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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1997
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
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VISHAY INTERTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (610) 644-1300
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.10 par value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 25, 1998, assuming conversion of all its Class B
Common Stock held by non-affiliates into Common Stock of the registrant was
1,228,942,000.
As of March 25, 1998, registrant had 56,487,377 shares of its Common Stock
and 7,925,394 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, 1997, are incorporated by reference into
Part III.
PART I.
Item 1. DESCRIPTION OF BUSINESS
General
Vishay Intertechnology, Inc. (together with its consolidated
subsidiaries, "Vishay" or the "Company") is a leading international manufacturer
and supplier of discrete passive electronic components and discrete active
electronic components, particularly resistors, capacitors, inductors, diodes and
transistors. The Company offers its customers "one-stop" access to one of the
most comprehensive electronic component lines of any manufacturer in the United
States or Europe. Passive electronic components, discrete active electronic
components and integrated circuits are the primary elements of every electronic
circuit. The Company manufactures one of the broadest lines of surface mount
devices, a format for electronic components that is in increasing demand by
customers. In addition, the Company continues to produce components in the
traditional leaded form. Components manufactured by the Company are used in
virtually all types of electronic products, including those in the computer,
telecommunications, military/aerospace, instrument, automotive, medical and
consumer electronics industries.
Since early 1985, the Company has pursued a business strategy that
principally consists of the following elements: (i) expansion within the
electronic components industry, primarily through the acquisition of other
manufacturers with established positions in major markets, reputations for
product quality and reliability and product lines with which the Company has
substantial marketing and technical expertise; (ii) reduction of selling,
general and administrative expenses through the integration or elimination of
redundant sales offices and administrative functions at acquired companies;
(iii) achievement of significant production cost savings through the transfer
and expansion of manufacturing operations to regions, such as Israel, Mexico,
Portugal, the Czech Republic, Taiwan and the People's Republic of China, where
the Company can take advantage of lower labor costs and available tax and other
government-sponsored incentives; and (iv) maintaining significant production
facilities in those regions where the Company markets the bulk of its products
in order to enhance customer service and responsiveness.
As a result of this strategy, the Company has grown during the past
twelve years from a small manufacturer of precision resistors and strain gages
to one of the world's largest manufacturers and suppliers of a broad line of
electronic components.
In 1997, Vishay entered the discrete active electronic components
business, with its $138 million purchase of a 65%
interest in Lite-On Power Semiconductor Corporation ("LPSC"), a Taiwan-based
company that is a major supplier of discrete active electronic components in
Asia. The acquisition, which closed in July 1997, not only represents Vishay's
first step into the $14 billion discrete semiconductor market but also positions
the Company to increase its penetration of the Asian market with its existing
lines of passive components. Currently, Vishay Lite-On Power Semiconductor
Corporation's ("Vishay LPSC") product line includes small-signal transistors,
zeners, transient voltage suppressors, small-signal diodes, schottkys,
rectifiers and bridges.
Vishay LPSC operates wafer fabrication and manufacturing facilities in
Taipei, Taiwan; Shanghai, China; and Lee's Summit, Missouri. Vishay LPSC's
customer base includes AT&T, Delco, Motorola, Samsung, Sony, Zenith, Cisco and
Western Digital. In addition, Vishay LPSC holds a 40.2% equity interest in
Diodes, Inc., a publicly traded supplier of discrete semiconductor devices
located in Westlake, California (AMEX: DIO).
Most recently, Vishay acquired the semiconductor business of Germany's
TEMIC TELEFUNKEN microelectronic GmbH, a unit of Daimler-Benz AG, for
approximately $500 million. The unit is comprised of two divisions: Discrete
Components, headquartered in Santa Clara, California and Integrated Circuits,
headquartered in Heilbronn, Germany. The discrete component division is operated
primarily through Siliconix Inc. ("Siliconix"), a publicly traded computer chip
maker based in Santa Clara, California (Nasdaq: SILI) in which Vishay acquired
an 80.4% interest. Siliconix designs, markets and manufactures power and analog
semiconductor products for computers, cell phones, fixed communications
networks, automobiles and other electronic systems. Siliconix has manufacturing
facilities in the United States (in Santa Clara, California). Siliconix also
maintains assembly and testing facilities, which include a company-owned
facility in Taiwan, a joint venture in Shanghai, China and subcontractors in the
Philippines, India and Taiwan. Siliconix reported worldwide sales of $322
million in 1997.
Concurrent with the TEMIC acquisition, Vishay sold most of the
Integrated Circuits unit to the Atmel Corporation for approximately $110
million. However, Vishay retained two integrated circuit product lines: infrared
communication devices (IRDC) and Power ICs. These products, which are
manufactured in Heilbronn, Germany and Santa Clara, California, have
applications in the computer, multimedia and telecommunications markets as well
as the automobile, home entertainment and industrial electronics markets.
The TEMIC acquisition continues Vishay's expansion efforts in the area
of discrete active electronic components through the addition of TEMIC's product
line, which includes
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diodes, RF transistors, MOSFET switches, bipolar power switches and
opto-electronic semiconductors.
The Company accelerated the restructuring of its passive components
business in 1997, which included consolidating its Vishay Electronic Components
operations in the United States, Europe and Asia into one entity. The Company's
intention is to (i) create a single worldwide organization under one management
team, (ii) create further opportunities for synergies among its divisions and
(iii) position the Company for stronger growth by streamlining the Company's
ability to penetrate and create new markets.
Vishay was incorporated in Delaware in 1962 and maintains its
principal executive offices at 63 Lincoln Highway, Malvern, Pennsylvania
19355-2120. The telephone number is (610) 644-1300.
Products
Vishay designs, manufactures and markets electronic components that
cover a wide range of products and technologies. The products primarily consist
of fixed resistors, tantalum, multi- layer ceramic chip ("MLCC") film
capacitors, diodes and transistors; and, to a lesser extent, inductors; aluminum
and specialty ceramic capacitors; transformers; potentiometers; plasma displays
and thermistors. The Company offers most of its product types in the
increasingly demanded surface mount device form and in the traditional leaded
device form. The Company believes it produces one of the broadest lines of
electronic components available from any single manufacturer.
Unlike integrated circuits (ICs), which combine the functions of many
electronic components in one chip, discrete components perform one specific
function per device. Discrete components can be passive devices or active
(semiconductors) devices. Passive components (resistors, capacitors and
inductors) adjust and regulate current or store energy and filter frequencies.
Discrete semiconductor components (diodes and transistors) convert AC currents
to DC, amplify currents or switch electronic signals.
Resistors are basic components used in all forms of electronic
circuitry to adjust and regulate levels of voltage and current. They vary widely
in precision and cost, and are manufactured in numerous materials and forms.
Resistive components may be either fixed or variable, the distinction being
whether the resistance is adjustable (variable) or not (fixed). Resistors can
also be used as measuring devices, such as Vishay's resistive sensors. Resistive
sensors or strain gages are used in experimental stress analysis systems as well
as in transducers for electronic measurement loads (scales), acceleration and
fluid pressure.
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Vishay manufactures virtually all types of fixed resistors, both in
discrete and network forms. These resistors are produced for virtually every
segment of the resistive product market, from resistors used in the highest
quality precision instruments for which the performance of the resistors is the
most important requirement, to resistors for which price is the most important
factor.
Capacitors perform energy storage, frequency control, timing and
filtering functions in most types of electronic equipment. The more important
applications for capacitors are (i) electronic filtering for linear and
switching power supplies, (ii) decoupling and bypass of electronic signals or
integrated circuits and circuit boards, and (iii) frequency control, timing and
conditioning of electronic signals for a broad range of applica- tions. The
Company's capacitor products primarily consist of solid tantalum surface mount
chip capacitors, solid tantalum leaded capacitors, wet/foil tantalum capacitors,
MLCC capacitors, and film capacitors. Each capacitor product has unique physical
and electrical performance characteristics that make each type of capacitor
useful for specific applications. Tantalum and MLCC capacitors are generally
used in conjunction with integrated circuits in applications requiring low to
medium capacitance values ("capacitance" being the measure of the capacitor's
ability to store energy). The tantalum capacitor is the smallest and most stable
type of capacitor for its range of capacitance and is best suited for
applications requiring medium capacitance values. MLCC capacitors, on the other
hand, are more cost-effective for applications requiring lower capacitance
values. The Company's MLCC capacitors are known for their particularly high
reliability.
Discrete devices are active components that generate, control,
regulate, amplify, or switch electronic signals or energy and must be
interconnected with other passive components. Integrated circuits consist of a
number of active and passive components, interconnected on a single chip, that
are intended to perform multiple functions.
Diodes are used to convert electrical currents from AC to DC and are
applied in a broad range of electronic equipment that requires such conversion.
Discrete power MOSFETs are used to switch and manage power in a wide range of
electronic systems, including cell phones, portable and desktop computers,
automobiles, instrumentation and industrial applications to switch and manage
power. Power conversion ICs are used in applications where an input voltage from
a battery or other supply source must be switched or converted to a level that
is compatible with logic signals used by microprocessors and other digital
components in a specific system. Motor control ICs control the starting, speed,
or position of electric motors, such as the head-positioning and spindle motors
in hard disk drives.
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The Company believes it has taken advantage of the growth of the
surface mount component market and is an industry leader in designing and
marketing surface mount devices. The Company also believes it is a market leader
in the development and production of a wide range of these devices, including
thick film chip resistors, thick film resistor networks and arrays, metal film
leadless resistors (MELFs), molded tantalum chip capacitors, coated tantalum
chip capacitors, film capacitors, multi-layer ceramic chip capacitors, thin film
chip resistors, thin film networks, wirewound chip resistors, power strip
resistors, bulk metal foil chip resistors, current sensing chips, chip
inductors, chip transformers, chip trimmers, NTC chip thermistors and certain
diodes and transistor products. The Company also provides a number of component
packaging styles to facilitate automated product assembly by its customers.
Surface mount devices adhere to the surface of a circuit board rather than being
secured by leads that pass through holes to the back side of the board. Surface
mounting provides distinct advantages over through-hole mounting. For example,
surface mounting allows the placement of more components on a circuit board,
which is particularly desirable for a growing number of manufacturers who
require greater miniaturization in products such as hand held computers and
cellular telephones. Surface mounting also facilitates automation, resulting in
lower production costs for equipment manufacturers than those associated with
leaded devices.
Markets
The Company's products are sold primarily to original equipment
manufacturers ("OEMs"), OEM subcontractors that assemble printed circuit boards
and independent distributors that maintain large inventories of electronic
components for resale to OEMs. Its products are used in, among other things,
virtually every type of product containing electronic circuitry, including
computer-related products, telecommunications, measuring instruments, industrial
equipment, automotive applications, process control systems, military and
aerospace applications, consumer electronics, medical instruments and scales.
For the year ended December 31, 1997, approximately 43% of the
Company's net sales was attributable to customers in the United States, while
the remainder was attributable to sales primarily in Europe and Asia.
In the United States, products are marketed through independent
manufacturers' representatives, who are compensated solely on a commission
basis, by the Company's own sales personnel and by independent distributors. The
Company has regional sales personnel in several North American locations that
make sales directly to OEMs and provide technical and sales support for
independent manufacturers' representatives throughout the United States, Mexico
and Canada. In addition, the Company uses
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independent distributors to resell its products. Outside North America, products
are sold to customers in Germany, the United Kingdom, France, Israel, Japan,
Singapore, Taiwan, South Korea, Brazil and other European and Pacific Rim
countries through Company sales offices, independent manufacturers'
representatives and distributors. In order to better serve its customers, the
Company maintains production facilities in those regions where it markets the
bulk of its products, such as the U.S., Germany, France and the U.K. In
addition, to maximize production efficiencies, the Company seeks whenever
practicable to establish manufacturing facilities in those regions, such as
Israel, Mexico, Portugal,the Czech Republic, Taiwan and the People's Republic of
China where it can take advantage of lower labor costs and available tax and
other government-sponsored incentives.
The Company undertakes to have its products incorporated into the
design of electronic equipment at the research and prototype stages. Vishay
employs its own staff of application and field engineers who work with its
customers, independent manufacturers' representatives and distributors to solve
technical problems and develop products to meet specific needs.
The Company has qualified certain products under various military
specifications, approved and monitored by the United States Defense Electronic
Supply Center ("DESC"), and under certain European military specifications.
Classification levels have been established by DESC based upon the rate of
failure of products to meet specifications (the "Classification Level"). In
order to maintain the Classification Level of a product, tests must be
continuously performed, and the results of these tests must be reported to DESC.
If the product fails to meet the requirements for the applicable Classification
Level, the product's classification may be reduced to a less stringent level.
Various United States manufacturing facilities from time to time experience a
product Classification Level modification. During the time that such level is
reduced for any specific product, net sales and earnings derived from such
product may be adversely affected.
The Company is aggressively undertaking to have the quality systems at
most of its major manufacturing facilities approved under the ISO 9000
international quality control standard. ISO 9000 is a comprehensive set of
quality program standards developed by the International Standards Organization.
A majority of the Company's manufacturing operations have already received ISO
9000 approval and others are actively pursuing such approval.
Vishay's largest customers vary from year to year, and no customer has
long-term commitments to purchase products of the Company. No customer accounted
for more than 10% of the Company's sales for the year ended December 31, 1997.
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Research and Development
Many of the Company's products and manufacturing processes have been
invented, designed and developed by Company engineers and scientists. The
Company maintains strategically located design centers where proximity to
customers enables it to more easily satisfy the needs of the local market. These
design centers are located in the United States (Connecticut, Maine, Nebraska,
North Carolina, Pennsylvania), in Germany (Selb, Landshut, Pfafenberg,
Backnang), in France (Nice, Evry) and Israel (Dimona, Migdal Ha-emek). The
Company also maintains separate research and development staffs and promotes
separate programs at a number of its production facilities to develop new
products and new applications of existing products, and to improve manufacturing
techniques. This decentralized system encourages individual product development
at individual manufacturing facilities that occasionally have applications at
other facilities. Company research and development costs were approximately $7.0
million for 1997 and $10.4 million for 1996 and 1995, respectively. These
amounts do not include substantial expenditures for the development and
manufacturing of machinery and equipment for new processes and for cost
reduction measures. See "Competition".
