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UNITED STATES
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, 2003
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 _______
Commission file number 1-7416
VISHAY INTERTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
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(State or other jurisdiction (IRS employer
incorporation or organization) of identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2143
(Address of principal executive offices)
(610) 644-1300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value
(Title of Class)
New York Stock Exchange
(Exchange on which registered)
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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined Exchange Act Rule 12b-2).
Yes X No
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The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the common equity was last sold as
of the last business day of the registrant's most recently completed second
fiscal quarter, assuming conversion of all of its Class B common stock held by
non-affiliates into common stock of the registrant, was $1,909,596,000. There is
no non-voting stock outstanding.
As of March 9, 2004, registrant had 145,539,733 shares of its common stock
and 14,979,440 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, 2003, 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. is a leading international manufacturer and
supplier of passive and discrete active electronic components. Passive
components include resistors, capacitors, transducers and inductors. Active
components include diodes, transistors, rectifiers, power integrated circuits
(ICs), infrared transceivers, infrared (IR) sensors and optocouplers. Passive
electronic components and discrete active electronic components are the primary
elements of almost every electronic circuit. We offer our customers "one-stop"
access to one of the most comprehensive electronic component lines of any
manufacturer in the United States, Europe and Asia in both the newer surface
mount configuration and the traditional leaded form.
Our components are used in virtually every type of product that contains
electronic circuitry, including:
o computer-related products, o automotive applications,
o power management products, o process control systems,
o telecommunications o military and aerospace
equipment, applications,
o measuring instruments, o consumer electronics and
appliances,
o industrial equipment,
o medical instruments, and
o electronic scales.
Since 1985, we have pursued a business strategy that principally consists
of the following elements:
1. expanding within the electronic components industry, primarily through
the acquisition of other manufacturers of electronic components that have
established positions in major markets, reputations for product quality and
reliability, and product lines with which we have substantial marketing and
technical expertise;
2. reducing selling, general and administrative expenses through the
integration or elimination of redundant sales offices and administrative
functions at acquired companies;
3. achieving significant production cost savings through the transfer and
expansion of manufacturing operations to regions such as the Czech Republic,
Hungary, India, Israel, Malaysia, Mexico, the People's Republic of China, the
Philippines, Portugal and the Republic of China (Taiwan), where we can take
advantage of lower labor costs and available tax and other government-sponsored
incentives;
4. maintaining significant production facilities in those regions where we
market the bulk of our products in order to enhance the service and
responsiveness that we provide to our customers;
5. consistently rolling out new and innovative products; and
6. strengthening our relationships with customers and strategic partners.
As a result of this strategy, we have grown from a small manufacturer of
precision resistors and resistance strain gages to one of the world's largest
manufacturers and suppliers of a broad line of electronic components.
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Our significant acquisitions in the last several years include:
Siliconix and Telefunken. We acquired an 80.4% interest in Siliconix
incorporated (NASDAQ: SILI) in March 1998 from Daimler-Benz A.G. Siliconix is a
publicly traded chip maker, based in Santa Clara, California, which designs,
markets and manufactures power and analog semiconductor products, such as
metal-oxide-semiconductor field-effect transistors (MOSFETs), junction
field-effect transistors (JFETs), bipolar switches, signal processing ICs and
power ICs for computers, cell phones, fixed communications networks, automobiles
and other electronic systems. Siliconix has manufacturing facilities in Santa
Clara, California, maintains assembly and testing facilities in the Republic of
China (Taiwan), is party to a joint venture in Shanghai, the People's Republic
of China and has subcontractors in the Philippines, the People's Republic of
China, Israel, and the United States. Siliconix reported worldwide sales of
$392.1 million in 2003, $372.9 million in 2002, and $305.6 million in 2001.
In the same transaction, we acquired from Daimler-Benz the semiconductor
business unit of TEMIC Telefunken Microelectronic GmbH headquartered in
Heilbronn, Germany, but promptly disposed of its integrated circuits division.
Telefunken launched our expansion into discrete active components with a product
line of diodes, RF transistors, optoelectronic semiconductors, infrared data
transceivers (IRDCs) and light-emitting diodes (LEDs). Our net cost of these two
acquisitions was approximately $444 million.
Electro-Films, Cera-Mite and Spectrol. In May 2000, we acquired
Electro-Films, Inc., a manufacturer of thin film components and networks on
ceramic and silicon. In August 2000, we acquired Cera-Mite Corporation, a
worldwide supplier of ceramic capacitors, used in power supplies, electronic
lighting and other applications, and thermistors (temperature-sensitive
resistors) used in refrigeration, HVAC, telecommunications and other electronic
applications. Separately, in August 2000, we acquired Spectrol, a manufacturer
of sensing potentiometers used primarily in the automotive industry and trimmer
potentiometers used in various kinds of electronic circuitry.
Tansitor and Mallory. In January 2001, we acquired Tansitor, a leading
manufacturer of wet tantalum electrolytic capacitors and miniature conformal
coated solid tantalum capacitors. These components have power management
applications in the military, aerospace and medical industries. Later, in
November 2001, we acquired Yosemite Investment, Inc. d/b/a the North American
Capacitor Company, known as Mallory, a manufacturer and distributor of wet
tantalum capacitors and other products. As a result of these two acquisitions,
we have become the number one manufacturer of wet tantalum capacitors worldwide.
Infineon. In July 2001, we acquired the infrared components business of
Infineon A.G. for approximately $116 million. As a result, we added several new
device types to our optoelectronics portfolio. We also became the largest
supplier outside Japan of optocouplers and the largest supplier worldwide of
IRDCs.
General Semiconductor. On November 2, 2001, we completed the acquisition
of General Semiconductor, Inc., a leader in the design, manufacture and
distribution of semiconductors for the power management market. In the
transaction, we exchanged 0.563 of a share of Vishay common stock for each share
of General Semiconductor stock. Based on the closing price of our common stock
on November 2, 2001, the transaction was valued at approximately $555 million.
General Semiconductor manufactures and distributes a broad range of power
management products, including rectifiers, transient voltage suppressors,
small-signal transistors, diodes, MOSFETs and analog ICs. As a result of this
acquisition, we became the number one manufacturer of diodes and rectifiers
worldwide.
Sensortronics, Tedea-Huntleigh, BLH and Nobel, and Celtron. In January
2002, we acquired the transducer and strain gage business of Sensortronics, Inc.
In June 2002, we acquired Tedea-Huntleigh BV, a leading manufacturer of load
cells used in digital scales by the weighing industry. In July 2002, we
purchased the BLH and Nobel businesses from Thermo Electron Corporation. BLH and
Nobel are engaged in the production and sale of load cell based process weighing
systems, weighing and batching instruments, web tension instruments, weighing
scales, servo control systems, and components relating to load cells, including
strain gages, foil gages and transducers. In October 2002, we acquired Celtron
Technologies, another company engaged in the production and sale of load cells
used in digital scales for the weighing industry. As a result of these
acquisitions, the product portfolio of our Measurements Group has been expanded
and we are now a world leader in stress analysis products and transducers used
in the weighing industry (load cells).
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BCcomponents. In December 2002, we completed the acquisition of
BCcomponents Holdings B.V., a leading manufacturer of passive components with
operations in Europe, India and the People's Republic of China. The product
lines of BCcomponents include linear and non-linear resistors; ceramic, film and
aluminum electrolytic capacitors; switches; and trimming potentiometers. We
acquired the outstanding shares of BCcomponents in exchange for ten-year
warrants to acquire 7,000,000 shares of Vishay common stock at an exercise price
of $20.00 per share and ten-year warrants to acquire 1,823,529 shares of Vishay
common stock at an exercise price of $30.30 per share. In the transaction, we
paid or assumed outstanding obligations of BCcomponents, including indebtedness,
transaction fees and expenses in the amount of approximately $224 million. Also,
we exchanged $105 million in principal amount of BCcomponents' mezzanine
indebtedness and certain other securities of BCcomponents for $105 million
principal amount of floating rate unsecured loan notes of Vishay due 2102. This
major acquisition has significantly enhanced our global market position in
passive components.
In addition to our acquisition activity in recent years, we have taken
steps to assure our competitiveness, enhance our operating efficiency and
strengthen our liquidity in the face of the economic downturn, which broadly
impacted the electronics industry in recent years. In this regard, we:
(i) closed or consolidated several manufacturing facilities and
administrative offices;
(ii) reduced our headcount, particularly in high labor cost countries;
(iii) integrated our acquisitions within our existing management and
operational infrastructure; and
(iv) relying on the strength of our balance sheet, continued our search
for suitable acquisition candidates.
Vishay also intends to explore opportunities for investments of
non-controlling interests in privately held developers or manufacturers of
electronic components, where Vishay believes that it can forge strategic
alliances with such companies.
Vishay was incorporated in Delaware in 1962 and maintains its principal
executive offices at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2143. Our
telephone number is (610) 644-1300.
Products
We design, manufacture and market electronic components that cover a wide
range of products and technologies. Our products primarily consist of:
o resistors, o signal processing ICs,
o tantalum capacitors, o transistors,
o multi-layer and disc ceramic o voltage suppressors,
capacitors (MLCCs),
o aluminum and specialty ceramic o infrared data transceivers
capacitors, (IRDCs),
o film capacitors, o optocouplers,
o power MOSFETs, o IR sensors,
o power ICs, o strain gages and load cells, and
o diodes and rectifiers
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and, to a lesser extent:
o inductors, o plasma displays,
o connectors, o thermistors, and
o transformers, o potentiometers.
We manufacture 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, we continue to produce components in the
traditional leaded form. We believe that we produce one of the broadest lines of
discrete electronic components available from any single manufacturer.
Passive Components
Passive components include resistors, capacitors and inductors. They are
referred to as "passive" because they do not require power to operate. These
components adjust and regulate voltage and current, store energy and filter
frequencies. We also include in this category the products and services of our
Measurements Group that employ passive components in electro-mechanical
measurements.
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 from numerous materials and in many
forms. Linear resistive components are classified as variable or fixed,
depending on whether or not their resistance is adjustable. Non-linear resistors
can also be used as measuring devices. We manufacture a line of thermistors,
which are heat sensitive resistors. Other types of resistive sensors are strain
gages for measurement of mechanical stress. See "Measurements Group" below.
We manufacture virtually all types of fixed resistors, both in discrete
and network forms, as well as many variable types. 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
resistor is the most important requirement, to low-cost resistors for which
price is the most important factor.
Capacitors perform energy storage, frequency control, discharge, coupling,
timing and filtering functions. The more important applications for capacitors
are:
o electronic filtering for linear and switching power supplies;
o decoupling and bypass of electronic signals for integrated circuits and
circuit boards; and
o frequency control, timing and conditioning of electronic signals for a
broad range of applications.
Our capacitor products include solid tantalum surface mount chip
capacitors, solid tantalum leaded capacitors, wet/foil tantalum capacitors, MLCC
capacitors, disc ceramic capacitors, aluminum and specialty ceramic capacitors,
and film capacitors. Each capacitor product has unique physical and electrical
performance characteristics that make that 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 type of capacitor for its range
of capacitance. MLCC capacitors, on the other hand, are more cost-effective for
applications requiring lower capacitance. Disc ceramic capacitors are used for
high voltage applications. Aluminum capacitors are used for high capacitance
applications. Film capacitors are for general use in telecommunications,
automotive, consumer and industrial products. They are the most stable
capacitors.
Inductors use an internal magnetic field to change the phase of electric
current. They are utilized in electronic circuitry to control alternating
current and voltage, and to filter out unwanted electronic signals. They are
also used in transformers to change voltage levels.
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Measurements Group
Vishay Measurements Group is a leading manufacturer of products for
precision measurement of mechanical strains. Our products include strain gages,
load cells, force measurement sensors, displacement sensors, and photoelastic
sensors. These products are used in experimental stress analysis systems, as
well as in the electronic measurement of loads (electronic scales), acceleration
and fluid pressure. The Measurements Group also provides installation
accessories for its products, instrumentation to sample and record measurement
output, and training seminars in stress analysis testing and transducer
development and manufacture.
As a result of Vishay's acquisitions in 2002, the Measurements Group has
implemented a strategy of vertical market integration, with a product range from
resistance strain gages, to transducers (the metallic structures to which strain
gages are cemented), to the electronic instruments and systems that measure and
control output of the transducers. Vishay Measurements Group now has two
operating divisions: Vishay Micro-Measurements (for strain gages, instruments
and PhotoStress products) and Vishay Transducers (for load cells, weigh modules,
instruments and weighing systems).
Active Components
Our active electronic components include both discrete devices and
integrated circuits (ICs). They are referred to as "active" because they require
power to function. Discrete devices are single components or an arrangement of
components that generate, control, regulate and amplify or switch electronic
signals or energy. Examples of our discrete active components include diodes,
rectifiers, transient voltage suppressors, transistors and power MOSFETs. These
devices are interconnected with passive components or other active components to
create an electronic circuit. Our IC devices consist of a number of active and
passive components interconnected on a single chip to perform a specific
function. Examples of our integrated circuits include power ICs, motor control
ICs and signal processing ICs. Our discrete active components and ICs are
manufactured and marketed primarily through our majority owned Siliconix
subsidiary, our Telefunken unit and the General Semiconductor business.
We also include in the category of active components our line of
optoelectronic components, manufactured and marketed by our Telefunken unit, and
the infrared components business acquired from Infineon A.G.
Discrete Devices
Diodes and rectifiers are used to convert electrical currents from
alternating current (AC) into direct current (DC) by conducting electricity in
one direction and blocking it in the reverse direction. Because electrical
outlets carry AC while the vast majority of electronic devices use DC,
rectifiers are used in a wide variety of applications. We offer a broad line of
diodes and rectifiers with differing power, speed, cost, packaging and
conversion (half wave or full wave) characteristics. Our rectifiers include a
series of high voltage devices that have been optimized for power correction
circuits.
Transient voltage suppressors protect electronic circuits by limiting
voltage to a safe level. Examples of transient events that could damage
unprotected circuits include static electricity charges and natural or induced
lightning. Voltage suppressors protect circuits by absorbing large amounts of
energy for short periods of time. We offer a broad range of state-of-the-art
transient voltage suppressors for use in most modern electronic equipment.
Small signal diodes and transistors perform amplification, signal
blocking, routing and switching functions at lower current levels. Our
small-signal transistors range from the older junction field-effect transistors
(JFETs), to newer products such as those based upon double-diffused metal oxide
semiconductor (DMOS) technology.
Discrete power MOSFETs are specialized field-effect transistors used to
switch and manage power in a broad range of electronic devices. These include
particularly low-voltage applications such as cell phones, portable and desktop
computers, automobiles, instrumentation and industrial applications. Our
innovative "trench" power MOSFET technology offers very high cell density, very
low on-resistance and optimized switching parameters for high frequency DC-DC
power conversion. Power MOSFETs conserve power and help prevent components from
over-heating.
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Integrated Circuits
Power ICs are used in applications such as cell phones, where an input
voltage from a battery or other supply source must be switched, interfaced or
converted to a level that is compatible with logic signals used by
microprocessors and other digital components. Our ICs are designed to operate at
higher frequencies without compromising efficiencies. Often our power MOSFETs
and power ICs can be used together as chip sets with complementary performance
characteristics optimized for a specific application.
Motor control ICs control the starting, speed or position of electric
motors, such as the head positioning and spindle motors in hard disk drives.
Signal processing ICs are used for analog switching and multiplexing in
devices that either receive or output analog (non-digital) signals. A recent
application of this technology is in broadband communications devices such as
DSL modems.
Optoelectronics
Our line of optoelectronic components includes light emitting diodes
(LEDs), infrared emitters (IREDs) and photo detectors, infrared receiver
modules, optocouplers, solid-state relays (SSRs), optical sensors, and infrared
transceivers (IRDCs).
Our photo detectors are light-sensitive semiconductor devices, and include
linear photo diodes for light measurement, photo-transistors for light switching
applications in printers, copiers, facsimile machines, vending machines and
automobiles, and high speed photo PIN diodes specially designed for infrared
data transfer. Our photo detector products are available in a wide variety of
sensitivity angles, light sensitivities, daylight filters and packaging shapes.
Our infrared emitters are used for optical switching and data transfer
applications, often in conjunction with our photo detectors, and in devices like
infrared remote controls for televisions.
An optocoupler consists of an infrared emitting diode and a receiver
facing each other through an insulation medium inside a light-isolated housing.
The receiver may either be a photodetector or a pair of MOSFETs, and in the
latter case the device is referred to as a solid-state relay (SSR). The function
of an optocoupler is to electrically isolate input and output signals. Our
optocouplers are used in switch mode power supplies, safety circuitry and
programmable controllers for computer monitors, consumer electronics,
telecommunications equipment and industrial systems.
IRDCs consist of a detector photo diode, an infrared light emitting diode
and a control IC. IRDCs are used for short range, two-way wireless, infrared
data transfer between electronic devices such as mobile phones and other
telecommunications equipment, computers and personal digital assistants (PDAs).
LEDs are light emitting diodes used as light indicators in a variety of
industries.
Packaging
We have taken advantage of the growth of the surface mount component
market, and we are 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 the
surface of a circuit board, and also allows placement on both sides of the
board. This is particularly desirable in applications such as hand held
computers and cell phones where there is a continuing design trend towards
product miniaturization. Surface mounting also facilitates automated product
assembly, resulting in lower production costs for equipment manufacturers than
those associated with leaded or through-hole mounted devices.
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We believe that we are a market leader in the development and production
of a wide range of surface mount devices, including:
o thick film chip resistors, o wirewound chip resistors,
o thick film resistor networks o power strip resistors,
and arrays,
o metal film leadless o bulk metal foil chip
resistors (MELFs), resistors,
o molded tantalum chip o current sensing chips,
capacitors,
o coated tantalum chip o chip inductors,
capacitors,
o multi-layer ceramic chip o chip transformers,
capacitors,
o thin film chip resistors, o chip trimmers,
o thin film networks, o NTC chip thermistors,
o certain diodes and o PTC chip thermistors, and
transistor products,
o power MOSFETs, o strain gages.
We also provide a number of component packaging styles to facilitate
automated product assembly by our customers.
Military Qualifications
We have 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. DESC qualification
levels are based in part upon the rate of failure of products. In order to
maintain the classification level of a product, we must continuously perform
tests on the product 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 lower level. Products
from some of our United States manufacturing facilities experience a reduction
in product classification levels from time to time. During the time that the
DESC classification level is reduced for a product with military application,
net sales and earnings attributable to that product may be adversely affected.
Customers
We sell our products primarily to original equipment manufacturers (OEMs),
electronic manufacturing services (EMS) companies, which manufacture for OEMs on
an outsourcing basis, and independent distributors that maintain large
inventories of electronic components for resale to OEMs.
To better serve our customers, we maintain production facilities in
regions where we market the bulk of our products, principally in the United
States, Israel, Mexico, Germany, France, the United Kingdom, Austria, Hungary,
and the Czech Republic. In Asia, we have facilities in the People's Republic of
China, Taiwan, Malaysia, and the Philippines. We work with our customers so that
our products are incorporated into the design of electronic equipment at the
research and prototype stages. We also employ a staff of application and field
engineers to assist our customers, independent manufacturers' representatives
and distributors in solving technical problems and developing products to meet
specific needs.
Our top 30 customers are quite stable despite not having long-term
commitments to purchase our products. With selected customers, we have signed
two to three year contracts for specific products.
During 2003, approximately 26% of our net sales were attributable to
customers in the Americas, approximately 38% were attributable to customers in
Europe, and approximately 36% were attributable to customers in Asia.
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Marketing
Our products are marketed through independent manufacturers'
representatives compensated solely on a commission basis, by our own sales
personnel and by independent distributors. We have 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. As noted, we also use
independent distributors to resell our products. Outside North America, we use
similar channels to sell our products worldwide.
Research and Development
Many of our products and manufacturing techniques, technologies and
packaging methods have been invented, designed and developed by our engineers
and scientists. We maintain strategically placed design centers where proximity
to customers enables us to more easily gauge and satisfy the needs of local
markets. These design centers are located predominantly in the United States,
France, Germany, Israel, the People's Republic of China, the Republic of China
(Taiwan) and South Korea.
We also maintain research and development staffs and promote programs at a
number of our 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. Our research and development costs (exclusive of purchased
in-process research and development) were approximately $45.4 million for 2003,
$37.1 million for 2002, and $30.2 million for 2001. These amounts include
expenditures of our Siliconix subsidiary of $19.5 million, $19.3 million, and
$17.2 million in 2003, 2002, and 2001, respectively, principally for the
development of new power products and power ICs. These amounts do not include
substantial expenditures for the development and manufacturing of machinery and
equipment for new processes and for cost reduction measures.
Although we have numerous United States and foreign patents covering
certain of our products and manufacturing processes, no particular patent is
considered material to our business.
Sources of Supplies
Although most materials incorporated in our 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
We are a major consumer of the world's annual production of tantalum.
Tantalum, a metal purchased in powder or wire form, is the principal material
used in the manufacture of tantalum capacitors. There are currently three major
suppliers that process tantalum ore into capacitor grade tantalum powder. Due to
the strong demand for our tantalum capacitors and difficulty in obtaining
sufficient quantities of tantalum powder from our suppliers, we stockpiled
tantalum ore in 2000 and early 2001. From 2001 to 2003, we and our competitors
experienced a significant decline in the tantalum capacitor business as well as
significant decreases in the market prices for tantalum. As a result, we
recorded in costs of products sold write-downs of $25.7 million and $52.0
million, respectively, on tantalum inventories during the years ended December
31, 2002 and 2001. We also recorded a loss on future purchase commitments of
$106.0 million for the year ended December 31, 2002. In 2003, prices of tantalum
continued to decline. As a result, we recorded write-downs of $5.4 million to
reduce our tantalum inventories to current market value in 2003. We also
recorded a loss on future purchase commitments of $11.4 million in 2003. Our
purchase commitments were entered into at a time when market demand for tantalum
capacitors was high and tantalum powder was in short supply. If the downward
pricing trend were to continue, we could again be required to write down the
carrying value of its tantalum inventory and record additional losses on its
long-term purchase commitments.
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We have two agreements with Cabot Corporation for the supply of tantalum
powder, a July 2000 agreement and a November 2000 agreement. Our purchase
commitments with Cabot were entered into at a time when market demand for
tantalum capacitors was high and tantalum powder was in short supply. With the
decline in market demand and prices for tantalum, we began the process of
negotiating modifications to the agreements with Cabot during 2001. Our major
competitors in the tantalum capacitor business were also seeking modifications
to their contracts with Cabot. In June 2002, following the prior initiation of
legal proceedings by Cabot, we and Cabot agreed to make certain modifications to
the supply agreements. These included price reductions, the extension of the
term of one of the contracts, and the regular scheduling of our purchase
commitments.
Palladium
Palladium, a metal used to produce multi-layer ceramic capacitors, is
currently found primarily in South Africa and Russia. Palladium is a commodity
product that is subject to price volatility. The price of palladium fluctuated
in the range of approximately $148 to $1,090 per troy ounce during the three
years ended December 31, 2003, and as of December 31, 2003, the price of
palladium was approximately $195 per troy ounce. During the years ended December
31, 2003, 2002 and 2001, we recorded in costs of products sold write-downs on
palladium inventories of $1.6 million, $1.7 million and $18.0 million,
respectively.
Inventory and Backlog
We manufacture both standardized products and those designed and produced
to meet customer specifications. We maintain an inventory of resistors and other
standardized components. Backlogs of outstanding orders for our products were
$532.0 million, $407.6 million, and $337.9 million, respectively, at December
31, 2003, 2002, and 2001. The backlog at December 31, 2003 and 2002 includes
$58.9 million and $49.8 million, respectively, of backlog attributable to the
business of BCcomponents, which was acquired in December 2002. The increase in
our backlog at December 31, 2003 compared to December 31, 2002 is indicative of
improving market conditions.
Many of the orders that comprise our backlog may be canceled by customers
without penalty. Customers may on occasion double and triple order components
from multiple sources to ensure timely delivery when backlog is particularly
long. Customers often cancel orders when business is weak and inventories are
excessive, a situation that we experienced in the recent economic slowdown.
Therefore, the amount of our backlog may exceed the level of orders that will
ultimately be delivered. Our results of operations could be adversely impacted
if customers cancel a material portion of orders in our backlog.
Competition
We face strong competition in various product lines from both domestic
and foreign manufacturers that produce products using technologies similar to
ours. Our main competitors for tantalum capacitors are KEMET Corporation, AVX
Corporation and NEC Electronics, Inc. For MLCC capacitors, our principal
competitors are KEMET, AVX, Murata and TDK Corp. For thick film chip
resistors, our major competitors include Rohm Corp., Koa Speer Electronics
Inc. and Yageo Corporation. For wirewound and metal film resistors, the
principal competitors are I.R.C. Inc., Rohm Corp. and Ohmite Manufacturing
Company. For active components, our main competitors include International
Rectifier, Philips, N.V., ON Semiconductor, Rohm Corp., Motorola, Inc.,
Fairchild Semiconductor Corp., Maxim, Shindengen Electric Manufacturing Co.
Ltd., Sanken Electric Co. Ltd., STMicroelectronics N.V. and Samsung Co., Ltd.
There are many other companies that produce products in the markets in which
we compete.
11
Our competitive position depends on our product quality, know-how,
proprietary data, marketing and service capabilities and business reputation, as
well as on price. We compete for sales of certain products on the basis of our
marketing and distribution network, which provides a high level of customer
service. For example, we work closely with our customers to have our components
incorporated into their electronic equipment at the early stages of design and
production and maintain redundant production sites for some of our products to
ensure an uninterrupted supply of products. We have also established a National
Accounts Management Program, which provides our largest customers with one
national account executive who can cut across business unit lines for sales,
marketing and contract coordination. In addition, the breadth of our product
offerings enables us to strengthen our market position by providing customers
with "one-stop" access to one of the broadest selections of passive electronic
components available directly from a manufacturing source.
Manufacturing Operations
We strive to balance the location of our manufacturing facilities. In
order to better serve our customers, we maintain some of our production
facilities in regions where we market the bulk of our products, such as the
United States, Germany, France, the United Kingdom, and more recently, Asia. To
maximize production efficiencies, we seek whenever practicable to establish
manufacturing facilities in countries, such as the Czech Republic, Hungary,
India, Israel, Malaysia, Mexico, the People's Republic of China, the
Philippines, Portugal, and the Republic of China (Taiwan), where we 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.
Some of our most sophisticated manufacturing operations are the production
of power semiconductor components. This manufacturing process involves two
phases of production: wafer fabrication and assembly (or packaging). Wafer
fabrication subjects silicon wafers to various thermal, metallurgical and
chemical process steps that change their electrical and physical properties.
These process steps define cells or circuits within numerous individual devices
(termed "dies" or "chips") on each wafer. Assembly is the sequence of production
steps that divides the wafer into individual chips and encloses the chips in
structures (termed "packages") that make them usable in a circuit. Both wafer
fabrication and assembly phases incorporate wafer level and device level
electrical testing to ensure that device design integrity has been achieved.
At December 31, 2003, approximately 21% of our fixed assets were located
in the United States, approximately 30% were located in Europe, approximately
26% were located in Israel, and approximately 30% were located in Asia. In the
United States, our manufacturing facilities are located in California,
Connecticut, Indiana, Maine, Maryland, New York, Nebraska, North Carolina,
Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin. In Europe, our
main manufacturing facilities are located in Germany, France, Hungary, and the
Czech Republic, with other facilities in Austria, Belgium, Portugal and the
Netherlands. We also have manufacturing facilities in India, Israel, Malaysia,
Mexico, the People's Republic of China, the Philippines and the Republic of
China (Taiwan). Over the past several years, we have invested substantial
resources to increase capacity and to maximize automation in our plants, which
we believe will further reduce production costs.
We are aggressively undertaking to have the quality systems at most of our
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 our
manufacturing operations have already received ISO 9001 approval and others are
actively pursuing such approval.
In 2003, we continued the implementation of our strategy to shift
manufacturing emphasis to higher automation in higher labor cost regions and to
relocate a fair amount of production to regions with skilled workforces and
relatively lower labor costs. As a result, we incurred restructuring costs in
the year ended December 31, 2003 associated with the downsizing of manufacturing
facilities in Europe and the United States. We may continue to incur such
expenses in 2004.
