SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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1-7416
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Commission File Number
VISHAY INTERTECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-1686453
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(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
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(Address of principal executive offices)
(610) 644-1300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
----- -----
As of November 8, 2001 registrant had 143,764,559 shares of its Common Stock and
15,496,634 shares of its Class B Common Stock outstanding.
VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
September 30, 2001
CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets -
September 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Operations -
Three Months Ended September 30, 2001 and 2000 5
Consolidated Condensed Statements of Operations -
Nine Months Ended September 30, 2001 and 2000 6
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 7
Notes to Consolidated Condensed Financial
Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited - In thousands)
September 30, December 31,
2001 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 410,873 $ 337,213
Accounts receivable 372,606 452,579
Inventories:
Finished goods 239,034 179,286
Work in process 121,923 130,682
Raw materials 210,213 215,894
Deferred income taxes 31,453 32,051
Prepaid expenses and other current assets 130,868 127,169
----------- -----------
TOTAL CURRENT ASSETS 1,516,970 1,474,874
PROPERTY AND EQUIPMENT - AT COST
Land 42,169 47,625
Buildings and improvements 269,465 265,311
Machinery and equipment 1,265,864 1,168,241
Construction in progress 68,215 83,768
Allowance for depreciation (670,046) (591,391)
----------- -----------
975,667 973,554
GOODWILL 330,356 295,759
OTHER ASSETS 101,221 39,471
----------- -----------
$ 2,924,214 $ 2,783,658
=========== ===========
3
September 30, December 31,
2001 2000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 1,333 $ 8,250
Trade accounts payable 73,536 120,070
Payroll and related expenses 61,107 111,132
Other accrued expenses 179,751 146,157
Income taxes 12,133 31,915
Current portion of long-term debt 86 150
----------- -----------
TOTAL CURRENT LIABILITIES 327,946 417,674
LONG-TERM DEBT 306,758 140,467
DEFERRED INCOME TAXES 79,722 79,109
DEFERRED INCOME 57,785 55,162
MINORITY INTEREST 66,333 63,480
OTHER LIABILITIES 98,358 93,157
ACCRUED PENSION COSTS 98,489 100,754
STOCKHOLDERS' EQUITY
Common Stock 12,246 12,241
Class B Common Stock 1,550 1,552
Capital in excess of par value 1,319,434 1,319,426
Retained earnings 669,555 615,455
Accumulated other comprehensive loss (112,920) (113,571)
Unearned compensation (1,042) (1,248)
----------- -----------
1,888,823 1,833,855
----------- -----------
$ 2,924,214 $ 2,783,658
=========== ===========
See Notes to Consolidated Condensed Financial Statements.
4
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Three Months Ended
September 30,
2001 2000
----------- ------------
Net sales $332,293 $669,784
Costs of products sold 302,905 370,408
----------- ------------
GROSS PROFIT 29,388 299,376
Selling, general, and administrative expenses 64,568 76,010
Restructuring expense 11,802 --
Amortization of goodwill 2,777 2,553
----------- ------------
OPERATING INCOME (LOSS) (49,759) 220,813
Other income (expense):
Interest expense (3,615) (2,602)
Gain on termination of interest rate swap agreements -- 2,544
Gain on sale of Lite-On Power Semiconductor Corporation -- 8,401
Other 2,035 618
----------- ------------
(1,580) 8,961
----------- ------------
EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (51,339) 229,774
Income taxes (benefit) (12,124) 52,400
Minority interest (63) 6,263
----------- ------------
NET EARNINGS (LOSS) $(39,152) $171,111
=========== ============
Basic earnings (loss) per share $(0.28) $1.24
Diluted earnings (loss) per share $(0.28) $1.22
Weighted average shares outstanding - basic 137,730 137,830
Weighted average shares outstanding - diluted 137,730 139,840
See Notes to Consolidated Condensed Financial Statements.