Sources of Supplies
Although most materials incorporated in the Company's products are
available from a number of sources, certain materials (particularly tantalum and
palladium) are available only from a relatively limited number of suppliers.
Tantalum, a metal, is the principal material used in the manufacture
of tantalum capacitors. It is purchased in powder and wire form primarily under
annual contracts with domestic suppliers at prices that are subject to periodic
adjustment. The Company is a major consumer of the world's annual tantalum
production. There are currently three major suppliers that process tantalum ore
into capacitor grade tantalum powder. Although the Company believes that there
is currently a surplus of tantalum ore reserves and a sufficient number of
tantalum processors relative to foreseeable demand, and that the tantalum
required by the Company has generally been available in sufficient quantities to
meet requirements, the limited number of tantalum powder suppliers could lead to
increases in tantalum prices that the Company may not be able to pass on to its
customers.
In an attempt to address this concern, the Company is in the final
stages of implementing two joint ventures in China: one to upgrade the capacity
and concentration of tantalum ore extracted from a mine in China's Jiangxi
province; and the other to increase the quantity and improve the quality and
product selection of tantalum ore processed at a refinery located in China's
Ningxia
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province. The goal of the projects is to give Vishay access to a long-term,
stable supply of low cost tantalum material.
Palladium is primarily purchased on the spot and forward markets,
depending on market conditions. Palladium is considered a commodity and is
subject to price volatility. The price of palladium has fluctuated in the range
of approximately $140 to $250 per troy ounce during the last three years.
Although palladium is currently found in South Africa and Russia, the Company
believes that there are a sufficient number of domestic and foreign suppliers
from which the Company can purchase palladium. However, an inability on the part
of the Company to pass on increases in palladium costs to its customers could
have an adverse effect on the margins of those products using the metal.
Inventory and Backlog
Although Vishay manufactures standardized products, a substantial
portion of its products are produced to meet customer specifications. The
Company does, however, maintain an inventory of resistors and other components.
Backlog of outstanding orders for the Company's products was $269.8 million,
$237.7 million and $339.2 million, respectively, at December 31, 1997, 1996 and
1995. The increase in backlog at December 31, 1997 reflects a turnaround in the
demand for passive electronic components by the personal computer and
telecommunications markets. The increase in backlog was also caused by a
worldwide demand for certain of the Company's specialty products, such as
conformal coated chips.
Many of the orders in the Company's backlog may be cancelled by its
customers, in whole or in part, although sometimes subject to penalty. To date,
however, cancellations have not been significant.
Competition
The Company faces strong competition in its various product lines from
both domestic and foreign manufacturers that produce products using technologies
similar to those of the Company. The Company's main competitors for tantalum
capacitors are KEMET Corporation, AVX Corporation and NEC Electronics Inc. For
MLCC capacitors, competitors are KEMET, AVX, Murata and TDK Corp. For thick film
chip resistors, competitors are Rohm Corp., Koa Speer Electronics Inc. and Yageo
Corporation. For wirewound and metal film resistors, competitors are I.R.C.
Inc., Rohm Corp. and Ohmite Manufacturing Company. For discrete active
components, competitors are Philips, N.V., Rohm Corp., Motorola, Inc., Fairchild
Corp. and Samsung Electro-Mechanics Co., Ltd.
The Company's competitive position depends on its product quality,
know-how, proprietary data, marketing and service
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capabilities and business reputation, as well as on price. In respect to certain
products, the Company competes on the basis of its marketing and distribution
network, which provides a high level of customer service. For example, the
Company works closely with its customers to have its components incorporated
into their electronic equipment at the early stages of design and production and
maintains redundant production sites for most of its products to ensure an
uninterrupted supply of products. Further, the Company has established a
National Accounts Management Program, which provides the Company's largest
customers with one national account executive who can cut across Vishay business
unit lines for sales, marketing and contract coordination. In addition, the
breadth of the Company's product offerings enables the Company to strengthen its
market position by providing its customers with "one-stop" access to one of the
broadest selections of passive electronic components available from a direct
manufacturing source.
A number of the Company's customers are contractors or subcontractors
on various United States and foreign government contracts. Under certain United
States Government contracts, retroactive adjustments can be made to contract
prices affecting the profit margin on such contracts. The Company believes that
its profits are not excessive and, accordingly, no provision has been made for
any such adjustment.
Although the Company has numerous United States and foreign patents
covering certain of its products and manufacturing processes, no particular
patent is considered material to the business of the Company.
Manufacturing Operations
The Company strives to balance the location of its manufacturing
facilities. In order to better serve its customers, the Company maintains
production facilities in those regions where it markets the bulk of its
products, such as the United States, Germany, France and the United Kingdom. To
maximize production efficiencies, the Company seeks whenever practicable to
establish manufacturing facilities in countries, such as Israel, Mexico,
Portugal, the Czech Republic, Taiwan and the People's Republic of China, where
it can take advantage of lower labor and tax costs and, in the case of Israel,
to take advantage of various government incentives, including grants and tax
relief.
At December 31, 1997, approximately 36% of the Company's identifiable
assets were located in the United States, approximately 30% were located in
Europe, approximately 21% were located in Israel, approximately 12% were located
in Asia and approximately 1% in other regions. In the United States, the
Company's main manufacturing facilities are located in Nebraska, South Dakota,
North Carolina, Pennsylvania, Maine, Connecticut, Virginia, New Hampshire,
Florida and, with the Siliconix
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acquisition, California. In Europe, the Company's main manufacturing facilities
are located in Selb, Landshut, and Backnang, Germany; Nice, France; and, with
the TEMIC acquisition, Heilbronn, Germany. In Israel, manufacturing facilities
are located in Holon, Dimona and Migdal Ha-emek. In Asia, with the Lite-On and
TEMIC acquisitions, the Company's main manufacturing facilities are located in
Taiwan (two) and in Shanghai, China (five). The Company also maintains major
manufacturing facilities in Juarez, Mexico and the Czech Republic. Over the past
several years, the Company has invested substantial resources to increase
capacity and to maximize automation in its plants, which it believes will
further reduce production costs.
The Company has expanded, and plans to continue to expand, its
manufacturing operations in Israel, where it benefits from the government's
employment and tax incentive programs designed to increase employment, lower
wage rates and attract a highly-skilled labor force, all of which have
contributed substantially to the growth and profitability of the Company.
Under the terms of the Israeli government's incentive programs, once a
project is approved, the recipient is eligible to receive the benefits of the
related grants for the life of the project, so long as the recipient continues
to meet preset eligibility standards. None of the Company's approved projects
has ever been cancelled or modified and the Company has already received
approval for a majority of the projects contemplated by its capital expenditure
program. However, over the past few years, the government has scaled back or
discontinued some of its incentive programs. Accordingly, there can be no
assurance that in the future the Israeli government will continue to offer new
incentive programs applicable to the Company or that, if it does, such programs
will provide the same level of benefits the Company has historically received or
that the Company will continue to be eligible to take advantage of them.
Although the Company might be materially adversely affected if these incentive
programs were no longer available to the Company for new projects, because a
majority of the Company's projects in Israel already benefit from government
incentive programs, the Company does not anticipate that any cutbacks in the
incentive programs would have an adverse impact on its earnings and operations
for at least several years. In addition, the Company might be materially
adversely affected if hostilities were to occur in the Middle East that
interfere with the Company's operations in Israel. The Company, however, has
never experienced any material interruption in its Israeli operations in its 28
years of production there, in spite of several Middle East crises, including
wars. For the year ended December 31, 1997, sales of products manufactured in
Israel accounted for approximately 25% of the Company's net sales.
Due to a strategic shift in manufacturing emphasis to higher
automation and the relocation of some production to regions with lower labor
costs, the Company incurred restructuring costs in
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the year ended December 31, 1997 associated with the downsizing and closing of
manufacturing facilities in Europe. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Environment, Health and Safety
The Company has adopted an Environmental Health and Safety Corporate
Policy that commits it to achieve and maintain compliance with applicable
environmental laws, to promote proper management of hazardous materials for the
safety of its employees and the protection of the environment, and to minimize
the hazardous materials generated in the course of its operations. This policy
is implemented with accountability directly to the Chairman of the Board of
Directors. In addition, the Company's manufacturing operations are subject to
various federal, state and local laws restricting discharge of materials into
the environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations. However, the
Company is involved in various legal actions concerning government enforcement
proceedings and various dump site cleanups. These actions may result in fines
and/or cleanup expenses. The Company believes that any fine or cleanup expense,
if imposed, would not be material. The Company continually expends funds to
ensure that its facilities comply with applicable environmental regulations. In
regard to its US and European facilities, the Company is nearing completion of
its undertaking to comply with new environmental regulations relating to the
elimination of chlorofluorocarbons (CFCs) and ozone depleting substances (ODS)
and other anticipated compliances with the Clean Air Act amendments of 1990. In
regard to all other facilities, including those recently acquired, the Company
has begun to take steps to implement its compliance with these programs. The
Company anticipates that it will undertake capital expenditures of approximately
$6,500,000 in fiscal 1998 for general environmental compliance and enhancement
programs, including those to be applied at the TEMIC facilities. The Company has
been named a Potentially Responsible Party (PRP) at nine Superfund sites which
includes two Siliconix facilities. The Company has settled three of these for
minimal amounts and does not expect the others to be material. While the Company
believes that it is in material compliance with applicable environmental laws,
it cannot accurately predict future developments or have knowledge of past
occurrences on sites currently occupied by the Company. Moreover, the risk of
environmental liability and remediation costs is inherent in the nature of the
Company's business and, therefore, there can be no assurance that material
environmental costs, including remediation costs will not arise in the future.
With each acquisition, the Company undertakes to identify potential
environmental concerns and to minimize, or obtain indemnification for, the
environmental matters it may be required
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to address. In addition, the Company establishes reserves for specifically
identified potential environmental liabilities. The Company believes that the
reserves it has established are adequate. Nevertheless, the Company often
unavoidably inherits certain pre- existing environmental liabilities, generally
based on successor liability doctrines. Although the Company has never been
involved in any environmental matter that has had a material adverse impact on
its overall operations, there can be no assurance that in connection with any
past or future acquisition the Company will not be obligated to address
environmental matters that could have a material adverse impact on its
operations.
Employees
As of December 31, 1997, the Company employed approximately 17,400
full time employees of whom approximately 11,700 were located outside the United
States. Some of the Company's foreign employees are members of trade unions. In
connection with the Company's restructuring program in the fourth quarter of
1997, including the downsizing or closing of manufacturing facilities in Europe,
the Company dismissed approximately 324 employees in its worldwide workforce. No
assurance can be given that if the Company continues to restructure its
operations in response to changing economic conditions that labor unrest or
strikes (especially at European facilities) will not occur. See "Legal
Proceedings."
Year 2000 Compliance
To address its need to modify its computer systems for adaptation to
the Year 2000, the Company has taken an inventory of its computer systems and is
creating and implementing plans to make them Year 2000 compliant. Currently, the
Company is in the process of making the Company's European facilities Year 2000
functional by the end of 1998. The Company is also focusing on bringing its
U.S., Asian and Israeli computer systems into compliance. The Company plans to
spend approximately $1.4 million in 1998 to address all potential
software-related issues by the end of 1998. Management does not believe the
Company will suffer any material loss of customers or other material adverse
effects as a result of these modifications.
Item 2. PROPERTIES
As of December 31, 1997, the Company maintains approximately 60
manufacturing facilities. The principal locations of such facilities, along with
available space including administrative offices, are:
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Approx. Available
Owned Locations Space (Square Feet)
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United States
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Columbus and Norfolk, NE* 336,000
Malvern and Bradford, PA* 215,000
Sanford, ME 225,000
Wendell and Statesville, NC* 193,000
Concord, NH 120,000
Roanoke, VA 120,000
Monroe, CT 91,000
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* two locations
Foreign
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Germany (13 locations) 1,099,000
France (6 locations) 533,000
Israel (4 locations) 950,000
Portugal 299,000
Republic of China (Taiwan) 154,000
Czech Republic (4 locations) 141,000
Vishay owns an additional 272,000 square feet of manufac- turing
facilities located in Colorado, Maryland, New York, South Dakota and Florida.
Available leased facilities in the United States include 239,000
square feet of space located in California, South Dakota, Missouri and
Massachusetts. Foreign leased facilities consist of 121,000 square feet in
Mexico, 188,000 square feet in France, 151,000 square feet in England, 37,000
square feet in Canada, 161,000 square feet in China, 74,000 square feet in the
Czech Republic and 53,000 square feet in Germany. The Company also has
facilities in Japan.
In the opinion of management, the Company's properties and equipment
generally are in good operating condition and are adequate for its present
needs. The Company does not anticipate difficulty in renewing existing leases as
they expire or in finding alternative facilities.
Item 3. LEGAL PROCEEDINGS
The Company from time to time is involved in routine litigation
incidental to its business. Management believes that such matters, either
individually or in the aggregate, should not have a material adverse effect on
the Company's business or financial condition.
As part of Vishay's 1996 restructuring program, the Company's
subsidiary, Sprague France S.A., laid off certain workers
-13-
at the company's facility in Tours, France. The trade union representing the
workers claimed that the layoffs were not economically motivated, and were
therefore prohibited under French law. A court ruled that, although the company
would not be required to rehire the employees, the company would have to pay
damages equal to approximately 10 million French Francs (approximately
$1,625,000) to the former employees. The company appealed this decision, and
intends to vigorously oppose it in court. In any event the Company will not be
required to satisfy the judgment until it is affirmed on appeal, a determination
which is expected to be reached in 1998.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report,
no matter was submitted to a vote of security holders of the Company.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of the Company as of March 25, 1998.