See Note 16 to our consolidated financial statements, "Business Segment
and Geographic Area Data," for financial information by geographic area.
12
Israeli Government Incentives
We have substantial manufacturing operations in Israel, where we benefit
from the government's employment and tax incentive programs designed to increase
employment, lower wage rates and increase our ability to attract a
highly-skilled labor force, all of which have contributed substantially to our
growth and profitability. For the year ended December 31, 2003, sales of
products manufactured in Israel accounted for approximately 17% of our net
sales.
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 our approved projects has ever
been cancelled or modified, and we have already received approval for a majority
of the projects contemplated by our capital expenditure program. However, as a
result of the recent economic downturn, we were forced to lay off a significant
number of employees in Israel in 2001. In 2002, the Israeli government initially
withheld certain grant monies claiming that we had not maintained employment at
the required minimum levels; however, we were able to settle our dispute in the
fourth quarter and the government agreed to continue making grant payments to
us. While the number of employees continues to satisfy the eligibility
requirements for our Israeli government grants, economic circumstances could
compel future additional layoffs. Also, over the past few years, the Israeli
government has scaled back or discontinued some of its incentive programs. There
can be no assurance that we will maintain our eligibility for existing projects
or that in the future the Israeli government will continue to offer new
incentive programs applicable to us or that, if it does, such programs will
provide the same level of benefits we have historically received or that we will
continue to be eligible to take advantage of them. Because we have received
approvals for most projects currently contemplated, we do not anticipate that
cutbacks in the incentive programs for new projects would have an adverse impact
on our earnings and operations for at least several years.
We might be materially adversely affected if events were to occur in the
Middle East that interfered with our operations in Israel. However, we have
never experienced any material interruption in our Israeli operations in our 33
years of operations there, in spite of several Middle East crises, including
wars.
Environment, Health and Safety
We have adopted an Environmental Health and Safety Corporate Policy that
commits us to achieve and maintain compliance with applicable environmental
laws, to promote proper management of hazardous materials for the safety of our
employees and the protection of the environment, and to minimize the hazardous
materials generated in the course of our operations. This policy is implemented
with accountability directly to the Chairman of the Board of Directors. In
addition, our manufacturing operations are subject to various federal, state and
local laws restricting discharge of materials into the environment.
We are not involved in any pending or threatened proceedings that would
require curtailment of our operations. We continually expend funds to ensure
that our facilities comply with applicable environmental regulations. In regard
to all of our facilities, we have completed our undertaking to comply with
environmental regulations relating to the elimination of chlorofluorocarbons
(CFCs) and ozone depleting substances (ODS) pursuant to the Clean Air Act
amendments of 1990. We have completely eliminated the use of CFCs and ODS in our
manufacturing processes, and all facilities are currently in compliance with the
Clean Air Act.
While we believe that we are in material compliance with applicable
environmental laws, we cannot accurately predict future developments and do not
necessarily have knowledge of past occurrences on sites that we currently
occupy. More stringent environmental regulations may be enacted in the future,
and we cannot determine the modifications, if any, in our operations that any
such future regulations might require, or the cost of compliance with such
regulations. Moreover, the risk of environmental liability and remediation costs
is inherent in the nature of our business and, therefore, there can be no
assurance that material environmental costs, including remediation costs, will
not arise in the future.
13
We have been named a Potentially Responsible Party (PRP) at nine Superfund
sites, including two Siliconix facilities, and have become responsible for
certain obligations as a PRP in connection with our acquisition of General
Semiconductor. We expend minimal amounts in connection with several of these
sites and do not expect costs associated with the others to be material.
General Semiconductor has also been named as a defendant in three actions
in the United States District Court for the Eastern District of New York in
connection with its former operations at a facility in Hicksville, New York. The
plaintiffs in these actions allege that they have suffered personal injury and
property damage as a result of the facility's operations. Although we will
vigorously defend these actions, we do not currently possess sufficient
information to estimate reasonably the amount of or timing of liabilities that
may be associated with these litigations. It is our policy to record appropriate
liabilities for environmental matters when damage claim payments are probable
and the costs can be reasonably estimated.
The ultimate cost of site cleanup is difficult to predict given the
uncertainties regarding the extent of the required cleanup, the interpretation
of applicable laws and regulations and alternative cleanup methods. Based upon
our experience with the foregoing environmental matters, we have concluded that
there is at least a reasonable possibility that we will incur remedial costs in
the range of $30 million to $35 million. As of December 31, 2003, we concluded
that the best estimate within this range is $32.7 million, of which $23.5
million is included in other non-current liabilities on the consolidated balance
sheet, and $9.2 million is included in accrued expenses on the consolidated
balance sheet. Of this reserve, approximately $18.7 million is due to the
acquisition of General Semiconductor, but not including any liability that we
may incur in connection with the litigation relating to the Hicksville, New York
facility described above; approximately $8.4 million is due to the acquisition
of BCcomponents; and approximately $5.6 million is reserved for other
miscellaneous environmental liabilities, primarily at our Vitramon subsidiary in
the United States. In view of our financial position and provisions for
environmental matters of $32.7 million, we have concluded that any potential
payment of such estimated amounts will not have a material adverse effect on our
consolidated financial position, results of operations or liquidity.
With each acquisition, we attempt to identify potential environmental
concerns and to minimize, or obtain indemnification for, the environmental
matters we may be required to address. In addition, we establish reserves for
specifically identified potential environmental liabilities. We believe that the
reserves we have established are adequate. Nevertheless, we often unavoidably
inherit certain pre-existing environmental liabilities, generally based on
successor liability doctrines. Although we have never been involved in any
environmental matter that has had a material adverse impact on our overall
operations, there can be no assurance that in connection with any past or future
acquisition we will not be obligated to address environmental matters that could
have a material adverse impact on our operations.
Employees
As of December 31, 2003, we employed approximately 25,200 full time
employees, of whom approximately 21,850 were located outside the United States.
Some of our employees outside the United States are members of trade unions and
employees at one small U.S. facility are represented by a union. Our
relationship with our employees is good. However, no assurance can be given
that, if we continue to restructure our operations in response to changing
economic conditions, labor unrest or strikes, especially at European facilities,
will not occur.
14
Company Information and Website
We file annual, quarterly, and current reports, proxy statements, and
other documents with the Securities and Exchange Commission (SEC) under the
Securities Exchange Act of 1934 (the Exchange Act). The public may read and copy
any materials that we file with the SEC at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains reports, proxy and
information statements, and other information regarding issuers, including us,
that file electronically with the SEC. The public can obtain any documents that
we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at
www.vishay.com. The website contains information about us and our operations.
Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K,
and all amendments to those reports, can be viewed and downloaded free of charge
as soon as reasonably practicable after the reports and amendments are
electronically filed with or furnished to the SEC. To view the reports, access
www.vishay.com, click on Company Info, then Investor Relations and then SEC
Filings.
The following corporate governance related documents are also available on
our website:
o Corporate Governance Principles
o Code of Business Conduct and Ethics
o Code of Ethics Applicable to the Company's Chief Executive Officer,
Chief Financial Officer, Principal Accounting Officer or Controller
and Financial Managers
o Audit Committee Charter
o Nominating and Corporate Governance Committee Charter
o Compensation Committee Charter.
To review these documents, go to our website, click on Company Info, then
Investor Relations and then Corporate Governance.
Any of the above documents can also be obtained in print by any
shareholder who requests them from our Investor Relations Department at the
following address:
Corporate Investor Relations
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2143
15
Item 2. PROPERTIES
- ------ ----------
As of December 31, 2003, we maintained approximately 77 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* 298,000
Sanford, ME 225,000
Santa Clara, CA 220,000
Grafton and Oconto, WI* 165,000
Wendell and Statesville, NC* 159,000
Monroe, CT 91,000
Greencastle, IN 90,000
Malvern, PA 79,000
- --------------------
* 2 locations
Non-U.S.
--------
Israel (5 locations) 1,058,000
Hungary (2 locations) 961,000
Germany (8 locations) 561,000
People's Republic of China (4 locations) 514,000
Czech Republic (5 locations) 446,000
Republic of China (Taiwan) (3 locations) 397,000
France (3 locations) 332,000
Portugal 301,000
Netherlands 286,000
Belgium (2 locations) 180,000
Austria 153,000
Philippines 149,000
India 140,000
Malaysia 115,000
We own an additional 288,000 square feet of manufacturing facilities
located in Maryland, New York, Rhode Island, South Dakota, Vermont and Mexico.
Leased facilities in the United States include 190,000 square feet of
space located in California, Massachusetts, New York, Connecticut and South
Dakota. Foreign leased facilities consist of 817,000 square feet in China,
204,000 square feet in Germany, 127,000 square feet in Mexico, 120,000 square
feet in Austria, 75,000 square feet in the Czech Republic, 43,000 square feet in
Sweden, 24,000 square feet in Israel, and 13,000 square feet in the United
Kingdom, and 3,000 square feet in Taiwan.
In the opinion of management, our properties and equipment generally are
in good operating condition and are adequate for our present needs. We do not
anticipate difficulty in renewing existing leases as they expire or in finding
alternative facilities.
16
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
From time to time we are involved in routine litigation incidental to our
business. Management believes that such matters, either individually or in the
aggregate, should not have a material adverse effect on our business or
financial condition.
Our 80.4% owned subsidiary, Siliconix, is a party to two environmental
proceedings. The first involves 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 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 Siliconix 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 has substantially completed its
compliance with the RWQCB's orders.
Our subsidiary General Semiconductor has been named a PRP at several
Superfund sites and as a defendant in two lawsuits in the United States
District Court for the Eastern District of New York. See "Environment, Health
and Safety."
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
None.
17
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- ------------------------------------
The following table sets forth certain information regarding our executive
officers as of March 15, 2004.
Name Age Positions Held
- ---- --- --------------
Dr. Felix Zandman* 75 Chairman of the Board and
Chief Executive Officer
Dr. Gerald Paul* 55 Chief Operating Officer, President
and Director
Marc Zandman* 42 Vice-Chairman of the Board,
President-Vishay Israel Ltd.
Richard N. Grubb 57 Executive Vice President,
Treasurer, and Chief Financial
Officer
Ziv Shoshani* 38 Executive Vice President,
Resistor and Inductor Group and
Director
* 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 Dr. Gerald Paul was appointed President of the Company. Dr.
Zandman has been Chairman of the Board since March 1989.
Dr. Gerald Paul has served as a Director of the Company since May 1993 and
has been Chief Operating Officer and an Executive Vice President of the Company
since August 1996. On March 16, 1998, Dr. 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, an affiliate of the Company, since January 1991. Dr. Paul has been
employed by Draloric since February 1978.
Marc Zandman was appointed Vice-Chairman of the Board as of March 1, 2003.
He has been a Director of the Company since May 2001, President of Vishay Israel
Ltd. since April 1998, and Group Vice President of Measurements Group since
August 2002. Mr. Zandman has served in various other capacities with the Company
since August 1984. He is the son of Dr. Felix Zandman, the Company's Chief
Executive Officer.
Richard N. Grubb has been Vice President, Treasurer and Chief Financial
Officer of the Company since May 1994, and has been an Executive Vice President
of the Company since August 1996. Mr. Grubb has been associated with the Company
in various capacities since 1972, and was a Director from 1994 through 2003.
Ziv Shoshani has been Executive Vice President of the Resistor and
Inductor Group since 2002. He was Executive Vice President of the Capacitors
Group in 2001 and 2002 and was Executive Vice President, Specialty Products
Division in 2000 and 2001, including responsibility for oversight of Vishay's
Measurements Group Division. Prior to that, Mr. Shoshani served in various
capacities including Senior Vice President Precision Resistors, Worldwide Foil
Resistors Manager, Plant Manager, Holon, Israel, and Quality Control Manager,
Holon. Mr. Shoshani has been employed by the Company since 1995. He is the
nephew of Dr. Felix Zandman, the Company's Chief Executive Officer.
18
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
- ------ ----------------------------------------------------------------
MATTERS
-------
Our 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 our common
stock as reported on the New York Stock Exchange Composite Tape for the
quarterly periods within the 2002 and 2003 calendar years indicated. We do not
currently pay cash dividends on our capital stock. Our policy is to retain
earnings to support the growth of our business and we do not intend to change
this policy at the present time. In addition, we are restricted from paying cash
dividends under the terms of our revolving credit agreement. See Note 6 to our
consolidated financial statements. Holders of record of our common stock totaled
approximately 2,007 at March 9, 2004.
COMMON STOCK MARKET PRICES
Calendar 2002 Calendar 2003
------------- -------------
High Low High Low
---- --- ---- ---
First Quarter $22.50 $17.05 $13.24 $ 8.77
Second Quarter $26.15 $19.31 $15.15 $ 9.93
Third Quarter $22.00 $ 8.51 $19.00 $12.47
Fourth Quarter $15.10 $ 6.70 $23.15 $17.45
At March 9, 2004, we had outstanding 14,979,440 shares of Class B common
stock, par value $.10 per share, each of which entitles the holder to ten votes.
The Class B common stock generally is not transferable except in certain very
limited instances, and there is no market for those shares. The Class B common
stock is convertible, at the option of the holder, into common stock on a share
for share basis. Substantially all of the Class B common stock is owned by Dr.
Felix Zandman, our Chairman and Chief Executive Officer, the estate of Mrs.
Luella B. Slaner, a former director, the children of Mrs. Slaner, and trusts for
the benefit of the grandchildren of Mrs. Slaner, either directly or
beneficially. Directly, and as voting trustee under a voting trust agreement,
Dr. Zandman has voting power over substantially all of the outstanding Class B
common stock.
See Item 12 for certain equity compensation information with respect to
equity compensation plans approved by security holders and equity compensation
plans not approved by security holders.
19
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
The following table sets forth selected consolidated financial information
of the Company as of and for the fiscal years ended December 31, 2003, 2002,
2001, 2000, and 1999. This table should be read in conjunction with our
consolidated financial statements and the related notes thereto included
elsewhere in this Form 10-K.
As of and for the Year Ended December 31,
-----------------------------------------------------------
2003 (1) 2002 (2) 2001 (3) 2000 1999 (4)
---- ---- ---- ---- ----
Income Statement Data (in thousands,
except per share amounts):
Net sales $2,170,597 $1,822,813 $1,655,346 $2,465,066 $1,760,091
Interest expense 37,831 28,761 16,848 25,177 53,296
Earnings (loss) before income
tax provision (benefit) and
minority interest 46,426 (100,045) 10,103 690,225 134,711
Income tax provision (benefit) 11,528 (16,900) 5,695 148,186 36,940
Minority interest 8,056 9,469 3,895 24,175 14,534
Net earnings (loss) 26,842 (92,614) 513 517,864 83,237
Basic earnings (loss) per
share(5) $0.17 $(0.58) $0.00 $3.83 $ 0.66
Diluted earnings (loss) per
share(5) $0.17 $(0.58) $0.00 $3.77 $ 0.65
Weighted average shares
outstanding - basic (5) 159,631 159,413 141,171 135,295 126,678
Weighted average shares
outstanding - diluted (5) 160,443 159,413 142,514 137,463 128,233
Balance Sheet Data (in thousands):
Total assets $4,572,513 $4,315,159 $3,951,523 $2,783,658 $2,323,781
Long-term debt 836,606 706,316 605,031 140,467 656,943
Working capital 1,049,892 897,456 1,096,034 1,057,200 604,150
Stockholders' equity 2,514,034 2,358,787 2,366,545 1,833,855 1,013,592
- -----------------------------------------------------------------------
(1) Includes the results of BCcomponents, acquired in December 2002. Also
includes net charge of $22,362,000 for restructuring and severance costs,
inventory write-downs, a loss on purchase commitments, and a loss on
extinguishment of debt, partially offset by a gain on insurance proceeds.
These items and their tax related consequences had a negative $0.11 effect
on earnings per share. These items are more fully described in the notes to
the consolidated financial statements.
(2) Includes the results from January 1, 2002 of Infineon Malaysia
optoelectronic infrared components business, January 31, 2002 of
Sensortronics, July 1, 2002 of Tedea-Huntleigh, August 1, 2002 of BLH/Nobel,
and October 1, 2002 of Celtron. Also includes charges for restructuring and
severance costs, inventory write-downs, a loss on purchase commitments and
other charges of $169,900,000. These items and their tax related
consequences had a negative $0.85 effect on earnings per share. These items
are more fully described in the notes to the consolidated financial
statements.
(3) Includes the results from January 1, 2001 of Tansitor, July 27, 2001 of
Infineon U.S. optoelectronic infrared components business, November 2, 2001
of General Semiconductor, and November 7, 2001 of Mallory. Also includes
charges for restructuring and severance costs, inventory write-downs, a
write-off of purchased in-process research and development, and other
charges of $156,590,000. These items and their tax related consequences had
a negative $0.84 effect on earnings per share. These items are more fully
described in the notes to the consolidated financial statements.
(4) The sale of Nicolitch, S.A. and a tax rate change in Germany reduced net
earnings by $14,562,000 ($0.11 per share).
(5) Adjusted to reflect a three-for-two stock split distributed June 9, 2000,
and a five-for-four stock split distributed June 22, 1999.
Management believes that stating the impact on net earnings of items such as
restructuring, inventory write-downs, losses on purchase commitments, losses on
early extinguishment of debt, gains on insurance proceeds, write-offs of
in-process research and development, and other charges is meaningful to
investors because its provides insight with respect to ongoing operating results
of the Company.
20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Sales for the year ended December 31, 2003 were $2.171 billion compared to
sales of $1.823 billion for the year ended December 31, 2002. Net earnings for
the year ended December 31, 2003 were $26.8 million or $0.17 per share, compared
with a net loss for the year ended December 31, 2002 of $92.6 million or $0.58
per share. Earnings for the year ended December 31, 2003 were impacted by
restructuring and severance costs of $29.6 million, a loss on extinguishment of
debt of $9.9 million, a loss on long-term purchase commitments of $11.4 million,
and a write-down of tantalum inventories on hand to market value of $5.4
million, offset by a gain on an insurance claim of $33.9 million. These items
and their tax related consequences had a negative $0.11 effect on earnings per
share. The year ended December 31, 2002 included charges for restructuring,
inventory write-downs, a loss on purchase commitments and other charges of
$169.9 million resulting in a reduction of $0.85 in net earnings per share.
Following a difficult 2002 and 2001, in which the electronic components
business generally was depressed both in the United States and much of the
world, market conditions remained difficult in first half of 2003. In the latter
half of the year, we noted substantial improvement of the general economic
outlook worldwide. We have seen a rapid acceleration of demand in electronics in
all regions, in almost all market segments, beyond pure seasonality and stock
replenishment. We noted, in particular, strength in automotive products,
computers and mobile phones. The economic recovery began in the actives
business, consistent with historical trends and as seen in the third quarter of
2003. The passives business is also showing indications of recovery. Pricing
pressure has started to abate in the active products markets, but its presence
continues to be felt in the passive segment, particularly for commodity
products.
Capacity utilization is a reflection, in part, of product demand trends.
We were approaching full capacity in most of our active facilities during the
latter half of the year. We are working to alleviate capacity constraints in the
active segment by addressing production bottlenecks in our fabrication
facilities, expanding our backend operations and expanding and broadening our
foundry activities. Capacity utilization showed some improvement in the passive
segment during 2003, where capacity for resistors and inductors ranged from 60%
to 75%, while in the capacitor lines it averaged around 50%.
Despite these positive trends, operating results for 2003 remained
depressed because of pricing pressures. Average selling prices continued to
decline during 2003 in both the passive and active segments, though considerably
less rapidly in the second half of the year. Operating results for the first
half of 2003 also suffered from the severe acute respiratory syndrome, or SARS,
outbreak, particularly in the active segment which does a substantial portion of
its business in Asia.
Financial Metrics
We utilize several financial measures and metrics to evaluate the
performance and assess the future direction of our business. These key financial
measures and metrics include sales, end-of-period backlog, the book-to-bill
ratio, and inventory turnover. We also monitor changes in average selling
prices.
End-of-period backlog is one indicator of future sales. However, if demand
falls below customers' forecasts, or if customers do not control their inventory
effectively, they may cancel or reschedule the shipments that are included in
our backlog, in many instances without the payment of any penalty. Therefore,
the backlog is not necessarily indicative of the results of future periods.
Another important indicator of demand in our industry is the book-to-bill
ratio, which is the ratio of the amount of product ordered during a period as
compared with the product that we ship during that period. A book-to-bill ratio
that is greater than one indicates that our orders are building and that we are
likely to see increasing revenues in future periods. Conversely, a book-to-bill
ratio that is less than one is an indicator of declining demand and may foretell
declining sales.
21
We also focus on our inventory turnover as a measure of how well we are
managing our inventory. We define inventory turnover for a financial reporting
period as our cost of products sold for that period divided by our average
inventory for the period. A higher level of inventory turnover reflects more
efficient use of our capital. In 2003, inventory turnover improved to 3.16 from
2.52 in 2002, which we attribute to somewhat improved selling conditions and
enhanced selling efficiencies implemented during the year. Exclusive of tantalum
and palladium write-downs, inventory turnover would have been approximately 3.15
in 2003 as compared to 2.47 in 2002.
The quarter-to-quarter trends in these financial metrics can also be an
important indicator of the likely direction of our business. The following table
shows sales, the end-of-period backlog and the book-to-bill ratio for our
business as a whole during the five quarters beginning with the fourth quarter
of 2002 and through the fourth quarter of 2003.
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------ ------------ ------------ ------------ -----------
2002 2003 2003 2003 2003
---- ---- ---- ---- ----
Sales $459,377,000 $532,127,000(1) $538,103,000(1) $533,168,000(1) $567,199,000(1)
End-of-Period
Backlog $407,600,000 $438,200,000 $419,800,000 $434,000,000 $532,000,000
Book-to-Bill
Ratio 0.93 1.05 0.96 1.03 1.14
(1) Includes $69,300,000, $63,600,000, $60,800,000, and $63,900,000
attributable to BCcomponents for the first, second, third and fourth
quarters of 2003, respectively.
Management believes that these trends are an encouraging indication of
broad-based demand into 2004, in all of our major markets and all geographic
areas.
Pricing in our industry is volatile. During 2003, we experienced
significant declines in average selling prices, particularly in the first half
of the year in our actives business. Prices stabilized in the second half of the
year, and we expect relatively stable pricing to continue into 2004.
Segments
Vishay operates in two segments, passive components and active components.
We are the leading manufacturer of passive components in the United States and
Europe. These components include resistors, capacitors, inductors, strain gages
and load cells. We include in this segment our Measurements Group, which
manufactures and markets strain gages, load cells, transducers, instruments and
weighing systems. The core components of these devices are resistors that are
sensitive to various types of mechanical stress. We are also one of the world's
leading manufacturers of active electronic components, also referred to as
discrete semiconductors. These include transistors, diodes, rectifiers, certain
types of integrated circuits and optoelectronic products. Our active segment
includes our 80.4% owned subsidiary, Siliconix. The passive components business
had historically predominated at Vishay until the purchase of General
Semiconductor in November 2001, after which the lead position shifted to the
active business. With the acquisition of BCcomponents in December 2002, revenues
from our active and passive businesses are essentially split evenly between the
segments. For 2003, approximately 51% of our revenues were attributable to our
passive business and 49% to our active business.
The passive and active segments of our business have historically
responded differently to phases of the business cycle. Having strong
capabilities in both areas not only gives us a broad line of products to offer
our customers, it also smoothes, to some extent, the business swings that we
experience. When business slows down, active components are usually first to
feel the effects of the downturn that are later experienced by passive
components. Similarly, when business begins to increase, our semiconductor
products usually lead the recovery, followed some time later by resistors,
inductors and capacitors. Results for the second half of 2003 are indicative of
these past trends, where we saw improvements in active products beginning in the
third quarter, which was followed by improvements in our passive products in the
fourth quarter. We expect these trends to continue into 2004.
22
The following table shows sales and book-to-bill ratios broken out by
segment for the five quarters beginning with the fourth quarter of 2002 through
the fourth quarter of 2003:
4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- ----------- -----------
2002 2003 2003 2003 2003
---- ---- ---- ---- ----
Passive
Components
Sales $198,542,000 $274,874,000(1) $280,056,000(1) $268,368,000(1) $281,558,000(1)
Book-to-Bill
Ratio 1.00 1.07 0.96 0.97 1.06
Active
Components
Sales $260,835,000 $257,253,000 $258,047,000 $264,800,000 $285,641,000
Book-to-Bill
Ratio 0.88 1.03 0.96 1.09 1.23
(1) Includes $69,300,000, $63,600,000, $60,800,000, and $63,900,000
attributable to BCcomponents for the first, second, third and fourth
quarters of 2003, respectively.
Cost Management
We place a strong emphasis on reducing our costs. One way we do this is by
moving production to the extent possible from high-labor-cost markets, such as
the United States and Western Europe, to lower-labor-cost markets, such as
Israel, Mexico, the Republic of China (Taiwan), the People's Republic of China
and Eastern Europe. The percentage of our total headcount in lower-labor-cost
countries is a measure of the extent to which we are successful in implementing
this program. This percentage was 69% at the end of 2003, as compared to 65% at
the end of 2002, 61% at the end of 2001, and 57% at the end of 2000. We continue
to target improvement in this area as we proceed with the integration of the
business of BCcomponents, acquired in December 2002. The long-term target
remains between 75% and 80% of our headcount in lower-labor-cost countries.
We are placing particular emphasis on cost reduction in our capacitor
lines, which have been hardest hit by the recent market downturn and where the
business continues to suffer from worldwide overcapacity. In 2003, we completed
the transfer of our power capacitor production from Western Europe to the Czech
Republic and began moving our molded tantalum capacitor business to the People's
Republic of China. We also began to consolidate our existing film capacitor line
within the business of BCcomponents.
Israeli Government Incentives
Our production facilities in Israel benefit from incentives offered by the
Israeli government for creation of jobs and capital investment in that country.
These benefits take the form of government grants and reduced tax rates that are
lower than those in the United States. These reduced tax rates apply to projects
specifically approved by the Israeli government and, depending on project size,
are available for periods of ten or fifteen years. Due to the write-downs of
inventories and the losses on long-term purchase commitments in 2002 and 2003,
the application of the Israeli tax rates rather than United States tax rates
resulted in an increase in net loss of $24.8 million in 2002 and a decrease in
net earnings of $3.1 million in 2003. In 2001, lower tax rates in Israel, as
compared to the statutory rate in the United States, resulted in an increase in
net earnings of $3.0 million.
23
Israeli government grants are awarded to specific projects. These grants
are intended to promote employment in Israel's industrial sector and are
conditioned on the recipient maintaining certain prescribed employment levels.
Grants are paid when the related projects become operational, and the Israeli
government approves the project. Israeli government grants, recorded as a
reduction in the costs of products sold, were $12.4 million, $17.3 million and
$19.1 million in the years 2003, 2002 and 2001, respectively. At December 31,
2003, our balance sheet reflected $27.7 million in deferred grant income.
During the second quarter of 2002, the government of Israel informed us
that since the headcount in our Israeli subsidiaries decreased significantly
over the previous 18 months, the government intended to withhold up to $15
million grant otherwise due to us. The grant, which was made by the Israeli
government under an economic stimulus program, was conditioned in part on the
employment levels at certain of our Israeli facilities. The Israeli government
argued that we had not maintained employment at the required minimum levels.
During the fourth quarter of 2002, we settled our dispute with the government of
Israel, and the government agreed to continue making grant payments to us. Under
the terms of the settlement with the Israeli government, Vishay is required to
employ at least an additional 1,500 employees in Israel over the next three
years in order to preserve its eligibility for the government grant. We have
hired an additional 1,319 employees to date and expect to comply with these
requirements. We therefore recorded a catch up adjustment of approximately $1.0
million of grant income for the fourth quarter of 2002 and reversed the
allowances against the grant and deferred income reflected on the September 30,
2002 balance sheet.
If we were no longer able to maintain the required level of employment in
the future, we could be required to return some grant funds that were previously
awarded to us. The effect of the return of these funds would be to reduce our
income in future years. Also, if the current business climate continues, we
might not initiate new projects that qualify for grants or reduced tax rates or
the Israeli government could curtail or eliminate the programs from which we
have benefited in the past.
