gross profit 23.6 24.4
Selling, general and
administrative expenses 14.8 13.2
Operating income 8.1 10.6
Earnings before income taxes 2.3 6.7
Effective tax rate 91.7 29.0
Net earnings 0.2 4.7
Net Sales
Net sales for the quarter ended March 31, 1999 increased $74,314,000 or
21.3% from the quarter ended March 31, 1998 and $11,400,000 or 2.8% from the
quarter ended December 31, 1998. The increase in net sales for the quarter ended
March 31, 1999 as compared to the prior year `s period relates to the
acquisition of TEMIC, which became effective March 1, 1998. Net sales of TEMIC
for the quarter ended March 31, 1999 were $154,778,000 as compared to
$49,947,000 in the prior year quarter. The results of operations of TEMIC have
been included in the Company's results from March 1, 1998. Exclusive of TEMIC in
both periods, net sales would have decreased by $30,517,000 or 10.2%. The
strengthening of the U.S. dollar against foreign currencies for the quarter
ended March 31, 1999 in comparison to the prior year quarter, resulted in a
decrease in reported sales of $5,213,000. The passive components business net
sales were $251,532,000 for the quarter ended March 31, 1999 compared to
$280,014,000 for the prior year period. Net sales of the passive components
business were negatively affected by significant price erosion, which began in
the second quarter 1998.
Costs of Products Sold
Costs of products sold for the quarter ended March 31, 1999 was 76.4%
of net sales, as compared to 75.6% of net sales, for the quarter ended March 31,
1998 and 76.1% of net sales, for the quarter ended December 31, 1998. Gross
profit, as a percentage of net sales, for the quarter ended March 31, 1999
decreased from the prior year's period mainly due to the passive components
business. The passive components business gross profit margins were 19.8% for
the quarter ended March 31, 1999 as compared to 24.5% for the prior year's
period. Profitability for the passive components business was negatively
affected by significant price erosion, which began in the
<PAGE>
second quarter of 1998. The semiconductor components gross margins were 30.1%
for the quarter ended March 31, 1999 as compared to 24.3% for the prior year's
period. The increase in the gross margins of the semiconductor components
business is due to the TEMIC acquisition, which recorded gross margins of 31.7%
for the quarter ended March 31, 1999 as compared to a gross margin of 28.2% for
the month ended March 31, 1998.
Israeli government grants, recorded as a reduction of costs of products
sold, were $3,422,000 for the quarter ended March 31, 1999, as compared to
$3,043,000 for the prior year's period. 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 March 31, 1999 relating to
Israeli government grants was $55,757,000 as compared to $59,264,000 at December
31, 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended
March 31, 1999 were 14.8% of net sales, as compared to 13.2% of net sales for
the quarter ended March 31, 1998, and 15.0% of net sales for the quarter ended
December 31, 1998. The increased selling, general and administrative expenses
for the quarter ended March 31, 1999 as compared to the prior year's period,
were primarily due to the acquisition of TEMIC, for which selling, general and
administrative expenses were 17.0% for the quarter ended March 31, 1999.
Interest Expense
Interest costs increased by $4,652,000 for the quarter ended March 31,
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. Interest expense, for the quarter ended March 31, 1999, decreased by
$1,065,000 from the quarter ended December 31, 1998, due to payments of long
term debt in the fourth quarter of 1998 and also in the first quarter ended
March 31, 1999.
Other Income
Included in other income for the quarter ended March 31, 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 $2,519,000 for the quarter ended
March 31, 1999 and $371,000 for the quarter ended March 31, 1998.
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
<PAGE>
The effective tax rate for the quarter ended March 31, 1999 was 91.7%
as compared to 29.0% for the comparable prior year period. The higher tax rate
for the quarter ended March 31,1999 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 quarter ended
March 31, 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 $2,998,000 and $3,370,000 for the quarters ended
March 31, 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 $8,260,000 for the quarter ended March
31, 1999 compared to $7,894,000 for the comparable prior year period. Net
purchases of property and equipment for the quarter ended March 31, 1999 were
$25,026,000 compared to $35,001,000 in the prior year's period. Net cash
provided by financing activities of $530,364,000 for the quarter ended March 31,
1998 included approximately $479,000,000 used to finance the acquisition of
TEMIC, net of cash acquired.
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 March 31, 1999, approximately 275 of such employees
have been terminated and $9,124,000 of the termination costs have 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 March 31, 1999, approximately 136
employees had been terminated and $2,602,000 of this severance had 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 and $960,000 relates to other costs. As
of March 31, 1999, approximately 93 of such employees have been terminated and
$12,527,000 of the termination costs have been paid. The balance of $16,984,000
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 March 31, 1999 is strong, with a
current ratio of 3.1 to 1. The Company's ratio of long-term debt (less current
portion) to stockholders' equity was .82 to 1 at March 31, 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
<PAGE>
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. 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 March 31, 1999, 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.
<PAGE>
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.
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.
<PAGE>
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 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, 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 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.
<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 as adverse effect on the Company's results
of operations.
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:
<PAGE>
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
additions, 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.
<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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Not applicable
<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: May 14, 1999
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