Name Age Positions Held
Felix Zandman* 69 Chairman of the Board,
Chief Executive Officer
and Director
Avi D. Eden* 50 Vice-Chairman of the
Board, Executive
Vice President and
Director
Gerald Paul* 49 Chief Operating Officer,
President and Director
Richard N. Grubb* 51 Executive Vice President,
Treasurer, Chief
Financial Officer
and Director
Donald G. Alfson* 52 Executive Vice President,
Chief Business
Development Officer and
Director
Robert A. Freece* 57 Senior Vice President
and Director
-14-
Abraham Inbar 69 Senior Vice President;
President -- Vishay
Israel Ltd., a
subsidiary of Vishay
Henry V. Landau 51 Vice President; President
-- Measurements Group,
Inc., a subsidiary of
Vishay
William J. Spires 56 Vice President and
Secretary
* Member of the Executive Committee of the Board of Directors.
Dr. Felix Zandman, a founder of the Company, has been the Chief
Executive Officer and a Director of the Company since its inception. Dr. Zandman
had been President of the Company from its inception until March 16, 1998, when
Gerald Paul was appointed President of the Company. Dr. Zandman has been
Chairman of the Board since March 1989.
Avi D. Eden has been a Director and General Counsel of the Company
since June 1988, and has been Vice Chairman of the Board and Executive Vice
President of the Company since August 1996.
Gerald Paul has served as a Director of the Company since May 1993 and
has been Chief Operating Officer and Executive Vice President of the Company
since August 1996. On March 16, 1998, Gerald Paul was appointed President of the
Company. He was President of Vishay Electronic Components, Europe from January
1994 to August 1996. Dr. Paul has been Managing Director of Draloric Electronic
GmbH since January 1991. Dr. Paul has been employed by Draloric since February
1978.
Richard N. Grubb has been a Director, Vice President, Treasurer and
Chief Financial Officer of the Company since May 1994, and has been Executive
Vice President of the Company since August 1996. Mr. Grubb has been associated
with the Company in various capacities since 1972. He is a Certified Public
Accountant who was previously engaged in private practice.
Donald G. Alfson has been a Director of the Company since May 1992 and
has been Executive Vice President, Chief Business Development Officer and Senior
Vice President of Marketing and Sales of the Company since August 1996. He was
President of Vishay Electronic Components North America and Asia from April 1992
to August 1996. Mr. Alfson served as President of Dale Electronics, Inc. from
April 1992 to August 1996 and had been employed by Dale since 1972.
-15-
Robert A. Freece has been a Director of the Company since 1972. He was
Vice President of the Company from 1972 until 1994, and has been Senior Vice
President since May 1994.
Abraham Inbar has been Senior Vice President of the Company since
August 1996 and had been a Vice President of the Company since June 1994. Mr.
Inbar has been the President of Vishay Israel Ltd., a subsidiary of the Company,
since May 1994. Mr. Inbar was Senior Vice President and General Manager of
Vishay Israel Ltd. from 1992 to 1994. Previously, Mr. Inbar was Vice President -
Operations for Vishay Israel Ltd. He has been employed by the Company since
1973.
Henry V. Landau has been a Vice President of the Company since 1983.
Mr. Landau has been the President and Chief Executive Officer of Measurements
Group, Inc., a subsidiary of the Company, since July 1984. Mr. Landau was an
Executive Vice President of Measurements Group, Inc. from 1981 to 1984 and has
been employed by the Company since 1972.
William J. Spires has been a Vice President and Secretary of the
Company since 1981. Mr. Spires has been Vice President - Industrial Relations
since 1980 and has been employed by the Company since 1970.
-16-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock is listed on the New York Stock Exchange
under the symbol VSH. The following table sets forth the high and low sales
prices for the Company's Common Stock as reported on the New York Stock Exchange
Composite Tape for the quarterly periods within the 1997 and 1996 calendar years
indicated. Stock prices have been restated to reflect stock dividends. The
Company does not currently pay cash dividends on its capital stock. Its policy
is to retain earnings to support the growth of the Company's business and the
Company does not intend to change this policy at the present time. In addition,
the Company is restricted from paying cash dividends under the terms of the
Company's revolving credit agreements (see Note 5 to the consoli- dated
financial statements). Holders of record of the Company's Common Stock totaled
approximately 2,100 at March 25, 1998.
COMMON STOCK MARKET PRICES
Calendar 1997 Calendar 1996
High Low High Low
---- --- ---- ---
First Quarter $25.00 $20.60 $29.48 $21.77
Second Quarter $30.83 $20.48 $31.07 $19.29
Third Quarter $31.88 $23.19 $23.81 $16.55
Fourth Quarter $28.00 $18.50 $22.26 $16.67
On November 27, 1995, the Company commenced a stock repurchase program
pursuant to which the Company was authorized to repurchase up to 750,000 shares
of its Common Stock for an aggregate amount not to exceed $30 million. The
purchases of Common Stock by the Company under the repurchase program are made
in accordance with the rules of the Securities and Exchange Commission and at
the discretion of management. As of December 31, 1995 the Company had
repurchased 110,000 shares at an approximate cost of $3,578,000. No repurchases
were made in 1996 or 1997.
In addition, at March 25, 1998 the Company had outstanding 7,925,394
shares of Class B Common Stock par value $.10 per share (the "Class B Stock")
each of which entitles the holder to ten votes. The Class B Stock generally is
not transferable and there is no market for those shares. The Class B Stock is
convertible, at the option of the holder, into Common Stock on a share for share
basis. Substantially all such Class B Stock is owned by Dr. Felix Zandman, Mrs.
Luella B. Slaner and trusts for the benefit of Mrs. Slaner's grandchildren
(either directly or beneficially). Dr. Felix Zandman is an executive officer and
director of the Company. Mrs. Luella B. Slaner is a director of the Company.
-17-
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information of the Company for the fiscal years ended December 31, 1997, 1996,
1995, 1994 and 1993. This table should be read in conjunction with the
Consolidated Financial Statements of the Company and the related notes thereto
included elsewhere in this Form 10-K.
Year Ended December 31,
------------------------------------------------------------------
1997/1/ 1996/2/ 1995 1994/3/ 1993/4/
------- ------- ---- ------- -------
(in thousands, except per share amounts)
- ------------------------------------------------------------------------------------------------------------
Net sales.............................. $1,125,219 $1,097,979 $1,224,416 $987,837 $856,272
Interest expense........................ 18,819 17,408 29,443 24,769 20,624
Earnings before
income taxes and
cumulative effect of
accounting change..................... 87,469 70,357 122,974 74,116 50,894
Income taxes ........................... 34,167 17,741 30,307 15,169 8,246
Earnings before cumulative
effect of accounting change 53,302 52,616 92,667 58,947 42,648
Cumulative effect of
accounting change for
income taxes.......................... -- -- -- -- 1,427
Net earnings............................ 53,302 52,616 92,667 58,947 44,075
Total assets............................ 1,719,648 1,558,515 1,543,331 1,345,070 950,670
Long-term debt.......................... 347,463 229,885 228,610 402,337 266,999
Working capital......................... 455,134 434,199 411,286 328,322 205,806
Stockholders' equity.................... 959,648 945,230 907,853 565,088 376,503
Basic and diluted earnings
per share:/5/
Before cumulative effect
of accounting change................ $0.83 $0.82 $1.55 $1.09 $0.82
Accounting change for
income taxes........................ -- -- -- -- 0.03
Net earnings.......................... $0.83 $0.82 $1.55 $1.09 $0.85
Weighted average
shares outstanding -
assuming dilution5/................... 64,459 64,364 59,897 54,131 51,603
- ---------------------
/1/ Includes the results from July 1, 1997 of Lite-On Power Semiconductor
Corporation and special charges of $27,692,000 ($0.43 per share).
/2/ Includes restructuring expense of $38,030,000 ($0.41 per share).
/3/ Includes the results from July 1, 1994 of Vitramon.
/4/ Includes the results from January 1, 1993 of Roederstein.
/5/ Adjusted to reflect 2-for-1 stock split distributed June 16, 1995 and 5%
stock dividends paid on June 9, 1997, June 7, 1996, March 31, 1995, June
13, 1994 and June 11, 1993.
-18-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction and Background
The Company's sales and net income increased significantly through
1995 primarily as a result of its acquisitions. Following each acquisition, the
Company implemented programs to take advantage of distribution and operating
synergies among its businesses. This implementation was reflected in increases
in the Company's sales and in the decline in selling, general, and
administrative expenses as a percentage of the Company's sales.
In 1995, the Company's growth was fueled not only by its acquisition
of Vitramon, but also by the dramatic expansion in the electronic components
industry. This resulted in Vishay's record net earnings of $92.7 million in
1995.
However, beginning with the last quarter of 1995 and continuing into
the first quarter of 1997, the Company has experienced a decline in demand for
most of its products, resulting in a decrease in revenues, earnings and
backlogs. The Company believes this may be primarily a result of the worldwide
slowdown in demand for tantalum and multi-layer ceramic chip capacitors, the
economic downturn in Germany, where a significant portion of the Company's
products are sold, and the abrupt worldwide decline in demand for passive
electronic components by personal computer and telecommunications manufacturers.
In order to address the slowdown in demand, the Company implemented a
restructuring program in 1996 that included the downsizing and closing of
manufacturing facilities in North America and Europe. In connection with the
restructuring, the Company incurred $38,030,000 of pretax charges for the year
ended December 31, 1996 relating to employee termination and facility closure
costs. When the restructuring program is fully implemented, the Company believes
that by reducing overhead costs and improving manufacturing efficiency, it will
reduce costs by approximately $38 million per year. In 1997 the Company incurred
$12,605,000 of restructuring expenses relating to employee termination and
facility closure costs in Europe. When fully implemented, this restructuring
program is intended to reduce costs by approximately $10 million per year.
Depending on future economic conditions, the Company may continue to downsize or
close existing facilities in North America, Europe or elsewhere.
The Company's strategy contemplates transferring some of its
manufacturing operations from countries with high labor costs and tax rates
(such as the United States, France and Germany) to Israel, Mexico, Portugal, the
Czech Republic, Taiwan and the People's Republic of China in order to benefit
from lower labor costs and, in the case of Israel, to take advantage of various
-19-
government incentives, including government grants and tax incentives. The
Company may further reduce its costs in the face of a decline in demand by
accelerating the transfer of production to countries with lower labor costs and
more favorable tax environments.
The Company realizes approximately 57% of its revenues outside the
United States. As a result, fluctuations in currency exchange rates can
significantly affect the Company's reported sales and to a lesser extent
earnings. Currency fluctuations impact the Company's net sales and other income
statement amounts, as denominated in U.S. dollars, including other income as it
relates to foreign exchange gains or losses. Generally, in order to minimize the
effect of currency fluctuations on profits, the Company endeavors to (i) borrow
money in the local currencies and markets where it conducts business, and (ii)
minimize the time for settling intercompany transactions. In connection with its
day-to- day operations, the Company does not purchase foreign currency exchange
contracts or other derivative instruments to hedge foreign currency exposures.
As a result of the increased production by the Company's operations in
Israel over the past several years, the low tax rates in Israel (as compared to
the statutory rate in the United States) have had the effect of increasing the
Company's net earnings. The more favorable Israeli tax rates are applied to
specific approved projects and normally continue to be available for a period of
ten years or, if the investment in the project is over $20 million, for a period
of 15 years, which has been the case for most of the Company's projects in
Israel since 1994. New projects are continually being introduced. In addition,
the Israeli government offers certain incentive programs in the form of grants
designed to increase employment in Israel. However, the Israeli government has
recently scaled back or discontinued some of its incentive programs.
Accordingly, there can be no assurance that in the future the Israeli government
will continue to offer new incentive programs applicable to the Company or that,
if it does, such programs will provide the same level of benefits the Company
has historically received or that the Company will continue to be eligible to
take advantage of them. Although the Company might be materially adversely
affected if these incentive programs were no longer available to the Company for
new projects, because a majority of the Company's projects in Israel already
benefit from government incentive programs, the Company does not anticipate that
any cutbacks in the incentive programs would have an adverse impact on its
earnings and operations for at least several years.
Israeli government grants, recorded as a reduction of costs of
products sold, were $11,352,000 for the year ended December 31, 1997, as
compared to $8,943,000 for the prior year. If the Israeli government continues
its grant and incentive programs, future benefits offered to the Company by the
Israeli government will likely depend on the Company's continuing to
-20-
increase capital investment and the number of the Company employees in Israel.
Results of Operations
Income statement captions as a percentage of sales and the effective
tax rates were as follows:
Year Ended December 31,
1997 1996 1995
---- ---- ----
Costs of products sold 76.3% 75.2% 73.7%
Gross profit 23.7 24.8 26.3
Selling, general and
administrative expenses 12.2 12.9 13.0
Operating income 9.7 7.8 12.4
Earnings before income taxes 7.8 6.4 10.0
Effective tax rate 39.1 25.2 24.6
Net earnings 4.7 4.8 7.6
Year ended December 31, 1997 compared to
Year ended December 31, 1996
Net sales for the year ended December 31, 1997 increased $27,240,000
or 2.5% from the prior year. The increase in net sales relates primarily to the
acquisition of LPSC, which became effective on July 1, 1997. Net sales of Vishay
LPSC for the six months ended December 31, 1997 were $38,290,000. Exclusive of
LPSC, net sales would have decreased by $11,050,000 or 1.0%. The strengthening
of the U.S. dollar against foreign currencies for the year ended December 31,
1997 in comparison to the prior year, resulted in a decrease in reported sales
of $55,424,000. Net sales, exclusive of foreign currency fluctuations and the
acquisition of LPSC, would have increased by 4.0% over the prior year.
Costs of products sold for the year ended December 31, 1997 were 76.3%
of net sales, as compared to 75.2% for the prior year. Gross profit, as a
percentage of net sales, for the year ended December 31, 1997 decreased from the
prior year mainly due to a difficult pricing environment and also, as part of
the Company's fourth quarter 1997 restructuring program, recorded inventory
writeoffs of $5,576,000. Exclusive of the inventory writeoff, the gross profit,
as a percentage of net sales, would have been 24.2% for the year ended December
31, 1997. The acquisition of LPSC did not have a significant impact on the gross
margin percentage.