Write-Downs of Inventory and Purchase Commitments
Tantalum is the principal material used in the manufacture of tantalum
capacitors. We generally purchase this metal in powder or wire form, although in
2000 and early 2001, when we perceived possible supply shortages, we also
stockpiled quantities of tantalum ore. In July and November of 2000, we entered
into purchase contracts with Cabot Corporation for tantalum powder and wire that
committed us to minimum purchases of these materials at fixed prices through
2005. We regularly utilize tantalum powder and wire in the production of
tantalum capacitors but have not used our stockpile of tantalum ore since 2000.
Palladium is a precious metal used in the production of multi-layer ceramic
capacitors that we purchase under short-term contracts.
In 2001, as a result of the general downturn in the electronics business,
we experienced a significant decrease in capacitor sales. Prices of tantalum
ore, powder and wire and of palladium also experienced significant declines.
Accordingly, we recorded write-downs of our raw material inventories of these
metals including $38.0 million for tantalum ore, $14.0 million for tantalum wire
and powder and $18.0 million for palladium.
In June 2002, following initiation of a lawsuit by Cabot regarding its
tantalum supply contracts with Vishay, we agreed with Cabot to modify the
contracts, including reducing prices, providing for purchases at regular
intervals and extending one of the contracts through 2006. In the fourth quarter
of 2002, our management concluded that the depressed prices for tantalum were
not attributable to temporary imbalances in distributor inventories for tantalum
capacitors and that the prices for tantalum were likely to remain at their
currently depressed levels for the foreseeable future. Also during the fourth
quarter, one of our competitors settled its dispute with Cabot regarding
long-term tantalum purchase commitments at prices that we understand are in the
same range as the prices under our June 2002 settlement with Cabot. Our
management therefore concluded that it was unlikely to obtain further price
concessions from Cabot. Accordingly, we determined that it was appropriate to
accrue a loss on our purchase commitments under our supply contracts with Cabot
to reflect the difference between the prices that we are required to pay under
the contracts and current market prices for tantalum. For the same reasons, we
also determined to further write down our raw material inventories of tantalum
ore, powder and wire. These charges amounted to approximately $106.0 million for
the purchase commitments and $25.7 million for inventory. In 2002, we also
recorded a write-down of $1.7 million on palladium inventories.
24
Prices for tantalum continued to decline in 2003. We recorded write-downs
of $5.4 million to reduce tantalum inventories to current market value, and a
loss on purchase commitments for future delivery of tantalum of $11.4 million.
In addition, we recorded a write-down of $1.6 million of palladium inventory in
the first quarter of 2003.
The raw materials write-downs have the effect of improving gross margins
in subsequent periods by reducing cost of goods sold as inventory is utilized.
This effect cannot be quantified in any specific reporting period, however,
because of the large number of affected products and the impracticality of
tracking raw material inventory usage on a product-by-product basis.
We anticipate, based on current and foreseeable demand for tantalum
capacitors, that our minimum purchase commitments under the contracts with Cabot
will substantially exceed our requirements over the terms of the contracts. See
"Contractual Commitments" below. Also, we do not anticipate utilizing our
stockpile of tantalum ore at any time in the foreseeable future. Tantalum ore,
powder and wire have an indefinite shelf life; therefore, we believe that we
will eventually utilize all of the material in our inventory or purchased under
the contracts. Based on usage currently expected in 2004, our purchase
commitments represent approximately 7.5 years of usage. We have little
visibility of the demand for our tantalum capacitor products beyond twelve
months. It is almost certain that our actual requirements of tantalum will
differ from those projected, and likely that the difference will be material.
Foreign Currency
In 2003, we realized approximately 74% of our revenues from customers
outside the United States. Any third party sales not using the U.S. dollar as
the functional currency must be reported in the local currency and be translated
at the weighted average exchange rate. This translation has an impact on the net
sales line of the consolidated statements of operations and also on the expense
lines of the consolidated statements of operations. We generally do not purchase
foreign currency exchange contracts or other derivative instruments to hedge our
exposure to foreign currency fluctuations.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our
consolidated financial statements. We identify here a number of policies that
entail significant judgments or estimates.
Revenue Recognition
We recognize revenue on product sales during the period when the sales
process is complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, title and risk of
loss have been transferred, collectibility is reasonably assured and pricing is
fixed or determinable. We have agreements with distributors that historically
provided limited rights of product return. Beginning in 2002, we modified these
arrangements to allow distributors a limited credit for unsaleable products,
which we term a "scrap allowance." Consistent with industry practice, we also
have a "stock, ship and debit" program whereby we consider, and grant in our
discretion, requests by distributors for credits on previously purchased
products that remain in distributors' inventory, to enable the distributors to
offer more competitive pricing. In addition, we have contractual arrangements
whereby we provide distributors with protection against price reductions that we
initiate after sale of product to the distributor and prior to resale by the
distributor.
We record end of period accruals for each of the programs based upon our
estimate of future credits under the programs that will be attributable to sales
recorded through the end of the period. We calculate reductions of revenue
attributable to each of the programs during any period by computing the change
in the accruals from the prior period and adding the credits actually given to
distributors during the period under the programs. These procedures require the
exercise of significant judgments, but we believe they enable us to estimate
reasonably future credits under the programs.
25
Recording and monitoring of these accruals takes place at our subsidiaries
and divisions, with input from sales and marketing personnel and review,
assessment and, if necessary, adjustment by corporate management. While our
subsidiaries and divisions utilize different methodologies based on their
individual experiences, all of the methodologies take into account sales to
distributors during the relevant period, inventory levels at the distributors,
current and projected market trends and conditions, recent and historical
activity under the relevant programs, changes in program policies, and open
requests for credits. These are the elements that management considers relevant,
and, in our judgment, the different methodologies provide us with equally
reliable estimates upon which to base our accruals. We do not track the credits
that we record against specific products sold from distributor inventories, so
as to directly compare revenue reduction for credits recorded during any period
with credits ultimately awarded in respect of products sold during that period.
Nevertheless, we believe that we have an adequate basis to assess the
reasonableness and reliability of our estimates.
Accounts Receivable
Our receivables represent a significant portion of our current assets. We
are required to estimate the collectibility of our receivables and to establish
allowances for the amount of receivables that will prove uncollectible. We base
these allowances on our historical collection experience, the length of time our
receivables are outstanding, the financial circumstances of individual
customers, and general business and economic conditions.
Inventories
We value our inventories at the lower of cost or market, with cost
determined under the first-in first-out method and market based upon net
realizable value. The valuation of our inventories requires our management to
make market estimates. For instance, in the case of tantalum powder, we estimate
market value by obtaining current quotations from available sources of supply.
For work in progress goods, we are required to estimate the cost to completion
of the products and the prices at which we will be able to sell the products.
For finished goods, we must assess the prices at which we believe the inventory
can be sold. As noted, we recorded write-downs of our tantalum and palladium
inventories in 2002 and 2003. Inventories are also adjusted for estimated
obsolescence and written down to net realizable value based upon estimates of
future demand, technology developments and market conditions.
Estimates of Restructuring and Severance Costs and Purchase Related
Restructuring Costs
In 2003, we recorded restructuring costs of approximately $29.6 million
related to our existing businesses. In 2002, we recorded restructuring costs of
approximately $48.0 million related to our acquisitions and $31.0 million
related to our existing businesses. Our acquisition-related restructuring costs
included, among other things, costs related to our acquisition of BCcomponents
in December 2002. Our restructuring activities related to existing business were
designed to reduce both our fixed and variable costs, particularly in response
to the reduced demand for our products occasioned by the electronics industry
downturn. These included the disposition of fixed assets and the termination of
employees. Acquisition-related costs are included in the allocation of the cost
of the acquired business and generally add to goodwill. Other restructuring
costs are expensed during the period in which we determine that we will incur
those costs, and all of the requirements for accrual are met.
Because these costs are recorded based upon estimates, our actual
expenditures for the restructuring activities may differ from the initially
recorded costs. If this happens, we will have to adjust our estimates in future
periods. In the case of acquisition-related restructuring costs, this would
generally require a change in value of the goodwill appearing on our balance
sheet, but would not affect our earnings. In the case of other restructuring
costs, we could be required either to record additional expenses in future
periods, if our initial estimates were too low, or to reverse part of the
charges that we recorded initially, if our initial estimates were too high.
26
Raw Material Write-downs
In 2002 and 2003, we took charges against contractual commitments to
purchase tantalum powder and wire through 2006 and wrote-down our existing
inventory of tantalum ore, powder and wire to present market value. We did this
because the current market prices of tantalum are substantially below the prices
at which we are committed to purchase tantalum in the future under long-term
contracts and the prices at which we were carrying our tantalum raw materials
inventory. These actions involved significant judgments on our part, including
decisions of whether to take these charges and write-downs, their timing and
their amount.
We made the decision to take the charges and write-downs after our
management concluded that the substantial fall-off in the demand for tantalum
capacitors was likely to continue for the foreseeable future. Combining this
assessment with the worldwide over-capacity in tantalum production, we could not
foresee when tantalum prices might recover from their currently depressed
levels. Although we believe that both the charges and write-downs as well as
their timing were appropriate under the circumstances, our visibility for future
demand and pricing is limited and the judgments made by our management
necessarily involved subjective assessments.
The write-down of our current tantalum inventory and the charges with
respect to our future tantalum commitments were calculated based on market
prices for tantalum. There is no established market on which tantalum raw
materials are regularly traded and quoted. We based our determination of current
market price on quotations from two suppliers of these materials. We cannot say
that the prices at which we could currently enter into contracts for the
purchase of tantalum would be the same as these quoted prices. Had we made other
assumptions on current and future prices for tantalum, the amount of the
inventory write-downs and the charges against our purchase commitments would
have been different.
If tantalum prices were to recover in the future, we would not reverse the
write-downs that we have taken on our raw materials inventory, so that our cost
of materials will continue to reflect these write-downs regardless of future
price increases in tantalum. This could have the effect of increasing the
earnings that we realize in future periods from what they would have been had we
not taken these actions until future raw material prices were known with
certainty. We could also be required to take further write-downs and charges if
tantalum prices experience further declines.
Based upon similar considerations, we recorded write-downs of our
palladium inventory to market value in both 2002 and 2003.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the
fair value of the related net assets at the date of acquisition. Goodwill is
tested for impairment at least annually. These tests will be performed more
frequently if there are triggering events. SFAS No. 142 prescribes a two-step
method for determining goodwill impairment. In the first step, we determine the
fair value of the reporting unit using a comparable companies market multiple
approach. If the net book value of the reporting unit exceeds the fair value, we
would then perform the second step of the impairment test which requires
allocation of the reporting unit's fair value to all of its assets and
liabilities in a manner similar to a purchase price allocation, with any
residual fair value being allocated to goodwill. An impairment charge will be
recognized only when the implied fair value of a reporting unit's goodwill is
less than its carrying amount.
Fair value of reporting units is determined using comparable company
market multiples. The comparable companies utilized in our evaluation are the
members of our peer group utilized in the presentation of our stock performance
in our annual proxy statement.
27
Impairment of Long-Lived Assets
We assess the impairment of our long-lived assets, other than goodwill and
tradenames, including property and equipment, and identifiable intangible assets
subject to amortization, whenever events or changes in circumstances indicate
the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review include significant changes in the manner of
our use of the acquired asset, changes in historical or projected operating
performance and significant negative economic trends.
Results of Operations
Income statement captions as a percentage of sales and the effective tax
rates were as follows:
Year Ended December 31
----------------------------------------------
2003 2002 2001
---- ---- ----
Costs of products sold 77.9% 79.8% 77.0%
Gross profit* 21.6% 14.4% 23.0%
Selling, general and
administrative expenses 17.6% 17.1% 16.8%
Operating income (loss) 2.7% (4.4%) 0.9%
Earnings (loss) before
income taxes (benefit)
and minority interest 2.1% (5.5%) 0.6%
Net earnings (loss) 1.2% (5.1%) 0.0%
Effective tax rate 24.8% 16.9% 56.4%
* - Reflects losses on purchase commitments of $11.4 million and $106.0
million during the years ended December 31, 2003 and 2002.
Net Sales, Gross Profits and Margins
Net sales for the year ended December 31, 2003 increased by $347.8 million
or 19.1% over the prior year. The increase primarily reflects the acquisitions
of BCcomponents in December 2002, Celtron Technologies in October 2002, BLH and
Nobel in July 2002 and Tedea-Huntleigh BV in September 2002. Excluding these
acquisitions, net sales increased $49.1 million, or 3%. The weakening of the
U.S. dollar against foreign currencies for the year ended December 31, 2003, in
comparison to the prior year, resulted in increases in reported sales of $74
million.
Net sales for the year ended December 31, 2002 increased by $167.5 million
or 10.1% over the prior year. This reflects a substantial increase in sales in
the active segment, attributable in large measure to 2001 acquisitions reflected
only partially in 2001 but fully in 2002, partially offset by a continuing drop
in sales in the passive segment in 2002. The weakening of the U.S. dollar
against foreign currencies for the year ended December 31, 2002, in comparison
to the prior year, resulted in increases in reported sales of $18 million.
28
We deduct, from the sales that we record to distributors, allowances for
future credits that we expect to provide for returns, scrapped product and price
adjustments under various programs made available to the distributors. We make
deductions corresponding to particular sales in the period in which the sales
are made, although the corresponding credits may not be issued until future
periods. We estimate the deductions based on sales levels to distributors,
inventory levels at the distributors, current and projected market trends and
conditions, recent and historical activity under the relevant programs, changes
in program policies and open requests for credits. We recorded deductions from
gross sales under our distributor incentive programs of $67.2 million, $67.4
million, and $56.1 million for the years ended December 31, 2003, 2002, and
2001, respectively, or, as a percentage of gross sales 3.0%, 3.6%, and 3.2%,
respectively. Actual credits issued under the programs for the years ended
December 31, 2003, 2002, and 2001, were approximately $62.4 million, $63.4
million, and $52.7 million, respectively. The increase in the incentives from
2001 is attributable primarily to the adverse business climate that developed
following 2000 and the resulting pricing pressures that affected our
distributors and the electronic component industry generally.
Costs of products sold as a percentage of net sales for the year ended
December 31, 2003 was 77.9% as compared to 79.8% for the prior year. Gross
profit as a percentage of net sales for year ended December 31, 2003 was 21.6%
as compared to 14.4% for the prior year. Price declines were offset in
substantial part by volume increases and cost savings programs. Gross profit for
2003 reflects write-downs of raw material inventory to lower of cost or market
of $7.0 million, which is included in cost of products sold, and an accrual of
loss on long-term purchase commitments of $11.4 million. Gross profit for 2002
reflects a write-down of raw material inventory to market value of $27.4
million, which is included in cost of products sold, and an accrual of loss on
long-term purchase commitments of $106.0 million.
Costs of products sold as a percentage of net sales were 79.8% for the
year ended December 31, 2002 as compared to 77.0% for the prior year. Gross
profit, as a percentage of net sales, for the year ended December 31, 2002 was
14.4% as compared to 23.0% for the prior year. Gross profit for 2002 includes a
write-down of raw material inventory to market value of $27.4 million, which is
included in cost of goods sold, and accruals for losses on purchase commitments
of $106.0 million. The erosion in overall profit margins in 2002 reflected the
continuing weakness in the passive segment, offset in substantial part by
improvements in the active segment. Both volume reduction and further declines
in average selling prices contributed to the declining profit margins in the
passive segment. Profit margins in the active segment benefited from higher
volumes, even as average selling prices continued to decline in various product
lines. For the year ended December 31, 2001, gross profit reflected write-downs
of tantalum and palladium inventories of $70.0 million.
See "Israeli Government Incentives" regarding Israeli government grants,
which are recorded as a reduction in costs of products sold.
The following tables show sales and gross profit margins separately for
our passive and active segments.
Passive Components
Year Ended December 31
----------------------------------------------
2003 2002 2001
---- ---- ----
Net Sales $1,104,856,000 $767,246,000 $1,010,634,000
Gross Profit Margin 17.3% (4.9%) 20.6%
Net sales of passive components for the year ended December 31, 2003
increased $337.6 million or 44% as compared to the prior year. Without the
acquisition of BCcomponents, Celtron Technologies, BLH and Nobel, and
Tedea-Huntleigh, the passive components business sales would have increased by
$38.9 million or 5% as compared to the prior year. The organic increase in net
sales is attributable to the volume increases in the resistor and inductor
product lines, partially offset by price declines, and the positive impact of
foreign currency exchange rates. The average selling price was down versus the
prior year.
29
Our resistor and inductor business stabilized in 2002 and began an
improvement in the latter part of that year which continued into 2003. Our
capacitor business, which was particularly hard hit during the recent global
slowdown in the electronics industry, continues to experience the lingering
effects of worldwide overcapacity in both production and supply. However, with
the slowing of the erosion in average selling prices that began in the fourth
quarter of 2002, the capacitor business appears to have stabilized and is
showing modest signs of improvement.
Gross margins were 17.3% for the year ended December 31, 2003, as compared
to negative 4.9% for the prior year. Results for 2003 reflected average margins
of 29% for our resistor and inductor lines and 5% for our capacitor lines.
Margins were affected negatively by raw material related write-downs in 2003 and
2002, as market prices for these materials continued to decline. During 2003, we
recorded write-downs of $5.4 million to reduce tantalum inventories to current
market value, and a loss on purchase commitments for future delivery of tantalum
of $11.4 million. In addition, we recorded a write-down of $1.6 million of
palladium inventory. In 2002, we recorded a loss on long-term purchase
commitments of tantalum of $106.0 million and write-downs of $27.4 million on
tantalum and palladium inventories. The raw material write-downs have the effect
of improving gross margins in subsequent periods by reducing cost of goods sold
as inventory is utilized. This effect cannot be quantified in any specific
reporting period, however, because of the large number of affected products and
the impracticality of tracking raw material inventory usage on a
product-by-product basis.
We continue to implement cost reduction programs, particularly in our
passives business, in order to reduce costs and thereby stabilize our margins.
We have initiated several significant cost reduction programs in all of our
products lines, including facility combinations and shifts of production to
lower-cost regions, with particular emphasis on reducing headcount in
high-labor-cost countries. Sixty-nine percent of our labor force was in
low-labor-cost countries as of December 31, 2003. The impact of these cost
savings plans has been partially offset by the underutilization of capacity in
the commodity products.
Net sales of passive components for the year ended December 31, 2002
decreased by $243.4 million or 24.1% from comparable sales of the prior year.
The decrease in net sales was attributable to a combination of lower volume and
a continuing slide in prices. Excluding the significant acquisition activity in
our Measurements Group in 2002, sales in the passive segment would have
decreased by $288.9 million or 29% from the prior year. Gross profit margin in
2002 was negatively impacted by a loss on long-term purchase commitments of
tantalum of $106.0 million and write-downs of $27.4 million on tantalum and
palladium inventories. Even excluding the loss on long-term purchase
commitments, our capacitor business had negative average gross margins of 6% in
2002, compared with positive average gross margins of 19% for resistors and
capacitors. The acquisition of BCcomponents, a worldwide manufacturer of
resistors and capacitors, in December 2002 had no material effect on the 2002
results for the passive segment.
30
Active Components
Year Ended December 31
----------------------------------------------
2003 2002 2001
---- ---- ----
Net Sales $1,065,741,000 $1,055,567,000 $644,712,000
Gross Profit Margin 26.1% 28.4% 26.9%
Net sales of the active components business for year ended December 31,
2003 increased by $10.2 million, or 1%, from sales of the comparable prior year
period. The active segment continued to experience pricing pressure in 2003,
especially during the first half of the year. Sales for the first half of 2003
actually decreased from the comparable 2002 period, primarily as a result of the
SARS outbreak in Asia where Siliconix sells approximately 75% of its total
sales. The modest revenue growth for the year was fueled by a significant
rebound in Asian business during the second half, driven by demand for computer
components and by distributors restocking inventories. Gross margins were 26.1%
for the year ended December 31, 2003 as compared to 28.4% for the prior year.
Margins were negatively impacted by product mix changes at Siliconix, where
there was a higher share of commodity products as compared to the comparable
prior year periods. Also, because of capacity constraints that it has begun to
experience, Siliconix made greater use of subcontractors during 2003, which has
the effect of driving down margins. Siliconix's net sales for 2003 were $392.1
million, compared to $372.9 million in 2002, a 5% increase, and its gross profit
margins declined from 31% for 2002 to 29% for 2003.
Net sales of the active components business for the year ended December
31, 2002 increased by $410.9 million or 63.7% from comparable sales of the prior
year. As detailed below, the increase was in substantial measure due to the
acquisitions of General Semiconductor and the Infineon infrared business in
2001, which were included in our results for all of 2002 but for only portions
of 2001. It also reflects sales recovery at our existing semiconductor
operations that began in 2002. The increased volume that we experienced in 2002
was offset to some extent by modest declines in average selling prices in
various product lines. The improvement in gross profit margins to 28.4% from
26.9% is attributable primarily to improvements at Siliconix and to a lesser
extent at our other semiconductor operations. Siliconix's net sales for 2002
were $372.9 million as compared to $305.6 million in 2001, a 22.1% increase, and
its gross profit margins rose from 25% for 2001 to 31% for 2002.
Revenues in the active segment for 2002 included revenues of $350.9
million from the Infineon infrared business and General Semiconductor, compared
to revenues of $82.7 million from these businesses in 2001. Excluding the
contribution of these acquisitions, net sales in 2002 would have increased by
25.4% as compared to 2001 and gross profit margin would have been 29.5%.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the year ended December
31, 2003 were 17.6% of net sales as compared to 17.1% of net sales for the prior
year. This increase was mainly due to the costs associated with the acquisition
and integration of BCcomponents. Our continuing cost reduction initiatives
referred to above also target selling, general, and administrative costs and
offset, in part, the acquisition related increases in SG&A margins.
Selling, general, and administrative expenses for the year ended December
31, 2002 were 17.1% of net sales as compared to 16.8% of net sales for the prior
year. The higher percentage and amount in 2002 was due primarily to acquisition
activity.
31
Restructuring and Severance Costs
Our restructuring activities have been designed to cut both fixed and
variable costs, particularly in response to the reduced demand for products
occasioned by the electronics industry downturn beginning in 2001. These
activities include the closing of facilities and the termination of employees.
Beginning January 1, 2003, restructuring costs have been accounted for under
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
This statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Because costs
are recorded based upon estimates, actual expenditures for the restructuring
activities may differ from the initially recorded costs. If the initial
estimates are too low or too high, we could be required either to record
additional expenses in future periods or to reverse previously recorded
expenses. We anticipate that we will realize the benefits of our restructuring
through lower labor costs and other operating expenses in future periods.
We recorded restructuring and severance costs for the year ended December
31, 2003 of $29.6 million, $28.6 million of which was workforce reduction
expense and $1.0 million of which was fixed asset impairment. The workforce
reduction expense was comprised of termination costs for 708 employees in
Europe, Asia and the United States. Through the end of 2003, we paid $14.2
million of these workforce reduction costs, corresponding to the termination of
653 employees. The balance of workforce reduction expense remaining at December
31, 2003 is expected to be paid by the end of 2004. The fixed asset impairment
related to facility closure. As a result of restructuring activities initiated
in 2003, we expect an annual increase in gross profit of approximately $10.4
million.
We recorded restructuring and severance costs for the year ended December
31, 2002 of $31.0 million, of which $18.6 million was workforce reduction
expense and $12.4 million was fixed asset impairment. The workforce reduction
expense was comprised of termination costs for 1,438 employees in Europe, Israel
and the United States. Through the end of 2003, we paid $16.5 million of these
workforce reduction costs, corresponding to the termination of 1,422 employees.
The balance of workforce reduction expense remaining at December 31, 2003 is
expected to be paid in 2004. The fixed asset impairment related to facility
closure. We continue to realize annual cost savings associated with
restructuring activities initiated in 2002.
We recorded $61.9 million in restructuring and severance costs for the
year ended December 31, 2001, of which $40.9 million was workforce reduction
expense and $21.0 million was fixed asset impairment. The workforce reduction
expense was comprised of termination costs for 5,663 employees in Europe, Israel
and Asia. A balance of $1.6 million of workforce reduction costs remaining at
December 31, 2002 was paid in 2003. The fixed asset impairment related to
facility closure. We continue to realize annual cost savings associated with
restructuring activities initiated in 2001.
For additional detail on restructuring and severance costs, see Note 4 to
our consolidated financial statements.
Restructuring and severance costs are separate from plant closure,
employee termination and similar integration costs we incur in connection with
our acquisition activities. These amounts are included in the costs of our
acquisitions and do not affect earnings or losses on our statement of
operations. For a discussion of these costs, see Note 2 to our consolidated
financial statements.
Interest Expense
Interest expense for the year ended December 31, 2003 increased by $9.1
million, as compared to the prior year. This increase was primarily a result of
debt issued or assumed in the various acquisitions made in 2002 and the issuance
in August 2003 of our $500 million principal amount 3-5/8% convertible
subordinated notes due 2023, net of debt repaid with the proceeds of these notes
of $398 million. Acquisition related debt included, in particular borrowings of
$116 million under our revolving credit facility and the issuance of $105
million principal amount of unsecured loan notes, currently bearing interest at
LIBOR plus 1.5%, in connection with the BCcomponents acquisition in December
2002. The debt we repaid with the proceeds of our 3-5/8% notes included
approximately $171 million principal amount of General Semiconductor's 5.75%
convertible notes, approximately $97 million accreted principal amount of Liquid
Yield Option(TM) Notes (LYONs) and $130 million in borrowings under our
revolving credit facility.
32
Interest expense for the year ended December 31, 2002 increased by $11.9
million compared to the prior year. This increase was a result of higher average
outstanding bank borrowings attributable to our acquisition activity, offset in
part by somewhat lower interest rates.
Other Income (Expense)
We recorded a loss of $9.9 million for extinguishment of debt during the
year ended December 31, 2003 on the redemption of $171 principal amount of the
General Semiconductor notes and the repurchase of $97.0 million in accreted
principal amount of our LYONs. Also during 2003, we recorded a gain of $33.9
million on the receipt of insurance proceeds in excess of book value on account
of the destruction of the thin film resistor facility of our Electro-Films, Inc.
subsidiary in Providence, Rhode Island. That facility has now been completely
rebuilt into a state-of-the-art production center. No comparable losses or gains
were recorded in the prior year.
Excluding the items described above, other income was $2.3 million for the
year ended December 31, 2003, as compared to $8.7 million for the prior year.
This decrease was primarily due to higher foreign exchange losses in 2003.
Foreign exchange losses of $5.2 million were reported for 2003 as compared to
foreign exchange losses of $0.8 million for the comparable prior year period. In
2003, we also had losses of $2.5 million on the disposal of property and
equipment, compared to losses of $0.3 million in 2002. Interest income decreased
by $0.7 million for the year ended December 31, 2003 compared to the prior year,
primarily due to lower interest rates. We recognized a gain on expiration of an
interest rate swap of $3.8 million in 2003, compared to a loss on ineffective
interest rate swaps of $0.1 million in 2002. Additionally, 2002 included other
income of approximately $1.4 million received from the Chinese government as an
incentive for being a foreign partner in China.
Other income for the year ended December 31, 2002 was $8.7 million as
compared to $12.7 million for the prior year. Other income in both 2002 and 2001
consisted primarily of interest income, as well as gains on disposal of property
and equipment and foreign exchange gains.
Minority Interest
Minority interest in earnings decreased by $1.4 million for the year ended
December 31, 2003 as compared to the prior year, primarily due to the decrease
in net earnings of Siliconix, of which we own 80.4%. Minority interest increased
by $5.6 million for the year ended December 31, 2002 as compared to the prior
year, primarily due to the increase in net earnings of Siliconix.
Income Taxes
The effective tax rate for the year ended December 31, 2003 was 24.8%,
reflecting tax expense, as compared to 16.9% for the prior year, reflecting a
tax benefit. The effective tax rate in 2003 reflects the fact that we could not
recognize for accounting purposes the tax benefit of losses incurred in certain
jurisdictions, although these losses are available to offset future taxable
income. Under applicable accounting principles, we may not recognize deferred
tax assets for loss carryforwards in jurisdictions where there is a recent
history of cumulative losses, where there is no taxable income in the carryback
period, where there is insufficient evidence of future earnings to overcome the
loss history and where there is no other positive evidence, such as the likely
reversal of temporary timing differences, that would result in the utilization
of loss carryforwards for tax purposes.