5
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Nine Months Ended
September 30,
2001 2000
------------ ------------
Net sales $1,274,195 $1,821,449
Costs of products sold 944,902 1,080,261
------------ ------------
GROSS PROFIT 329,293 741,188
Selling, general, and administrative expenses 200,977 218,354
Restructuring expense 47,078 --
Amortization of goodwill 8,444 8,600
------------ ------------
OPERATING INCOME 72,794 514,234
Other income (expense):
Interest expense (10,564) (23,022)
Gain on termination of interest rate swap agreements -- 8,919
Gain on sale of Lite-On Power Semiconductor Corporation -- 8,401
Other 14,599 3,158
------------ ------------
4,035 (2,544)
------------ ------------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 76,829 511,690
Income taxes 18,961 115,239
Minority interest 3,768 19,216
------------ ------------
NET EARNINGS $54,100 $377,235
============ ============
Basic earnings per share $0.39 $2.81
Diluted earnings per share $0.39 $2.74
Weighted average shares outstanding - basic 137,710 134,486
Weighted average shares outstanding - diluted 139,073 137,485
See Notes to Consolidated Condensed Financial Statements.
6
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
Nine Months Ended
September 30,
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 54,100 $ 377,235
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 120,910 108,376
Gain on sale of investment -- (8,401)
Loss on disposal of property and equipment 441 1,928
Amortization of imputed interest 3,024 --
Writedown of inventory, machinery and equipment 77,389 --
Minority interest in net earnings of consolidated subsidiaries 3,768 19,216
Other 4,747 11,893
Changes in operating assets and liabilities (126,296) (90,385)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 138,083 419,862
INVESTING ACTIVITIES
Purchase of property and equipment (129,260) (148,133)
Proceeds from sale of property and equipment 6,697 8,090
Net cash proceeds from sale of subsidiaries -- 33,162
Investment in unconsolidated affiliate (57,800) --
Purchase of businesses, net of cash acquired (39,301) (42,384)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (219,664) (149,265)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 153 --
Principal payments on long-term debt (130) (345)
Net payments on revolving credit lines (140,027) (546,262)
Issuance of convertible subordinated debentures 303,193 --
Net changes in short-term borrowings (6,678) (4,309)
Common stock repurchase (851) --
Proceeds from sale of common stock -- 395,449
Proceeds from stock options exercised 493 39,635
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 156,153 (115,832)
Effect of exchange rate changes on cash (912) (5,475)
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INCREASE IN CASH AND
CASH EQUIVALENTS 73,660 149,290
Cash and cash equivalents at beginning of period 337,213 105,193
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 410,873 $ 254,483
========= =========
See Notes to Consolidated Condensed Financial Statements.
7
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for the
presentation of financial position, results of operations, and cash flows
required by generally accepted accounting principles for complete financial
statements. The information furnished reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair summary of the financial position, results of operations, and cash
flows for the interim period presented. The financial statements should be read
in conjunction with the financial statements and notes thereto filed with the
Company's Form 10-K for the year ended December 31, 2000. The results of
operations for the three months and nine months ended September 30, 2001 are not
necessarily indicative of the results to be expected for the full year.
Note 2: Change in Accounting Principle
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and two related statements. The Company recorded a $51,435
derivative asset upon adoption, reflecting the cumulative effect of this change
in accounting principle relating to the fair value of an interest-rate swap
agreement.
Note 3: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except earnings per share):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------------ ----------- -------- ----------
Numerator:
Net income (loss) $ (39,152) $ 171,111 $ 54,100 $ 377,235
Denominator:
Denominator for basic
earnings per share -
weighted average shares 137,730 137,830 137,710 134,486
Effect of dilutive securities:
Stock appreciation rights -- -- -- 835
Employee stock options -- 1,811 1,198 1,965
Other -- 199 165 199
--------- --------- --------- ---------
Dilutive potential common shares -- 2,010 1,363 2,999
8
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------------ ----------- -------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average shares 137,730 139,840 139,073 137,485
Basic earnings (loss) per share $ (0.28) $ 1.24 $ 0.39 $ 2.81
========= ========= ========= =========
Diluted earnings (loss) per
share $ (0.28) $ 1.22 $ 0.39 $ 2.74
========= ========= ========= =========
Diluted earnings (loss) per share does not reflect the assumed conversion of
convertible debentures because the effect would be antidilutive for all periods
presented. For the quarter ended September 30, 2001, diluted earnings (loss) per
share does not reflect the assumed exercise of stock options or other
potentially dilutive securities as the effect would be antidilutive.
