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, 2001
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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
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Commission file number 1-7416
VISHAY INTERTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
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(State or other jurisdiction of (IRS employer identification
incorporation or organization) no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
(Address of principal executive offices)
(610) 644-1300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value
(Title of Class)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
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 27, 2002, assuming conversion of all its Class B
common stock held by non-affiliates into common stock of the registrant, was
$2,923,632,000.
As of March 27, 2002, registrant had 143,947,182 shares of its common
stock and 15,383,663 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, 2001, are incorporated by reference into
Part III.
PART I
Item 1. DESCRIPTION OF BUSINESS
General
Vishay Intertechnology, Inc. is a leading international manufacturer
and supplier of passive and discrete active electronic components. Passive
components include resistors, capacitors and inductors. Active components
include diodes, transistors, rectifiers, power integrated circuits (ICs),
infrared transceivers and optocouplers. Passive electronic components, discrete
active electronic components and integrated circuits are the primary elements of
every electronic circuit. We offer our customers "one-stop" access to one of the
most comprehensive electronic component lines of any manufacturer in the United
States, Europe and Asia in both the newer surface mount configuration and the
traditional leaded form.
Our components are used in virtually every type of product that
contains electronic circuitry, including:
o computer-related products,
o power management products,
o telecommunications equipment,
o measuring instruments,
o industrial equipment,
o automotive applications,
o process control systems,
o military and aerospace applications,
o consumer electronics,
o medical instruments, and
o electronic scales.
Since 1985, we have pursued a business strategy that principally
consists of the following elements:
1. expanding within the electronic components industry, primarily
through the acquisition of other manufacturers of electronic components that
have established positions in major markets, reputations for product quality and
reliability, and product lines with which we have substantial marketing and
technical expertise;
2. reducing selling, general and administrative expenses through the
integration or elimination of redundant sales offices and administrative
functions at acquired companies;
3. achieving significant production cost savings through the transfer
and expansion of manufacturing operations to regions such as Israel, Mexico,
Portugal, the Czech Republic, the Republic of China (Taiwan) and the People's
Republic of China, where we can take advantage of lower labor costs and
available tax and other government-sponsored incentives; and
4. maintaining significant production facilities in those regions where
we market the bulk of our products in order to enhance the service and
responsiveness that we provide to our customers.
As a result of this strategy, we have grown 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.
Our significant acquisitions in the last several years include:
Siliconix and Telefunken. We acquired an 80.4% interest in Siliconix
incorporated (NASDAQ; SILI), in March 1998 from Daimler-Benz A.G. Siliconix is a
publicly traded chip maker, based in Santa Clara, California,
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which 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 Santa Clara,
California, maintains assembly and testing facilities in the Republic of China
(Taiwan), is party to a joint venture in Shanghai, the People's Republic of
China and has subcontractors in the Philippines, the People's Republic of China
and the United States. Siliconix reported worldwide sales of $305.6 million in
2001, $473.1 million in 2000 and $383.3 million in 1999.
In the same transaction, we acquired from Daimler-Benz, the
semiconductor business unit of TEMIC Telefunken Microelectronic GmbH
headquartered in Heilbronn, Germany, but promptly disposed of its integrated
circuits division. Telefunken launched our expansion into discrete active
components with a product line of diodes, RF transistors,
metal-oxide-semiconductor field-effect transistors (MOSFET) switches, bipolar
power switches, optoelectronic semiconductors, infrared data transceivers
(IRDC), power MOSFETs, power ICs, signal processing switches and junction
field-effect transistors (JFETs). Our net cost of these two acquisitions was
approximately $444 million.
Electro-Films, Cera-Mite and Spectrol. In May 2000, we acquired
Electro-Films, Inc., a manufacturer of thin film components and networks on
ceramic and silicon. In August 2000, we acquired Cera-Mite Corporation, a
world-wide supplier of ceramic capacitors, used in power supplies, electronic
lighting and other applications, and thermistors--temperature-sensitive
resistors--used in refrigeration, HVAC, telecommunications and other electronic
applications.