We enjoy favorable tax rates on our income in Israel from specific
approved projects. The low rates, which generally are available for a period of
ten or fifteen years, ordinarily result in greater earnings than what they would
be if the Israeli income was subject to statutory United States tax rates.
However, due to losses reported in Israel, the low rates did not improve net
earnings for 2003 and 2002, respectively.
33
The effective tax rate for the year ended December 31, 2002 was 16.9%,
reflecting an income tax benefit, compared to 56.4% for the prior year,
reflecting income tax expense. The low effective rate in 2002 is primarily a
consequence of the losses before income taxes in low tax jurisdictions. While we
continue to benefit from low tax rates in Israel, we recognized a large taxable
loss in Israel in 2002, with the effect of reducing our overall tax benefit on
our losses. The more favorable Israeli tax rates are applied to specific
approved projects and are normally available for a period of ten or fifteen
years (see the discussion of our Israeli tax benefits in "Overview-Israeli
Government Incentives" above). Comparatively, in 2001, the high effective tax
rate was due to low net earnings and the non-tax deductibility of purchased
research and development expense related to the General Semiconductor
acquisition.
Financial Condition and Liquidity
Cash and cash equivalents were $556 million at December 31, 2003, of which
$279 million belonged to Siliconix. Of the remaining amount of $277 million,
approximately $180 million is held by our non-U.S. subsidiaries.
Our financial condition at December 31, 2003, continued to be strong, with
a current ratio (current assets to current liabilities) of 2.8 to 1, compared
with a ratio of 2.6 to 1 at December 31, 2002. Our ratio of long-term debt, less
current portion, to stockholders' equity was 0.33 to 1 at December 31, 2003,
compared to a ratio of 0.30 to 1 at December 31, 2002. The increase in long-term
debt ratio from December 31, 2002 reflects the debt issued in the third quarter
of 2003, net of debt repaid.
Cash flows from operations were $255.8 million for the year ended December
31, 2003 as compared to $366.9 million for the year ended December 31, 2002.
During 2003, accounts receivable attributable to our existing businesses and
inventory levels continued to decline as a result of the lingering effects of
the business slowdown that began in 2001, although the drop was substantially
less pronounced than in the prior year. The increase in accounts receivable at
December 31, 2003 versus December 31, 2002 was primarily due to the net sales of
BCcomponents, which was acquired in December 2002. Net purchases of property and
equipment for the year ended December 31, 2003 were $126.6 million, as compared
to $110.1 million in the prior year. The increase was primarily attributable to
spending to expand capacity in the active business and to shift manufacturing to
low labor cost regions in the passive business. We used $278.7 million in cash
for acquisitions in 2002, primarily for our acquisitions of BCcomponents in
December 2002 and other smaller acquisitions in our Measurements Group during
the year. The acquisitions were funded in part by our cash balances and in part
from borrowings. See Note 2 to our consolidated financial statements for
discussion of these acquisitions. Purchase of businesses, net of cash acquired,
of $41.2 million, for the year ended December 31, 2003 represents payments made
related to liabilities assumed from previous acquisitions.
Our debt levels have increased significantly since 2000. This is primarily
attributable to acquisition activity. Additionally, in 2003, we issued $500
million of convertible subordinated notes, using a majority of the proceeds to
repay other higher interest rate debt.
In connection with the acquisition of BCcomponents in December 2002, we
issued $105 million principal amount of floating rate unsecured loan notes due
2102. The notes bear interest at LIBOR plus 1.5% through December 31, 2006 and
at LIBOR thereafter. The interest payable on the notes may be further reduced to
50% of LIBOR after December 31, 2010 if the price of Vishay common stock trades
above a specified target price, as provided in the notes. The notes are subject
to a put and call agreement under which the holders may at any time put the
notes to us in exchange for 6,176,471 shares of Vishay common stock in the
aggregate, and we may call the notes in exchange for cash or for shares of
Vishay common stock after 15 years from the date of issuance.
34
On August 6, 2003, we sold $450 million aggregate principal amount of
3-5/8% convertible subordinated notes due 2023 and granted the initial
purchasers an option to purchase, within 30 days of the date of the offering
memorandum relating to the notes, an additional $50 million of the notes. This
option was exercised, and the additional $50 million of notes was issued on
September 3, 2003. The notes will pay interest semi-annually. Holders may
convert their notes into shares of Vishay common stock, subsequent to the
occurrence of certain conditions that had not occurred as of December 31, 2003,
at a conversion price of $21.28 per share. This conversion price is the
equivalent to a conversion rate of 46.9925 shares per $1,000 principal amount of
notes. The notes are subordinated in right of payment to all of our existing and
future senior indebtedness and are effectively subordinated to all existing and
future liabilities of its subsidiaries. The notes will be redeemable at our
option beginning August 1, 2010 at a redemption price equal to 100% of the
principal amount plus accrued and unpaid interest, if any. Holders of the notes
will have the right to require us to repurchase all or some of their notes at a
purchase price equal to 100% of their principal amount of the notes, plus
accrued and unpaid interest, if any, on August 1, 2008, August 1, 2010, August
1, 2013 and August 1, 2018. In addition, holders of the notes will have the
right to require us to repurchase all or some of their notes upon the occurrence
of certain events constituting a fundamental change. On any required repurchase,
we may choose to pay the purchase price in cash or shares of Vishay common stock
or any combination of cash and Vishay common stock. The proceeds of the offering
of these convertible subordinated notes were used to repay other outstanding
debt, as well as general corporate purposes. The early extinguishment of the
LYONs and the General Semiconductor notes, described below, resulted in a pretax
loss of $9.9 million in the third quarter of 2003. It is anticipated that the
early extinguishment will reduce interest expense by $3.5 million per year going
forward.
We used approximately $130 million of the proceeds of the offering of the
convertible subordinated notes to repay amounts outstanding under our revolving
credit facility. At the same time, we agreed with the lenders under this
facility to an amendment and restatement of the agreement governing the
facility. The maximum availability under the facility, in light of our
anticipated liquidity needs, was changed from $500 million to $400 million, and
the final maturity of the facility was extended from June 2005 to May 2007. The
restatement decreases our minimum tangible net worth requirement to $850 million
plus 50% of net income (without offset for losses) and 75% of net proceeds of
equity offerings from July 1, 2003, eliminates the covenant on minimum earnings
before interest and tax, permits securitization of up to $200 million of
non-U.S. accounts receivable, allows for the release of all collateral (other
than subsidiary stock and pledges by the Company and its subsidiaries of
intercompany notes) under certain circumstances and creates an event of default
upon the occurrence of a fundamental change as defined under our convertible
subordinated notes. At December 31, 2003, there were no borrowings outstanding
under this credit facility. Our tangible net worth at the end of 2003 stood at
$904 million, which is $45 million more than the minimum required under the
related credit facility covenant.
We used approximately $97.4 million of the proceeds of the offering of the
convertible subordinated notes to fund the purchase of approximately $97.0
million accreted principal amount ($165.0 million face amount) of our Liquid
Yield Option(TM) Notes (LYONs). Pursuant to the terms of the LYONs, on June 4,
2004, the remaining holders of the LYONs will have the right to "put" these
notes to us for an aggregate purchase price of $235 million. Holders may also
put these notes to us on June 4, 2006, June 4, 2011, and June 4, 2016 at various
prices set forth in the notes. If these notes are put to us, we expect to be
able to utilize our revolving credit facility or Vishay common stock to finance
the repurchase.
We used approximately $176.6 million of the proceeds of the offering of
the convertible subordinated notes to fund principal and premium in connection
with the redemption of all of the outstanding 5.75% convertible subordinated
notes due 2006 of our General Semiconductor subsidiary. Prior to redemption,
there was $171 million principal amount of the General Semiconductor notes
outstanding. The notes were redeemed at a price of 103.286% of their principal
amount, plus accrued but unpaid interest to the date of redemption of $2.3
million.
35
Commercial Commitments
We maintain a secured revolving credit facility of $400 million. As of
December 31, 2003, we had no amounts outstanding under the revolving credit
facility. Letters of credit totaling $6.1 million, were issued under the
revolving credit facility at December 31, 2003. At December 31, 2003, $393.9
million was available under the credit facility.
Borrowings under the revolving credit facility are secured by pledges of
stock in certain significant subsidiaries and certain guarantees by significant
subsidiaries. The subsidiaries would be required to perform under the guarantees
in the event that Vishay failed to make principal or interest payments under the
revolving credit facility. If any subsidiary were to borrow under the credit
facility, Vishay would provide a similar guarantee with respect to the
subsidiary. The credit facility restricts us from paying cash dividends and
requires us to comply with other covenants, including the maintenance of
specific financial ratios.
At December 31, 2003, we had committed and uncommitted short-term credit
lines with various U.S. and foreign banks aggregating approximately $69 million,
of which approximately $51 million was unused.
Contractual Commitments
As of December 31, 2003 we had contractual obligations as follows:
Payments due by period
(in thousands)
Total Less than 1-3 years 4-5 years After 5
----- ---------- --------- --------- -------
1 year years
------ -----
Long-term debt $ 837,888 $ 1,282 $ 1,569 $ 833 $834,204
Operating leases 75,250 24,106 32,779 14,774 3,591
Expected pension
funding 10,000 10,000 - - -
Estimated costs to
complete construction
in progress 14,500 14,500 - - -
Tantalum purchases 280,500 103,800 176,700 - -
--------------------------------------------------------------------
Total $1,218,138 $ 153,688 $211,048 $ 15,607 $837,795
====================================================================
Pursuant to the terms of the Liquid Yield Option(TM) Notes (LYONs), on
June 4, 2004, the remaining holders of the LYONs will have the right to "put"
these notes to us for an aggregate purchase price of $235 million. Holders may
also put these notes to us on June 4, 2006, June 4, 2011, and June 4, 2016 at
various prices set forth in the notes. If these notes are put to us, we expect
to be able to utilize our revolving credit facility or Vishay common stock to
finance the repurchase.
On December 31, 2003, the Company and Siliconix announced the signing of a
memorandum of understanding with Tower Semiconductor for a long-term
manufacturing and supply arrangement between Siliconix and Tower. Pursuant to
the terms of the memorandum of understanding, Siliconix would place with Tower
orders valued at approximately $200 million for the purchase of semiconductor
wafers to be manufactured in Tower's Fab 1 over a seven to ten year period, of
which approximately $53 million would be guaranteed and would be delivered over
the three year period starting at the first anniversary of the definitive
agreement. Siliconix would advance to Tower $20 million to be used for the
purchase of additional equipment required to satisfy Siliconix's orders, which
would be credited towards the purchase price of the wafers. The transaction is
subject to the approval of both companies' boards of directors, Tower's lending
bank and the Israeli investment center and to the negotiation of definitive
documentation. While there can be no assurances that a definitive agreement will
be reached, Vishay and Siliconix expect a definitive agreement to be signed
during the first half of 2004. If a definitive agreement is not reached, Vishay
and Siliconix will have no commitments related to this memorandum of
understanding.
36
Inflation
Normally, inflation does not have a significant impact on our operations
as our products are not generally sold on long-term contracts. Consequently, we
can adjust our selling prices, to the extent permitted by competition, to
reflect cost increases caused by inflation.
Recent Accounting Pronouncements
In November 2002, the Emerging Issues Task Force (EITF) issued EITF Issue
No. 00-21, Revenue Arrangements with Multiple Deliverables, which provides
guidance on the timing and method of revenue recognition for sales arrangements
that include the delivery of more than one product or service. EITF 00-21 is
effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 did not have a
material impact on our consolidated financial statements.
In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. In addition to other technical
provisions, this statement rescinds SFAS No. 4, which required all gains and
losses from extinguishment of debt to be aggregated and, if material, classified
as an extraordinary item, net of tax. The provisions of SFAS No. 145 were
adopted on January 1, 2003. Our early extinguishment of debt in 2003 was
accounted for and presented in our financial statements pursuant to the
requirements of SFAS No. 145.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement nullifies EITF Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred
rather than at the date of an entity's commitment to an exit plan. The
provisions of SFAS No. 146 were adopted for our exit or disposal activities
initiated after December 31, 2002.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No.
5, 57, and 107 and Rescission of FASB Interpretation No. 34 ("FIN 45"). The
interpretation requires that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it assumes under that
obligation. This interpretation is intended to improve the comparability of
financial reporting by requiring identical accounting for guarantees issued with
separately identified consideration and guarantees issued without separately
identified consideration. The recognition and measurement provisions of FIN 45
are applicable to guarantees issued or modified after December 31, 2002. The
future impact will depend upon whether Vishay enters into or modifies any
material guarantee arrangements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition to SFAS No. 123's fair value method of accounting for stock-based
employee compensation. We have made the additional disclosures required by SFAS
No. 148. We are evaluating the potential impact of adopting the fair value
method of accounting for our stock-based employee compensation.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an interpretation of ARB 51. The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003. In December 2003, the FASB
issued FIN 46 (revised December 2003), Consolidation of Variable Interest
Entities ("FIN 46-R") to address certain FIN 46 implementation issues. The
effective dates and impact of FIN 46 and FIN 46-R are as follows: (i)
Special-purpose
37
entities ("SPEs") created prior to February 1, 2003: We must apply either the
provisions of FIN 46 or early adopt the provisions of FIN 46-R at the end of the
first interim or annual reporting period ending after December 15, 2003. (ii)
Non-SPEs created prior to February 1, 2003: We are required to adopt FIN 46-R at
the end of the first interim or annual reporting period ending after March 15,
2004. (iii) All entities, regardless of whether an SPE, that were created
subsequent to January 31, 2003: The provisions of FIN 46 were applicable for
variable interests in entities obtained after January 31, 2003. The adoption of
the provisions applicable to SPEs and all other variable interests obtained
after January 31, 2003 did not have a material impact on our financial position,
results of operations, or liquidity. We do not expect the adoption of FIN 46-R
provisions applicable to Non-SPEs created prior to February 1, 2003, to have a
material impact on our financial position, results of operations or liquidity.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which is effective for contracts
entered into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30. The guidance is to be applied
prospectively. The adoption of this standard did not have a material impact on
our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
Standard specifies that instruments within its scope embody obligations of the
issuer and that, therefore, the issuer must classify them as liabilities. We
have not issued any such financial instruments.
In December 2003, the FASB issued a revision to SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. The revised
standard retains the disclosure requirement contained in the original standard
and requires additional disclosures about the assets, obligations, cash flows
and net period cost of defined pension plans and other defined benefit
postretirement plans. We adopted the disclosure requirements required by SFAS
No. 132 (revised 2003) for our U.S. pension and other postretirement plans. As
permitted by SFAS No. 132, certain disclosures regarding non-U.S. pension plans
and estimated future benefit payments for both U.S. and non-U.S. pension and
other postretirement benefit plans will be delayed until 2004.
Safe Harbor Statement
From time to time, information provided by us, including but not limited
to statements in this report, or other statements made by or on our behalf, may
contain "forward-looking" information within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements involve a number of
risks, uncertainties and contingencies, many of which are beyond our control,
which may cause actual results, performance or achievements to differ materially
from those anticipated. Set forth below are important factors that could cause
our results, performance or achievements to differ materially from those in any
forward-looking statements made by us or on our behalf.
Factors related to our business generally
- -----------------------------------------
Our business is cyclical and the recent decline in demand in the electronic
component industry may resume and may become more pronounced.
We and others in the electronic and semiconductor component industry have for
the past several years experienced a decline in product demand on a global
basis, resulting in order cancellations and deferrals, lower average selling
prices, and a material and adverse impact on our results of operations. This
decline was primarily attributable to a slowing of growth in the personal
computer and cellular telephone product markets. We have seen indications of
improvements in the economy and electronic and semiconductor component industry
and expect improvements in 2004. However, such improvements in the economy and
the electronic and semiconductor component industry may not materialize. The
slowdown may resume and may become more pronounced. A slowdown in demand, as
well as recessionary trends in the global economy, makes it more difficult for
us to predict our future sales, which also makes it more difficult to manage our
operations, and could adversely impact our results of operations.
38
We have incurred and may continue to incur restructuring costs.
To remain competitive, particularly when business conditions are difficult, we
attempt to reduce our cost structure through restructuring activities. This
includes acquisition-related restructuring, where we attempt to streamline the
operations of companies we acquire and achieve synergies between our
acquisitions and our existing business. It also includes restructuring our
existing businesses, where we seek to eliminate redundant facilities and staff
positions and move operations, where possible, to jurisdictions with lower labor
costs. In 2002, we recorded restructuring costs of approximately $48 million
related to acquisitions and $31 million related to our existing businesses. We
incurred approximately $29.6 million of additional restructuring and severance
costs in 2003 and expect to continue to incur such expenses during 2004.
In the past we have grown through acquisitions but this may not continue.
Our long-term historical growth in revenues and net earnings has resulted in
large part from our strategy of expansion through acquisitions. We cannot assure
you, however, that we will identify or successfully complete transactions with
suitable acquisition candidates in the future. We also cannot assure you that
acquisitions that we complete in the future will be successful. If an acquired
business fails to operate as anticipated or cannot be successfully integrated
with our other businesses, our results of operations, enterprise value, market
value and prospects could all be materially and adversely affected.
Our debt levels have recently increased, which could adversely affect the
perception in the financial markets of our financial condition.
Our outstanding debt increased from approximately $141 million at the end of
2000 to approximately $838 million at the end of 2003. The marketplace could
react negatively to our current debt levels which in turn could affect our share
price and also make it more difficult for us to obtain financing in the future.
In June 2004, holders of our Liquid Yield Option(TM) Notes (LYONs) will have the
right to "put" these notes to us at an aggregate price of approximately $235
million. We believe that, if necessary, we will have adequate cash resources to
finance the purchase of any LYONs that are put to us. Also, we may elect to pay
all or part of the purchase price for the LYONs that are put to us in shares of
our common stock. Nevertheless, our obligation to purchase the LYONs in June
2004 could be a cause of concern in the financial markets.
To remain successful, we must continue to innovate.
Our future operating results are dependent on our ability to continually
develop, introduce and market new and innovative products, to modify existing
products, to respond to technological change and to customize certain products
to meet customer requirements. There are numerous risks inherent in this
process, including the risks that we will be unable to anticipate the direction
of technological change or that we will be unable to develop and market new
products and applications in a timely fashion to satisfy customer demands. If
this occurs, we could lose customers and experience adverse effects on our
financial condition and results of operations.
Future acquisitions could require us to issue additional indebtedness or equity.
If we were to undertake a substantial acquisition for cash, the acquisition
would likely need to be financed in part through bank borrowings or the issuance
of public or private debt. This acquisition financing would likely decrease our
ratio of earnings to fixed charges and adversely affect other leverage criteria.
Under our existing credit facility, we are required to obtain the lenders'
consent for certain additional debt financing and to comply with other covenants
including the application of specific financial ratios. We are also restricted
from paying cash dividends on our capital stock. We cannot assure you that the
necessary acquisition financing would be available to us on acceptable terms
when required. If we were to undertake an acquisition for equity, the
acquisition may have a dilutive effect on the interests of the holders of our
common stock.
39
Our results are sensitive to raw material availability, quality and cost.
Many of our products require the use of raw materials that are produced in only
a limited number of regions around the world, may be available from only a
limited number of suppliers, and may be subject to price volatility. We are a
major consumer of the world's annual production of tantalum. Tantalum, a metal
purchased in powder or wire form, is the principal material used in the
manufacture of tantalum capacitors. There are currently three major suppliers
that process tantalum ore into capacitor grade tantalum powder. We also utilize
palladium, a metal used to produce multi-layered ceramic capacitors, which is
currently found primarily in South Africa and Russia. Palladium is a commodity
product subject to price volatility. Our results of operations may be materially
and adversely affected if we have difficulty obtaining these raw materials, the
quality of available raw materials deteriorates or there are significant price
increases for these raw materials. For periods in which the prices of these raw
materials are rising, we may be unable to pass on the increased cost to our
customers which would result in decreased margins for the products in which they
are used. For periods in which the prices are declining, we may be required to
write down our inventory carrying cost of these raw materials, since we record
our inventory at the lower of cost or market. Depending on the extent of the
difference between market price and our carrying cost, this write-down could
have a material adverse effect on our net earnings. We recorded write-downs of
our tantalum inventory in these years of $52.0 million, $25.7 million, and $5.4
million in 2001, 2002, and 2003 respectively, and write-downs of our palladium
inventory in these years of $18.0 million, $1.7 million, and $1.6 million,
respectively. Also, we took charges against our contractual commitments to
purchase tantalum of $106.0 million and $11.4 million in 2002 and 2003,
respectively.
From time to time there have been short-term market shortages of raw materials.
While these shortages have not historically adversely affected our ability to
increase production of products containing tantalum and palladium, they have
historically resulted in higher raw material costs for us. We cannot assure you
that any of these market shortages in the future would not adversely affect our
ability to increase production, particularly during periods of growing demand
for our products.
Our backlog is subject to customer cancellation.
As of December 31, 2003, our backlog was $532 million. Many of the orders that
comprise our backlog may be canceled by our customers without penalty. Our
customers may on occasion double and triple order components from multiple
sources to ensure timely delivery when backlog is particularly long. They often
cancel orders when business is weak and inventories are excessive, a situation
that we have experienced in the recent economic slowdown. Therefore, we cannot
be certain the amount of our backlog does not exceed the level of orders that
will ultimately be delivered. Our results of operations could be adversely
impacted if customers cancel a material portion of orders in our backlog.
We face intense competition in our business, and we market our products to an
increasingly concentrated group of customers.
Our business is highly competitive worldwide, with low transportation costs and
few import barriers. We compete principally on the basis of product quality and
reliability, availability, customer service, technological innovation, timely
delivery and price. The electronics components industry has become increasingly
concentrated and globalized in recent years and our major competitors, some of
which are larger than us, have significant financial resources and technological
capabilities.
Our customers have become increasingly concentrated in recent years, and as a
result, their buying power has increased and they have had greater ability to
negotiate favorable pricing. This trend has adversely affected our average
selling prices, particularly for commodity components.
40
We may not have adequate facilities to satisfy future increases in demand for
our products.
Our business is cyclical and in periods of a rising economy, we may experience
intense demand for our products. During such periods, we may have difficulty
expanding our manufacturing to satisfy demand. Factors which could limit such
expansion include delays in procurement of manufacturing equipment, shortages of
skilled personnel and capacity constraints at our facilities. If we are unable
to meet our customers' requirements and our competitors sufficiently expand
production, we could lose customers and/or market share. This loss could have an
adverse effect on our financial condition and results of operations.
Future changes in our environmental liability and compliance obligations may
harm our ability to operate or increase costs.
Our manufacturing operations, products and/or product packaging are subject to
environmental laws and regulations governing air emissions, wastewater
discharges, the handling, disposal and remediation of hazardous substances,
wastes and certain chemicals used or generated in our manufacturing processes,
employee health and safety labeling or other notifications with respect to the
content or other aspects of our processes, products or packaging, restrictions
on the use of certain materials in or on design aspects of our products or
product packaging and responsibility for disposal of products or product
packaging. We establish reserves for specifically identified potential
environmental liabilities which we believe are adequate. Nevertheless, we often
unavoidably inherit certain pre-existing environmental liabilities, generally
based on successor liability doctrines. Although we have never been involved in
any environmental matter that has had a material adverse impact on our overall
operations, there can be no assurance that in connection with any past or future
acquisition we will not be obligated to address environmental matters that could
have a material adverse impact on our operations. In addition, more stringent
environmental regulations may be enacted in the future, and we cannot presently
determine the modifications, if any, in our operations that any such future
regulations might require, or the cost of compliance with these regulations. In
order to resolve liabilities at various sites, we have entered into various
administrative orders and consent decrees, some of which may be, under certain
conditions, reopened or subject to renegotiations.
Our products may experience a reduction in product classification levels under
various military specifications.
We have qualified certain of our products under various military specifications,
approved and monitored by the United States Defense Electronic Supply Center,
and under certain European military specifications. These products are assigned
certain classification levels. In order to maintain the classification level of
a product, we must continuously perform tests on the product and the results of
these tests must be reported to governmental agencies. If any of our products
fails to meet the requirements of the applicable classification level, that
product's classification may be reduced to a lower level. A decrease in the
classification level for any of our products with a military application could
have an adverse impact on the net sales and earnings attributable to that
product.
Factors relating to Vishay's operations outside the United States
We obtain substantial benefits by operating in Israel, but these benefits may
not continue.
We have increased our operations in Israel over the past several years. The low
tax rates in Israel applicable to earnings of our operations in that country,
compared to the rates in the United States, have had the effect of increasing
our net earnings, although this was not the case in 2003 and 2002. Also, we have
benefited from employment incentive grants made by the Israeli government.
Recently, the Israeli government suspended payment on one of these grants after
we were forced to lay off a significant number of employees as a result of the
current economic downturn. Although we reached agreement with the Israeli
government to resume payment on this grant, there can be no assurance that we
will maintain our eligibility for this or other existing project grants. There
can also be no assurance in the future the Israeli government will continue to
offer new grant and tax incentive programs applicable to us or that, if it does,
such programs will provide the same level of benefits we have historically
received or that we will continue to be eligible to take advantage of them. Any
significant increase in the Israeli tax rates or reduction or elimination of the
Israeli grant programs that have benefited us could have an adverse impact on
our results of operations.
41
We attempt to improve profitability by operating in countries in which labor
costs are low, but the shift of operations to these regions may entail
considerable expense.
Our strategy is aimed at achieving significant production cost savings through
the transfer and expansion of manufacturing operations to and in countries with
lower production costs, such as Israel, Mexico, Portugal, the Czech Republic,
Malaysia, the Republic of China (Taiwan) and the People's Republic of China. In
this process, we may experience under-utilization of certain plants and
factories in high labor cost regions and capacity constraints in plants and
factories located in low labor cost regions. This under-utilization may result
initially in production inefficiencies and higher costs. These costs include
those associated with compensation in connection 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 initiation or expansion of production in lower labor cost
regions.
As we implement transfers of certain of our operations we may experience strikes
or other types of labor unrest as a result of lay-offs or termination of our
employees in high labor cost countries.
We are subject to the risks of political, economic and military instability in
countries outside the United States in which we operate.
We have operations outside the United States, and approximately 74% of our
revenues during 2003 were derived from sales to customers outside the United
States. Some of the countries in which we operate have in the past experienced
and may continue to experience political, economic and military instability or
unrest. These conditions could have an adverse impact on our ability to operate
in these regions and, depending on the extent and severity of these conditions,
could materially and adversely affect our overall financial condition and
operating results. In particular, current tensions in the Middle East could
adversely affect our business operations in Israel and elsewhere.
Our business was affected by the outbreak of SARS in 2003 and the effects of
that outbreak may linger.
The outbreak of severe acute respiratory syndrome, or SARS, that began in the
People's Republic of China adversely affected our business during the first six
months of 2003, particularly in Asia where we derived approximately 36% and 38%
of our revenue in 2003 and 2002, respectively. This impact included disruptions
in the operations of our customers, a slowdown in customer orders and reduced
sales in certain end markets. If an outbreak of SARS or like disease were to
recur on a comparable scale in Asia, we could experience similar disruptions to
our business.
General Economic and Business Factors
- -------------------------------------
In addition to the factors relating specifically to our business, a variety of
other factors relating to general conditions could cause actual results,
performance, or achievements to differ materially from those expressed in any of
our forward-looking statements. These factors include:
o overall economic and business conditions;
o competitive factors in the industries in which we conduct our business;
o changes in governmental regulation;
o changes in tax requirements, including tax rate changes, new tax laws,
and revised tax law interpretations;
o changes in generally accepted accounting principles or interpretations
of those principles by governmental agencies and self-regulatory groups;
o interest rate fluctuations, foreign currency rate fluctuations, and
other capital market conditions; and
o economic and political conditions in international markets, including
governmental changes and restrictions on the ability to transfer capital
across borders.
Also, we operate in a continually changing business environment, and new factors
emerge from time to time. Other unknown and unpredictable factors also could
have material adverse effects on our future results, performance, or
achievements.
42
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
Market Risk Disclosure
Our cash flows and earnings are subject to fluctuations resulting from
changes in foreign currency exchange rates and interest rates. We manage our
exposure to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of derivative financial
instruments. Our policies do not allow speculation in derivative instruments for
profit or execution of derivative instrument contracts for which there are no
underlying exposures. We do not use financial instruments for trading purposes
and we are not a party to any leveraged derivatives. We monitor our underlying
market risk exposures on an ongoing basis and believe that we can modify or
adapt our hedging strategies as needed.