Note 4: Business Segment Information
The Company designs, manufactures, and markets electronic components that
cover a wide range of products and technologies. The Company has two reportable
segments: Passive Electronic Components (Passives) and Active Electronic
Components (Actives). The Company evaluates performance and allocates resources
based on several factors, of which the primary financial measure is business
segment operating income excluding amortization of intangibles. The corporate
component of operating income represents corporate selling, general, and
administrative expenses.
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ---------- -----------
Business Segment Information
(in thousands)
Net Sales:
Passives $ 189,192 $ 457,183 $ 834,270 $ 1,176,990
Actives 143,101 212,601 439,925 644,459
----------- ----------- ----------- -----------
$ 332,293 $ 669,784 $ 1,274,195 $ 1,821,449
----------- ----------- ----------- -----------
Operating Income (Loss):
Passives $ (47,450) $ 174,652 $ 53,707 $ 387,729
Actives 7,644 59,761 44,439 164,371
Corporate (7,176) (11,057) (16,908) (29,266)
Amortization of goodwill (2,777) (2,553) (8,444) (8,600)
----------- ----------- ----------- -----------
$ (49,759) $ 220,813 $ 72,794 $ 514,234
----------- ----------- ----------- -----------
9
Note 5: Comprehensive Income (Loss)
Comprehensive income (loss) includes the following components (in
thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---------- ---------- ---------- -----------
Net income (loss) $ (39,152) $ 171,111 $ 54,100 $ 377,235
Cumulative effect of change
in accounting principle -- -- 51 --
Other comprehensive income (loss):
Foreign currency translation adjustment 24,383 (29,464) 5,303 (47,696)
Unrealized gain (loss) on interest rate swap (2,781) -- (4,839) --
Pension liability adjustment, net of tax (399) 362 136 639
--------- --------- --------- ---------
Total other comprehensive income (loss) 21,203 (29,102) 651 (47,057)
--------- --------- --------- ---------
Comprehensive income (loss) $ (17,949) $ 142,009 $ 54,751 $ 330,178
========= ========= ========= =========
Note 6: Restructuring Expense
The Company incurred restructuring expense of $11,802,000 for the quarter
ended September 30, 2001. Restructuring of European and Israeli operations
included $1,449,000 of employee termination costs covering 1,091 technical,
production, administrative, and support employees located in France, Hungary,
Portugal, Austria, the Philippines, Germany, and Israel. In the United States,
$5,180,000 of restructuring expense relates to employee termination costs
covering 561 technical, production, administrative and support employees. The
remaining $5,173,000 of restructuring expense relates to the non-cash writedown
of buildings and equipment that is no longer in use.
Restructuring expense was $47,078,000 for the nine months ended September
30, 2001. Restructuring of European and Israeli operations included $14,522,000
of employee termination costs covering approximately 2,876 technical,
production, administrative and support employees located in France, Hungary,
Portugal, Austria, the Philippines, Germany, and Israel. The European operations
also recorded $2,546,000 of non-cash costs associated with the writedown of
buildings and equipment that is no longer in use. In the United States,
$10,633,000 of restructuring expense relates to termination costs for
approximately 1,662 technical, production, administrative and support employees.
The remaining $19,377,000 of restructuring expense relates to the non-cash
writedown of buildings and equipment that is no longer in use.
The restructuring expense reflects a portion of the cost reduction
programs currently being implemented by the Company. The Company expects to take
additional restructuring charges of approximately $23 million during 2001. As of
September 30, 2001, $21,081,000 of severance costs have been paid. The remaining
$4,074,000 of severance costs, currently shown in other accrued expenses, should
be paid by December 31, 2001.
10
Note 7: Acquisitions
In January 2001, the Company purchased Tansitor, a leading manufacturer of
wet tantalum electrolytic capacitors and miniature conformal coated solid
tantalum capacitors, for $18.2 million. The results of operations of Tansitor
are included in the Company's results from January 1, 2001. Goodwill of
$14,823,000 is being amortized over twenty years. The pro forma effect of this
acquisition is not material.