Israeli government grants, recorded as a reduction of costs of
products sold, were $11,352,000 for the year ended December 31, 1997, as
compared to $8,943,000 for the prior year. Future grants and other incentive
programs offered to the Company by the Israeli government will likely depend on
the Company's
-21-
continuing to increase capital investment and the number of the Company's
employees in Israel. Deferred income at December 31, 1997 relating to Israeli
government grants was $59,300,000.
Selling, general, and administrative expenses for the year ended
December 31, 1997 were 12.2% of net sales, as compared to 12.9% for the prior
year. LPSC's selling, general and administrative expenses did not have a
significant impact on the percentage. Exclusive of LPSC's selling, general, and
administrative expenses, the expenses decreased by $8,611,000 as compared to the
prior year. This decrease relates to the cost reduction program instituted in
1996.
The Company incurred unusual items of $14,503,000 for the year ended
December 31, 1997. Approximately $10,357,000 of these expenses relate to
employee termination costs covering approximately 324 employees located in
Germany and France. The restructuring program will be implemented over the next
year. In addition, the Company recorded a charge of $1,625,000 resulting from a
judgment rendered by a French court against Sprague France, S.A. The Vishay
subsidiary was ordered to make additional payments to certain workers laid off
in the last half of 1996 as part of Vishay's restructuring programs. As of
December 31, 1997 no payment has been made to the former employees. See "Legal
Proceedings." The Company also incurred an unusual item of $1,898,000 relating
to a settlement with the United States government representing reimbursements
for overcharges relating to military products produced prior to 1993 at one of
the Company's U.S. subsidiaries. The remaining $623,000 relates to closing a
facility in France. At December 31, 1997 $11,982,000 of restructuring costs are
included in other accrued expenses.
When fully implemented, the 1997 restructuring program is expected to
reduce the Company's costs by approximately $10,000,000 annually.
Interest costs increased by $1,411,000 for the year ended December 31,
1997, from the prior year due to the acquisition of LPSC. The Company borrowed
$130,000,000 from a group of banks to finance the acquisition of LPSC.
Other income decreased by $4,255,000 for the year ended December 31,
1997 from the prior year due to an unrealized noncash loss of $5,295,000
relating to a forward exchange contract (entered into in connection with the
TEMIC acquisition, the purchase price of which was denominated in German Marks
and payable in U.S. Dollars).
The effective tax rate for the year ended December 31, 1997 was 39.1%
as compared to 25.2% for the prior year. The higher tax rate for the year ended
December 31, 1997 was due to a charge of $10,000,000 for various tax
uncertainties in the fourth quarter of 1997. Without this charge, the effective
tax rate for 1997
-22-
would have been 27.6%. The continuing effect of low tax rates in Israel (as
compared to the statutory rate in the United States) has been to increase net
earnings by $10,685,000 and $10,109,000 for the years ended December 31, 1997
and 1996, respectively. The more favorable Israeli tax rates are applied to
specific approved projects and normally continue to be available for periods of
either ten or fifteen years. See "Description of Business -- Manufacturing
Operations."
Year ended December 31, 1996 compared to
Year ended December 31, 1995
Net sales for the year ended December 31, 1996 decreased $126,437,000
or 10.3% from the prior year. The decrease in net sales is indicative of the
worldwide slowdown in the demand for tantalum and multi-layer ceramic chip
capacitors, the economic downturn in Germany, where a significant portion of the
Company's products are sold, and the abrupt worldwide decline in demand for
passive electronic components by personal computer and telecommunications
manufacturers, which started at the end of 1995.
The strengthening of the U.S. dollar against foreign currencies for
the year ended December 31, 1996 in comparison to the prior year resulted in a
decrease in reported sales of $20,712,000.
Net sales, exclusive of foreign currency fluctuations, decreased 8.6%
over the prior year.
Costs of products sold for the year ended December 31, 1996 were 75.2%
of net sales, as compared to 73.7% for the prior year. Costs of products sold
for the year ended December 31, 1996 were negatively affected by, among other
things, a difficult pricing environment and start-up costs of the Company's new
capacitor plant in Israel.
Israeli government grants, recorded as a reduction of costs of
products sold, were $8,943,000 for the year ended December 31, 1996, as compared
to $13,243,000 for the prior year. To the extent the Israeli government
continues these grant and incentive programs, future benefits offered to the
Company by the Israeli government will likely depend on the Company's continuing
to increase capital investment and the number of the Company's employees in
Israel. Deferred income at December 31, 1996 relating to Israeli government
grants was $58,570,000 as compared to $30,849,000 at December 31, 1995.
Selling, general and administrative expenses for the year ended
December 31, 1996 were 12.9% of net sales, as compared to 13.0% for the prior
year. Selling, general and administrative expenses have decreased by
$17,056,000, as compared to the prior year, as a result of a cost reduction
program instituted in the
-23-
fourth quarter of 1995, lower sales and a reduction in management incentives.
The Company incurred a pretax restructuring charge of $38,030,000 for
the year ended December 31, 1996. Approximately $28,953,000 of those charges
relate to employee termination costs covering approximately 2,600 technical,
production, administrative and support employees located in the United States,
Canada, France and Germany. As of December 31, 1996, approximately 1,939
employees had been terminated and $12,822,000 of the termination costs were
paid. The remaining $9,077,000 of restructuring expense relates to facility
closure costs in North America and Europe. The restructuring plan is expected to
be completed by March 31, 1998. The Company has sufficient lines of credit to
fund these payments. Depending on future economic conditions, the Company may
continue to downsize or close existing facilities in North America, Europe or
elsewhere.
When fully implemented, the 1996 restructuring program is expected to
reduce the Company's costs by approximately $38,000,000 annually.
Interest costs decreased by $12,025,000 for the year ended December
31, 1996 from the prior year primarily as a result of the net proceeds of
$230,279,000 from a common stock offering completed in September 1995 which were
used, in large part, to prepay bank indebtedness.
Other income increased by $1,950,000 for the year ended December 31,
1996, as compared to the prior year. The increase is primarily due to foreign
exchange gains of $371,000 for the year ended December 31, 1996 as compared to
foreign exchange losses of $2,022,000 for the year ended December 31, 1995.
The effective tax rate for the year ended December 31, 1996 was 25.2%
as compared to 24.6% for the prior year. The continuing effect of low tax rates
in Israel (as compared to the statutory rate in the United States) has been to
increase net earnings by $10,109,000 and $19,183,000 for the years ended
December 31, 1996 and 1995, respectively. The more favorable Israeli tax rates
are applied to specific approved projects and normally continue to be available
for periods of either ten or fifteen years. The Israeli tax effect benefit was
more pronounced in 1995 primarily as a result of an increased proportion of
earnings in Israel. See "Description of Business--Manufacturing Operations".
Financial Condition and Liquidity
Cash flows from operations were $175,913,000 for the year ended
December 31, 1997 compared to $122,186,000 for the prior year. The increase in
cash flows from operations is primarily due
-24-
to a decrease in inventories for the year ended December 31, 1997 as compared to
an increase in inventories for the year ended December 31, 1996. Net purchases
of property and equipment for the year ended December 31, 1997 were $75,870,000
compared to $123,984,000 in the prior year. This decrease reflects the fact that
the Company has substantially completed its current restructuring/expansion
program. Net cash provided by financing activities of $60,601,000 for the year
ended December 31, 1997 includes $130,000,000 used to finance the acquisition of
LPSC.
See Note 5 to the Company's Consolidated Financial Statements
elsewhere herein for additional information with respect to Vishay's loan
agreements, long-term debt and available short- term credit lines.
The Company's financial condition at December 31, 1997 is strong, with
a current ratio of 3.38 to 1. The Company's ratio of long-term debt (less
current portion) to stockholders' equity was .36 to 1 at December 31, 1997 and
.24 to 1 at December 31, 1996.
On March 2, 1998, the Company and certain of its subsidiaries obtained
a $1.1 billion revolving credit facility made available to Vishay under the (i)
Vishay Intertechnology, Inc. $825,000,000 Long Term Revolving Credit Agreement,
dated as of March 2, 1998 (the "LT Agreement"), and (ii) Vishay Intertechnology,
Inc. $275,000,000 Short Term Revolving Credit Agreement, dated as of March 2,
1998 (the "ST Agreement" and collectively with the LT Agreement, the "Loan
Agreements") each by and among Vishay, Comerica Bank, NationsBanc Montgomery
Securities LLC and the other banks signatory thereto (collectively, the
"Banks"), and Comerica Bank, as administrative agent for the Banks (the
"Agent"). The Loan Agreements replace all prior loans made to Vishay by the
Banks.
The LT Agreement provides for a $825,000,000 loan, comprising a
revolving credit facility and a swing line facility that mature on March 2,
2003, subject to Vishay's right to request year-to-year renewals. The 364-day ST
Agreement provides for a $275,000,000 revolving credit facility that matures on
March 1, 1999, subject to Vishay's right to request an initial three month
extension and if granted subsequent year-to-year renewals. Borrowings under the
Loan Agreements will bear interest at variable rates based, at the option of
Vishay, on the prime rate or a eurocurrency rate and in the case of any swing
line advance, the quoted rate. The borrowings under the Loan Agreements are
secured by certain pledges of stock in certain significant subsidiaries and
indirect subsidiaries of Vishay and certain guaranties by significant
subsidiaries. The Company is restricted from paying cash dividends and must
comply with certain financial covenants.
Management believes that available sources of credit, together with
cash expected to be generated from operations, will be sufficient to satisfy the
Company's anticipated financing needs
-25-
for working capital and capital expenditures during the next twelve months.
Year 2000 Compliance
To address its need to modify its computer systems for adaptation to
the Year 2000, the Company has taken an inventory of its computer systems and is
creating and implementing plans to make them Year 2000 compliant. Currently, the
Company is in the process of making the Company's European facilities Year 2000
functional by the end of 1998. The Company is also focusing on bringing its
U.S., Asian and Israeli computer systems into compliance. The Company plans to
spend approximately $1.4 million in 1998 to address all potential
software-related issues by the end of 1998. Management does not believe the
Company will suffer any material loss of customers or other material adverse
effects as a result of these modifications.
Inflation
Normally, inflation does not have a significant impact on the
Company's operations. The Company's products are not generally sold on long-term
contracts. Consequently, selling prices, to the extent permitted by competition,
can be adjusted to reflect cost increases caused by inflation.
Safe Harbor Statement
From time to time, information provided by the Company, including but
not limited to statements in this report, or other statements made by or on
behalf of the Company, may contain "forward-looking" information within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such statements involve a number of risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements. The cautionary statements set forth
below identify important factors that could cause actual results to differ
materially from those in any forward-looking statements made by or on behalf of
the Company.
The Company offers a broad variety of products and services to
its customers. Changes in demand for, or in the mix of, products
and services comprising revenues could cause actual operating
results to vary from those expected.
The Company's future operating results are dependent, in part, on
its ability to develop,
-26-
produce and market new and innovative products, to convert
existing products to surface mount devices and to customize
certain products to meet customer requirements. There are
numerous risks inherent in this complex process, including the
need for the Company to timely bring to market new products and
applications to meet customers' changing needs.
The Company operates in a highly competitive environment, which
includes significant competitive pricing pressures and intense
competition for entry into new markets.
A slowdown in demand for passive electronic components or
recessionary trends in the global economy in general or in
specific countries or regions where the Company sells the bulk of
its products, such as the U.S., Germany, France or the Pacific
Rim, could adversely impact the Company's results of operations.
Many of the orders in the Company's backlog may be canceled by
its customers without penalty. Customers may on occasion double
and triple order components from multiple sources to ensure
timely delivery when backlog is particularly long. The Company's
results of operations may be adversely impacted if customers were
to cancel a material portion of such orders.
Approximately 57% of the Company's revenues are derived from
operations and sales outside the United States. As a result,
currency exchange rate fluctuations, inflation, changes in
monetary policy and tariffs, potential changes in laws and
regulations affecting the Company's business in foreign
jurisdictions, trade restrictions or prohibitions, inter-
governmental disputes, increased labor costs and reduction or
cancellation of government grants, tax benefits or other
incentives could impact the Company's results of operations.
Specifically, as a result of the increased production by the
Company's operations in Israel over the past several years, the
low tax rates in Israel (as compared to the statutory rates in
the U.S.) have had the effect of increasing the Company's net
-27-
earnings. In addition, the Company takes advantage of certain
incentive programs in Israel in the form of grants designed to
increase employment in Israel. Any significant increase in the
Israeli tax rates or reduction or elimination of any of the
Israeli grant programs (such as described in "Description of
Business--Manufacturing Operations") could have an adverse impact
on the Company's results of operations.
The Company may experience underutilization of certain plants and
factories in high labor cost regions and capacity constraints in
plants and factories located in low labor cost regions, resulting
initially in production inefficiencies and higher costs. Such
costs include those associated with work force reductions and
plant closings in the higher labor cost regions (as described in
the Introduction and Background to this Item) and start-up
expenses, manufacturing and construction delays, and increased
depreciation costs in connection with the start of production in
new plants and expansions in lower labor cost regions. Moreover,
capacity constraints may limit the Company's ability to continue
to meet demand for any of the Company's products.
When the Company restructures its operations in response to
changing economic conditions, particularly in Europe, labor
unrest or strikes may occur, which could have an adverse effect
on the Company.
The Company's results of operations may be adversely impacted by
(i) difficulties in obtaining raw materials, supplies, power,
natural resources and any other items needed for the production
of the Company's products; (ii) the effects of quality deviations
in raw materials, particularly tantalum powder, palladium and
ceramic dielectric materials; and (iii) the effects of
significant price increases for tantalum or palladium, or an
inability to obtain adequate supplies of tantalum or palladium
from the limited number of suppliers.