We are exposed to changes in U.S. dollar LIBOR interest rates on our
floating rate revolving credit facility. At December 31, 2003, there were no
amounts outstanding under this facility. On a selective basis, we from time to
time enter into interest rate swap or cap agreements to reduce the potential
negative impact increases in interest rates could have on our outstanding
variable rate debt. The impact of interest rate instruments on our results of
operations in each of the three years ended December 31, 2003, 2002 and 2001 was
not significant. See Notes 6 and 14 to our consolidated financial statements for
components of our long-term debt and interest rate swap arrangements.
In August 1998, we entered into six interest rate swap agreements with a
total notional amount of $300 million to manage interest rate risk related to
our multicurrency revolving line of credit. As of December 31, 2002, five of
these six agreements had been terminated. The remaining agreement had a notional
amount of $100 million and required us to make payments to the counterparty at
variable rates based on USD-LIBOR-BBA rates. This agreement expired in 2003. At
December 2002 and 2001, we paid a weighted average fixed rate of 5.77% and
received a weighted average variable rate of 1.40% and 1.93%, respectively. The
fair value of our interest rate swap agreements, based on current market rates,
approximated a net payable of $3.3 million at December 31, 2002. During the year
ended December 31, 2003, we had a pre-tax gain of approximately $3.8 million
related to the expiration of the final swap agreement. During the years ended
December 31, 2002 and 2001, we recorded pre-tax losses of $3.7 million and $0.1
million, respectively, relating to an ineffective hedge for a portion of time
relating to an interest rate swap agreement (see Note 14 to our consolidated
financial statements).
Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks. Our significant
foreign subsidiaries are located in Germany, France, Israel and Asia. In most
locations, we have introduced a "netting" policy where subsidiaries pay all
intercompany balances within thirty days. As of December 31, 2003, we did not
have any outstanding foreign currency forward exchange contracts.
In the normal course of business, our financial position 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.
43
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The following Consolidated Financial Statements of the Company and our
subsidiaries, together with the report of independent auditors thereon, are
presented under Item 15 of this report:
Report of Independent Auditors.
Consolidated Balance Sheets -- December 31, 2003 and 2002.
Consolidated Statements of Operations -- for the years ended
December 31, 2003, 2002 and 2001.
Consolidated Statements of Cash Flows -- for the years ended
December 31, 2003, 2002 and 2001.
Consolidated Statements of Stockholders' Equity -- for the years
ended December 31, 2003, 2002 and 2001.
Notes to Consolidated Financial Statements.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------ ------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
Item 9A. DISCLOSURE CONTROLS AND PROCEDURES
- ------- -----------------------------------
An evaluation was performed under the supervision and with the
participation of our management, including the CEO and CFO, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based on
that evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective as of the end of the fourth quarter of 2003, including
for purposes of ensuring that all material information required to be filed in
this report has been made known to the Company's management, including the CEO
and CFO, in a timely fashion.
There has not been any change in our internal controls over financial
reporting during the fourth quarter of fiscal 2003 that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
44
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
We have a code of ethics applicable to our chief executive officer, chief
financial officer, principal accounting officer or controller and financial
managers. The text of this code has been posted on our website. To view the
code, go to our website at www.vishay.com, click on Company Info, then Investor
Relations and then Corporate Governance. You can obtain a printed copy of this
code, free of charge, by contacting us at the following address:
Corporate Investor Relations
Vishay Intertechnology, Inc
63 Lincoln Highway
Malvern, PA 19355-2143
It is the intention of the Company to satisfy the disclosure requirement
under Item 10 of Form 8-K regarding an amendment to, or a waiver from, a
provision of this code by posting such information on our website, at the
aforementioned address and location.
Information required under this Item with respect to our Executive
Officers is set forth in Part I, Item 4A hereof under the caption, "Executive
Officers of the Registrant."
Other information required under this Item is contained in our definitive
proxy statement, which will be filed within 120 days of December 31, 2003, our
most recent fiscal year, and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
Information required under this Item is contained in our definitive proxy
statement, which will be filed within 120 days of December 31, 2003, our most
recent fiscal year, and is incorporated herein by reference.
45
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- ---------------------------------------------------------------
AND RELATED STOCKHOLDER MATTERS
-------------------------------
Equity Compensation Plan Information
The following table sets forth certain equity compensation plan
information, as of December 31, 2003, with respect to both equity compensation
plans approved by security holders and equity compensation plans not approved by
security holders.
Number of
securities Number of securities
to be issued Weighted-average remaining available for
upon exercise future issuance
exercise of price of under equity
outstanding outstanding compensation plans
options, options, (excluding securities
warrants and warrants reflected in column
rights and rights (a)
Plan category (a) (b) (c)
- -------------
Equity compensation plans
approved by security
holders:
1997 Stock Option Program(1) 2,159,000 $12.51 -
1998 Stock Option Program(1) 2,820,000 $15.63 1,143,000
General Semiconductor Stock
Plan(2) 3,789,000 $18.65 -
-------------- ------------ ----------------
Subtotal 8,768,000 $16.17 1,143,000
Equity compensation plans not
approved by security holders:
None - - -
-------------- ------------ ----------------
Subtotal 8,768,000 $16.17 1,143,000
-------------- ------------ ----------------
Total 8,768,000 $16.17 1,143,000
============== ============ ================
- ------------------
(1) See Note 12 to our consolidated financial statements for further description
of these plans.
(2) The General Semiconductor Stock Plan was assumed in the Company's
acquisition of General Semiconductor Inc. on November 2, 2001. See Note 12
to our consolidated financial statements for further description of this
plan.
Security Ownership of Certain Beneficial Owners and Management
Information required under this caption is contained in our definitive
proxy statement, which will be filed within 120 days of December 31, 2003, our
most recent fiscal year, and is incorporated herein by reference.
46
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
Information required under this Item is contained in our definitive proxy
statement, which will be filed within 120 days of December 31, 2003, our most
recent fiscal year, and is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
- ------- ----------------------------------------
Information required under this Item is contained in our definitive proxy
statement, which will be filed within 120 days of December 31, 2003, our most
recent fiscal year, and is incorporated herein by reference.
PART IV
-------
Item 15. 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, 2003 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) Reports on Form 8-K:
(1) On October 29, 2003, the Company filed a current report
under Item 12 of Form 8-K, reporting the financial results
of the Company for the quarter and nine-months ended
September 30, 2003.
(c) Exhibits:
2.1 Agreement and Plan of Merger, dated as of July 31, 2001, by and
among Vishay Intertechnology, Inc., Vishay Acquisition Corp., and
General Semiconductor, Inc. Incorporated by reference to Annex A
to the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement on Form S-4 (No. 333-69004) filed on
September 6, 2001.
2.2 Share Sale and Purchase Agreement between Phoenix Acquisition
Company S.ar.l; Other Investors (as defined); Mezzanine Lenders
(as defined); Vishay Intertechnology, Inc.; Vishay Europe Gmbh;
and BCcomponents International B.V., dated as of November 10,
2002. Incorporated by reference to Exhibit 2.1 to Form 8-K File
filed December 23, 2002.
2.3 Amendment to the Share Sale and Purchase Agreement between Phoenix
Acquisition Company S.ar.l; Other Investors (as defined); Mezzanine
Lenders (as defined); Vishay Intertechnology, Inc.; Vishay Europe
Gmbh; and BCcomponents International B.V., dated as of December 4,
2002. Incorporated by reference to Exhibit 2.2 to Form 8-K File
filed December 23, 2002.
3.1 Composite Amended and Restated Certificate of Incorporation of the
Company dated August 3, 1995. Incorporated by reference to Exhibit
3.1 to the Company's quarterly report on 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").
Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of the Company. Incorporated by reference to Exhibit
3.1 to Form 8-K File filed November 13, 2001.
47
3.2 Amended and Restated Bylaws of Registrant. Incorporated by reference
to Exhibit 3.1 to the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 2001.
4.1 Indenture dated as of June 4, 2001 between Vishay Intertechnology,
Inc. and Bank of New York as Trustee. Incorporated by reference to
Exhibit 4.1 to the Company's current report on Form 8-K filed on
June 18, 2001 except that clause (x) of Section 5 thereof is
corrected to read "(x) 0.0625% of the average LYON Market Price for
the Five Day Period with respect to such Contingent Interest Period
and".
4.2 Indenture, dated as of August 6, 2003, by and between Vishay
Intertechnology, Inc. and Wachovia Bank, National Association.
Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-3 (No. 333-110259) filed on
November 5, 2003.
10.1 Vishay Intertechnology Section 162(m) Cash Bonus Plan. Incorporated
by reference to Annex to the Company's Proxy Statement, dated April
21, 2003, for its 2003 Annual Meeting of Stockholders.
10.2 Second Amendment to Amended and Restated Vishay Intertechnology,
Inc. Long Term Revolving Credit Agreement and Consent, made as of
July 31, 2003, by and among Vishay Intertechnology, Inc., the
Permitted Borrowers (as defined), the Lenders signatory thereto and
Comerica Bank, as Co-lead Arranger Co-Book Running Manager and
Administrative agent, et al.
10.3 Employment Agreement, dated as of March 15, 1985, between the
Company and Dr. Felix Zandman. Incorporated by reference to Exhibit
10.12 to the Company's Registration Statement on Form S-2 (No.
33-13833).
10.4 Vishay Intertechnology, Inc. 1997 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on Schedule
14A filed April 16, 1998.
10.5 Vishay Intertechnology, Inc. 1998 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on Schedule
14A filed April 16, 1998.
10.6 General Semiconductor, Inc. Amended and Restated 1998 Long-Term
Incentive Plan as amended on February 7, 2001. Incorporated by
reference to Exhibit 10.9 to General Semiconductor's annual report
on Form 10-K for the year ended December 31, 2000.
10.8 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).
10.9 Agreement Amending Supply Agreements among Cabot Corporation through
its Cabot Performance Materials Division, Vishay Sprague, Inc. and
Vishay Intertechnology, Inc. dated as of June 6, 2002. Incorporated
by reference to Exhibit 10.10 to the Company's annual report on Form
10-K for the year ended December 31, 2002.
10.10 Severance and General Release Agreement, dated November 4, 2003,
between the Company and Avi D. Eden.
10.11 Consulting and Non-Competition Agreement, dated November 4, 2003,
between the Company and Avi D. Eden.
21 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
48
31.1 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Dr. Felix Zandman, Chief
Executive Officer
31.2 Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the
Securities Exchange Act of 1934, as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 - Richard N. Grubb, Chief
Financial Officer
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Dr.
Felix Zandman, Chief Executive Officer
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Richard
N. Grubb, Chief Financial Officer
49
SIGNATURES
----------
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
March 15, 2004 /s/ Felix Zandman
------------------------
Felix Zandman, Chairman
of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below.
March 15, 2004 /s/ Felix Zandman
-----------------------------
Felix Zandman, Chairman
of the Board and Chief
Executive Officer
(Principal Executive Officer)
March 15, 2004 /s/ Richard N. Grubb
------------------------------
Richard N. Grubb, Executive
Vice President, Treasurer, and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
March 15, 2004 /s/ Marc Zandman
------------------------------
Marc Zandman, Vice-Chairman
of the Board, President-Vishay
Israel Ltd.
March 15, 2004 /s/ Gerald Paul
------------------------------
Gerald Paul, Director, President
and Chief Operating Officer
March 15, 2004 /s/ Phillipe Gazeau
------------------------------
Phillipe Gazeau, Director
March 15, 2004 /s/ Zvi Grinfas
------------------------------
Zvi Grinfas, Director
50
March 15, 2004 /s/ Eli Hurvitz
------------------------------
Eli Hurvitz, Director
March 15, 2004 /s/ Abraham Ludomirski
------------------------------
Abraham Ludomirski, Director
March 15, 2004 /s/ Edward B. Shils
------------------------------
Edward B. Shils, Director
March 15, 2004 /s/ Ziv Shoshani
------------------------------
Ziv Shoshani, Director
March 15, 2004 /s/ Mark I. Solomon
------------------------------
Mark I. Solomon, Director
March 15, 2004 /s/ Jean-Claude Tine
------------------------------
Jean-Claude Tine, Director
March 15, 2004 /s/ Ruta Zandman
------------------------------
Ruta Zandman, Director
51
Vishay Intertechnology, Inc.
Consolidated Financial Statements
Years ended December 31, 2003, 2002, and 2001
Contents
Report of Independent Auditors.............................................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................................F-2
Consolidated Statements of Operations......................................F-4
Consolidated Statements of Cash Flows......................................F-5
Consolidated Statements of Stockholders' Equity............................F-6
Notes to Consolidated Financial Statements.................................F-8
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, 2003 and 2002, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended December 31, 2003. 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 auditing standards generally accepted
in the United States. 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, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 5, 2004
F-1
Vishay Intertechnology, Inc.
Consolidated Balance Sheets
(In thousands, except per share and share amounts)
December 31
2003 2002
---------------------------
Assets
Current assets:
Cash and cash equivalents $ 555,540 $ 339,938
Accounts receivable, less allowances of
$13,704 and $18,172 374,240 343,511
Inventories:
Finished goods 171,447 219,769
Work in process 154,532 142,846
Raw materials 189,413 191,451
Deferred income taxes 48,471 47,297
Prepaid expenses and other current assets 143,610 188,881
---------------------------
Total current assets 1,637,253 1,473,693
Property and equipment - at cost:
Land 110,021 118,000
Buildings and improvements 375,178 339,869
Machinery and equipment 1,644,270 1,609,931
Construction in progress 85,169 61,830
---------------------------
2,214,638 2,129,630
Less allowances for depreciation (994,843) (854,780)
---------------------------
1,219,795 1,274,850
Goodwill 1,466,714 1,356,293
Other intangible assets 128,955 122,417
Other assets 119,796 87,906
---------------------------
Total assets $ 4,572,513 $ 4,315,159
===========================
Continues on following page.
F-2
December 31
2003 2002
---------------------------
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks $ 17,511 $ 18,161
Trade accounts payable 158,182 123,999
Payroll and related expenses 111,842 103,184
Other accrued expenses 288,432 303,609
Income taxes 10,112 8,734
Current portion of long-term debt 1,282 18,550
---------------------------
Total current liabilities 587,361 576,237
Long-term debt less current portion 836,606 706,316
Deferred income taxes 35,036 52,935
Deferred income 27,659 42,345
Other liabilities 248,652 266,893
Accrued pension and other post
retirement costs 239,950 235,661
Minority interest 83,215 75,985
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $1.00 per share:
authorized - 1,000,000 shares; none issued
Common Stock, par value $.10 per share:
authorized - 300,000,000 shares;
144,668,594 and 144,297,101 shares
outstanding after deducting 332,850 shares
in treasury 14,467 14,429
Class B convertible Common Stock, par value
$.10 per share: authorized - 40,000,000
shares; 15,382,296 and 15,383,581 shares
outstanding after deducting 279,453 shares
in treasury 1,538 1,538
Capital in excess of par value 1,918,785 1,910,994
Retained earnings 550,196 523,354
Unearned compensation (306) (413)
Accumulated other comprehensive income
(loss) 29,354 (91,115)
---------------------------
Total stockholders' equity 2,514,034 2,358,787
---------------------------
Total liabilities and stockholders' equity $ 4,572,513 $ 4,315,159
===========================
See accompanying notes.
F-3
Vishay Intertechnology, Inc.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
Year ended December 31
2003 2002 2001
------------------------------------------------------
Net sales $ 2,170,597 $ 1,822,813 $ 1,655,346
Costs of products sold 1,690,267 1,454,540 1,273,827
Loss on long-term purchase commitments 11,392 106,000 --
------------------------------------------------------
Gross profit 468,938 262,273 381,519
Selling, general, and administrative
expenses 381,406 311,251 278,171
Amortization of goodwill -- -- 11,190
Restructuring and severance costs 29,560 30,970 61,908
Purchased research and development -- -- 16,000
------------------------------------------------------
57,972 (79,948) 14,250
------------------------------------------------------
Other income (expense):
Interest expense (37,831) (28,761) (16,848)
Gain on insurance claim 33,906 -- --
Loss on extinguishment of debt (9,910) -- --
Other 2,289 8,664 12,701
------------------------------------------------------
(11,546) (20,097) (4,147)
------------------------------------------------------
Earnings (loss) before income taxes
(benefit) and minority interest 46,426 (100,045) 10,103
Income tax provision (benefit) 11,528 (16,900) 5,695
Minority interest 8,056 9,469 3,895
------------------------------------------------------
Net earnings (loss) $ 26,842 $ (92,614) $ 513
======================================================
Basic earnings (loss) per share $ 0.17 $ (0.58) $ 0.00
======================================================
Diluted earnings (loss) per share $ 0.17 $ (0.58) $ 0.00
======================================================
Weighted average shares
outstanding:
Basic 159,631,000 159,413,000 141,171,000
Diluted 160,443,000 159,413,000 142,514,000
See accompanying notes.
F-4
Vishay Intertechnology, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
2003 2002 2001
----------------------------------------
Operating activities
Net earnings (loss) $ 26,842 $ (92,614) $ 513
Adjustments to reconcile net earnings
(loss) to net cash provided by operating activities:
Depreciation and amortization 194,055 180,748 163,387
Loss (gain) on disposal of property and equipment 2,521 296 (1,472)
Minority interest in net earnings of
consolidated subsidiaries 8,056 9,469 3,895
Purchased research and development -- -- 16,000
Noncash (credit) charge for change in
fair value of interest rate swap (3,783) 115 3,668
Accretion of interest on convertible
debentures 8,396 9,325 5,313
Write-downs of tantalum and palladium 6,991 27,400 70,000
Inventory write-offs for obsolescence 54,285 37,120 29,670
Gain on insurance claim (33,906) -- --
Loss on extinguishment of debt 9,910 -- --
Asset impairment charges included in
restructuring costs 1,014 12,363 20,974
Loss on long-term purchase commitments 11,392 106,000 --
Utilization of purchase commitment liability (28,000) -- --
Deferred grant income (12,359) (17,322) (19,064)
Changes in operating assets and liabilities,
net of effects of businesses acquired:
Accounts receivable (5,634) 102,322 120,095
Inventories (30,448) 42,298 (93,632)
Prepaid expenses and other current assets 51,367 6,257 (7,321)
Accounts payable 25,474 455 (71,761)
Other current liabilities (6,110) (29,766) (105,685)
Other (24,307) (27,595) 26,838
---------------------------------------
Net cash provided by operating activities 255,756 366,871 161,418
---------------------------------------
Investing activities
Purchases of property and equipment (126,635) (110,074) (162,493)
Proceeds from sale of property and equipment 19,349 20,621 9,911
Purchases of businesses, net of cash acquired (41,161) (278,735) (172,468)
---------------------------------------
Net cash used in investing activities (148,447) (368,188) (325,050)
---------------------------------------
Financing activities
Net payments on revolving credit lines (111,000) (14,000) (100,047)
Proceeds from long-term borrowings, net of
issuance costs 484,206 201 294,511
Principal payments on long-term debt (284,595) (17,217) (444)
Purchase of treasury stock -- -- (850)
Proceeds from stock options exercised 4,740 3,161 854
Net changes in short-term borrowings (316) (10,452) 3,274
---------------------------------------
Net cash provided by (used in) financing
activities 93,035 (38,307) 197,298
Effect of exchange rate changes on cash 15,258 12,447 (3,764)
---------------------------------------
Increase (decrease) in cash and cash
equivalents 215,602 (27,177) 29,902
Cash and cash equivalents at beginning
of year 339,938 367,115 337,213
---------------------------------------
Cash and cash equivalents at end of year $ 555,540 $ 339,938 $ 367,115
=======================================
See accompanying notes.
F-5
Vishay Intertechnology, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Class B Accumulated
Convertible Capital Other Total
Common Common in Excess Retained Unearned Compenhensive Stockholders'
Stock Stock of Par Value Earnings Compensation Income (loss) Equity
-----------------------------------------------------------------------------------------
Balance at January 1, 2001 $ 12,241 $ 1,552 $ 1,319,426 $ 615,455 $ (1,248) $ (113,571) $1,833,855
Net earnings -- -- -- 513 -- -- 513
Foreign currency translation adjustment -- -- -- -- -- (7,638) (7,638)
Pension liability adjustment -- -- -- -- -- (8,557) (8,557)
Cumulative effect of adoption of
SFAS No. 133 -- -- -- -- -- 51 51
Loss on derivative financial instruments -- -- -- -- -- (696) (696)
----------
Comprehensive loss (16,327)
----------
Stock issued (22,573 shares) 2 -- 443 -- (446) -- (1)
Stock options exercised (85,877 shares) 9 -- 845 -- -- -- 854
Conversions from Class B to common
(21,917 shares) 2 (2) -- -- -- -- --
Common stock repurchase (48,500 shares) (5) -- (846) -- -- -- (851)
Tax effects relating to stock plan -- -- 423 -- -- -- 423
Amortization of unearned compensation -- -- -- -- 773 -- 773
Stock issued - General Semiconductor
acquisition (21,305,127 shares) 2,131 -- 497,688 -- -- -- 499,819
Stock options issued - General
Semiconductor acquisition -- -- 48,000 -- -- -- 48,000
----------------------------------------------------------------------------------------
Balance at December 31, 2001 14,380 1,550 1,865,979 615,968 (921) (130,411) 2,366,545
Net loss -- -- -- (92,614) -- -- (92,614)
Foreign currency translation
adjustment -- -- -- -- -- 64,343 64,343
Pension liability adjustment -- -- -- -- -- (23,230) (23,230)
Loss on derivative financial
instruments -- -- -- -- -- (1,817) (1,817)
----------
Comprehensive loss (53,318)
----------
Stock issued (127,270 shares) 11 -- 2,124 -- (135) -- 2,000
Stock options exercised
(260,720 shares) 26 -- 3,135 -- -- -- 3,161
Conversions from Class B to common
(113,053 shares) 12 (12) -- -- -- -- --
Warrants issued - BCcomponents
acquisition -- -- 39,462 -- -- -- 39,462
Tax effects relating to stock plan -- -- 294 -- -- -- 294
Amortization of unearned compensation -- -- -- -- 643 -- 643
----------------------------------------------------------------------------------------
Balance at December 31, 2002 14,429 1,538 1,910,994 523,354 (413) (91,115) 2,358,787
Continues on Following Page.
F-6
Vishay Intertechnology, Inc.
Consolidated Statements of Stockholders' Equity (continued)
(In thousands, except share amounts)
Class B Accumulated
Convertible Capital Other Total
Common Common in Excess Retained Unearned Compenhensive Stockholders'
Stock Stock of Par Value Earnings Compensation Income (loss) Equity
--------------------------------------------------------------------------------------
Balance at December 31, 2002 $ 14,429 $ 1,538 $1,910,994 $ 523,354 $ (413) $ (91,115) $2,358,787
Net earnings -- -- -- 26,842 -- -- 26,842
Foreign currency translation adjustment -- -- -- -- -- 111,369 111,369
Pension liability adjustment -- -- -- -- -- 6,638 6,638
Gain on derivative financial instruments -- -- -- -- -- 2,462 2,462
----------
Comprehensive income 147,311
----------
Stock issued (14,000 shares) 2 -- 212 -- -- -- 214
Stock options exercised (356,313 shares) 36 -- 4,704 -- -- -- 4,740
Fair value of modifications to
nonemployee stock options -- -- 1,776 -- -- -- 1,776
Tax effects relating to stock plan -- -- 1,099 -- -- -- 1,099
Conversions from Class B to common
(1,018 shares) -- -- -- -- -- -- --
Amortization of unearned compensation -- -- -- -- 107 -- 107
--------------------------------------------------------------------------------------
Balance at December 31, 2003 $ 14,467 $ 1,538 $1,918,785 $ 550,196 $ (306) $ 29,354 $2,514,034
======================================================================================
See accompanying notes.
F-7
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements
December 31, 2003
Vishay Intertechnology, Inc. ("Vishay" or the "Company") is an international
manufacturer and supplier of passive and active electronic components, including
resistors, capacitors, inductors, strain gages, load cells, force measurement
sensors, displacement sensors, photoelastic sensors, power MOSFETS, power
conversion and motor control integrated circuits, transistors, diodes and
optoelectronic components. 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
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Principles of Consolidation
The consolidated financial statements include the accounts of Vishay and all of
its subsidiaries in which a controlling financial interest is maintained. For
those consolidated subsidiaries in which the Company's ownership is less than
100 percent, the outside stockholders' interests are shown as Minority Interest
in the accompanying consolidated balance sheets. Investments in affiliates over
which the Company has significant influence but not a controlling interest are
carried on the equity basis. Investments in affiliates over which the Company
does not have significant influence are accounted for by the cost method. All
significant intercompany transactions, accounts, and profits are eliminated.
Revenue Recognition
The Company recognizes revenue on product sales during the period when the sales
process is complete. This generally occurs when products are shipped to the
customer in accordance with terms of an agreement of sale, title and risk of
loss have been transferred, collectibility is reasonably assured and pricing is
fixed or determinable. The Company has agreements with distributors that
historically provided limited rights of product return. Beginning in 2002, the
Company modified these arrangements to allow distributors a limited credit for
unsaleable products, which it terms a "scrap allowance." Consistent with
industry practice, the Company also has a "stock, ship and debit" program
whereby it considers requests by distributors for credits on previously
purchased products that remain in distributors' inventory, to enable the
distributors to offer more competitive pricing. In addition, the Company has
contractual arrangements whereby it provides distributors with protection
against price reductions initiated by the Company after product is sold by the
Company to the distributor and prior to resale by the distributor.
The Company records a reduction of revenue during each period, and records a
related accrued expense for the period, based upon its estimate of product
returns, scrap allowances, "stock, ship and debit" credits and price protection
credits that will be attributable to sales recorded through the end of the
period. The Company makes these estimates based upon sales levels to its
distributors during the period, inventory levels at the distributors, current
and projected market conditions and historical experience under the programs.
While the Company utilizes a number of different methodologies to estimate the
accruals, all of the methodologies take into account sales levels to
distributors during the relevant period, inventory levels at the distributors,
current and projected market trends and conditions, recent and historical
activity under the relevant programs, changes in program policies and open
requests for credits. These procedures require the exercise of significant
judgments, but the Company believes that they allow the Company to reasonably
estimate future credits under the programs.
F-8
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Shipping and Handling Costs
Shipping and handling costs are included in costs of products sold.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to
expense for research and development (exclusive of purchased in-process research
and development) aggregated $45,377,000, $37,095,000, and $30,176,000, for the
years ended December 31, 2003, 2002, and 2001, respectively. The Company spends
additional amounts for the development of machinery and equipment for new
processes and for cost reduction measures.
Grants
Grants received by certain foreign subsidiaries from foreign governments,
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 Israeli government recognized as a reduction of costs
of products sold were $12,359,000, $17,322,000, and $19,064,000, for the years
ended December 31, 2003, 2002, and 2001, respectively. Grants receivable of
$9,223,000 and $16,374,000 are included in other current assets at December 31,
2003 and 2002, respectively. Deferred grant income was $27,659,000 and
$42,345,000 at December 31, 2003 and 2002, respectively. The grants are subject
to certain conditions, including maintaining specified levels of employment for
periods up to ten years. Noncompliance with such conditions could result in the
repayment of grants. However, management expects that the Company will comply
with all terms and conditions of the grants.
Income Taxes
The provision for income taxes is determined using the asset and liability
approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the Company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not that a tax benefit will not be realized.
Cash Equivalents
Cash and cash equivalents includes demand deposits and highly liquid investments
with maturities of three months or less when purchased.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
allowance is determined through an analysis of the aging of accounts receivable
and assessments of risk that are based on historical trends and an evaluation of
the impact of current and projected economic conditions. The Company evaluates
the past-due status of its trade receivables based on contractual terms of sale.
If the financial condition of the Company's customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. Bad debt expense was $4,181,000, $6,672,000, and
$7,112,000 for the years ended December 31, 2003, 2002, and 2001, respectively.
F-9
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market. Inventories are adjusted for estimated obsolescence
and written down to net realizable value based upon estimates of future demand,
technology developments and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the
straight-line method based upon the estimated useful lives of the assets.