Separately, in August 2000, we acquired Spectrol, a manufacturer of
sensing potentiometers used primarily in the automotive industry and trimmer
potentiometers used in various kinds of electronic circuitry.
Tansitor and Mallory. In January 2001, we acquired Tansitor, a leading
manufacturer of wet tantalum electrolytic capacitors and miniature conformal
coated solid tantalum capacitors. These components have power management
applications in the military, aerospace and medical industries. Later, in
November 2001, we acquired the North American Capacitor Company, known as
Mallory, a manufacturer and distributor of wet tantalum capacitors and other
products. As a result of these two acquisitions, we have become the number one
manufacturer of wet tantalum capacitors worldwide.
Infineon. In July 2001, we acquired the entire infrared components
business of Infineon A.G. for approximately $116 million. As a result, we added
several new device types to our optoelectronics portfolio. We also became the
largest supplier outside Japan of optocouplers and the largest supplier
worldwide of infrared data transceivers (IRDCs).
General Semiconductor. On November 2, 2001, we completed the
acquisition of General Semiconductor, Inc., a leader in the design, manufacture
and distribution of semiconductors for the power management market. In the
transaction, we exchanged 0.563 of a share of Vishay common stock for each share
of General Semiconductor stock. Based on the closing price of our common stock,
on November 2, 2001 the transaction was valued at approximately $555 million.
General Semiconductor manufactures and distributes a broad range of power
management products, including rectifiers, transient voltage suppressors,
small-signal transistors, diodes, MOSFETs and analog ICs. As a result of this
acquisition, we became the number one manufacturer of diodes and rectifiers
world-wide.
Sensortronics. In January 2002, we acquired the transducer and strain
gage business of Sensortronics, Inc. This business, which includes load cells
and torque transducers, expands the product portfolio of our measurements group,
and makes us a world leader in stress analysis products.
In addition to our acquisition activity, during 2001 we took steps to
assure our competitiveness, enhance our operating efficiency and strengthen our
liquidity in the face of the economic downturn which broadly impacted the
electronics industry during the year. In this regard, we:
(i) closed or consolidated several manufacturing facilities and
administrative offices;
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(ii) reduced our headcount, before acquisitions, by approximately
six thousand employees; or a reduction of approximately 31%;
(iii) integrated our acquisitions within our existing management and
operational infrastructure;
(iv) raised approximately $294 million from the sale of convertible
Liquid Yield Option Notes; and
(v) relying on the strength of our balance sheet, continued our
search for suitable acquisition candidates.
Vishay was incorporated in Delaware in 1962 and maintains its principal
executive offices at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2120. Our
telephone number is (610) 644-1300.
Products
We design, manufacture and market electronic components that cover a
wide range of products and technologies. Our products primarily consist of:
o fixed resistors,
o tantalum capacitors,
o multi-layer ceramic chip capacitors (MLCCs),
o film capacitors,
o power MOSFETs,
o power integrated circuits,
o signal processing integrated circuits,
o diodes and rectifiers,
o transistors,
o voltage suppressors,
o infrared data transceivers (IRDCs),
o optocouplers, and
o strain gages and load cells
and, to a lesser extent:
o inductors,
o aluminum and specialty ceramic capacitors,
o transformers,
o plasma displays,
o thermistors, and
o potentiometers.
We manufacture one of the broadest lines of surface mount devices, a format for
electronic components that has evolved into the standard required by most
customers. In addition, we continue to produce components in the traditional
leaded form. We believe that we produce one of the broadest lines of discrete
electronic components available from any single manufacturer.
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Passive Components
Our passive components include resistors, capacitors and inductors.
They are referred to as "passive" because they do not require power to operate.
These components adjust and regulate current, store energy and filter
frequencies. We also include in this category the products and services of our
measurements group that employ passive components in electro-mechanical
measurements.