The Company's historic growth in revenues and net earnings have
resulted in large part from its strategy to expand through
acquisitions.
-28-
However, there is no assurance that the Company will find or
consummate transactions with suitable acquisition candidates in
the future. From time to time, when the Company is in the process
of pursuing a strategic acquisition, the Company or the
acquisition target may feel compelled for securities and other
legal reasons to announce the potential acquisition or the
Company's desire to enter into a certain market prior to entering
into formal agreements. As a result, there can be no assurance
that the Company will consummate any such acquisition.
The Company's strategy also focuses on the reduction of selling,
general and administrative expenses through the integration or
elimination of redundant sales offices and administrative
functions at acquired companies and achievement of significant
production cost savings through the transfer and expansion of
manufacturing operations to lower cost regions such as Israel,
Mexico, Portugal, the Czech Republic, Taiwan and the People's
Republic of China. The Company's inability to achieve any of
these goals could have an adverse effect on the Company's results
of operations.
The Company may be adversely affected by the costs and other
effects associated with (i) legal and administrative cases and
pro- ceedings (whether civil, such as environmental and
product-related, or criminal); (ii) settlements, investigations,
claims, and changes in those items; (iii) developments or
assertions by or against the Company relating to intellectual
property rights and intel- lectual property licenses; and (iv)
adoption of new, or changes in, accounting policies and practices
and the application of such policies and practices.
The Company's results of operations may also be affected by (i)
changes within the Company's organization, particularly at the
executive officer level, or in compensation and benefit plans;
and (ii) the amount, type and cost of the financing which the
Company maintains, and any changes to the financing.
The inherent risk of environmental liability and remediation
costs associated with the
-29-
Company's manufacturing operations may result in large and
unforeseen liabilities. The Company's operations may be adversely
impacted by (i) the effects of war or severe weather or other
acts of God on the Company's operations, including disruptions at
manufacturing facilities; (ii) the effects of a disruption in the
Company's computerized ordering systems; and (iii) the effects of
a disruption in the Company's communications systems.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and its
subsidiaries, together with the report of independent auditors thereon, are
presented under Item 14 of this report:
Report of Independent Auditors
Consolidated Balance Sheets -- December 31, 1997 and 1996.
Consolidated Statements of Operations -- for the years ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows -- for the years ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity -- for the years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements -- December 31, 1997.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Information with respect to Items 10, 11, 12 and 13 on Form 10-K is
set forth in the Company's definitive proxy statement, which will be filed
within 120 days of December 31, 1997, the Company's most recent fiscal year.
Such information is incorporated herein by reference, except that information
with respect to Executive Officers of Registrant is set forth in Part I, Item 4A
hereof under the caption, "Executive Officers of the Registrant".
-30-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) All Consolidated Financial Statements of the Company and its
subsidiaries for the year ended December 31, 1997 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) A Current Report on Form 8-K dated March 2, 1998, was filed on
March 17, 1998, reporting under Item 2 - Acquisition or Disposition of
Assets - the Stock Purchase Agreement the Company entered into with
Daimler-Benz Technology Corporation, a wholly-owned subsidiary of
Daimler-Benz AG; TEMIC TELEFUNKEN microelectronic GmbH; Delengate
Limited; Daimler-Benz Aerospace Aktiengesellschaft; Vishay TEMIC
Acquisition Holdings Corp. and "PAMELA" Verwaltungsgesellschaft GmbH,
whereby Vishay acquired (i) 80.4% of the issued and outstanding shares
of capital stock of Siliconix Incorporated, a Delaware corporation,
and (ii) 100% of the issued and outstanding shares of capital stock of
TEMIC Semiconductor GmbH. The total consideration for the acquisitions
was approximately $500,000,000.
(c) Exhibits:
2.1 Stock Purchase Agreement Among Lite-On Semiconductor Corporation,
Silitek Corporation, Lite-On Technology Corporation, Dyna Investment
Co., Ltd., Lite-On Inc. and Other Shareholders as Sellers and Vishay
Intertechnology, Inc. as Purchaser, dated as of April 25, 1997.
Incorporated by reference to Exhibit A to Schedule 13D filed on July
28, 1997.
2.2 Joint Venture Agreement, dated April 25, 1997, by and between Vishay
Intertechnology, Inc. and Lite-On [JV Co.]. Incorporated by reference
to Exhibit B to Schedule 13D filed on July 28, 1997.
-31-
2.3 Amendment No. 1 to Joint Venture Agreement. Incorporated by reference
to Exhibit C to Schedule 13D filed on July 28, 1997.
2.4 Stock Purchase Agreement, dated December 16, 1997, among TEMIC
TELEFUNKEN microelectronic GmbH, Delengate Limited, Daimler-Benz
Aerospace Aktiengesellschaft, Daimler-Benz Technology Corporation,
Vishay TEMIC Semiconductor Acquisition Holdings Corp., "PAMELA"
Verwaltungsgesellschaft GmbH and Vishay Intertechnology. Incorporated
by reference to Exhibit A to Schedule 13D filed December 24, 1997.
2.5 Share Sale and Transfer Agreement, between "PAMELA"
Verwaltungsgesellschaft GmbH, Vishay Intertechnpogy, Inc., ATMEL
Corporation and Atmel Holding GmbH i.G. Incorporated by reference to
Exhibit 2.2 to Form 8-K filed on March 17, 1998.
3.1 Composite Amended and Restated Certificate of Incorporation of the
Company dated August 3, 1995. Incorporated by reference to Exhibit 3.1
to Form 10-Q for the quarter ended June 30, 1995 (the "1995 Form 10-
Q"). Certificate of Amendment of Composite Amended and Restated
Certificate of Incorporation of the Company. Incorporated by reference
to Exhibit 3.1 to Form 10-Q for the quarter ended June 30, 1997 (the
"1997 Form 10-Q").
3.2 Amended and Restated Bylaws of Registrant. Incorporated by reference
to Exhibit 3.2 to Registration Statement No. 33-13833 of Registrant on
Form S-2 under the Securities Act of 1933 (the "Form S-2") and
Amendment No. 1 to Amended and Restated Bylaws of Registrant
Incorporated by reference to Exhibit 3.2 to Form 10-K file number
1-7416 for fiscal year ended December 31, 1993 (the "1993 Form 10-K").
10.1 Performance-Based Compensation Plan for Chief Executive Officer of
Registrant. Incorporated by reference to Exhibit 10.1 to the 1993 Form
10-K.
10.2 Vishay Intertechnology, Inc. $825,000,000 Long Term Revolving Credit
Agreement, dated as of March 2, 1998, by and among Vishay, Comerica
Bank, Nationsbanc Montgomery Securities LLC and the other banks
signatory thereto, and Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.1 to the Current Report on
Form 8-K filed on March 17, 1998.
10.3 Vishay Intertechnology, Inc. $275,000,000 Short Term Revolving Credit
Agreement, dated as of March 2, 1998, by and among Vishay, Comerica
Bank, Nationsbanc
-32-
Montgomery Securities LLC and the other banks signatory thereto, and
Comerica Bank, as administrative agent. Incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed on March 17,
1998.
10.4 Company Guaranty (Long Term), dated March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica Bank, as administrative agent.
Incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed on March 17,
1998.
10.5 Domestic Guaranty (Long Term), dated March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.4 to the Current Report on
Form 8-K filed on March 17, 1998.
10.6 Foreign Guaranty (Long Term), dated March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.5 to the Current Report on
Form 8-K filed on March 17, 1998.
10.7 Company Guaranty (Short Term), dated March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.6 to the Current Report on
Form 8-K filed on March 17, 1998.
10.8 Domestic Guaranty (Short Term), dated March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.7 to the Current Report on
Form 8-K filed on March 17, 1998.
10.9 Employment Agreement, dated as of March 15, 1985, between the Company
and Dr. Felix Zandman. Incorporated by reference to Exhibit (10.12) to
the Form S-2.
10.10 Vishay Intertechnology 1995 Stock Option Program. Incorporated by
reference to the Company's Registration Statement on Form S-8 (No.
33-59609).
10.11 1986 Employee Stock Plan of the Company. Incorporated by reference to
Exhibit 4 to the Company's Registration Statement on Form S-8 (No.
33-7850).
10.12 1986 Employee Stock Plan of Dale Electronics, Inc. Incorporated by
reference to Exhibit 4 to the Company's Registration Statement on Form
S-8 (No. 33-7851).
-33-
10.13 Money Purchase Plan Agreement of Measurements Group, Inc.
Incorporated by reference to Exhibit 10(a)(6) to Amendment No. 1 to
the Company's Registration Statement on Form S-7 (No. 2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.
-34-
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
March 25, 1998 /s/ Felix Zandman
-----------------------------------
Felix Zandman, Director, Chairman
of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated below.
March 25, 1998 /s/ Felix Zandman
-----------------------------------
Felix Zandman, Director, Chairman
of the Board, President and Chief
Executive Officer
(Principal Executive Officer)
March 25, 1998 /s/ Avi D. Eden
-----------------------------------
Avi D. Eden, Director, Vice-
Chairman of the Board and Executive
Vice President
March 25, 1998 /s/ Gerald Paul
-----------------------------------
Gerald Paul, Director, Chief
Operating Officer and
Executive Vice President
March 25, 1998 /s/ Richard N. Grubb
-----------------------------------
Richard N. Grubb, Director,
Executive Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
-35-
March 25, 1998 /s/ Donald G. Alfson
-----------------------------------
Donald G. Alfson, Director,
Executive Vice President and
Chief Business Development
Officer
March 25, 1998 /s/ Robert A. Freece
-----------------------------------
Robert A. Freece, Director,
Senior Vice President
March 25, 1998 /s/ Eli Hurvitz
-----------------------------------
Eli Hurvitz, Director
March 25, 1998 /s/ Edward B. Shils
-----------------------------------
Edward B. Shils, Director
March 25, 1998 /s/ Luella B. Slaner
-----------------------------------
Luella B. Slaner, Director
March 25, 1998 /s/ Mark I. Solomon
-----------------------------------
Mark I. Solomon, Director
March 25, 1998 /s/ Jean-Claude Tine
-----------------------------------
Jean-Claude Tine, Director
-36-
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, 1997 and 1996, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vishay
Intertechnology, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
February 5, 1998, except for Notes 5 and 15,
as to which the date is March 4, 1998
1
Vishay Intertechnology, Inc.
Consolidated Balance Sheets
(In thousands, except per share and share amounts)
December 31
1997 1996
------------------------------
Assets
Current assets:
Cash and cash equivalents $ 55,263 $ 20,945
Accounts receivable, less allowances
of $4,143 and $5,093 186,687 165,632
Inventories:
Finished goods 158,933 182,722
Work in process 84,245 73,606
Raw materials 96,193 100,418
Prepaid expenses and other current
assets 64,650 82,310
------------------------------
Total current assets 645,971 625,633
Property and equipment--at cost:
Land 41,378 43,705
Buildings and improvements 230,772 222,743
Machinery and equipment 744,983 695,084
Construction in progress 50,400 57,891
------------------------------
1,067,533 1,019,423
Less allowances for depreciation (358,391) (308,761)
------------------------------
709,142 710,662
Goodwill 286,923 201,574
Other assets 77,612 20,646
------------------------------
$ 1,719,648 $ 1,558,515
==============================
2
December 31
1997 1996
------------------------------
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks $ 29,926 $ 31,212
Trade accounts payable 47,925 33,930
Payroll and related expenses 44,039 35,973
Other accrued expenses 52,485 57,849
Income taxes 12,003 7,076
Current portion of long-term debt 4,459 25,394
------------------------------
Total current liabilities 190,837 191,434
Long-term debt--less current portion 347,463 229,885
Deferred income taxes 41,701 33,113
Deferred income 59,300 58,570
Other liabilities 56,217 30,534
Accrued pension costs 64,482 69,749
Stockholders' equity:
Preferred Stock, par value $1.00 a share:
Authorized--1,000,000 shares; none issued
Common Stock, par value $.10 a share:
Authorized--75,000,000 shares;
56,460,565 and 53,727,874 shares
outstanding after deducting 14,127 and
13,248 shares in treasury 5,646 5,373
Class B convertible Common Stock, par
value $.10 a share: Authorized--
15,000,000 shares; 7,925,394 and
7,563,720 shares outstanding after
deducting 205,649 and 221,809
shares in treasury 793 756
Capital in excess of par value 920,165 825,949
Retained earnings 75,587 107,762
Foreign currency translation adjustment (37,587) 9,106
Unearned compensation (644) (370)
Pension adjustment (4,312) (3,346)
------------------------------
959,648 945,230
------------------------------
$ 1,719,648 $ 1,558,515
==============================
See accompanying notes.
3
Vishay Intertechnology, Inc.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
Year ended December 31
1997 1996 1995
-----------------------------------------------------
Net sales $ 1,125,219 $ 1,097,979 $ 1,224,416
Costs of products sold 858,020 825,866 902,518
--------------------------------------------------------
Gross profit 267,199 272,113 321,898
Selling, general, and
administrative expenses 136,876 141,765 158,821
Amortization of goodwill 7,218 6,494 6,461
Unusual items 14,503 38,030 4,200
--------------------------------------------------------
108,602 85,824 152,416
Other income (expense):
Interest expense (18,819) (17,408) (29,433)
Other (2,314) 1,941 (9)
--------------------------------------------------------
(21,133) (15,467) (29,442)
--------------------------------------------------------
Earnings before income taxes 87,469 70,357 122,974
Income taxes 34,167 17,741 30,307
--------------------------------------------------------
Net earnings $ 53,302 $ 52,616 $ 92,667
========================================================
Basic and diluted earnings per share $ 0.83 $ 0.82 $ 1.55
========================================================
Weighted average shares
outstanding--assuming dilution 64,459,000 64,364,000 59,897,000
========================================================
See accompanying notes.