Machinery and equipment are being depreciated over useful lives of seven to ten
years. Buildings and building improvements are being depreciated over useful
lives of twenty to forty years. Construction in progress is not depreciated
until the assets are placed in service. The estimated cost to complete
construction in progress at December 31, 2003 was approximately $14.5 million.
Depreciation of capital lease assets is included in total depreciation expense.
Depreciation expense was $180,706,000, $172,174,000, and $149,225,000, for the
years ended December 31, 2003, 2002, and 2001, respectively.
Goodwill and Other Intangible Assets
The Company adopted Statements of Financial Accounting Standards ("SFAS") No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002.
SFAS No. 142 requires that goodwill and indefinite-lived intangible assets no
longer be amortized. In addition, goodwill and indefinite-lived intangible
assets are tested for impairment at least annually. These tests will be
performed more frequently if there are triggering events. The Company has
assigned an indefinite useful life to its tradenames. Prior to adoption of SFAS
No. 142, goodwill was amortized over periods ranging from twenty to forty years.
Definite-lived intangible assets are amortized over their estimated useful
lives. Completed technology is being amortized over useful lives of seven to ten
years. Noncompete agreements are being amortized over a period of one to five
years. The Company continually evaluates the reasonableness of the useful lives
of these assets.
SFAS No. 142 prescribes a two-step method for determining goodwill impairment.
In the first step, the Company determines the fair value of the reporting unit
using a comparable companies market multiple approach. If the net book value of
the reporting unit were to exceed the fair value, the Company would then perform
the second step of the impairment test which requires allocation of the
reporting unit's fair value to all of its assets and liabilities in a manner
similar to a purchase price allocation, with any residual fair value being
allocated to goodwill. An impairment charge will be recognized only when the
implied fair value of a reporting unit's goodwill is less than its carrying
amount.
The Company completed the transitional goodwill impairment test as of January 1,
2002. Fair value of reporting units was determined using comparable company
market multiples. The Company determined that there was no goodwill impairment
as of January 1, 2002. The Company's required annual impairment test is
completed as of October 1 of each year. The Company also performed an additional
impairment test at September 30, 2002 because events and circumstances indicated
that goodwill of its passives reporting unit might be impaired. Management
concluded that no impairment existed at September 30, 2002. Additionally, it was
determined that no impairment existed based on the annual impairment tests for
2003 and 2002.
F-10
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
The Company completed the transitional impairment test of its tradenames as of
January 1, 2002. The fair value of the tradenames was measured as the discounted
cash flow savings realized from owning such tradenames and not having to pay a
royalty for their use. No impairment of the tradenames was determined to exist
at January 1, 2002. The annual impairment test of tradenames is completed as of
October 1 of each year. It was determined that no impairment existed based on
the annual impairment tests for 2003 and 2002.
Impairment of Long-Lived Assets
The Company evaluates impairment of its long-lived assets, other than goodwill
and indefinite-lived intangible assets, in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which was
adopted by the Company as of January 1, 2002. Adoption of SFAS No. 144 had no
effect on the Company's financial position or its results of operations. The
carrying value of long-lived assets held and used, other than goodwill and
indefinite-lived intangible assets, is evaluated when events or changes in
circumstances indicate the carrying value may not be recoverable. The carrying
value of a long-lived asset is considered impaired when the total projected
undiscounted cash flows from such asset are separately identifiable and are less
than the carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the projected cash flows
from the asset discounted at a rate commensurate with the risk involved. Losses
on long-lived assets held for sale, other than goodwill and indefinite-lived
intangible assets, are determined in a similar manner, except that fair market
values are reduced for disposal costs.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, 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 ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees. The Company accounts for
stock-based compensation in accordance with APB No. 25 and related
interpretations. The following is provided to comply with the disclosure
requirements of SFAS No. 123 as amended. If compensation cost for the Company's
stock option programs had been determined using the fair-value method prescribed
by SFAS No. 123, the Company's results would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
Year ended December 31
2003 2002 2000
-------------- -------------- --------------
Net earnings (loss), as reported $ 26,842 $ (92,614) $ 513
Deduct: Total stock-based employee compensation expense
determined under fair value-based method for all
awards, net of related tax effects (1,612) (2,430) (3,742)
-------------- -------------- ---------
Pro forma net earnings (loss) $ 25,230 $ (95,044) $ (3,229)
============== ============== =========
Earnings (loss) per share:
Basic--as reported $ 0.17 $ (0.58) $ 0.00
============== ============== =========
Basic--pro forma $ 0.16 $ (0.60) $ (0.02)
============== ============== =========
Diluted--as reported $ 0.17 $ (0.58) $ 0.00
============== ============== =========
Diluted--pro forma $ 0.16 $ (0.60) $ (0.02)
============== ============== =========
F-11
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
The weighted average fair value of the options granted was estimated using the
Black-Scholes option-pricing model, with the assumptions presented below.
Options granted in 2003 and 2002 had a weighted average fair value of $6.53 and
$8.62, respectively, and an exercise price equal to the market value. No options
were granted in 2001 under the Vishay stock option programs.
2003 2002
Grants Grants
---------------------------
Expected dividend yield - -
Risk-free interest rate 2.2% 3.5%
Expected volatility 61.2% 63.2%
Expected life (in years) 4.5 4.5
Derivative Financial Instruments
Derivative instruments are reported on the consolidated balance sheet at their
fair values. The accounting for changes in fair value depends upon the purpose
of the derivative instrument and whether it is designated and qualifies for
hedge accounting. For instruments designated as hedges, the effective portion of
gains or losses is reported in other comprehensive income and the ineffective
portion, if any, is reported in net earnings (loss). Changes in the fair values
of derivative instruments that are not designated as hedges are recorded in
current period earnings. The Company uses interest rate swap agreements to
modify variable rate obligations to fixed rate obligations, thereby reducing
exposure to market rate fluctuations. The interest rate swap agreements are
designated as hedges. At December 31, 2003, the Company had no outstanding
interest rate swap agreements. See Note 14.
In prior years, the Company used financial instruments such as forward exchange
contracts to hedge a portion, but not all, of its firm commitments denominated
in foreign currencies. The purpose of the Company's foreign currency management
is to minimize the effect of exchange rate changes on actual cash flows from
foreign currency denominated transactions. At December 31, 2003 and 2002, the
Company had no outstanding forward exchange contracts.
Foreign Currency Translation
The financial statements for most of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Foreign assets and
liabilities in the consolidated balance sheets have been translated at the rate
of exchange as of the balance sheet date. Revenues and expenses are translated
at the average exchange rate for the year. Translation adjustments do not impact
the results of operations and are reported as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are included
in the results of operations.
For those foreign subsidiaries where the U.S. dollar is the functional currency,
all foreign currency financial statement amounts are remeasured into U.S.
dollars. Exchange gains and losses arising from remeasurement of foreign
currency-denominated monetary assets and liabilities are included in the results
of operations.
F-12
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines, penalties, and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment and/or remediation can be reasonably estimated.
Accrued liabilities for environmental matters recorded at December 31, 2003 and
2002 do not include claims against third parties and are not discounted.
Accounting Pronouncements Pending Adoption
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities, an interpretation of ARB 51. The primary
objectives of this interpretation are to provide guidance on the identification
of entities for which control is achieved through means other than through
voting rights ("variable interest entities") and how to determine when and which
business enterprise (the "primary beneficiary") should consolidate the variable
interest entity. This new model for consolidation applies to an entity in which
either (i) the equity investors (if any) do not have a controlling financial
interest; or (ii) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. In addition, FIN 46 requires that the primary beneficiary,
as well as all other enterprises with a significant variable interest in a
variable interest entity, make additional disclosures. Certain disclosure
requirements of FIN 46 were effective for financial statements issued after
January 31, 2003. In December 2003, the FASB issued FIN 46 (revised December
2003), Consolidation of Variable Interest Entities ("FIN 46-R") to address
certain FIN 46 implementation issues. The effective dates and impact of FIN 46
and FIN 46-R are as follows: (i) Special-purpose entities ("SPEs") created prior
to February 1, 2003: The Company must apply either the provisions of FIN 46 or
early adopt the provisions of FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to
February 1, 2003: The Company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether an SPE, that were created subsequent to January
31, 2003: The provisions of FIN 46 were applicable for variable interests in
entities obtained after January 31, 2003. The adoption of the provisions
applicable to SPEs and all other variable interests obtained after January 31,
2003 did not have a material impact on our financial position, results of
operations, or liquidity. The Company does not expect the adoption of FIN 46-R
provisions applicable to Non-SPEs created prior to February 1, 2003, to have a
material impact on our financial position, results of operations or liquidity.
In December 2003, the FASB issued a revision to SFAS No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits. The revised
standard retains the disclosure requirement contained in the original standard
and requires additional disclosures about the assets, obligations, cash flows
and net period cost of defined pension plans and other defined benefit
postretirement plans. The Company has adopted the disclosure requirements
required by SFAS No. 132 (revised 2003) for our U.S. pension and other
postretirement plans, as included in Note 11. As permitted by SFAS No. 132,
certain disclosures regarding non-U.S. pension plans and estimated future
benefit payments for both U.S. and non-U.S. pension and other postretirement
benefit plans will be delayed until 2004.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
financial statement presentation.
F-13
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions
As part of its growth strategy, the Company seeks to expand through the
acquisition of other manufacturers of electronic components that have
established positions in major markets, reputations for product quality and
reliability, and product lines with which the Company has substantial marketing
and technical expertise. In the past three years, the Company has taken
advantage of the downturn in the electronics industry and the strength of its
own balance sheet to acquire businesses for consideration that it believes was
lower than what it would have been required to pay in other economic
environments. In pricing an acquisition, the Company focuses primarily on the
target's revenues and customer base, the strategic fit of its product line with
the Company's existing product offerings, opportunities for cost cutting and
integration with the Company's existing operations and production and other
postacquisition synergies rather than on the target's assets, such as its
property, equipment and inventory. As a result, the fair value of the acquired
assets may correspond to a relatively smaller portion of the acquisition price,
with the Company recording a substantial amount of goodwill related to the
acquisition.
These principles apply in particular to acquisitions in the passive segment. The
passive electronics business is a mature industry that, in general, has a slow
organic growth rate linked to macro-economic trends. The Company's business
strategy for growth in the passive segment relies primarily upon the acquisition
of other electronic components manufacturers whose operations satisfy its
acquisition criteria. Rather than focusing on the assets of the acquired
company, the Company seeks to capture its sales and customers, which it expects
to service in substantial measure with its own long-term assets and personnel.
In this regard, the Company anticipates that, following the acquisition, it will
be able to maintain sales levels on the strength of its relationships with
original equipment manufacturers (OEMs), distributors and electronic
manufacturers' supply (EMS) companies. The Company also anticipates that it will
be able to achieve fairly rapid cost reductions by eliminating or combining
redundant sales offices, sales personnel, commission representatives and
administrative staff; eliminating or consolidating manufacturing facilities; and
transferring manufacturing operations from high-labor-cost countries to
low-labor-cost jurisdictions. These savings and synergies were made possible in
the recent environment of depressed activity in the electronics industry by low
utilization of manufacturing and distribution capacity in the passive segment.
The property and equipment of an acquired company are expected to be eliminated
or substantially reduced and are valued accordingly. The result for acquisitions
in the passive segment is recognition of a substantial amount of goodwill.
No acquisitions were made during the year ended December 31, 2003.
Year ended December 31, 2002
In January 2002, the Company acquired the transducer and strain gage businesses
of Sensortronics, Inc. The acquisition included the wholly owned subsidiary of
Sensortronics, JP Technologies, a manufacturer of strain gages, located in San
Bernardino, California. The purchase price was $10 million in cash. The purchase
price has been allocated, with resulting goodwill of $3,027,000. The results of
operations are included in the results of the passives segment from January 31,
2002.
In June 2002, the Company acquired Tedea-Huntleigh BV, a subsidiary of Tedea
Technological Development and Automation Ltd. Tedea-Huntleigh is engaged in the
production and sale of load cells used in digital scales by the weighing
industry. The purchase price was approximately $21 million in cash.
Additionally, Vishay is paying Tedea a $1 million consulting fee over a
three-year period and repaid a $9 million loan of Tedea to Tedea-Huntleigh.
Tedea-Huntleigh operates two plants in Israel, in Netanya and Carmiel, where it
employs approximately 350 people, as well as a number of facilities outside
Israel. Tedea-Huntleigh also has load cell operations in the People's Republic
of China. The purchase price has been allocated, with resulting goodwill of
$13,841,000. Results of operations are included in the passives segment
beginning July 1, 2002.
F-14
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
On July 31, 2002, the Company acquired the BLH and Nobel businesses of Thermo
Electron Corporation. BLH and Nobel are engaged in the production and sale of
load cell-based process weighing systems, weighing and batching instruments, web
tension instruments, weighing scales, servo control systems, and components
relating to load cells including strain gages, foil gages, and transducers. The
purchase price was $18.5 million in cash. The purchase price has been allocated,
with resulting goodwill of $11,262,000. The results of operations are included
in the passives segment beginning August 1, 2002.
In October 2002, the Company acquired Celtron Technologies. Celtron is engaged
in the production and sale of load cells used in digital scales for the weighing
industry, with manufacturing facilities and offices in Taiwan, the People's
Republic of China, and California. The purchase price of $13.5 million in cash
has been allocated with resulting goodwill of $4,711,000. Results of operations
are included in the passives segment beginning October 1, 2002.
On December 13, 2002, the Company acquired BCcomponents Holdings B.V., a leading
manufacturer of passive components with operations in Europe, India and the Far
East. The product lines of BCcomponents include linear and non-linear resistors;
ceramic, film and aluminum electrolytic capacitors; and switches and trimming
potentiometers. The acquisition of BCcomponents, and the recognition of
substantial goodwill in the acquisition, were consistent with the general
principles described above that guide the Company's acquisition activity and
their application in particular to acquisitions in the passive component
segment.
Vishay acquired the outstanding shares of BCcomponents in exchange for ten-year
warrants to acquire 7,000,000 shares of Vishay common stock at an exercise price
of $20.00 per share and ten-year warrants to acquire 1,823,529 shares of Vishay
common stock at an exercise price of $30.30 per share. The fair value of the
warrants ($39,462,000) was determined using the Black-Scholes option-pricing
model. Significant assumptions used included an expected dividend yield of 0%, a
risk-free interest rate of 3%, an expected volatility of 66%, and an expected
life of five years.
In the transaction, outstanding obligations of BCcomponents, including
indebtedness and transaction fees and expenses, in the amount of approximately
$224 million were paid ($191 million) or assumed ($33 million). Also, $105
million in principal amount of BCcomponents' mezzanine indebtedness and certain
other securities of BCcomponents were exchanged for $105 million principal
amount of floating rate unsecured loan notes of Vishay due 2102. The Vishay
notes bear interest at LIBOR plus 1.5% through December 31, 2006 and at LIBOR
thereafter. The interest rate could be further reduced to 50% of LIBOR after
December 31, 2010 if the price of Vishay common stock trades above a specified
target price, as provided in the notes. The notes are subject to a put and call
agreement under which the holders may at any time put the notes to Vishay in
exchange for 6,176,471 shares of Vishay common stock in the aggregate, and
Vishay may call the notes in exchange for cash or for shares of its common stock
after 15 years from the date of issuance. The purchase price was as follows (in
thousands):
Cash consideration $ 191,000
Warrants issued 39,462
Acquisition costs 3,000
-----------
Total purchase price $ 233,462
===========
F-15
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
Under purchase accounting, the total purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. At
December 31, 2002, the purchase price allocation was preliminary, pending the
completion of asset appraisals and negotiations with labor councils regarding
planned restructuring. These matters were resolved in 2003, resulting in an
increase in goodwill of $66,347,000. The purchase price allocation is now final.
The purchase price was allocated to the acquired assets and liabilities based on
fair values as follows (in thousands):
Current assets $ 91,859
Property and equipment 68,762
Other assets 3,054
Tradenames 23,000
Completed technology 19,000
Current liabilities (118,425)
Long-term debt (126,328)
Other noncurrent liabilities (29,860)
Goodwill 302,400
---------
Total purchase price $ 233,462
=========
In connection with the BCcomponents acquisition, the Company recorded
restructuring liabilities of $47,794,000 under an exit plan that management
began to formulate prior to the acquisition date. Approximately $45,855,000 of
these liabilities relate to employee termination costs covering approximately
780 technical, production, administrative and support employees located in the
United States, Europe, and the Pacific Rim. This liability is recorded in other
accrued expenses and is expected to be paid by June 30, 2004. Future adjustments
to decrease the restructuring liabilities would increase goodwill. A rollforward
of the activity related to these restructuring liabilities is as follows (in
thousands, except number of employees):
Number of
Severance Employees
Costs Other Terminated Total
-------------------------------------------------------
Balance at December 31, 2002 $ 45,855 $ 1,939 780 $ 47,794
Utilized (30,018) (1,939) (624) (31,957)
Foreign currency translation 5,153 -- -- 5,153
Change in estimate (1,328) -- (13) (1,328)
--------------------------------------------------------
Balance at December 31, 2003 $ 19,662 $ -- 143 $ 19,662
========================================================
F-16
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
Year ended December 31, 2001
In January 2001, the Company purchased Tansitor, a manufacturer of wet tantalum
electrolytic capacitors and miniature conformal coated solid tantalum
capacitors, for $18.3 million in cash. The acquisition was accounted for as a
purchase and included in the results of operations of the passives segment from
January 1, 2001.
On July 27, 2001, the Company agreed to purchase from Infineon Technologies AG,
Munich, the Infineon optoelectronic infrared components business. This business
produces optocouplers and optoelectric infrared data components transceivers
(IRDCs). Under the terms of the agreement, the Company purchased Infineon's U.S.
development, marketing, and distribution activities located in the San Jose,
California headquarters and a manufacturing facility located in Malaysia. The
total purchase price for this transaction was approximately $116 million in
cash. A partial payment of $78 million was made on July 27, 2001, and a second
payment of $38 million was made on December 31, 2001 to acquire the facility in
Malaysia. The results of operations of Infineon's U.S. infrared components
business are included in the results of the actives segment from July 27, 2001.
The results of operations of the Malaysia facility are included from December
31, 2001, its acquisition date. The purchase price was allocated to the acquired
assets and liabilities based on fair values as follows (in thousands):
Current assets $ 28,121
Property and equipment 27,575
Completed technology 8,000
Other assets 226
Current liabilities (14,200)
Goodwill 66,351
---------
Total purchase price $ 116,073
=========
On November 2, 2001, the Company acquired General Semiconductor, Inc., a leading
manufacturer of rectifiers and power management devices, following approval of
the transaction and related matters by stockholders of the two companies, for
$554.8 million, including acquisition expenses of $7.0 million. Stockholders of
General Semiconductor received 0.563 shares of Vishay common stock for each
General Semiconductor share in a tax-free exchange. The Company valued the stock
issued using an average closing price of its common stock for the period
beginning three trading days immediately prior to the date the acquisition was
announced (August 1, 2001) and ending the three trading days immediately
thereafter, or an average of $23.46 per share. The aggregate fair value was
determined by multiplying the total number of shares of Vishay common stock
issued (21,305,127) by $23.46 per share, or approximately $499,818,000. The
Company assumed General Semiconductor options that became exercisable for
approximately 4.3 million shares of Vishay common stock, with a fair value of
$48 million. The fair value of the options was determined using the
Black-Scholes option-pricing model. The significant assumptions used included an
expected dividend yield of 0.0%, a risk-free interest rate of 3%, an expected
volatility of 66%, and an expected life of five years. General Semiconductor
also had outstanding $172.5 million principal amount of 5.75% convertible notes,
of which $1.5 million principal amount was repurchased by the Company in January
2002. The remaining principal amount was repurchased by the Company in September
2003. See Note 6. The notes were convertible into approximately 6.2 million
shares of Vishay common stock. The results of operations of General
Semiconductor are included in the results of the actives segment from November
2, 2001.
F-17
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
The final purchase allocation is as follows (in thousands):
Current assets $ 153,115
Property and equipment 184,524
Other assets 7,896
Noncompete agreements 5,604
Tradenames 35,000
Completed technology 37,000
Purchased in-process technology 16,000
Current liabilities (188,410)
Long-term debt (255,502)
Other non-current liabilities (111,290)
Goodwill 670,909
---------
Total purchase price $ 554,846
=========
In connection with the General Semiconductor acquisition, the Company recorded
restructuring liabilities of $94,643,000 under an exit plan that management
began to formulate prior to the acquisition date. The exit plan includes
downsizing certain European and Taiwan facilities and moving production to
low-labor-cost areas such as Israel, the Czech Republic, and the People's
Republic of China. The plan also includes reducing selling, general and
administrative expenses through the integration or elimination of redundant
sales offices and administrative functions at General Semiconductor. The
Company's goal under the plan is to achieve significant production cost savings
through the transfer and expansion of manufacturing operations to regions such
as Israel, the Czech Republic, 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. Approximately $88,242,000 of these
restructuring liabilities related to employee termination costs covering
approximately 1,460 technical, production, administrative and support employees
located in the United States, Europe, and the Pacific Rim. The remaining
$6,401,000 related to provisions for lease cancellations and other costs. The
liability is recorded in other accrued expenses and is expected to be paid by
June 30, 2004. Future adjustments to decrease the restructuring liabilities
would increase goodwill.
A rollforward of the activity in these restructuring liabilities is as follows
(in thousands, except number of employees):
Number of
Severance Employees
Costs Other Terminated Total
------------------------------------------------------------
Balance at January 1, 2002 $ 88,242 $ 6,401 1,460 $ 94,643
Utilized (52,118) (1,249) (426) (53,367)
Changes in estimate (7,900) -- (147) (7,900)
----------------------------------------------------------
Balance at December 31, 2002 $ 28,224 $ 5,152 887 $ 33,376
Utilized (6,563) (2,641) (118) (9,204)
Foreign currency translation 504 -- -- 504
Changes in estimate (271) -- -- (271)
----------------------------------------------------------
Balance at December 31, 2003 $ 21,894 $ 2,511 769 $ 24,405
==========================================================
F-18
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
The change in the estimate of restructuring liabilities for the acquisition of
General Semiconductor in 2002 resulted from a decision not to downsize one of
General Semiconductor's European facilities. At the time that the Company
formulated its exit plan, it did not anticipate the robust demand experienced in
2002 for the active components manufactured by that facility. Accordingly, the
Company did not terminate the 147 employees whose positions it had originally
expected to eliminate. The Company reduced restructuring liabilities (and
goodwill) by $7,900,000, the amount of the anticipated termination costs for
these employees that had been included in the purchase allocation. The remaining
liability is expected to be paid in 2004.
On November 7, 2001, the Company acquired Yosemite Investment, Inc. d/b/a North
American Capacitor Company, also known as Mallory, for approximately $45 million
in cash. With manufacturing facilities in Greencastle, Indiana and Glasgow,
Kentucky, Mallory is a leading manufacturer of wet tantalum electrolytic
capacitors, among other businesses. Subsequently, in February 2002, Vishay sold
the audible signal business of Mallory for $4,925,000, consisting of $3,925,000
in cash and a $1,000,000 promissory note and recognized no gain or loss. On
April 1, 2002, the Company sold the resale business of Mallory for $8.8 million,
consisting of $7.6 million in cash and a $1.2 million subordinated promissory
note and recognized no gain or loss. The purchase price was allocated to the
acquired assets and liabilities based on fair values as follows (in thousands):
Current assets $ 11,033
Property and equipment 6,347
Current liabilities (3,555)
Long-term debt (857)
Goodwill 31,684
--------
Total purchase price $ 44,652
========
The BLH, Tansitor, Celtron, Nobel, Tedea-Huntleigh, Sensortronics, Mallory and
Infineon acquisitions were funded with cash on hand and borrowings under
Vishay's revolving credit facility.
F-19
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
Had all of the acquisitions previously described 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
2002 2001
-----------------------------
Net sales $ 2,095,657 $ 2,415,651
Net loss (127,379) (82,166)
Basic and diluted loss per share (0.80) (0.52)
The pro forma information includes adjustments for interest expense that would
have been incurred to finance the acquisitions, adjustments to depreciation
based on the fair value of property and equipment acquired, write-off of
purchased in-process research and development, amortization of intangible assets
and related tax effects. Pro forma net loss for the year ended December 31, 2001
includes pretax restructuring charges of $88,846,000 recorded by General
Semiconductor and BCcomponents prior to acquisition. Goodwill related to the
acquisitions is not tax-deductible.
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.
F-20
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Goodwill and Other Intangible Assets
As discussed in Note 1, the Company adopted SFAS No. 142 on January 1, 2002. The
Company's net earnings and earnings per share adjusted to exclude goodwill
amortization for the year prior to adoption were as follows:
Year ended
December 31
2001
------------
Reported net earnings $ 513
Add back: Goodwill amortization, net of tax 10,414
----------
Adjusted net earnings $ 10,927
==========
Basic earnings per share:
Reported net earnings $ 0.00
Goodwill amortization, net of tax 0.08
----------
Adjusted net earnings $ 0.08
==========
Diluted earnings per share:
Reported net earnings $ 0.00
Goodwill amortization, net of tax 0.08
----------
Adjusted net earnings $ 0.08
==========
The changes in the carrying amounts of goodwill by segment for the years ended
December 31, 2003 and 2002 were as follows:
Actives Passives Total
-----------------------------------------------
(In thousands)
Balance at January 1, 2002 $ 864,375 $ 213,415 $ 1,077,790
Goodwill acquired during the year -- 276,606 276,606
Purchase price allocation adjustments (8,332) 830 (7,502)
Currency translation adjustments 5,158 4,241 9,399
----------- ----------- -----------
Balance at December 31, 2002 861,201 495,092 1,356,293
Purchase price allocation adjustments -- 66,347 66,347
Currency translation adjustments 22,191 21,883 44,074
----------- ----------- -----------
Balance at December 31, 2003 $ 883,392 $ 583,322 $ 1,466,714
=========== =========== ===========
Passives segment goodwill is allocated to the Other Passives and Measurements
Group reporting units for SFAS No. 142 evaluation purposes. Goodwill allocated
to the Other Passives reporting unit at December 31, 2003 is $541,909,000.
Goodwill allocated to the Measurements Group reporting unit at December 31, 2003
is $41,413,000.
F-21
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Goodwill and Other Intangible Assets (continued)
Other intangible assets were as follows:
December 31
2003 2002
---------------------------
(In thousands)
Intangible Assets Subject to Amortization (Definite Lived)
Patents and acquired technology $ 79,715 $ 67,000
Noncompete agreements 7,604 7,604
---------------------------
87,319 74,604
Accumulated amortization
Patents and acquired technology (15,330) (5,184)
Noncompete agreements (6,383) (3,003)
---------------------------
(21,713) (8,187)
---------------------------
Net Intangible Assets Subject to Amortization 65,606 66,417
Intangible Assets Not Subject to Amortization (Indefinite Lived)
Tradenames 63,349 56,000
---------------------------
$ 128,955 $ 122,417
===========================
Amortization expense was $13,029,000, $7,171,000, and $1,017,000, for the years
ended December 31, 2003, 2002, and 2001, respectively. Estimated annual
amortization expense for each of the next five years is as follows: 2004 -
$9,291,000; 2005 - $8,869,000; 2006 - $8,469,000; 2007 - $8,469,000; and 2008 -
$8,469,000.
F-22
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Restructuring and Severance Costs
Restructuring and severance costs reflect the cost reduction programs currently
being implemented by the Company. These include the closing of facilities and
the termination of employees. Severance costs also include executive severance
and charges for the fair value of stock options of certain former employees
which were modified such that they did not expire at termination. Restructuring
costs are expensed during the period in which the Company determines it will
incur those costs and all requirements of accrual are met. Effective January 1,
2003, restructuring costs are accounted for under SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. This statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Because these costs are recorded
based upon estimates, actual expenditures for the restructuring activities may
differ from the initially recorded costs. If the initial estimates were too low
or too high, the Company could be required either to record additional expenses
in future periods or to reverse part of the previously recorded charges.