On July 27, 2001 the Company purchased from Infineon Technologies AG,
Munich the Infineon infrared components business. The total purchase price for
this transaction was $120 million, subject to adjustment. A partial payment of
$78 million was made to Infineon Technologies AG, Munich on July 27, 2001. The
payment was funded with cash on hand. Under the terms of the agreement, the
Company purchased Infineon's U.S. development, marketing, and distribution
activities located in the San Jose, California headquarters and a 19% interest
in another Infineon subsidiary. Upon the transfer to the Company of the
remaining 81% in this subsidiary, which is expected to occur within one year and
which is contingent upon the completion of construction of a plant in Malaysia,
the Company will pay the remaining $42 million of the purchase price. For the
fiscal year ended September 30, 2000, the Infineon infrared components business
had revenues of approximately $133 million. As a result of the acquisition of
Infineon's infrared components business, the Company will become one of the
largest suppliers outside of Japan of optocouplers, and the largest supplier
worldwide of infrared data components transceivers (IRDC). The results of
operations of Infineon's U.S. infrared components business are included in the
Company's results from August 1, 2001. Goodwill of $19,464,000 was recorded
based on the preliminary purchase allocation. Other assets includes $57,800,000
for the investment in the unconsolidated subsidiary of Infineon.
Note 8: Proposed Purchase of Siliconix Shares
In May 2001, the Company commenced a tender offer to exchange 1.5 shares
of its common stock for each share of common stock of Siliconix that it did not
already own, or 5,849,040 shares. The offer was conditioned on there being
validly tendered and not withdrawn a majority of such shares (2,924,521 shares).
The offer remained open for approximately six weeks but expired on July 5, 2001,
with only 2,347,200 shares having been tendered. Accordingly, the Company did
not purchase any Siliconix shares pursuant to the tender offer.
Note 9: Pending Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) approved the
issuance of Statements of Financial Accounting Standards No. 141, "Business
Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). These Statements change the accounting for business
combinations, goodwill, and intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives. The Company is required to
adopt the new rules effective January 1, 2002, except that the new rules are
effective for any business combination that is
11
completed after June 30, 2001. The Company has not yet determined what the
effect of these statements will be on the earnings and financial position of the
Company.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (Statement 144). This statement supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and provides a single accounting model for long-lived assets to be disposed
of. Statement 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The Company will adopt this statement beginning January 1, 2002 and
has not yet determined the impact of its adoption.
Note 10: Convertible Subordinated Debentures
On June 4, 2001, the Company completed a private placement of $550,000,000
face amount Liquid Yield Option Notes (LYONs) due 2021. In connection with the
sale of the LYONs, the Company received net proceeds of $294,096,000 and used
the proceeds to pay down existing bank debt. Each LYON has a $1,000 face amount
and was offered at a price of $551.26 (55.126% of the principle amount at
maturity). The Company will not pay interest on the LYONs prior to maturity
unless contingent interest becomes payable. Instead, on June 4, 2021, the
maturity date of the LYONs, the holders will receive $1,000 per LYON. The issue
price of each LYON represents a yield to maturity of 3.00%, excluding any
contingent interest. The LYONs are subordinated in right of payment to all of
the Company's existing and future senior indebtedness.
At any time on or before the maturity date, the LYONs are convertible into
Vishay common stock at a rate of 17.6686 shares of common stock per $1,000
principal amount at maturity. The conversion rate may be adjusted under certain
circumstances, but it will not be adjusted for accrued original issue discount.
The Company is required to pay contingent interest to the holders of the
LYONs during the six-month period commencing June 4, 2006 and during any
six-month period thereafter if the average market price of a LYON for a certain
measurement period immediately preceding the applicable six-month period equals
120% or more of the sum of the issue price and accrued original issue discount
for such LYON. The amount of contingent interest payable during any six-month
period will be the sum of any contingent interest payable in the first and
second three-month periods during such six-month period. During any three-month
period in which contingent interest becomes payable, the contingent interest
payable per LYON for such period will be equal to the greater of (1) 0.0625% of
the average market price of a LYON for the measurement period referred to above
or (2) the sum of all regular cash dividends paid by the Company per share on
its common stock during such three-month period multiplied by the number of
shares of common stock issuable upon conversion of a LYON at the then applicable
conversion rate.