4
Vishay Intertechnology, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
1997 1996 1995
--------------------------------------------------
Operating activities
Net earnings $ 53,302 $ 52,616 $ 92,667
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 81,874 77,247 69,547
Unrealized loss on forward exchange
contract 5,295 - -
Changes in operating assets and liabilities,
net of effects from acquisitions:
Accounts receivable (23,339) 10,073 (8,147)
Inventories 19,501 (11,575) (48,123)
Prepaid expenses and other current
assets 20,496 3,438 (14,023)
Accounts payable 6,882 (31,573) 998
Other current liabilities 5,897 1,526 (7,442)
Other 6,005 20,434 30,034
--------------------------------------------------
Net cash provided by operating activities 175,913 122,186 115,511
Investing activities
Purchases of property and equipment (75,870) (123,984) (165,699)
Purchases of businesses, net of cash acquired (122,468) - -
--------------------------------------------------
Net cash used in investing activities (198,338) (123,984) (165,699)
Financing activities
Proceeds from long-term borrowings 4,100 3,476 245
Principal payments on long-term debt (82,076) (86,026) (118,226)
Net proceeds (payments) on revolving credit
lines 155,729 76,502 (59,800)
Net changes in short-term borrowings (17,152) 10,066 (7,188)
Purchases of common stock - - (3,578)
Proceeds from sale of common stock - - 230,279
--------------------------------------------------
Net cash provided by financing activities 60,601 4,018 41,732
Effect of exchange rate changes on cash (3,858) (859) 1,183
--------------------------------------------------
Increase (decrease) in cash and cash equivalents 34,318 1,361 (7,273)
Cash and cash equivalents at beginning of year 20,945 19,584 26,857
==================================================
Cash and cash equivalents at end of year $ 55,263 $ 20,945 $ 19,584
==================================================
See accompanying notes.
5
Vishay Intertechnology, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Year ended December 31
1997 1996 1995
-----------------------------------------------
Common Stock:
Beginning balance $ 5,373 $ 5,114 $ 2,257
Stock issued (28,486; 10,556; and 5,777,300 shares) 3 1 576
Stock dividends (2,687,692; 2,558,069; and 1,091 shares) 269 256 --
Stock split -- -- 2,275
Stock repurchased (110,000 shares) -- -- (11)
Conversions from Class B (16,513; 19,423; and 325,509
shares) 1 2 17
-----------------------------------------------
Ending balance 5,646 5,373 5,114
Class B convertible Common Stock:
Beginning balance 756 722 377
Stock dividends (378,187 and 361,108 shares) 38 36 --
Stock split -- -- 362
Conversions to Common (16,513; 19,423; and 325,509 shares) (1) (2) (17)
-----------------------------------------------
Ending balance 793 756 722
Capital in excess of par value:
Beginning balance 825,949 734,316 509,966
Stock issued 778 618 230,534
Stock dividends 85,170 90,932 --
Stock split -- -- (2,637)
Stock repurchased -- -- (3,567)
Stock appreciation rights 8,200 -- --
Tax effects relating to stock plan 68 83 20
-----------------------------------------------
Ending balance 920,165 825,949 734,316
Retained earnings:
Beginning balance 107,762 146,370 53,734
Net earnings 53,302 52,616 92,667
Stock dividends (85,477) (91,224) (31)
-----------------------------------------------
Ending balance 75,587 107,762 146,370
Foreign currency translation adjustment:
Beginning balance 9,106 28,487 4,584
Translation adjustment for the year (46,693) (19,381) 23,903
-----------------------------------------------
Ending balance (37,587) 9,106 28,487
Unearned compensation:
Beginning balance (370) (364) (20)
Stock issued under stock plans (28,486; 10,556; and
27,300 shares) (566) (262) (519)
Amounts expensed during the year 292 256 175
-----------------------------------------------
Ending balance (644) (370) (364)
Pension adjustment:
Beginning balance (3,346) (6,792) (5,810)
Pension adjustment for the year (966) 3,446 (982)
-----------------------------------------------
Ending balance (4,312) (3,346) (6,792)
-----------------------------------------------
Total stockholders' equity $ 959,648 $ 945,230 $ 907,853
===============================================
See accompanying notes.
6
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
Vishay Intertechnology, Inc. is an international manufacturer and supplier of
passive electronic components and discrete active electronic components,
particularly resistors, capacitors, inductors, diodes and transistors.
Electronic components manufactured by the Company are used in virtually all
types of electronic products, including those in the computer,
telecommunications, military/aerospace, instrument, automotive, medical, and
consumer electronics industries.
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of Vishay Intertechnology, Inc. include
the accounts of the Company and its majority-owned subsidiaries, after
elimination of all significant intercompany transactions, accounts, and profits.
The Company's investments in 20% to 50%-owned companies, in which it has the
ability to exercise significant influence over operating and financial policies,
are accounted for on the equity method. Investments in other companies are
carried at cost.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Examples include allowances for uncollectible accounts receivable, provisions
for excess or obsolete inventories, and estimated tax uncertainties (see Note
4). Actual results could differ significantly from those estimates.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
Depreciation
Depreciation is computed principally by the straight-line method based upon the
estimated useful lives of the assets. Depreciation of capital lease assets is
included in total depreciation expense. Depreciation expense was $73,329,000,
$68,688,000, and $60,155,000, for the years ended December 31, 1997, 1996, and
1995, respectively.
7
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Construction in Progress
The estimated cost to complete construction in progress at December 31, 1997 is
$22,488,000.
Goodwill
Goodwill, representing the excess of purchase price over net assets of
businesses acquired, is being amortized on a straight-line basis over 40 years.
Accumulated amortization amounted to $35,273,000 and $29,726,000 at December 31,
1997 and 1996, respectively. The recoverability of goodwill is evaluated at the
operating unit level by an analysis of operating results and consideration of
other significant events or changes in the business environment. If an operating
unit has current operating losses and based upon projections there is a
likelihood that such operating losses will continue, the Company will determine
whether impairment exists on the basis of undiscounted expected future cash
flows from operations before interest for the remaining amortization period. If
impairment exists, goodwill will be reduced by the estimated shortfall of cash
flows.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers demand
deposits and all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
Research and Development Expenses
The amount charged to expense aggregated $7,023,000, $10,429,000, and
$10,430,000, for the years ended December 31, 1997, 1996, and 1995,
respectively. The Company spends additional amounts for the development of
machinery and equipment for new processes and for cost reduction measures.
Grants
Grants received from governments by certain foreign subsidiaries, primarily in
Israel, are recognized as income in accordance with the purpose of the specific
contract and in the period in which the related expense is incurred. Grants
received from the government of Israel and recognized as a reduction of costs of
products sold were $11,352,000, $8,943,000, and $13,243,000 for the years ended
December 31, 1997, 1996, and 1995, respectively. Grants receivable of $8,909,000
and $23,163,000 are included in other
8
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
current assets at December 31, 1997 and 1996, respectively. Deferred grant
income is $59,300,000 and $58,570,000 at December 31, 1997 and 1996,
respectively. The grants are subject to conditions, including maintaining
specified levels of employment for periods up to ten years. Noncompliance with
such conditions could result in repayment of grants, however, management expects
that the Company will comply with all terms and conditions of grants.
Share and Per Share Amounts
In 1997, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 requires net
earnings per share to be presented under two calculations, basic earnings per
share and diluted earnings per share. Basic earnings per share is computed using
the weighted average number of common shares outstanding during the periods
presented. Diluted earnings per share is computed using common and dilutive
potential common shares outstanding during the periods presented. The Company's
potential common shares consist of stock options granted under the Company's
1995 stock option plan (see Note 6) and stock appreciation rights issued in
connection with the LPSC acquisition (see Note 2). The number of shares used in
the calculation of basic earnings per common share was 64,318,000 in 1997,
64,321,000 in 1996, and 59,864,000 in 1995. The number of shares used in the
calculation of diluted earnings per common share was 64,459,000 in 1997,
64,364,000 in 1996, and 59,897,000 in 1995. Options to purchase 1,160,000 shares
of common stock at prices ranging from $24.03 to $43.19 per share were
outstanding during 1997, 1996, and 1995, respectively, but were not included in
the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares. Earnings
per share amounts for all periods presented reflect the 1995 2-for-1 stock split
and 5% stock dividends paid on June 9, 1997, June 7, 1996, and March 31, 1995.
Earnings per share reflect the weighted effect of the issuance of 5,750,000
shares of Common Stock in September 1995.
Stock Options
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), establishes a fair value method of accounting for
stock-based compensation plans but provides the option of measuring compensation
expense using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The
Company has elected to continue to account for stock-based compensation plans in
accordance with APB 25. The effect of applying the fair value method of SFAS 123
results in net income and earnings per share amounts that are the same as the
reported amounts in 1997 and 1996 and are not materially different from amounts
reported for 1995.
9
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130), and Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components in the financial statements. SFAS 131 requires publicly held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision-maker. The Company is evaluating its
implementation approach for SFAS 130 and 131, both of which will be adopted in
1998.
Reclassifications
Certain prior-year amounts have been reclassified to conform with the current
presentation.
2. Acquisitions
In July 1997, the Company purchased 65% of the common stock of Lite-On Power
Semiconductor Corporation (LPSC), a Republic of China (Taiwan) company, for
$130,000,000 in cash and stock appreciation rights with a fair value of
$8,200,000 (see Note 6). LPSC is a producer of discrete active electronic
components with manufacturing facilities in Taiwan, China and the United States.
LPSC also owns 40.2% of Diodes, Inc. (AMEX:DIO), a public company traded on the
American Stock Exchange. The Company utilized existing credit facilities to
finance the cash portion ($130,000,000) of the purchase price. The acquisition
was accounted for under the purchase method of accounting.
The results of operations of LPSC have been included in the Company's results
from July 1, 1997. Excess of cost over the fair value of net assets acquired
($110,978,000) is being amortized on a straight-line method over an estimated
useful life of forty years.
10
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions (continued)
Had the LPSC acquisition been made at the beginning of 1996, the Company's pro
forma unaudited results for the years ended December 31, 1997 and 1996 would
have been (in thousands, except per share amounts):
Year ended December 31
1997 1996
---------------------------------------
Net sales $1,162,969 $1,151,924
Net earnings 51,349 47,392
Basic and diluted earnings per share .80 .74
The unaudited pro forma results are not necessarily indicative of the results
that would have been attained had the acquisition occurred at the beginning of
1996 or of future results.
3. Unusual Items
Unusual items expense of $14,503,000 in 1997 consists of restructuring expense
of $12,605,000 and a settlement with the United States Government in the amount
of $1,898,000 representing reimbursements for overcharges relating to military
products produced prior to 1993 at one of the Company's U.S subsidiaries.
Restructuring expense of $12,605,000 in 1997 results from a downsizing of the
Company's European operations. Approximately $10,357,000 of this expense relates
to employee termination costs covering approximately 324 technical, production,
administrative, and support employees located in Germany and France.
Approximately $623,000 of the restructuring expense relates to facility closure
costs in France. The remaining $1,625,000 relates to additional payments to
certain employees laid off in the last half of fiscal 1996 in connection with
Vishay's fiscal 1996 restructuring program. The payments were a result of a
judgment rendered by a French court against a subsidiary of the Company. The
court ruled that these employees were due additional payments under France's
mandated social plan. The restructuring plan is expected to be completed by the
end of 1998. At December 31, 1997, $11,982,000 of restructuring costs are
included in other accrued expenses.
Unusual items in 1996 represents restructuring expense of $38,030,000, which
resulted from a downsizing of the Company's worldwide operations. Approximately
$9,077,000 of restructuring expense relates to facility closure costs in North
America and Europe. The remaining $28,953,000 of these expenses relate to
employee termination costs covering approximately 2,600 technical, production,
administrative, and support
11
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
3. Unusual Items (continued)
employees located in the United States, Canada, France, and Germany. At December
31, 1997, approximately 2,457 employees had been terminated and $24,461,000 of
termination costs were paid. The remaining $4,492,000 of termination costs are
included in other accrued expenses at December 31, 1997. The remaining accrual
is considered adequate to complete the restructuring program and is expected to
be paid by March 31, 1998.
Unusual items in 1995 represents restructuring expense of $4,200,000 which
resulted from the downsizing of some of the Company's European operations and
represented employee termination costs covering 276 technical, production,
administrative, and support employees located primarily in France and Germany.
This downsizing was completed during the year ended December 31, 1996.
4. Income Taxes
Earnings before income taxes consists of the following components (in
thousands):
Year ended December 31
1997 1996 1995
----------------------------------------------------
Domestic $ 45,832 $ 42,406 $ 34,926
Foreign 41,637 27,951 88,048
----------------------------------------------------
$ 87,469 $ 70,357 $ 122,974
====================================================
Significant components of income taxes are as follows (in thousands):
Year ended December 31
1997 1996 1995
----------------------------------------------------
Current:
U.S. Federal $ 20,296 $ 13,836 $ 10,578
Foreign 6,494 8,098 10,927
State 2,103 1,586 1,082
----------------------------------------------------
28,893 23,520 22,587
Deferred:
U.S. Federal 1,476 1,632 2,247
Foreign 3,547 (7,793) 5,082
State 251 382 391
----------------------------------------------------
5,274 (5,779) 7,720
----------------------------------------------------
$ 34,167 $ 17,741 $ 30,307
====================================================
12
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets are as follows (in thousands):
December 31
1997 1996
-------------------------
Deferred tax liabilities:
Tax over book depreciation $ 71,122 $ 77,402
Other--net 12,031 7,325
-------------------------
Total deferred tax liabilities 83,153 84,727
Deferred tax assets:
Pension and other retiree obligations 23,150 25,358
Net operating loss carryforwards 82,510 84,574
Restructuring reserves 5,283 7,698
Other accruals and reserves 22,767 16,120
-------------------------
Total deferred tax assets 133,710 133,750
Valuation allowance for deferred tax assets (40,447) (59,021)
-------------------------
Net deferred tax assets 93,263 74,729
-------------------------
Net deferred tax (assets) liabilities $ (10,110) $ 9,998
=========================
A reconciliation of income tax expense at the U.S. federal statutory income tax
rate to actual income tax expense is as follows (in thousands):
Year ended December 31
1997 1996 1995
----------------------------------------
Tax at statutory rate $ 30,612 $ 24,625 $ 43,041
State income taxes, net of U.S. federal
tax benefit 1,619 1,413 1,094
Effect of foreign income tax rates (10,325) (9,717) (13,801)
Benefit of net operating loss carryforwards (207) (817) (2,054)
Provision for estimated tax uncertainties 10,000 -- --
Other 2,468 2,237 2,027
----------------------------------------
$ 34,167 $ 17,741 $ 30,307
========================================
13
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
At December 31, 1997, the Company has net operating loss carryforwards for tax
purposes of $133,536,000 in Germany (no expiration date), $22,431,000 in France
(expire December 31, 2002), and $4,472,000 in Portugal (expire December 31,
2002). Approximately $67,434,000 of the carryforward in Germany resulted from
the Company's acquisition of Roederstein. Valuation allowances of $40,447,000
and $59,021,000 have been recorded at December 31, 1997 and 1996, respectively,
for deferred tax assets related to foreign net operating loss carryforwards. In
1997, tax benefits recognized through reductions of the valuation allowance had
the effect of reducing goodwill of acquired companies by $8,837,000. If
additional tax benefits are recognized in the future through further reduction
of the valuation allowance, $22,016,000 of such benefits will reduce goodwill.