Year Ended December 31, 2003
The Company recorded restructuring and severance costs of $29,560,000 for the
year ended December 31, 2003. Restructuring of European and Asian operations
included $23,007,000 of employee termination costs covering 546 technical,
production, administrative and support employees located in Germany, France,
Hungary, Portugal, the United Kingdom, Austria and the Far East. The remaining
$6,553,000 of restructuring and severance costs relates to termination costs of
$5,539,000 for 162 technical, production, administrative and support employees
located in the United States, and $1,014,000 for asset write-downs. The
restructuring and severance costs were incurred as part of the cost reduction
programs currently being implemented by the Company. Activity related to these
costs for the year ended December 31, 2003 is as follows (in thousands, except
number of employees):
Number of
Severance Asset Employees
Costs Impairment Terminated Total
-------------------------------------------------------
Restructuring and severance costs $ 28,546 $ 1,014 708 $ 29,560
Utilized (14,195) (1,014) (653) (15,209)
Foreign currency translation 1,623 -- -- 1,623
-------------------------------------------------------
Balance at December 31, 2003 $ 15,974 $ -- 55 $ 15,974
======================================================
Substantially all of the remaining restructuring liability, currently shown in
other accrued expenses, is expected to be paid by December 31, 2004.
F-23
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Restructuring and Severance Costs (continued)
Year ended December 31, 2002
Restructuring and severance costs were $30,970,000 for the year ended December
31, 2002. Restructuring of European and Israeli operations included $10,698,000
of employee termination costs covering approximately 778 technical, production,
administrative and support employees located in the Czech Republic, France,
Hungary, Israel, Portugal, and Austria. In the United States, $7,909,000 of
restructuring and severance costs related to termination costs for approximately
660 technical, production, administrative and support employees. The remaining
$12,363,000 of restructuring and severance costs related to the noncash
write-down of building and equipment that are no longer in use. The
restructuring and severance costs were incurred as part of the cost reduction
programs currently being implemented by the Company. The restructuring
activities related to existing business were designed to reduce both fixed and
variable costs, particularly in response to the reduced demand for our products
occasioned by the electronics industry downturn which began in 2001.
Activity related to these costs is as follows (in thousands, except number of
employees):
Number of
Severance Asset Employees
Costs Impairment Terminated Total
----------------------------------------------------
Restructuring and severance costs $ 18,607 $ 12,363 1,438 $ 30,970
Utilized (6,420) (12,363) (783) (18,783)
----------------------------------------------------
Balance at December 31, 2002 12,187 -- 655 12,187
Utilized (10,030) -- (639) (10,030)
Foreign currency effect 661 -- -- 661
----------------------------------------------------
Balance at December 31, 2003 $ 2,818 $ -- 16 $ 2,818
====================================================
The remaining $2,818,000 of severance costs, currently shown in other accrued
expenses, is expected to be paid by March 31, 2004.
Year ended December 31, 2001
Restructuring and severance costs were $61,908,000 for the year ended December
31, 2001. Restructuring of European, Asia Pacific, and Israeli operations
included $27,064,000 of employee termination costs covering approximately 3,778
technical, production, administrative and support employees located in France,
Hungary, Portugal, Austria, the Philippines, Germany, and Israel. The European
operations also recorded $2,191,000 of noncash costs associated with the
write-down of buildings and equipment that are no longer in use. In the United
States, $13,870,000 of restructuring and severance costs related to termination
costs for approximately 1,885 technical, production, administrative and support
employees. The remaining $18,783,000 of restructuring and severance costs
related to the noncash write-down of buildings and equipment that are no longer
in use.
F-24
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Restructuring and Severance Costs (continued)
Activity related to these costs is as follows (in thousands, except number of
employees):
Number of
Severance Asset Employees
Costs Impairment Terminated Total
---------------------------------------------------------
Restructuring and severance costs $ 40,934 $ 20,974 5,663 $ 61,908
Utilized (18,114) (20,974) (4,913) (39,088)
----------------------------------------------------------
Balance at December 31, 2001 22,820 -- 750 22,820
Utilized (19,865) -- (612) (19,865)
Changes in estimate (1,391) -- -- (1,391)
----------------------------------------------------------
Balance at December 31, 2002 1,564 -- 138 1,564
Utilized (1,586) -- (50) (1,586)
Changes in estimate 22 -- (88) 22
----------------------------------------------------------
Balance at December 31, 2003 $ -- $ -- -- $ --
==========================================================
5. Income Taxes
Earnings (loss) before income taxes and minority interest consists of the
following components:
Year ended December 31
2003 2002 2001
------------------------------------------
(In thousands)
Domestic $ (20,119) $ (59,882) $ (55,598)
Foreign 66,545 (40,163) 65,701
------------------------------------------
$ 46,426 $(100,045) $ 10,103
==========================================
Significant components of income taxes are as follows:
Year ended December 31
2003 2002 2001
---------------------------------------------
(In thousands)
Current:
U.S $ (1,389) $(41,991) $ 6,194
Foreign 4,977 6,111 9,197
State 2,141 776 641
----------------------------------------------
5,729 (35,104) 16,032
Deferred:
U.S (8,640) 30,590 (12,392)
Foreign 12,767 (16,152) 4,031
State 1,672 3,766 (1,976)
----------------------------------------------
5,799 18,204 (10,337)
----------------------------------------------
$ 11,528 $(16,900) $ 5,695
==============================================
F-25
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. 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 assets and liabilities are as follows:
December 31
2003 2002
--------------------------
(In thousands)
Deferred tax assets:
Pension and other retiree obligations $ 48,229 $ 47,710
Net operating loss carryforwards 178,029 112,770
Tax credit carryforwards 19,204 11,766
Other accruals and reserves 69,873 68,792
--------------------------
Total deferred tax assets 315,335 241,038
Less valuation allowance (107,388) (63,192)
--------------------------
207,947 177,846
Deferred tax liabilities:
Tax over book depreciation 92,094 87,483
Intangible assets not subject to amortization 24,503 24,454
Other - net 31,487 30,359
--------------------------
Total deferred tax liabilities 148,084 142,296
--------------------------
Net deferred tax assets $ 59,863 $ 35,550
==========================
A reconciliation of income tax expense at the U.S. federal statutory income tax
rate to actual income tax provision (benefit) is as follows:
Year ended December 31
2003 2002 2001
-----------------------------------------
(In thousands)
Tax at statutory rate $ 16,249 $(35,016) $ 3,536
State income taxes, net of U.S. federal tax benefit 3,319 2,540 (382)
Effect of foreign operations (7,816) 11,090 (4,894)
Purchased research and development -- -- 5,600
Other (224) 4,486 1,835
----------------------------------------
$ 11,528 $(16,900) $ 5,695
========================================
F-26
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
At December 31, 2003, the Company had the following significant net operating
loss carryforwards for tax purposes (in thousands):
Expires
-----------------------------
Austria $ 7,086 No expiration
Belgium 115,969 No expiration
Czech Republic 1,508 2005 - 2010
France 13,697 No expiration
Germany 99,417 No expiration
Israel 57,692 No expiration
Netherlands 86,333 No expiration
Portugal 4,303 2005 - 2009
United States 160,824 2021 - 2023
Approximately $30,274,000 of the German carryforward resulted from the Company's
acquisition of Roederstein in 1993 and approximately $159,459,000 of the
carryforwards in Austria, Belgium, and the Netherlands resulted from the
Company's acquisition of BCcomponents in 2002.
In total, valuation allowances of $96,061,000 and $58,126,000 have been recorded
at December 31, 2003 and 2002, respectively, for deferred tax assets related to
foreign net operating loss carryforwards. Of this, $55,790,000 and $54,441,000,
as of December 31, 2003 and 2002, respectively, are valuation allowances,
recorded through goodwill, for the acquired net operating losses. If tax
benefits are recognized in the future for utilization of these acquired net
operating losses, the benefits of such loss utilization will be recorded as a
reduction to goodwill. In 2003 and 2002, tax benefits recognized through
reductions of the valuation allowance recorded through goodwill were $0 and
$491,000, respectively.
At December 31, 2003, the Company had the following tax credit carryforwards
available (in thousands):
Expires
------------------
Federal Alternative Minimum Tax $13,831 No expiration
California Investment Credit 3,961 2004 - 2010
California Research Credit 4,210 No expiration
At December 31, 2003, no provision had been made for U.S. federal and state
income taxes on approximately $941,286,000 of foreign earnings, which are
expected to be reinvested outside of the United States 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), state income taxes, 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, net of amounts refunded, were a net refund of $31,626,000 for
the year ended December 31, 2003, and net payments of $2,910,000 and
$72,953,000, for the years ended December 31, 2002 and 2001, respectively.
The Company's U.S. income tax returns for the years ended 1999 through 2000 are
presently under examination by the Internal Revenue Service. Management believes
that potential tax assessment plus related interest and penalties, if any, have
been sufficiently provided for in the financial statements.
F-27
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt
Long-term debt consists of the following:
December 31
2003 2002
------------------------
(In thousands)
Multicurrency revolving credit loans $ -- $111,000
Convertible subordinated notes, LYONs, due 2021 229,206 317,830
Convertible unsecured notes, BCcomponents, due 2102 105,000 105,000
Convertible subordinated notes, GSI, due 2006 -- 169,347
Convertible subordinated notes, due 2023 500,000 --
Other debt and capital lease obligations 3,682 21,689
----------------------
837,888 724,866
Less current portion 1,282 18,550
----------------------
$836,606 $706,316
======================
Convertible subordinated notes, due 2023
On August 6, 2003, the Company sold $450 million aggregate principal amount of
3-5/8% convertible subordinated notes due 2023 and granted the initial
purchasers an option to purchase, within 30 days of the date of the offering
memorandum relating to the notes, an additional $50 million of the notes. This
option was exercised, and the additional $50 million of notes was issued on
September 3, 2003. The notes pay interest semiannually.
Holders may convert the notes into Vishay common stock prior to the close of
business on August 1, 2023 if (1) the sale price of Vishay common stock reaches
130% of the conversion price for a specified period; (2) the trading price of
the notes falls below 98% of the average last reported sales price of Vishay
common stock multiplied by the conversion rate for a specified period; (3) the
notes have been called for redemption; (4) the credit ratings assigned to the
notes are lowered by two or more levels from their initial ratings; or (5)
specified corporate transactions occur. None of these conditions had occurred as
of December 31, 2003. The conversion price of $21.28 is equivalent to a
conversion rate of 46.9925 shares per $1,000 principal amount of notes.
The notes are subordinated in right of payment to all of the Company's existing
and future senior indebtedness and are effectively subordinated to all existing
and future liabilities of its subsidiaries. The notes will be redeemable at the
Company's option beginning August 1, 2010 at a redemption price equal to 100% of
the principal amount plus accrued and unpaid interest, if any. Holders of the
notes will have the right to require the Company to repurchase all or some of
their notes at a purchase price equal to 100% of their principal amount of the
notes, plus accrued and unpaid interest, if any, on August 1, 2008, August 1,
2010, August 1, 2013, and August 1, 2018. In addition, holders of the notes will
have the right to require the Company to repurchase all or some of their notes
upon the occurrence of certain events constituting a fundamental change. On any
required repurchase, the Company may choose to pay the purchase price in cash or
shares of Vishay common stock or any combination of cash and Vishay common
stock. The proceeds of the offering of the notes were used to repay other
outstanding debt, as well as for general corporate purposes.
The early extinguishment of a portion of the Liquid Yield Option(TM) Notes
(LYONs) and the General Semiconductor convertible subordinated notes, described
below, resulted in a pretax loss of $9,910,000 in 2003, which included a premium
on redemption of approximately $7.3 million and the write-off of deferred
financing costs of approximately $2.6 million.
F-28
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
Revolving Credit Facility
In July 2003, Vishay agreed with the lenders under its secured revolving credit
facility to an amendment and restatement of the agreement governing the
facility. The maximum availability under the facility, in light of the Company's
anticipated liquidity needs, was changed from $500 million to $400 million, and
the final maturity of the facility was extended from June 2005 to May 2007. The
restatement decreases the Company's minimum tangible net worth requirement to
$850 million plus 50% of net income (without offset for losses) and 75% of net
proceeds of equity offerings from July 1, 2003, eliminates the covenant on
minimum earnings before interest and tax, permits securitization of up to $200
million of non-U.S. accounts receivable, allows for the release of all
collateral (other than subsidiary stock and pledges by the Company and its
subsidiaries of intercompany notes) under certain circumstances and creates an
event of default upon the occurrence of a fundamental change as defined under
the Company's convertible subordinated notes due 2023. The Company used
approximately $130 million of the proceeds of the offering of the convertible
subordinated notes to repay amounts outstanding under the revolving credit
facility.
Interest on the revolving credit facility is payable at prime or other variable
interest rate options. The Company is required to pay facility fees. As of
December 31, 2003 and 2002, the Company had $0 and $111,000,000, respectively,
outstanding under the revolving credit facility (interest rate of 3.03% at
December 31, 2002, or 5.77% after giving effect to interest rate swaps). Letters
of credit totaling $6,105,000 and $30,633,000 were issued under the revolving
credit facility at December 31, 2003 and 2002, respectively. At December 31,
2003, $393,895,000 was available under the credit facility.
Borrowings under the revolving credit facility are secured by pledges of stock
in certain significant subsidiaries and certain guarantees by significant
subsidiaries. The subsidiaries would be required to perform under the guarantees
in the event that the Company failed to make principal or interest payments
under the revolving credit facility. If any subsidiary were to borrow under the
credit facility, the Company would provide a similar guarantee with respect to
the subsidiary. The revolving credit facility restricts the Company from paying
cash dividends and requires the Company to comply with other covenants,
including the maintenance of specific financial ratios.
Liquid Yield Option(TM) Notes, due 2021
On June 4, 2001, the Company completed a private placement of $550,000,000 face
amount Liquid Yield Option(TM) Notes (LYONs) due 2021. In connection with the
sale of the LYONs, the Company received net proceeds of $294,096,000 and used
the proceeds to pay down existing bank debt. Each LYON has a $1,000 face amount
and was offered at a price of $551.26 (55.126% of the principal amount at
maturity). The Company will not pay interest on the LYONs prior to maturity
unless contingent interest becomes payable.
The issue price of each LYON represents a yield to maturity of 3.00%, excluding
any contingent interest. The LYONs are subordinated in right of payment to all
of the Company's existing and future senior indebtedness.
At any time on or before the maturity date, the LYONs are convertible into
Vishay common stock at a rate of 17.6686 shares of common stock per $1,000
principal amount at maturity. The conversion rate may be adjusted under certain
circumstances, but it will not be adjusted for accrued original issue discount.
F-29
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
The Company is required to pay contingent interest to the holders of the LYONs
during the six-month period commencing June 4, 2006 and during any six-month
period thereafter if the average market price of a LYON for a certain
measurement period immediately preceding the applicable six-month period equals
120% or more of the sum of the issue price and accrued original issue discount
for such LYON. The amount of contingent interest payable during any six-month
period will be the sum of any contingent interest payable in the first and
second three-month periods during such six-month period. During any three-month
period in which contingent interest becomes payable, the contingent interest
payable per LYON for such period will be equal to the greater of (1) 0.0625% of
the average market price of a LYON for the measurement period referred to above
or (2) the sum of all regular cash dividends paid by the Company per share on
its common stock during such three-month period multiplied by the number of
shares of common stock issuable upon conversion of a LYON at the then-applicable
conversion rate.
The holders of the LYONs may require the Company to repurchase all or a portion
of their LYONs on June 4, 2004, June 4, 2006, June 4, 2011, and June 4, 2016, at
various prices set forth in the notes. The Company may choose to pay the
purchase price in cash, Vishay common stock, or a combination of both. The
Company may redeem for cash all or a portion of the LYONs at any time on or
after June 4, 2006 at the prices set forth in the notes. If these notes are put
to the Company in 2004, the Company expects to be able to utilize its revolving
credit facility or stock to finance the transaction, and accordingly, the notes
are classified as long-term on the consolidated balance sheet.
The Company used approximately $97.4 million of the proceeds of the 2003
offering of the convertible subordinated notes to fund the purchase of
approximately $97.0 million accreted principal amount ($165.0 million face
amount) of its LYONs.
Convertible unsecured notes, BCcomponents, due 2102
On December 13, 2002, the Company completed the acquisition of BCcomponents
Holdings B.V. In connection with this acquisition, $105,000,000 in principal
amount of BCcomponents' mezzanine indebtedness and certain other securities of
BCcomponents were exchanged for $105,000,000 principal amount of floating rate
unsecured loan notes of the Company, due 2102. The notes bear interest at LIBOR
plus 1.5% through December 31, 2006 and at LIBOR thereafter. The interest rate
could be further reduced to 50% of LIBOR after December 31, 2010 if the price of
the Company's common stock trades above a specified target price, as provided in
the notes. The notes are subject to a put and call agreement under which the
holders may at any time put the notes to the Company in exchange for 6,176,471
shares of the Company's common stock in the aggregate, and the Company may call
the notes in exchange for cash or for shares of its common stock after 15 years
from the date of issuance.
Convertible subordinated notes, GSI, due 2006
General Semiconductor, which was acquired by the Company on November 2, 2001,
had outstanding $172.5 million principal amount of 5.75% convertible
subordinated notes due December 15, 2006. The notes were recorded at their fair
value of $170.5 million as of the November 2, 2001 acquisition date. Interest on
the convertible notes was payable semiannually on June 15 and December 15 of
each year. As a consequence of the Company's acquisition of General
Semiconductor, the convertible notes became convertible into approximately 6.2
million shares of the Company's common stock. The convertible notes were
redeemable at the Company's option, in whole or in part, at any time on or after
December 15, 2002 at a premium of 103.286% of par value declining annually to
100.821% at December 15, 2005 and thereafter.
F-30
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
The Company used approximately $176.6 million of the proceeds of the 2003
offering of convertible subordinated notes (exclusive of accrued interest of
approximately $2.3 million) to fund the redemption of all of the outstanding
convertible subordinated notes due 2006 of its General Semiconductor subsidiary.
These notes were redeemed at a price of 103.286% of their principal amount, plus
accrued but unpaid interest to the date of redemption.
Aggregate annual maturities of long-term debt, based on the terms stated in the
respective debt agreements, are as follows: 2004 - $1,282,000; 2005 -
$1,212,000; 2006 - $357,000; 2007 - $542,000; 2008 - $291,000; and thereafter -
$834,204,000. As described above, LYONs with an aggregate accreted principal
amount of $229,206,000, due by their terms in 2021, may be put to the Company in
2004 at an aggregate price of approximately $235,000,000.
At December 31, 2003, the Company had committed and uncommitted short-term
credit lines with various U.S. and foreign banks aggregating approximately $69
million, of which approximately $51 million was unused. The weighted average
interest rate on short-term borrowings outstanding as of December 31, 2003 and
2002 was 5.1% and 2.8%, respectively.
Interest paid was $30,760,000, $17,977,000, and $15,685,000, for the years ended
December 31, 2003, 2002, and 2001, respectively.
F-31
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
7. Stockholders' Equity
The Company's Class B common 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 into shares of
common stock.
On November 2, 2001, the stockholders approved an increase in the authorized
capital stock of the Company. The total authorized common stock was increased
from 150,000,000 to 300,000,000 shares and the Class B common stock was
increased from 20,000,000 to 40,000,000 shares.
On August 10, 2000, the Board of Directors of the Company authorized the
repurchase of up to 5,000,000 shares of its common stock from time to time in
the open market. As of December 31, 2003, the Company had repurchased 248,500
shares for a total of $6,616,000.
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, 2003, 305,126 shares were available for issuance under stock plans.
At December 31, 2003, the Company has reserved shares of common stock for future
issuance as follows:
Employee stock plan 305,126
Common stock options outstanding 8,768,000
Common stock options available to grant 1,143,000
Common stock warrants 8,823,529
Exchangeable unsecured notes, BCcomponents 6,176,471
Convertible subordinated notes, LYONs 6,802,000
Convertible subordinated notes, due 2023 23,496,250
Class B common stock 15,382,296
----------
70,896,672
==========
F-32
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
8. Other Income (Expense)
Other income (expense) consists of the following:
Year ended December 31
2003 2002 2001
-------------------------------------------------
(In thousands)
Foreign exchange (losses) gains $ (5,235) $ (777) $ 611
Gain (loss) on interest rate swaps 3,783 (115) (3,668)
Interest income 7,228 7,952 15,092
Dividend income 96 100 --
(Losses) gains on disposal of property and equipment (2,521) (296) 1,472
Other (1,062) 1,800 (806)
------------------------------------------------
$ 2,289 $ 8,664 $ 12,701
================================================
On February 13, 2002, a fire occurred at the Company's Electro-Films, Inc. (EFI)
facility located in Providence, Rhode Island causing a production stoppage of
the product line there. The Company received insurance proceeds based on its
costs to replace the assets, which were in excess of the book value of the
assets at the time of the fire. This insurance claim has been resolved, and the
Company recognized a gain of $33,906,000 in 2003.
As described in Note 6, on August 6, 2003, the Company issued 3-5/8% convertible
subordinated notes due 2023. The proceeds of the offering were utilized to
redeem a portion of the outstanding LYONs and all of the General Semiconductor
notes, which resulted in a pretax loss of $9,910,000 in 2003.
See Note 14 for a description of the interest rate swap agreements.
9. Other Accrued Expenses
Other accrued expenses consist of the following (in thousands):
2003 2002
---- ----
Restructuring $ 62,859 $ 95,127
Sales returns and allowances 47,914 39,803
Accrued loss on tantalum purchase commitment - current portion 31,675 25,334
Other 145,984 143,345
-------- --------
$288,432 $303,609
======== ========
F-33
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss)
and the income tax effects allocated to each component are as follows:
Tax
Beginning Before-Tax Benefit Net-of-Tax Ending
Balance Amount (Expense) Amount Balance
---------------------------------------------------------------------------
(In thousands)
December 31, 2003
Pension liability adjustment $ (36,924) $ 2,911 $ 3,727 $ 6,638 $ (30,286)
Currency translation adjustment (51,729) 111,369 -- 111,369 59,640
Derivative financial instruments:
Loss on derivative financial
instruments (2,462) (1,321) -- (1,321) (3,783)
Reclassification adjustment for gain
realized in 2003 -- 3,783 -- 3,783 3,783
-------------------------------------------------------------------------
$ (91,115) $ 116,742 $ 3,727 $ 120,469 $ 29,354
=========================================================================
December 31, 2002
Pension liability adjustment $ (13,694) $ (35,562) $ 12,332 $ (23,230) $ (36,924)
Currency translation adjustment (116,072) 64,343 -- 64,343 (51,729)
Loss on derivative financial instruments (645) (2,291) 474 (1,817) (2,462)
-------------------------------------------------------------------------
$(130,411) $ 26,490 $ 12,806 $ 39,296 $ (91,115)
=========================================================================
December 31, 2001
Pension liability adjustment $ (5,137) $ (13,281) $ 4,724 $ (8,557) $ (13,694)
Currency translation adjustment (108,434) (7,638) -- (7,638) (116,072)
Loss on derivative financial instruments -- (1,019) 374 (645) (645)
-------------------------------------------------------------------------
$(113,571) $ (21,938) $ 5,098 $ (16,840) $(130,411)
=========================================================================
F-34
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Pensions and Other Postretirement Benefits
U.S. Pension 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
U.S. pension plans of General Semiconductor are included beginning on November
2, 2001. The U.S. pension plan of BLH is included beginning on July 31, 2002.
The Company maintains two unfunded nonpension postretirement plans funded as
costs are incurred. One 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 second
plan covers all full-time U.S. General Semiconductor employees not covered by a
collective bargaining agreement who meet defined age and service requirements.
This plan is the primary provider of medical benefits for retirees up to age 65,
after which Medicare becomes the primary provider. 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.
Obligations and Funded Status (U.S. Plans)
Pension Benefits Other Benefits
----------------------------------------------------------------
2003 2002 2003 2002
----------------------------------------------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 212,909 $ 193,273 $ 21,999 $ 20,286
Service cost 3,394 3,433 247 279
Interest cost 14,057 13,598 1,358 1,465
Employee contributions 1,641 1,680 -- --
Actuarial losses (gains) 9,689 11,141 (1,225) 1,909
Plan amendments -- -- -- (410)
Benefits paid (15,249) (16,090) (1,201) (1,530)
Acquisitions -- 5,874 -- --
----------------------------------------------------------------
Benefit obligation at end of year $ 226,441 $ 212,909 $ 21,178 $ 21,999
================================================================
Change in plan assets:
Fair value of plan assets at beginning
of year $ 147,296 $ 165,186
Actual return on plan assets 30,149 (11,224)
Company contributions 28,081 4,226
Plan participants' contributions 1,641 1,680
Benefits paid (15,249) (16,090)
Acquisitions -- 3,518
---------------------------
Fair value of plan assets at end of year $ 191,918 $ 147,296
===========================
Funded status $ (34,523) $ (65,613) $ (21,178) $ (21,999)
Unrecognized net actuarial loss 51,391 60,957 131 1,237
Unrecognized transition (asset) obligation -- (101) 1,734 1,934
Unamortized prior service cost 243 -- 134 182
----------------------------------------------------------------
Net amount recognized $ 17,111 $ (4,757) $ (19,179) $ (18,646)
================================================================
F-35
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Pensions and Other Postretirement Benefits (continued)
Pension Benefits Other Benefits
------------------------------------------------------
2003 2002 2003 2002
------------------------------------------------------
(In thousands)
Amounts recognized in the consolidated balance
sheets for U.S. plans consist of:
Intangible asset $ 243 $ -- $ -- $ --
Accrued benefit liability (24,743) (53,439) (19,179) (18,646)
Accumulated other comprehensive loss 41,611 48,682 -- --
-----------------------------------------------------
Net amount recognized $ 17,111 $ (4,757) $(19,179) $(18,646)
=====================================================
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the U.S. pension plans with accumulated and projected benefit
obligations in excess of plan assets were $226,441,000, $216,661,000, and
$191,918,000, respectively, as of December 31, 2003 and $212,909,000,
$200,634,000, and $147,296,000, respectively, as of December 31, 2002.
On December 8, 2003, the President of the United States signed the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). Among
the provisions of the Act is a provision granting a subsidy to sponsors of
retirement medical plans with prescription drug coverage when the benefit is at
least actuarially equivalent to the Medicare Part D benefit. In accordance with
FASB Staff Position No. FAS 106-1, measures of the benefit obligation and net
periodic postretirement benefit cost do not reflect the effects of the Act on
the plan. Specific authoritative accounting guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, could require
companies, including Vishay, to change previously reported information.
Components of Net Periodic Benefit Cost (U.S. Plans)
Pension Benefits Other Benefits
-------------------------------------------------------------------------------
2003 2002 2001 2003 2002 2001
-------------------------------------------------------------------------------
(In thousands)
Annual service cost $ 5,035 $ 5,424 $ 5,388 $ 247 $ 279 $ 240
Less employee contributions 1,641 1,991 2,296 -- -- --
----------------------------------------------------------------------------------
Net service cost 3,394 3,433 3,092 247 279 240
Interest cost 14,057 13,598 9,023 1,358 1,466 678
Expected return on plan assets (12,521) (14,227) (10,048) -- -- --
Amortization of prior service
cost 32 -- 6 47 47 93
Amortization of transition
obligation (1) (201) 311 193 194 194
Amortization of losses 4,285 1,474 514 -- -- --
----------------------------------------------------------------------------------
Net periodic benefit cost $ 9,246 $ 4,077 $ 2,898 $ 1,845 $ 1,986 $ 1,205
==================================================================================
F-36
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Pensions and Other Postretirement Benefits (continued)
Weighted-average assumptions used to determine benefit obligations (U.S. Plans)
at December 31:
Pension Benefits Other Benefits
-------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------
Discount rate 6.25% 6.75% 6.25% 6.75%
Rate of compensation increase 4.00% 4.50%-6.50%
Weighted-average assumptions used to determine net cost (U.S. Plans) for years
ended December 31:
Pension Benefits Other Benefits
-------------------------------------------------------------
2003 2002 2003 2002
-------------------------------------------------------------
Discount rate 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets 8.50%-8.75% 8.50%-9.50%
Rate of compensation increase 4.50%-6.50% 4.50%-6.50%
The plans' expected return on assets is based on management's expectations of
long-term average rates of return to be achieved by the underlying investment
portfolios. In establishing this assumption, management considers historical and
expected returns for the asset classes in which the plans are invested, advice
from pension consultants and investment advisors, and current economic and
capital market conditions.