The holders of the LYONs may require the Company to repurchase all or a
portion of their LYONs on June 4, 2004, 2006, 2011 and 2016 at various prices
set forth in the Offering Memorandum. The Company may choose to pay the purchase
price in cash, common stock, or a combination of both. The Company may redeem
for cash all or a portion of the LYONs at any time on or after June 4, 2006 at
the prices set forth in the Offering Memorandum.
12
Note 11: Tantalum and Palladium
Tantalum, a metal purchased in powder or wire form, is the principal
material used in the manufacture of tantalum capacitors. Due to the strong
demand for its tantalum capacitors and difficulty in obtaining sufficient
quantities of tantalum powder from its suppliers, the Company stockpiled
tantalum ore in 2000 and early 2001. During the nine months ended September 30,
2001, the Company experienced a significant decrease in sales due to declining
orders and the deferral or cancellation of existing orders. The Company's
tantalum capacitor business was particularly impacted by the slowdown in sales.
Prices for tantalum ore and powder decreased during this period. As a result,
the Company has recorded in costs of products sold write-downs of $17,000,000
and $37,000,000, respectively, on tantalum during the quarter and nine months
ended September 30, 2001. The Company has entered into long-term take or pay
contracts to purchase specified quantities of tantalum powder and wire at fixed
prices through 2005. Under these contracts, the annual tantalum purchase
commitments are approximately $47,000,000 for 2001 and $150,000,000 for 2002
through 2005. In addition, the Company makes purchases of tantalum powder and
wire from other suppliers under annual contracts at prices that are subject to
periodic adjustment.
Palladium, a metal used to produce multi-layer ceramic capacitors, is
currently found in primarily South Africa and Russia. Palladium is a commodity
product subject to price volatility. The price of palladium has fluctuated in
the range of approximately $201 to $970 per troy ounce during the last three
years, and as of September 30, 2001, the price of palladium was $360 per troy
ounce. During the quarter ended September 30, 2001, the Company recorded in
costs of products sold a writedown of $18,000,000 on palladium inventories.
Note 12: Subsequent Events
On November 2, 2001, the Company announced that it had completed the
acquisition of General Semiconductor, Inc., a leading manufacturer of power
management devices, following approval of the transaction and related matters by
stockholders of the two companies. Shareholders of General Semiconductor
received 0.563 shares of Vishay for each General Semiconductor share in a
tax-free exchange. Approximately 21,298,140 shares of the Company's common stock
were issued in the transaction. Options to purchase 4,240,660 shares of Vishay
common stock were issued in exchange for General Semiconductor options. General
Semiconductor also has outstanding $172.5 million principal amount of 5.75%
convertible notes, which as a result of the acquisition are now convertible into
approximately 6.3 million shares of Vishay common stock. Vishay also assumed
other indebtedness of General Semiconductor in the amount of $85,000,000. The
results of operations of General Semiconductor will be included in the Company's
results as of November 2, 2001.
In connection with the approval of the General Semiconductor transaction,
the stockholders of the Company also approved an increase in the authorized
capitalization of the Company. The authorized common stock was increased from
150,000,000 to 300,000,000 shares and the authorized Class B common stock was
increased from 20,000,000 to 40,000,000 shares.