During the fourth quarter of 1997, the Company recorded a $10,000,000 income tax
charge for various tax uncertainties. Although it is reasonably possible that
the ultimate resolution of such uncertainties could result in a loss in excess
of the amounts accrued, the Company believes that its estimate for taxes and
related interest as of December 31, 1997 is reasonable.
At December 31, 1997, no provision has been made for U.S. federal and state
income taxes on approximately $327,084,000 of foreign earnings which are
expected to be reinvested indefinitely. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
Income taxes paid were $24,879,000, $22,141,000, and $30,272,000 for the years
ended December 31, 1997, 1996, and 1995, respectively.
14
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt
Long-term debt consisted of the following (in thousands):
December 31
1997 1996
-----------------------
Multicurrency Revolving Credit Loans $284,666 $121,039
Term Loan -- 77,500
Deutsche Mark Revolving Credit Loans 22,365 25,974
Deutsche Mark Term Loan -- 9,426
Other Debt and Capital Lease Obligations 44,891 21,340
-----------------------
351,922 255,279
Less current portion 4,459 25,394
-----------------------
$347,463 $229,885
=======================
As of December 31, 1997, two facilities were available under the Company's
amended and restated Revolving Credit and Term Loan and Deutsche Mark Revolving
Credit and Term Loan agreements with a group of banks; a multicurrency revolving
credit loan (interest 6.25% on U.S. Dollar borrowings and 3.95% on Deutsche Mark
borrowings at December 31, 1997), and a Deutsche Mark revolving credit loan
(interest 3.95% at December 31, 1997).
On March 2, 1998, the Company entered into two revolving credit agreements with
a group of banks, which replaced the agreements in effect at December 31, 1997.
The Company entered into the new loan agreements with the banks to finance the
Siliconix and TEMIC acquisitions (see Note 15). The first agreement provides for
an $825,000,000 loan comprising a revolving credit facility and a swing line
facility that mature on March 2, 2003, subject to Vishay's right to request
year-to-year renewals. Interest is payable at prime or other interest rate
options. The Company is required to pay certain facility fees on this facility.
The second agreement provides for a $275,000,000 364-day multicurrency revolving
credit facility which matures on March 1, 1999. The Company can request an
initial three-month extension and if granted subsequent year-to-year renewals.
Interest is payable at prime or other interest rate options. The Company is
required to pay certain credit facility fees on this facility. As of March 2,
1998, the Company had $750,989,000 and DM 102,000,000 ($56,316,000) outstanding
under the five-year revolving credit facility (interest 6.26% on U.S. Dollar
borrowings and 4.13% on DM borrowings) and $25,000,000 (interest 6.31%)
outstanding under the 364-day multicurrency revolving credit facility.
15
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
Borrowings under the loan agreements are secured by certain pledges of stock in
certain significant subsidiaries and indirect subsidiaries of Vishay and certain
guaranties by significant subsidiaries. The Company is restricted from paying
cash dividends and must comply with other covenants, including the maintenance
of specific financial ratios.
Other debt and capital lease obligations include borrowings under short-term
credit lines of $12,141,000 and $3,120,000 at December 31, 1997 and 1996,
respectively, which are classified as long-term based on the Company's intention
and ability to refinance the obligations on a long-term basis.
Aggregate annual maturities of long-term debt, including $525,274,000 borrowed
on March 2, 1998 under the revolving credit agreements, are as follows:
1998--$4,459,000; 1999--$29,405,000; 2000--$3,496,000; 2001--$3,254,000;
2002--$5,169,000; thereafter--$831,413,000.
At December 31, 1997, the Company has committed and uncommitted short-term
credit lines with various U.S. and foreign banks aggregating $187,337,000, of
which $145,270,000 was unused. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1997 and 1996 was 6.50% and 5.60%,
respectively.
Interest paid was $18,699,000, $17,736,000, and $29,459,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
6. Stockholders' Equity
On May 19, 1997, the Company's shareholders approved an increase in the number
of shares of Common Stock, $.10 par value, which the Company is authorized to
issue, from 65,000,000 shares to 75,000,000 shares.
The Company's Class B Stock carries ten votes per share while the Common Stock
carries one vote per share. Class B shares are transferable only to certain
permitted transferees while the Common Stock is freely transferable. Class B
shares are convertible on a one-for-one basis at any time to Common Stock.
16
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity (continued)
In connection with the acquisition of LPSC (see Note 2), the Company issued
stock appreciation rights (SARs) to the former owners of LPSC. The SARs
represent the right to receive in stock the increase in value on the equivalent
of 1,625,000 shares of the Company's stock above $23 per share. The SARs may be
exercised at any time prior to July 17, 2007 at the option of the former owners
of LPSC. The Company may force redemption of the SARs if the Company's stock
trades above the "Strike Price" ($43 per share during the first year). The
Strike Price increases by 10% each year. At a market price of $43 per share for
the Company's stock, the SARs would entitle the former owners of LPSC to 755,813
shares of the Company's Common Stock. The fair value of the SARs as of July 17,
1997 was determined to be $8,200,000 using the binomial option pricing model.
Unearned compensation relating to Common Stock issued under employee stock plans
is being amortized over periods ranging from three to five years. At December
31, 1997, 219,776 shares are available for issuance under stock plans.
In 1995, certain key executives of the Company were granted options to purchase
1,160,000 shares of the Company's Common Stock, all of which remain outstanding
at December 31, 1997. These options expire March 1, 2000, with one-third
exercisable at $24.03, one-third exercisable at $30.23, and one-third
exercisable at $43.19.
7. Other Income (Expense)
Other income (expense) consists of the following (in thousands):
Year ended December 31
1997 1996 1995
--------------------------------------
Foreign exchange gains (losses) $ 3,657 $ 371 $(2,022)
Unrealized loss on forward exchange contract (5,295) -- --
Investment income 2,353 1,586 1,529
Minority interest in income of subsidiaries (2,092) (489) (281)
Equity in net income of affiliates 1,090 318 727
Loss on sale of fixed assets (1,245) (174) --
Other (782) 329 38
---------------------------------------
$(2,314) $ 1,941 $ (9)
=======================================
17
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
7. Other Income (Expense) (continued)
In connection with the Company's acquisition of all of the common stock of TEMIC
Semiconductor GmbH and 80.4% of the common stock of Siliconix Incorporated (see
Note 15), the Company entered into a forward exchange contract in December 1997
to protect against the impact of fluctuations in the exchange rate between the
U.S. Dollar and the Deutsche Mark on the amount of U.S. Dollars required for the
acquisitions. At December 31, 1997, the Company had an unrealized noncash loss
on this contract of $5,295,000 which resulted from marking the contract to
market value.
8. Employee Retirement Plans
The Company maintains various defined benefit pension plans covering
substantially all full-time U.S. employees. The benefits under these plans are
based on the employees' compensation during all years of participation.
Participants in these plans, other than U.S. employees of Vitramon, are required
to contribute an amount based on annual earnings. The Company's funding policy
is to contribute annually amounts that satisfy the funding standard account
requirements of ERISA. The assets of these plans are invested primarily in
mutual funds and guaranteed investment contracts issued by an insurance company
and a bank.
Net pension cost for the plans included the following components (in thousands):
Year ended December 31
1997 1996 1995
----------------------------------------
Annual service cost--benefits
earned for the period $ 4,849 $ 5,091 $ 3,613
Less: Employee contributions 1,850 1,842 1,459
----------------------------------------
Net service cost 2,999 3,249 2,154
Interest cost on projected benefit obligation 6,266 6,014 5,702
Actual return on plan assets (12,688) (10,737) (11,892)
Net amortization and deferral 5,520 4,213 7,211
----------------------------------------
Net pension cost $ 2,097 $ 2,739 $ 3,175
========================================
The expected long-term rate of return on assets is 8.5% - 9.5%.
18
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
8. Employee Retirement Plans (continued)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's financial statements (in thousands):
December 31
1997 1996
------------------------
Accumulated benefit obligation, including vested
benefits of $89,347 and $80,046 $ 89,703 $ 80,343
========================
Actuarial present value of projected benefit obligations $(98,991) $(87,740)
Plan assets at fair value 98,388 87,369
------------------------
Projected benefit obligations in excess of plan assets (603) (371)
Unrecognized loss (gain) 370 (238)
Unrecognized prior service cost 368 601
Unrecognized net obligation at transition date, being
recognized over 15 years 127 246
------------------------
Accrued pension liability $ 262 $ 238
========================
The following assumptions have been used in the actuarial determinations of the
Plans:
1997 1996
-----------------------
Discount rate 6.75% 7.50%
Rate of increase in compensation levels 4.5% 4.5%-5.0%
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 $2,126,000,
$2,250,000, and $2,314,000 for the years ended December 31, 1997, 1996, and
1995, respectively.
The Company provides pension and similar benefits to employees of certain
foreign subsidiaries consistent with local practices. German subsidiaries of the
Company have noncontributory defined benefit pension plans covering management
and employees. Pension benefits are based on years of service. Net pension cost
for the German Plans included the following components (in thousands):
Year ended December 31
1997 1996 1995
--------------------------------------
Annual service cost--benefits earned for the period $ 107 $ 126 $ 164
Interest cost on projected benefit obligation 4,261 5,082 5,267
Actual return on plan assets (1,102) (1,174) (854)
Net amortization and deferral 25 133 (220)
--------------------------------------
Net pension cost $ 3,291 $ 4,167 $ 4,357
======================================
The expected long-term rate of return on assets is 2.0%.
19
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
8. Employee Retirement Plans (continued)
The following table sets forth the funded status of the German plans and amounts
recognized in the Company's financial statements (in thousands):
December 31
1997 1996
-------------------------
Accumulated benefit obligation, including vested
benefits of $64,029 and $69,477 $ 64,449 $ 70,122
=========================
Actuarial present value of projected benefit obligations $(64,785) $(70,398)
Plan assets at fair value 13,734 15,508
-------------------------
Projected benefit obligations in excess of plan assets (51,051) (54,890)
Unrecognized loss 4,659 4,155
Unrecognized prior service cost 254 414
Unrecognized net asset at transition date, being
recognized over 15 years (22) (29)
Additional minimum liability, recognized as a
reduction of stockholders' equity (4,312) (3,346)
-------------------------
Accrued pension liability $(50,472) $(53,696)
=========================
The following assumptions have been used in the actuarial determinations of the
German plans:
1997 1996
------ -----
Discount rate 7.0% 7.0%
Rate of increase in compensation levels 2.5% 2.5%
9. Postretirement Medical Benefits
The Company pays limited health care premiums for certain eligible retired U.S.
employees. Net postretirement benefit cost included the following components (in
thousands):
Year ended December 31
1997 1996 1995
----------------------------
Service cost $ 252 $236 $215
Interest cost 499 485 497
Net amortization and deferral 250 264 245
----------------------------
Net postretirement benefit cost $1,001 $985 $957
============================
20
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Postretirement Medical Benefits (continued)
The status of the plan and amounts recognized in the Company's consolidated
balance sheets were as follows (in thousands):
December 31
1997 1996
-----------------------
Accumulated postretirement benefit obligation:
Retirees $(2,837) $(2,313)
Actives eligible to retire (1,388) (1,519)
Other actives (3,571) (3,145)
-----------------------
Total (7,796) (6,977)
Unrecognized loss 951 925
Unrecognized transition obligation, being amortized over 20 years 3,207 3,421
-----------------------
Accrued postretirement benefit liability $(3,638) $(2,631)
=======================
The discount rates used in the calculations were 6.75% and 7.50% for 1997 and
1996, respectively.
10. Leases
Total rental expense under operating leases was $7,073,000, $9,679,000, and
$9,984,000, for the years ended December 31, 1997, 1996, and 1995, respectively.
Future minimum lease payments for operating leases with initial or remaining
noncancelable lease terms in excess of one year are as follows:
1998--$6,717,000; 1999--$5,772,000; 2000--$4,647,000; 2001--$4,073,000;
2002--$3,259,000; thereafter--$8,739,000.
11. Financial Instruments
Financial instruments with potential credit risk consist principally of accounts
receivable. Concentrations of credit risk with respect to receivables are
limited due to the Company's large number of customers and their dispersion
across many countries and industries. At December 31, 1997 and 1996, the Company
had no significant concentrations of credit risk. The amounts reported in the
balance sheets for cash and cash equivalents and for short-term and long-term
debt approximate fair value.
See Note 15 regarding a forward exchange contract related to the acquisitions of
TEMIC and Siliconix.