Plan Assets (U.S. Plans)
Percentage of Plan Assets
-------------------------
Asset Category 2003 2002
-------------------------
Equity funds 65% 55%
Fixed income funds 30% 45%
Cash and cash equivalents 5% -
-------------------------
Total 100% 100%
=========================
The investment mix between equity securities and fixed income securities is
based upon achieving a desired return, balancing higher return, more volatile
equity securities, and lower return, less volatile fixed income securities. The
Company's domestic defined benefit plans are invested in diversified portfolios
of public-market equity and fixed income securities. Investment allocations are
made across a range of markets, industry sectors, capitalization sizes, and, in
the case of fixed income securities, maturities and credit quality. The plans do
not invest in securities of Vishay or its subsidiaries.
Cash Flows (U.S. Plans)
The Company expects to contribute approximately $10 million to its U.S. pension
plans in 2004.
Defined Contribution Plans Matching
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 $3,401,000,
$2,990,000, and $3,182,000, for the years ended December 31, 2003, 2002, and
2001, respectively.
F-37
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Pensions and Other Postretirement Benefits (continued)
Foreign Pension Plans
The Company provides pension and similar benefits to employees of certain
foreign subsidiaries consistent with local practices. Certain foreign
subsidiaries of the Company have defined benefit pension plans. The following
table sets forth a reconciliation of the benefit obligation, plan assets, and
accrued benefit cost related to the foreign defined benefit plans. The foreign
pension plans of General Semiconductor are included as of November 2, 2001. The
foreign pension plans of BCcomponents are included as of December 13, 2002.
Obligations and Funded Status (Foreign Plans)
2003 2002
-------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 119,173 $ 93,397
Service cost 834 525
Interest cost 6,945 5,630
Actuarial losses (gains) 8,067 (1,572)
Benefits paid (6,794) (4,869)
Foreign currency translation 24,534 13,055
Curtailment gains (163) (1,336)
Acquisitions -- 14,343
-----------------------
Benefit obligation at end of year $ 152,596 $ 119,173
=======================
Change in plan assets:
Fair value of plan assets at beginning of year $ 14,645 $ 13,137
Actual return on plan assets 415 (894)
Company contributions 6,747 2,449
Benefits paid (6,794) (2,454)
Foreign currency translation 3,546 2,407
-----------------------
Fair value of plan assets at end of year $ 18,559 $ 14,645
=======================
Funded status $(134,037) $(104,528)
Unrecognized net actuarial losses (gains) 8,118 (636)
Unrecognized transition asset -- (3)
Unamortized prior service cost -- 21
-----------------------
Net amount recognized $(125,919) $(105,146)
=======================
F-38
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Pensions and Other Postretirement Benefits (continued)
2003 2002
------------------------
(In thousands)
Amounts recognized in the consolidated balance
sheets for foreign pension plans consist of:
Accrued benefit liability $(137,320) $(110,427)
Accumulated other comprehensive loss 11,401 5,281
------------------------
Net amount recognized $(125,919) $(105,146)
========================
Weighted-average assumptions as of December 31:
Discount rate 4.00% - 5.50% 6.00% - 6.25%
Rate of compensation increase 2.00% - 3.00% 2.60% - 3.00%
Components of Net Periodic Benefit Cost (Foreign Plans)
2003 2002 2001
(In thousands)
Components of net periodic benefit cost:
Service cost $ 834 $ 525 $ 391
Interest cost 6,945 5,630 5,301
Expected return on plan assets (461) (489) (444)
Amortization of prior service cost 23 -- 36
Amortization of transition asset (4) (3) (3)
Curtailment gains (163) (1,336) --
Amortization of (gains) losses (95) (94) 97
--------------------------------
Net periodic benefit cost $ 7,079 $ 4,233 $ 5,378
================================
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the foreign pension plans with accumulated benefit
obligations and projected benefit obligations in excess of plan assets were
$152,596,000, $150,487,000, and $18,559,000, respectively, as of December 31,
2003, and $119,173,000, $118,646,000, and $14,645,000, respectively, as of
December 31, 2002.
F-39
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
12. Stock Options
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
2,687,000 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 $10.89,
one-third exercisable at $12.53, and one-third exercisable at $13.61. As of
December 31, 2003, options to purchase 528,000 shares have been exercised under
this plan.
Under the 1998 Stock Option Program, certain executive officers and key
employees were granted options, as summarized in the following table:
Date of Grant Number of Exercise
Options Price Vesting Expiration
- ---------------------------------------------------------------------------------------------------------
October 6, 1998 1,598,000 $ 5.60 Evenly over 6 years March 16, 2008
October 8, 1999 1,334,000 15.33 Evenly over 6 years October 8, 2009
August 4, 2000 50,000 30.00 Evenly over 5 years, August 4, 2010
beginning August 4, 2003
October 12, 2000 1,114,000 25.13 Evenly over 6 years October 12, 2010
October 1, 2001 through July
20, 2003 27,000 13.46 - Evenly over 6 years October 1, 2011 through
25.07 July 20, 2013
On May 18, 2000, the stockholders of the Company approved an increase in the
number of shares available for grant under Vishay's 1998 Stock Option Program.
As a result, the number of shares available for grant under this program
increased from 2,953,500 to 4,453,500. As of December 31, 2003, options to
purchase 462,000 shares had been exercised under this plan.
On November 2, 2001, Vishay acquired General Semiconductor, which became a
wholly owned subsidiary of the Company. As a result of the acquisition, each
outstanding option to acquire General Semiconductor common stock became
exercisable for shares of Vishay common stock. Based on the conversion ratio in
the acquisition of 0.563 of a Vishay share for each General Semiconductor share,
the former General Semiconductor options become exercisable in the aggregate for
4,282,000 shares of Vishay common stock. All such options were immediately
vested and exercisable as a result of the merger but the terms of the options
otherwise remained unchanged. As of December 31, 2003, options to purchase
446,000 shares had been exercised under this plan.
F-40
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
12. Stock Options (continued)
The following table summarizes the Company's stock option activity (number of
options in thousands):
2003 2002 2001
-------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
-------------------------------------------------------------------------------------
Outstanding at beginning of year 9,231 $ 16.07 9,569 $ 15.97 5,646 $ 14.29
Granted 12 14.00 15 17.75 -- --
Exercised (356) 13.30 (261) 12.12 (86) 9.99
Cancelled (119) 17.10 (92) 17.14 (273) 17.82
Acquisition of General
Semiconductor -- -- -- -- 4,282 18.10
--------- ------ -------
Outstanding at end of year 8,768 $ 16.17 9,231 $ 16.07 9,569 $ 15.97
========= ====== =======
Exercisable at end of year 7,725 $ 15.85 7,626 $ 15.79 7,358 $ 15.74
========= ====== =======
Available for future grants 1,143 1,036 958
========= ====== =======
The following table summarizes information concerning stock options outstanding
and exercisable at December 31, 2003 (number of options in thousands):
Options Outstanding
------------------------------------------------------
Weighted Average Options Exercisable
----------------------------------
Range of Number of Remaining Weighted Average Number of Weighted Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
- ---------------------------------------------------------------------------------------------------------------------
$2.64 3 0.57 $ 2.64 3 $ 2.64
$5.60 882 4.76 5.60 699 5.60
$10.89 - $12.53 1,289 4.39 11.76 1,289 11.76
$12.54 - $13.61 1,214 4.52 13.32 1,209 13.32
$14.40 - $14.99 26 7.15 14.69 15 14.85
$15.33 974 5.77 15.33 638 15.33
$15.43 - $16.41 1,220 6.82 16.03 1,220 16.03
$16.52 - $20.86 1,343 4.92 18.98 1,339 18.98
$21.43 - $25.07 585 2.26 22.43 582 22.42
$25.13 - $34.52 1,232 6.49 25.96 731 26.26
---------------- -----------------------------------------------------
Total 8,768 $ 16.17 7,725 $ 15.85
================ =====================================================
F-41
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Commitments and Contingencies
Total rental expense under operating leases was $34,621,000, $27,652,000, and
$22,994,000, for the years ended December 31, 2003, 2002, and 2001,
respectively.
Future minimum lease payments for operating leases with initial or remaining
noncancelable lease terms in excess of one year are as follows: 2004 -
$24,106,000; 2005 - $17,961,000; 2006 - $14,818,000; 2007 - $12,735,000; 2008 -
$2,039,000; and thereafter - $3,591,000.
Environmental Matters
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. The Company's manufacturing facilities are
believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse
effect on the Company's financial condition.
The Company has engaged environmental consultants and attorneys to assist
management in evaluating potential liabilities related to environmental matters.
Management assesses the input from these consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named as a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability.
As part of the acquisition of General Semiconductor by Vishay on November 2,
2001, the Company assumed ongoing environmental matters. The Company has accrued
$18,700,000 as of December 31, 2003 for environmental matters relating to
ongoing environmental matters at its General Semiconductor subsidiary, which it
acquired in November 2001. This accrual does not include potential liability in
connection with litigation relating to a former facility of General
Semiconductor in Hicksville, New York, as to which the Company does not believe
it is currently able to reasonably estimate the amount of any potential
liability. As part of the acquisition of BCcomponents in 2002, the Company has
recorded environmental liabilities of $8,400,000. The Company has also accrued
approximately $5,600,000 at December 31, 2003 for other environmental matters,
primarily at its Vitramon subsidiary in the United States. The liabilities
recorded for these matters total $32,700,000, of which $9,200,000 is included in
other accrued liabilities on the consolidated balance sheet, and $23,500,000 is
included in other non-current liabilities on the consolidated balance sheet.
While the ultimate outcome of these matters cannot be determined, management
does not believe that the final disposition of these matters will have a
material adverse effect on the Company's consolidated financial position,
results of operations, or cash flows beyond the amounts previously provided for
in the consolidated financial statements. The Company's present and past
facilities have been in operation for many years, and over that time in the
course of those operations, such facilities have used substances which are or
might be considered hazardous, and the Company has generated and disposed of
wastes which are or might be considered hazardous. Therefore, it is possible
that additional environmental issues may arise in the future, which the Company
cannot now predict.
Litigation
The Company is a party to various claims and lawsuits arising in the normal
course of business. The Company is of the opinion that these litigations or
claims will not have a material negative effect on its consolidated financial
position, results of operations, or cash flows.
F-42
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. 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 cash and
cash equivalents and accounts receivable. The Company maintains cash and cash
equivalents with various major financial institutions. Concentrations of credit
risk with respect to receivables are generally limited due to the Company's
large number of customers and their dispersion across many countries and
industries. At December 31, 2003 and 2002, the Company had no significant
concentrations of credit risk.
Interest Rate Swap Agreements
In August 1998, the Company entered into six interest rate swap agreements, with
a total notional amount of $300,000,000 to manage interest rate risk related to
its multicurrency revolving line of credit. These interest rate swap agreements
required the Company to make payments to the counterparties at the fixed rate
stated in the agreements, and in return to receive payments from the
counterparties at variable rates. As of December 31, 2002, five of these six
agreements had been terminated. The final agreement expired in 2003. At December
31, 2002 and 2001, the Company paid a weighted average fixed rate of 5.77%, and
received a weighted average variable rate of 1.40%, and 1.93%, respectively. The
fair value of the interest rate swap agreements, based on current market rates,
approximated a net payable of $3,309,000 at December 31, 2002. During the year
ended December 31, 2003, the Company had a pretax gain of $3,783,000 related to
the expiration of the final swap agreement. During the years ended December 31,
2002 and 2001, the Company recorded pretax losses of $115,000 and $3,668,000,
respectively, relating to interest rate swap agreements that were ineffective
hedges. See Note 8.
Cash and Cash Equivalents, Accounts Receivable, Notes Payable, and Long-Term
Debt
The carrying amounts of cash and cash equivalents, accounts receivable, and
notes payable reported in the consolidated balance sheets approximate their fair
values. The fair value of the long-term debt is approximately $1,084,000,000, as
compared to its carrying value of $837,888,000. The fair value of long-term debt
was estimated based on trading prices and market prices of debt with similar
terms and features.
F-43
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
15. Current Vulnerability Due to Certain Concentrations
Market Concentrations
A material portion of the Company's revenues is derived from the worldwide
communications and computer markets. These markets have historically experienced
wide variations in demand for end products. If demand for these end products
should decrease, the producers thereof could reduce their purchases of the
Company's products, which could have a material adverse effect on the Company's
results of operations and financial position.
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.
Many of Vishay's products require the use of raw materials that are produced in
only a limited number of regions around the world or are available from only a
limited number of suppliers. Vishay's consolidated results of operations may be
materially and adversely affected if Vishay has difficulty obtaining these raw
materials, the quality of available raw materials deteriorates or there are
significant price increases for these raw materials. For example, the prices for
tantalum and palladium, two raw materials that Vishay uses in its capacitors,
are subject to fluctuation. For periods in which the prices of these raw
materials are rising, Vishay may be unable to pass on the increased cost to
Vishay's customers, which would result in decreased margins for the products in
which they are used. For periods in which the prices are declining, Vishay may
be required to write down its inventory carrying cost of these raw materials
which, depending on the extent of the difference between market price and its
carrying cost, could have a material adverse effect on Vishay's net earnings.
Vishay is a major consumer of the world's annual production of tantalum.
Tantalum, a metal purchased in powder or wire form, is the principal material
used in the manufacture of tantalum capacitors. There are currently three major
suppliers that process tantalum ore into capacitor grade tantalum powder. Due to
the strong demand for its tantalum capacitors and difficulty in obtaining
sufficient quantities of tantalum powder from its suppliers, Vishay stockpiled
tantalum ore in 2000 and early 2001. During 2001, Vishay and its competitors
experienced a significant decline in the tantalum capacitor business. The market
prices for tantalum also decreased significantly during 2002 and 2003. As a
result, Vishay recorded, in costs of products sold, write-downs of $5,406,000,
$25,700,000, and $52,000,000, respectively, to reduce tantalum inventories on
hand to market value during the years ended December 31, 2003, 2002, and 2001,
respectively. The net book value of tantalum inventories was $95,432,000 and
$49,609,000 at December 31, 2003 and 2002, respectively. Amounts in excess of a
one-year supply are included in non-current assets. At December 31, 2003, other
assets included $28,724,000 of tantalum inventories in excess of quantities
expected to be used within one year. The Company also recorded losses on future
purchase commitments for tantalum of $11,392,000 and $106,000,000 for the years
ended December 31, 2003 and 2002, respectively. Vishay's purchase commitments
were entered into at a time when market demand for tantalum capacitors was high
and tantalum powder was in short supply. As a result of purchases during 2003,
the accrual for these purchase commitments decreased by approximately
$28,000,000. The balance of the purchase commitment liability at December 31,
2003 and 2002 was approximately $89,400,000 and $106,000,000, respectively. The
purchase commitment liability expected to be utilized within one year of
$31,675,000 and $25,334,000 at December 31, 2003 and 2002, respectively, is
recorded in other accrued expenses on the consolidated balance sheets. The
remaining purchase commitment liability is recorded in other liabilities on the
consolidated balance sheets. If the downward pricing trend were to continue, the
Company could again be required to write down the carrying value of its tantalum
inventory and record additional losses on its long-term purchase commitments.
F-44
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
15. Current Vulnerability Due to Certain Concentrations (continued)
The Company is obligated to make purchases of tantalum of approximately
$103,800,000 in 2004; $116,600,000 in 2005, and $60,100,000 in 2006. The Company
purchased $107,906,000, $53,280,000, and $23,395,000, under these contracts
during the years ended December 31, 2003, 2002, and 2001, respectively. As long
as Vishay is in compliance with its purchase obligations under the Cabot
contracts, its minimum purchase commitments will not increase. If Vishay were to
default under its commitments, then the minimum requirements would revert to the
quantities specified in the contracts prior to their modification in July 2002,
and increase to $147,600,000 in 2004, $149,300,000 in 2005, and $81,300,000 in
2006. Vishay believes that the likelihood that it would default on its
obligations under the contracts is remote.
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently
found primarily in South Africa and Russia. Palladium is a commodity product
that is subject to price volatility. The price of palladium has fluctuated in
the range of approximately $148 to $1,090 per troy ounce during the last three
years. As of December 31, 2003, the price of palladium was approximately $195
per troy ounce. During the years ended December 31, 2003, 2002, and 2001,
respectively, the Company recorded in costs of products sold write-downs of
$1,585,000, $1,700,000, and $18,000,000, respectively, to reduce palladium
inventories on hand to market value. The net book value of palladium inventories
was $4,384,000 and $5,644,000 at December 31, 2003 and 2002, respectively.
From time to time, there have been short-term market shortages of raw material
utilized by Vishay. While these shortages have not historically adversely
affected Vishay's ability to increase production of products containing tantalum
and palladium, they have historically resulted in higher raw material cost for
Vishay. Vishay cannot assure that any of these market shortages in the future
would not adversely affect Vishay's ability to increase production, particularly
during periods of growing demand for Vishay's products.
Geographic Concentration
To address the increasing demand for its products and 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, and various tax
abatement programs. Israeli 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 events were to occur in the Middle East that materially interfered
with the Company's operations in Israel.
F-45
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
16. Business Segment and Geographic Area Data
Vishay 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, motor control integrated circuits, optoelectronic components and
IRDCs. The Company evaluates business segment performance on operating income,
exclusive of certain items. Management believes that evaluating segment
performance excluding items such as restructuring, inventory write-downs, losses
on purchase commitments, losses on early extinguishment of debt, gains on
insurance proceeds, write-offs of in-process research and development, and other
charges is meaningful because its provides insight with respect to ongoing
operating results.
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 (see Note 1). The operating results of
Passives reflect the acquisitions of BCcomponents as of December 31, 2002,
Celtron as of October 1, 2002, BLH/Nobel as of August 1, 2002, Tedea-Huntleigh
BV as of June 1, 2002, and Sensortronics as of January 31, 2002. The operating
results of Actives reflect the acquisitions of Infineon Malaysia optoelectronic
infrared components business as of December 31, 2001, General Semiconductor as
of November 2, 2001, and Infineon U.S. optoelectronic infrared components
business as of July 27, 2001. 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 and equipment, and certain other assets.
Business segment information 2003 2002 2001
---------------------------------------------------------
(In thousands)
Net sales:
Passives $ 1,104,856 $ 767,246 $ 1,010,634
Actives 1,065,741 1,055,567 644,712
----------- ----------- -----------
$ 2,170,597 $ 1,822,813 $ 1,655,346
=========== =========== ===========
Operating income (loss):
Passives $ 6,776 $ (61,317) $ 60,137
Actives 114,498 139,140 65,181
Corporate (22,350) (20,801) (21,970)
Restructuring and severance costs (29,560) (30,970) (61,908)
Purchased research and development -- -- (16,000)
Loss on long-term purchase commitments (11,392) (106,000) --
Amortization of goodwill -- -- (11,190)
----------- ----------- -----------
$ 57,972 $ (79,948) $ 14,250
=========== =========== ===========
Restructuring and severance costs:
Passives $ 26,288 $ 30,049 $ 57,498
Actives 3,272 921 4,410
----------- ----------- -----------
$ 29,560 $ 30,970 $ 61,908
=========== =========== ===========
F-46
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
16. Business Segment and Geographic Area Data (continued)
2003 2002 2001
----------------------------------------------------
(In thousands)
Depreciation expense:
Passives $ 90,133 $ 80,084 $ 83,735
Actives 85,821 87,609 61,238
Corporate 4,752 4,481 4,252
----------- ----------- -----------
$ 180,706 $ 172,174 $ 149,225
=========== =========== ===========
Interest expense:
Passives $ 2,977 $ 963 $ 680
Actives 7,452 10,545 1,988
Corporate 27,402 17,253 14,180
----------- ----------- -----------
$ 37,831 $ 28,761 $ 16,848
=========== =========== ===========
Income tax provision (benefit):
Passives $ 6,422 $ (33,674) $ (2,912)
Actives 15,133 21,286 11,862
Corporate (10,027) (4,512) (3,255)
----------- ----------- -----------
$ 11,528 $ (16,900) $ 5,695
=========== =========== ===========
Total assets:
Passives $ 2,170,105 $ 2,125,443
Actives 2,280,737 2,046,944
Corporate 121,671 142,772
----------- -----------
$ 4,572,513 $ 4,315,159
=========== ===========
Capital expenditures:
Passives $ 53,500 $ 45,105 $ 91,028
Actives 72,051 62,933 68,463
Corporate 1,084 2,036 3,002
----------- ----------- -----------
$ 126,635 $ 110,074 $ 162,493
=========== =========== ===========
F-47
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
16. Business Segment and Geographic Area Data (continued)
The following geographic area data include net sales based on revenues generated
by subsidiaries located within that geographic area and property and equipment
based on physical location:
2003 2002 2001
------------------------------------------------------
(In thousands)
Geographic area information
Net sales:
United States $ 444,952 $ 482,154 $ 638,326
Germany 534,019 382,932 452,839
Asia Pacific 595,241 542,859 315,550
France 156,124 69,635 85,046
Israel 130,852 75,238 32,646
Other 309,409 269,995 130,939
---------- ---------- ----------
$2,170,597 $1,822,813 $1,655,346
========== ========== ==========
Property and equipment - net:
United States $ 255,928 $ 307,783
Germany 152,722 154,288
Israel 312,632 328,315
Asia Pacific 278,109 253,937
France 38,200 37,687
Other 182,204 192,840
---------- ----------
$1,219,795 $1,274,850
========== ==========
F-48
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
17. Earnings (Loss) per Share
Basic earnings (loss) per share is computed using the weighted average number of
common shares outstanding during the periods presented. Diluted earnings (loss)
per share is computed using the weighted average number of common shares
outstanding adjusted to include the potentially dilutive effect of stock options
granted under the Company's 1997 and 1998 stock option plans (see Note 12),
stock options assumed in the acquisition of General Semiconductor (see Notes 2
and 12), and other potentially dilutive securities.
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands, except per share amounts):
Year ended December 31
2003 2002 2001
-------- -------------- ---------
Numerator
Numerator for basic earnings (loss) per share - net
earnings (loss) $ 26,842 $ (92,614) $ 513
======== ============== ========
Denominator
Denominator for basic earnings (loss) per share -
weighted average shares outstanding 159,631 159,413 141,171
Effect of dilutive securities:
Employee stock options 729 -- 1,201
Other 83 -- 142
-------- -------------- --------
Dilutive potential common shares 812 -- 1,343
-------- -------------- --------
Denominator for diluted earnings (loss) per share -
adjusted weighted average shares 160,443 159,413 142,514
======== ============== ========
Basic earnings (loss) per share $ 0.17 $ (0.58) $ 0.00
======== ============== ========
Diluted earnings (loss) per share $ 0.17 $ (0.58) $ 0.00
======== ============== ========
F-49
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
17. Earnings (Loss) per Share (continued)
Diluted earnings per share do not reflect the following, as the effect would be
antidilutive for the periods presented:
o Assumed conversion of the Company's LYONs, due 2021. At December 31, 2002
and 2001, these notes were convertible into 9,717,730 shares of the
Company's common stock. As described in Note 6, the Company repurchased
some of these notes during 2003. At December 31, 2003, the outstanding
notes are convertible into approximately 6,802,000 shares of the Company's
common stock.
o Assumed conversion of the convertible subordinated notes of General
Semiconductor, acquired November 2, 2001. At December 31, 2002 and 2001,
these notes were convertible into 6,191,161 shares of the Company's common
stock. As described in Note 6, these notes were fully redeemed on
September 10, 2003.
o Assumed exchange of the convertible notes of Vishay from the December 13,
2002 acquisition of BCcomponents, for the years ended December 31, 2003
and 2002. These notes are exchangeable for 6,176,471 shares of the
Company's common stock.
o Weighted average outstanding warrants of 7,074,000 and 435,000, for the
years ended December 31, 2003 and 2002, respectively. The warrants were
issued on December 13, 2002 in connection with the acquisition of
BCcomponents.
o Weighted average outstanding stock options for the years ended December
31, 2003, 2002, and 2001, to purchase 5,663,000 shares, 9,231,000 shares,
and 1,164,000 shares, respectively, of common stock.
o Assumed conversion of the Company's 3-5/8% convertible subordinated notes,
due 2023. As described in Note 6, the Company issued subordinated notes in
the third quarter of 2003, which are convertible into 23,496,250 shares of
common stock upon the occurrence of certain events.
18. Related Party Transactions
On December 12, 2002, the Company's Board of Directors passed resolutions to
terminate the stock purchase programs for corporate officers and key employees
(together the "Plan") and to offer to all Plan participants the opportunity to
surrender to the Company the shares of Vishay common stock purchased with their
Plan loans in satisfaction of such loans and all accrued interest thereon. Under
the resolutions, the Company agreed that it would compensate the Plan
participants for any income tax that the participants are required to recognize
as a result of the surrender. Two directors of the Company are among the
participants in the Plan. For all Plan participants, the current market value of
the Vishay common stock purchased with Plan loans is significantly below the
outstanding balances of the loans. The Company recorded a write-down for the
loans and accrued interest, and an accrual for compensation expense attributable
to taxes owing by Plan participants on surrender, totaling $2,591,000 as of
December 31, 2002. This amount was recorded in selling, general, and
administrative expense in 2002.
F-50
19. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2003 and 2002
is as follows (in thousands, except per share amounts):
First Quarter Second Quarter Third Quarter
2003(4)(10) 2002(1)(5) 2003(4)(11) 2002(1)(6) 2003(4)(12) 2002(1)(2)(7)
----------------------------------------------------------------------------------------------
Net sales $ 532,127 $ 434,140 $ 538,103 $ 457,877 $ 533,168 $ 471,419
Gross profit 118,510 86,937 123,299 107,565 102,463 107,227
Net earnings (loss) 6,848 2,420 2,880 15,617 6,775 13,114
Basic earnings (loss)
per share $ 0.04 $ 0.02 $ 0.02 $ 0.10 $ 0.04 $ 0.08
Diluted earnings (loss)
per share $ 0.04 $ 0.02 $ 0.02 $ 0.10 $ 0.04 $ 0.08
Fourth Quarter Total Year
2003(4)(13) 2002(1)(2)(3)(8) 2003(4)(14) 2002(1)(2)(3)(9)
-------------------------------------------------------------------
Net sales $ 567,199 $ 459,377 $ 2,170,597 $ 1,822,813
Gross profit 124,666 (39,456) 468,938 262,273
Net earnings (loss) 10,339 (123,765) 26,842 (92,614)
Basic earnings (loss)
per share $ 0.06 $ (0.78) $ 0.17 $ (0.58)
Diluted earnings (loss)
per share $ 0.06 $ (0.78) $ 0.17 $ (0.58)
(1) Includes the results of Sensortronics from January 31, 2002.
(2) Includes the results of Tedea-Huntleigh from July 1, 2002 and BLH and
Nobel from August 1, 2002.
(3) Includes the results of Celtron from October 1, 2002.
(4) Includes the results of BCcomponents, acquired December 13, 2002
(5) Includes restructuring and severance costs of $3,024,000.
(6) Includes restructuring and severance costs of $1,907,000.
(7) Includes restructuring and severance costs of $2,567,000 and write-down of
palladium inventory of $600,000.
(8) Includes restructuring and severance costs of $23,472,000, losses of
future purchase commitments of $106,000,000, and write-downs of tantalum
and palladium inventories of $25,700,000 and $1,100,000, respectively.
(9) Includes restructuring and severance costs of $30,970,000, losses of
future purchase commitments of $106,000,000, and write-downs of tantalum
and palladium inventories of $25,700,000 and $1,700,000, respectively.
(10) Includes restructuring and severance costs of $687,000.
(11) Includes restructuring and severance costs of $12,258,000.
(12) Includes restructuring and severance costs of $6,313,000, losses on future
purchase commitments of $11,392,000, write-down of tantalum inventory of
$4,185,000, loss on extinguishment of debt of $9,910,000, and gain on
insurance claim of $30,361,000.
(13) Includes restructuring and severance costs of $10,302,000, write-down of
tantalum inventory of $1,221,000, and gain on insurance claim of
$3,545,000.
(14) Includes restructuring and severance costs of $29,560,000, losses on
future purchase commitments of $11,392,000, write-downs of tantalum
inventory of $5,406,000, loss on extinguishment of debt of $9,910,000, and
gain on insurance claim of $33,906,000.
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