On November 7, 2001, the Company acquired Yosemite Investment, Inc. d/b/a
North American Capacitor Company, also known as Mallory, for $39 million. The
Company borrowed funds from its revolving credit facility to finance the
acquisition. With manufacturing facilities in Greencastle, Indiana and Glasgow,
Kentucky, Mallory is a leading manufacturer of wet tantalum
13
electrolytic capacitors and also manufactures aluminum and audible signal
products. Mallory also markets and distributes aluminum, tantalum, film and
ceramic capacitors. In the fiscal year ended October 31, 2001, Mallory had sales
of approximately $44 million.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Income statement captions as a percentage of sales, and the effective tax
rates, were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- ------- -------
Costs of products sold 91.2 % 55.3 % 74.2 % 59.3 %
Gross profit 8.8 44.7 25.8 40.7
Selling, general and
administrative expenses 19.4 11.3 15.8 12.0
Operating income (loss) (15.0) 33.0 5.7 28.2
Earnings (loss) before
income taxes and
minority interest (15.4) 34.3 6.0 28.1
Net earnings (loss) (11.8) 25.5 4.2 20.7
Effective tax rate (benefit) (23.6) 22.8 24.7 22.5
Net Sales
Net sales for the quarter and nine months ended September 30, 2001
decreased $337,491,000, or 50.4%, and $547,254,000, or 30.0%, from the
comparable prior year periods. Both the passive and active components businesses
contributed to this decrease. The net sales of the passive components business
were $189,192,000 for the third quarter of 2001 as compared to $457,183,000 for
the third quarter of 2000, a 59.0% decrease. For the nine months ended September
30, 2001, passive net sales were $834,270,000 as compared to $1,176,990,000 for
the comparable prior year period, a 29.1% decrease. The decrease in quarterly
and year to date sales in 2001 was primarily due to low volume and strong
pricing pressure with respect to commodity products and tantalum molded
capacitor products. The net sales of the active components business were
$143,101,000 for the third quarter of 2001 as compared to $212,601,000 for the
third quarter of 2000, a 32.7% decrease. For the nine months ended September 30,
2001, active net sales were $439,925,000 as compared to $644,459,000 for the
comparable prior year period, a 31.7% decrease. The decrease in the active sales
was primarily due to the decrease in net sales of Siliconix, of which Vishay
owns 80.4%. Siliconix's net sales for the quarter ended September 30, 2001 were
$67,478,000 as compared to $126,738,000 for the third quarter of 2000, a 46.8%
decrease. Siliconix's net sales for the nine months ended September 30, 2001
were $228,903,000 as compared to $361,540,000 for the comparable period in 2000,
a 36.7% decrease. Overall, the Company continues to experience a slowdown in
orders. The strengthening of the U.S. dollar against foreign currencies had the
effect of decreasing reported net sales by $819,000 and $22,314,000 for the
quarter and nine months ended September 30, 2001, respectively, as compared to
the comparable prior year periods.
15
Costs of Products Sold
Costs of products sold for the quarter and nine months ended September 30,
2001 were 91.2% and 74.2% of net sales, respectively, as compared to 55.3% and
59.3% for the comparable prior year periods. Gross profit as a percentage of net
sales for the quarter and nine months ended September 30, 2001 was 8.8% and
25.8%, respectively, as compared to 44.7% and 40.7% for the comparable prior
year periods.
The passive components business gross profit margins for the quarter and
nine months ended September 30, 2001 were (3.5%) and 24.8%, respectively, as
compared to 46.2% and 41.4% for the comparable prior year periods. Strong
pricing pressure, particularly with respect to commodity products, excess
capacity and higher costs for palladium and tantalum powder contributed to the
decline in profitability. Additionally, write-downs of $35,000,000 and
$55,000,000 on tantalum and palladium inventories were taken during the quarter
and nine months ended September 30, 2001, respectively, negatively impacting
profitability.
The active components business gross profit margins for the quarter and
nine months ended September 30, 2001 were 25.2% and 27.7%, respectively, as
compared to 41.4% and 39.4% for the comparable prior year periods. The Siliconix
operation was primarily responsible for this decrease. The gross profit margins
for Siliconix for the quarter and nine months ended September 30, 2001 were
20.2% and 26.7%, respectively, as compared to 45.6% and 46.0% for the comparable
prior year periods. Reduced demand and pricing pressures caused by excess
industry capacity were primarily responsible for the decrease in gross margins.
Israeli government grants, recorded as a reduction of costs of products
sold, for the quarter and nine months ended September 30, 2001 were $5,072,000
and $14,269,000, respectively, as compared to $3,987,000 and $11,404,000 for the
comparable prior year periods. Future grants and other incentive programs
offered to the Company by the Israeli government will likely depend on the
Company's continuing to increase capital investment and the number of Company
employees in Israel. Deferred income at September 30, 2001 relating to Israeli
government grants was $57,785,000 as compared to $55,162,000 at December 31,
2000.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the quarter and nine
months ended September 30, 2001 were 19.4% and 15.8% of net sales, respectively,
as compared to 11.3% and 12.0% of net sales for the comparable prior year
periods. The higher percentages in 2001 were due to reduced sales levels.
Selling, general and administrative expenses decreased by $11,442,000 and
$17,377,000 for the quarter and nine months ended September 30, 2001,
respectively, as compared to the comparable prior year periods. The Company
continues to implement cost reduction initiatives company-wide, with particular
emphasis on reducing headcount in high labor cost countries.