21
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
12. Current Vulnerability Due to Certain Concentrations
Sources of Supply
Although most materials incorporated in the Company's products are available
from a number of sources, certain materials (particularly tantalum and
palladium) are available only from a relatively limited number of suppliers.
Tantalum, a metal, is the principal material used in the manufacture of tantalum
capacitor products. It is purchased in powder form primarily under annual
contracts with domestic suppliers at prices that are subject to periodic
adjustment. The Company is a major consumer of the world's annual tantalum
production. There are currently three major suppliers that process tantalum ore
into capacitor grade tantalum powder. Although the Company believes that there
is currently a surplus of tantalum ore reserves and a sufficient number of
tantalum processors relative to foreseeable demand, and that the tantalum
required by the Company has generally been available in sufficient quantities to
meet requirements, the limited number of tantalum powder suppliers could lead to
increases in tantalum prices that the Company may not be able to pass on to its
customers. In an attempt to ensure that the Company will have access to a
long-term, stable supply of low-cost tantalum, the Company is negotiating joint
venture agreements for a tantalum mine, a refinery, and capacitor production
facilities in China. Palladium is primarily purchased on the spot and forward
markets, depending on market conditions. Palladium is considered a commodity and
is subject to price volatility. Although palladium is currently found in South
Africa and Russia, the Company believes that there are a sufficient number of
domestic and foreign suppliers from which the Company can purchase palladium.
However, an inability on the part of the Company to pass on increases in
palladium costs to its customers could have an adverse effect on the margins of
those products using the metal.
Geographic Concentration
To address the increasing demand for its products and in order to lower its
costs, the Company has expanded, and plans to continue to expand, its
manufacturing operations in Israel in order to take advantage of that country's
lower wage rates, highly skilled labor force, government-sponsored grants, as
well as various tax abatement programs. These incentive programs have
contributed substantially to the growth and profitability of the Company. The
Company might be materially and adversely affected if these incentive programs
were no longer available to the Company or if hostilities were to occur in the
Middle East that materially interfere with the Company's operations in Israel.
22
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Segment and Geographic Information
Vishay operates in one line of business--the manufacture of electronic
components. Information about the Company's operations in different geographic
areas is as follows (in thousands):
United States Europe Israel Other Elimination Consolidated
------------- ------ ------ ----- ----------- ------------
Year ended
December 31, 1997
- -----------------
Net sales to unaffiliated
customers $624,377* $ 448,206 $ 7,989 $ 44,647 $ -- $ 1,125,219
Net sales between
geographic areas 66,452 38,755 242,920 15,983 (364,110) --
-------------------------------------------------------------------------------------------
Total net sales $690,829 $ 486,961 $250,909 $ 60,630 $(364,110) $ 1,125,219
===========================================================================================
Operating profit (loss) $ 71,087 $ (1,705) $ 46,485 $ 7,429 $ -- $ 123,296
=============================================================================
General corporate
expenses (17,008)
Interest expense (18,819)
------------
Earnings before income
taxes $ 87,469
============
Identifiable assets $620,450 $ 508,565 $369,879 $220,754 $ -- $ 1,719,648
===========================================================================================
United States Europe Israel Other Elimination Consolidated
------------- ------ ------ ----- ----------- ------------
Year ended
December 31, 1996
- -----------------
Net sales to unaffiliated
customers $557,935* $ 504,397 $ 8,118 $ 27,529 $ -- $ 1,097,979
Net sales between
geographic areas 67,839 45,682 235,219 11,243 (359,983) --
-------------------------------------------------------------------------------------------
Total net sales $625,774 $ 550,079 $243,337 $ 38,772 $(359,983) $ 1,097,979
===========================================================================================
Operating profit (loss) $ 60,868 $ (13,755) $ 49,562 $ 3,854 $ -- $ 100,529
============================================================================
General corporate
expenses (12,764)
Interest expense (17,408)
------------
Earnings before income
taxes $ 70,357
============
Identifiable assets $619,952 $ 570,004 $347,053 $ 21,506 $ -- $ 1,558,515
===========================================================================================
23
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Segment and Geographic Information (continued)
United States Europe Israel Other Elimination Consolidated
------------- ------ ------ ----- ----------- ------------
Year ended
December 31, 1995
- -----------------
Net sales to unaffiliated
customers $ 597,154* $589,488 $ 5,684 $32,090 $ -- $1,224,416
Net sales between
geographic areas 74,283 53,883 214,322 341 (342,829) --
-----------------------------------------------------------------------------------------
Total net sales $ 671,437 $643,371 $220,006 $32,431 $(342,829) $1,224,416
=========================================================================================
Operating profit $ 59,877 $ 31,759 $ 66,640 $ 5,528 $ -- $ 163,804
===========================================================================
General corporate
expenses (11,397)
Interest expense (29,433)
----------
Earnings before income
taxes $ 122,974
==========
Identifiable assets $ 610,106 $653,395 $255,268 $24,562 $ -- $1,543,331
=========================================================================================
* Includes export sales of $139,511, $112,402, and $123,387 for the years
ended December 31, 1997, 1996, and 1995, respectively.
Sales between geographic areas are priced to result in operating profit that
would be achieved on sales to unaffiliated customers. Operating profit is total
revenue less operating expenses. In computing operating profit, general
corporate expenses, interest expense, and income taxes were not deducted.
24
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 1997 and 1996
is as follows:
(In thousands, except per share amounts)
First Quarter Second Quarter Third Quarter
----------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
Net sales $273,262 $310,660 $272,661 $273,502 $285,352 $259,889
Gross profit 65,604 85,081 65,630 71,864 70,392 61,177
Net earnings (loss) 19,658 28,041 19,948 3,783(2) 20,695 14,484
Basic and diluted earnings (loss) per
share (3): $ .31 $ .44 $ .31 $ .06(2) $ .32 $ .23
Fourth Quarter Total Year
------------------------------- ---------------------------
1997 1996 1997 1996
------------ ----------- ---------- ----------
Net sales $ 293,944 $253,928 $1,125,219 $1,097,979
Gross profit 65,573 53,991 267,199 272,113
Net earnings (loss) (6,999)(1) 6,308(2) 53,302 52,616
Basic and diluted earnings (loss) per
share (3): $ (.11)(1) $ .10(2) $ .83 $ .82
(1) Charges for restructuring ($12,605,000), various tax uncertainties
($10,000,000), forward exchange contract unrealized loss ($5,295,000),
inventory reserves ($5,576,000), and a government settlement ($1,898,000)
reduced net earnings by $27,692,000 or $.43 per share in the fourth quarter
of 1997.
(2) Includes restructuring expense of $24,826,000 ($.25 per share) and
$13,204,000 ($.16 per share) in the second and fourth quarters of 1996,
respectively.
(3) Adjusted to give retroactive effect to 5% stock dividends in June 1997 and
1996.
25
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
15. Subsequent Events
On March 2, 1998, the Company completed its purchase of 80.4% of the capital
stock of Siliconix Incorporated (NASDAQ:SILI) and 100% of the capital stock of
TEMIC Semiconductor GmbH for approximately $500,000,000 in cash. TEMIC's and
Siliconix' businesses involve the design, manufacture, and sale of integrated
circuits (the IC Division) and discrete active components. On March 4, 1998,
Vishay sold (subject to satisfaction of certain foreign regulatory approvals)
the IC Division for approximately $110,000,000. The discrete active components
business is conducted primarily in the United States, Germany, Austria, and
Asia.
The purchase of TEMIC and Siliconix was funded from the Company's $1.1 billion
revolving credit facilities made available to Vishay on March 2, 1998 (see Note
5).
In connection with the acquisition of TEMIC and Siliconix, Vishay entered into a
forward exchange contract on December 16, 1997 to protect against the impact of
fluctuations in the exchange rate between the U.S. Dollar and the Deutsche Mark
on the amount of U.S. Dollars required for the purchase of TEMIC and Siliconix.
The Company has accounted for the contract by marking it to market and recording
the resulting gains or losses in the income statement. At December 31, 1997, the
contract had an unrealized loss of $5,295,000 which was reflected in other
expense (see Note 7). On March 2, 1998, upon completion of the TEMIC and
Siliconix acquisitions, the forward exchange contract was settled and the
Company recorded a realized loss of $11,500,000.
26
EXHIBIT INDEX
Page Number in
Exhibit sequentially
No. Description Numbered Copy
- --- ----------- --------------
2.1 Lite-on Stock Purchase Agreement,
dated as of April 25, 1997, among
Lite-On Semiconductor Corporation,
Silitek Corporation, Lite-On
Technology Corporation, Dyna
Investment Co., Ltd., Lite-On Inc.
and other shareholders as Sellers and
Vishay Intertechnology, Inc. as
Purchaser. Incorporated by reference
to Exhibit A to Schedule 13D filed on
July 28, 1997.
2.2 Joint Venture Agreement, dated April
25, 1997, by and between Vishay
Intertechnology, Inc. and Lite On [JV
Co.]. Incorporated by reference to
Exhibit B to Schedule 13D filed on
July 28, 1997.
2.3 Amendment No. 1 to Joint Venture
Agreement. Incorporated by reference
to Exhibit C to Schedule 13D filed on
July 28, 1997.
2.4 Stock Purchase Agreement, dated
December 16, 1997, among TEMIC
TELEFUNKEN microelectronic GmbH,
Delengate Limited, Daimler-Benz
Aerospace Aktiengesellschaft,
Daimler-Benz Technology Corporation,
Vishay TEMIC Semiconductor
Acquisition Holdings Corp., "PAMELA"
Verwaltungsgesellschaft GmbH and
Vishay Intertechnology.
Incorporated by reference to Exhibit
A to Schedule 13D filed December 24,
1997.
2.5 Share Sale and Transfer Agreement,
between "PAMELA"
Verwaltungsgesellschaft GmbH, Vishay
Intertechnpogy, Inc., ATMEL
Corporation and Atmel Holding GmbH
i.G. Incorporated by reference to
Exhibit 2.2 to Form 8-K filed on
March 17, 1998.
Page Number in
Exhibit sequentially
No. Description Numbered Copy
- --- ----------- --------------
3.1 Composite Amended and Restated
Certificate of Incorporation of the
Company dated August 3, 1995.
Incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarter ended
June 30, 1995 (the "1995 Form 10-Q").
Certificate of Amendment of Composite
Amended and Restated Certificate of
Incorporation of the Company.
Incorporated by reference to Exhibit
3.1 to Form 10-Q for the quarter ended
June 30, 1997 (the "1997 Form 10-Q").
3.2 Amended and Restated Bylaws of
Registrant. Incorporated by
reference to Exhibit 3.2 to
Registration Statement No. 33-13833
of Registrant on Form S-2 under the
Securities Act of 1933 (the "Form S-
2") and Amendment No. 1 to Amended
and Restated Bylaws of Registrant
Incorporated by reference to Exhibit
3.2 to Form 10-K file number 1-7416
for fiscal year ended December 31,
1993 (the "1993 Form 10-K").
10.1 Performance-Based Compensation Plan
for Chief Executive Officer of
Registrant. Incorporated by
reference to Exhibit 10.1 to the 1993
Form 10-K.
10.2 Vishay Intertechnology, Inc.
$825,000,000 Long Term Revolving
Credit Agreement, dated as of March
2, 1998, by and among Vishay,
Comerica Bank, NationsBanc Montgomery
Securities LLC and the other banks
signatory thereto, and Comerica Bank,
as administrative agent.
Incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-
K dated March 17, 1998.
10.3 Vishay Intertechnology, Inc.
$275,000,000 Short Term Revolving
Credit Agreement, dated as of March
2, 1998, by and among Vishay,
Comerica Bank, NationsBanc Montgomery
Securities LLC and the other banks
signatory thereto, and Comerica Bank,
as administrative agent.
Incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-
K dated March 17, 1998.
Page Number in
Exhibit sequentially
No. Description Numbered Copy
- --- ----------- --------------
10.4 Company Guaranty (Long Term), dated
March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica
Bank, as administrative agent.
Incorporated by reference to Exhibit
10.3 to the Current Report on Form 8-
K dated March 17, 1998.
10.5 Domestic Guaranty (Long Term), dated
March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank,
as administrative agent.
Incorporated by reference to Exhibit
10.4 to the Current Report on Form 8-
K filed on March 17, 1998.
10.6 Foreign Guaranty (Long Term), dated
March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank,
as administrative agent.
Incorporated by reference to Exhibit
10.5 to the Current Report on Form 8-
K filed on March 17, 1998.
10.7 Company Guaranty (Short Term), dated
March 2, 1998, by Vishay
Intertechnology, Inc. to Comerica
Bank, as administrative agent.
Incorporated by reference to Exhibit
10.6 to the Current Report on Form 8-
K filed on March 17, 1998.
10.8 Domestic Guaranty (Short Term), dated
March 2, 1998, by the Guarantors
signatory thereto to Comerica Bank,
as administrative agent.
Incorporated by reference to Exhibit
10.7 to the Current Report on Form 8-
K filed on March 17, 1998.
10.9 Employment Agreement, dated as of
March 15, 1985, between the Company
and Dr. Felix Zandman. Incorporated
by reference to Exhibit (10.12) to
the Form S-2.
Page Number in
Exhibit sequentially
No. Description Numbered Copy
- --- ----------- --------------
10.10 Vishay Intertechnology 1995 Stock
Option Program. Incorporated by
reference to the Company's
Registration Statement on Form S-8
(No. 33-59609).
10.11 1986 Employee Stock Plan of the
Company. Incorporated by reference
to Exhibit 4 to the Company's
Registration Statement on Form S-8
(No. 33-7850).
10.12 1986 Employee Stock Plan of Dale
Electronics, Inc. Incorporated by
reference to Exhibit 4 to the
Company's Registration Statement on
Form S-8 (No. 33-7851).
10.13 Money Purchase Plan Agreement of
Measurements Group, Inc.
Incorporated by reference to Exhibit
10(a)(6) to Amendment No. 1 to the
Company's Registration Statement on
Form S-7 (No. 2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
27. Financial Data Schedule.