Restructuring Expense
The Company incurred restructuring expense of $11,802,000 for the quarter
ended September 30, 2001. Restructuring of European and Israeli operations
included $1,449,000 of
16
employee termination costs covering 1,091 technical, production, administrative,
and support employees located in France, Hungary, Portugal, Austria, the
Philippines, Germany, and Israel. In the United States, $5,180,000 of
restructuring expense relates to employee termination costs covering 561
technical, production, administrative and support employees. The remaining
$5,173,000 of restructuring expense relates to the non-cash writedown of
buildings and equipment that is no longer in use.
Restructuring expense was $47,078,000 for the nine months ended September
30, 2001. Restructuring of European and Israeli operations included $14,522,000
of employee termination costs covering approximately 2,876 technical,
production, administrative and support employees located in France, Hungary,
Portugal, Austria, the Philippines, Germany, and Israel. The European operations
also recorded $2,546,000 of non-cash costs associated with the writedown of
buildings and equipment that is no longer in use. In the United States,
$10,633,000 of restructuring expense relates to termination costs for
approximately 1,662 technical, production, administrative and support employees.
The remaining $19,377,000 of restructuring expense relates to the non-cash
writedown of buildings and equipment that is no longer in use.
The restructuring expense reflects a portion of the cost reduction
programs currently being implemented by the Company. The Company expects to take
additional restructuring charges of approximately $23 million during 2001. As of
September 30, 2001, $21,081,000 of severance costs have been paid. The remaining
$4,074,000 of severance costs, currently shown in other accrued expenses, should
be paid by December 31, 2001.
Interest Expense
Interest expense for the quarter ended September 30, 2001 increased by
$1,013,000 when compared to the comparable prior year period. This slight
increase was due to the interest recorded on the Company's zero-coupon
subordinated notes due 2021 known as LYONs. For the nine months ended September
30, 2001, interest expense decreased by $12,458,000 as compared to the
comparable prior year period. This decrease was a result of lower outstanding
bank borrowings in 2001 as compared to the prior year. During the second quarter
of 2001, the Company paid down the debt under its revolving credit agreement
with the proceeds received from the issuance of the LYONs (see Note 10).
Other Income
Other income for the quarter and nine months ended September 30, 2001 was
$2,035,000 and $14,599,000, respectively, as compared to $618,000 and $3,158,000
for the comparable prior year periods. These increases were primarily due to
increases in interest income and foreign exchange gains.
Gain on Termination of Interest Rate Swap Agreements
During the second quarter of 2000, proceeds received from the Company's
May 2000 Common Stock offering were used to pay down a portion of the debt
outstanding under the Company's long-term revolving credit agreement. In
connection with this repayment of debt, the Company terminated $125,000,000
notional amount of interest rate swap agreements and recognized a pretax gain of
$6,375,000. In the third quarter of 2000, the Company terminated an additional
$75,000,000 notional amount of interest rate swap agreements and recognized a
pretax gain of $2,544,000.
17
Minority Interest
Minority interest for the quarter and nine months ended September 30, 2001
decreased by $6,326,000 and $15,448,000, respectively, as compared to the
comparable prior year periods, primarily due to the decrease in net earnings of
Siliconix.
Income Taxes
The effective tax rate for the nine months ended September 30, 2001 was
24.7% as compared to 22.5% for the comparable prior year period. The continuing
low tax rates in Israel applicable to the Company, as compared to the statutory
rate in the United States, resulted in increases in net earnings of $6,560,000
and $62,490,000 for the nine months ended September 30, 2001 and 2000,
respectively. The more favorable Israeli tax rates are applied to specific
approved projects and are normally available for a period of ten or fifteen
years.
Financial Condition and Liquidity
Cash flows from operations were $138,083,000 for the nine months ended
September 30, 2001 as compared to $419,862,000 for the comparable prior year
period. The decrease in cash generated from operations in 2001 was primarily due
to a decrease in net earnings as compared to the prior year period. Net
purchases of property and equipment were $129,260,000 for the nine months ended
September 30, 2001 as compared to $148,133,000 for the comparable prior year
period. Cash and cash equivalents at September 30, 2001 increased by $73,660,000
as compared to December 31, 2000. The Company's financial condition at September
30, 2001 was strong, with a current ratio of 4.63 to 1. The Company's ratio of
long-term debt, less current portion, to stockholders' equity was .16 to 1 at
September 30, 2001 as compared to .08 to 1 at December 31, 2000.
On June 4, 2001, the Company completed a private placement of LYONs (see
Note 10). The net proceeds of $294,096,000 were used to pay down existing bank
debt, providing the Company flexibility with its revolving credit facility to
fund future acquisitions. On November 2, 2001, the Company acquired General
Semiconductor, Inc. in a stock-for-stock transaction (see Note 12), and borrowed
$140,000,000 under its revolving credit facility. The funds were used to pay
down the revolving bank debt of General Semiconductor and to finance the
acquisition of Mallory. In connection with their approval of the General
Semiconductor transaction, the stockholders of the Company also approved an
increase in the capitalization of the Company to 300,000,000 shares of common
stock and 40,000,000 shares of Class B convertible common stock. A portion of
the additional authorized shares of common stock was required for issuance in
the General Semiconductor acquisition and to accommodate the exercise of
outstanding stock options. Shares of common stock not used for those purposes
are available for future acquisitions, stock option grants, stock dividends and
stock splits, and capital raising transactions. The additional authorized shares
of Class B common stock are available for future stock dividends and stock
splits. The Company has no current plans for any such transactions.
18
Pending Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 141, "Business
Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). These Statements change the accounting for business
combinations, goodwill, and intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives. The Company is required to
adopt the new rules effective January 1, 2002, except that the new rules are
effective for any business combination that is completed after June 30, 2001.
The Company has not yet determined what the effect of these statements will be
on the earnings and financial position of the Company.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (Statement 144). This statement supersedes SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," and provides a single accounting model for long-lived assets to be disposed
of. Statement 144 is effective for fiscal years beginning after December 15,
2001, and interim periods within those fiscal years, with early application
encouraged. The Company will adopt this statement beginning January 1, 2002 and
has not yet determined the impact of its adoption.
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
the Private Securities Litigation Reform Act of 1995. Such statements involve a
number of risks, uncertainties and contingencies, many of which are beyond the
Company's control, which may cause actual results, performance or achievements
to differ materially from those anticipated. The Company's 2000 Annual Report on
Form 10-K identifies important factors that could cause the Company's actual
results, performance or achievements to differ materially from those in any
forward-looking statements made by or on behalf of the Company.
Market Risk Disclosure
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in foreign currency exchange rates and interest rates.
The Company manages its exposure to these market risks through internally
established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. The Company's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. The Company
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives. The Company monitors its
19
underlying market risk exposures on an ongoing basis and believes that it can
modify or adapt its hedging strategies as needed.
The Company is exposed to changes in U.S. dollar LIBOR interest rates on
borrowings under its floating rate revolving credit facility. At September 30,
2001, there was no outstanding balance under this facility. In connection with
the acquisitions of General Semiconductor and Mallory (see Note 12), the Company
borrowed $140,000,000 under its revolving credit facility.
On a selective basis, the Company from time to time enters into interest
rate swap or cap agreements to reduce the potential negative impact that
increases in interest rates could have on its outstanding variable rate debt. As
of September 30, 2001, a fixed rate swap agreement was in place on a notional
amount of $100,000,000. The impact of interest rate instruments on the Company's
results of operations was not significant.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 25, 2001, Siliconix filed a patent infringement lawsuit
against General Semiconductor. The suit was filed in the United States District
Court for the Northern District of California and alleged that certain General
Semiconductor products infringe two patents held by Siliconix. On July 2, 2001,
General Semiconductor filed and served its answer to the Siliconix complaint and
asserted counterclaims against Siliconix. On August 3, 2001, Siliconix filed a
motion to dismiss or strike certain affirmative defense alleged by General
Semiconductor in its answer and to dismiss or strike down all General
Semiconductor counterclaims. This motion is scheduled to be heard on January 11,
2002.
Item 6. Exhibits and Reports on Form 8-K
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
/s/ Richard N. Grubb
-------------------------------------------
Richard N. Grubb
Executive Vice President, Treasurer
(Duly Authorized and Chief Financial Officer)
Date: November 14, 2001