Resistors are basic components used in all forms of electronic
circuitry to adjust and regulate levels of voltage and current. They vary widely
in precision and cost, and are manufactured from numerous materials and in many
forms. Resistive components are classified as variable or fixed, depending on
whether or not their resistance is adjustable. Resistors can also be used as
measuring devices. We manufacture a line of thermistors, which are heat
sensitive resistors. Other types of resistive sensors are used in strain gages
for measurement of mechanical stress. See "Measurements Group" below.
We manufacture virtually all types of fixed resistors, both in discrete
and network forms. These resistors are produced for virtually every segment of
the resistive product market, from resistors used in the highest quality
precision instruments for which the performance of the resistor is the most
important requirement, to low-cost resistors for which price is the most
important factor.
Capacitors perform energy storage, frequency control, timing and
filtering functions in most types of electronic equipment. The more important
applications for capacitors are:
o electronic filtering for linear and switching power supplies;
o decoupling and bypass of electronic signals for integrated
circuits and circuit boards; and
o frequency control, timing and conditioning of electronic
signals for a broad range of applications.
Our capacitor products include primarily 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 that type of capacitor useful
for specific applications. Tantalum and MLCC capacitors are generally used in
conjunction with integrated circuits in applications requiring low to medium
capacitance values, "capacitance" being the measure of the capacitor's ability
to store energy. The tantalum capacitor is the smallest 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.
Inductors use an internal magnetic field to change the phase of
electric current. They are utilized in electronic circuitry to control
alternating current and voltage, and to filter out unwanted electronic signals.
They are also used in transformers to change voltage levels.
Measurements Group
Vishay Measurements Group is a leading manufacturer of products for
precision measurement of mechanical strains. Our products include strain gages,
load cells, force measurement sensors, displacement sensors, and photoelastic
sensors. These products are used in experimental stress analysis systems, as
well as in the electronic measurement of loads (electronic scales), acceleration
and fluid pressure. The Measurements Group also provides installation
accessories for its products, instrumentation to sample and record measurement
output and training seminars in stress analysis testing and transducer
development and manufacture.
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Active Components
Our active electronic components include both discrete devices and
integrated circuits (ICs). They are referred to as "active" because they
require power to function. Discrete devices are single components or an
arrangement of components that generate, control, regulate and amplify or switch
electronic signals or energy. Examples of our discrete active components include
diodes, rectifiers, transient voltage suppressors, transistors and power
MOSFETs. These devices are interconnected with passive components or other
active components to create an electronic circuit. Our IC devices consist of a
number of active and passive components interconnected on a single chip to
perform a specific function. Examples of our integrated circuits include power
ICs, motor control ICs and signal processing ICs. Our discrete active components
and ICs are manufactured and marketed primarily through our majority-owned
Siliconix subsidiary, our Telefunken unit and the recently acquired General
Semiconductor business.
We also include in the category of active components, our line of
optoelectronic components, manufactured and marketed by our Telefunken unit, and
the recently acquired infrared components business of Infineon A.G.
Discrete Devices
Diodes and other rectifiers are used to convert electrical currents
from alternating current (AC) into direct current (DC) by conducting electricity
in one direction and blocking it in the reverse direction. Because electrical
outlets carry AC while the vast majority of electronic devices use DC,
rectifiers are used in a wide variety of applications. We offer a broad line of
diodes and rectifiers with differing power, speed, cost, packaging and
conversion (half wave or full wave) characteristics. Our rectifiers include a
series of high voltage devices that have been optimized for power correction
circuits.
Transient voltage suppressors protect electronic circuits by limiting
voltage to a safe level. Examples of transient events that could damage
unprotected circuits include static electricity charges and natural or induced
lightning. Voltage suppressors protect circuits by absorbing large amounts of
energy for short periods of time. We offer a broad range of state-of-the-art
transient voltage suppressors for use in most modern electronic equipment.
Small signal diodes and transistors perform amplification, signal
blocking, routing and switching functions at lower current levels. Our
small-signal transistors range from the older junction field-effect transistors
(JFETs), to newer products such as those based upon double-diffused metal oxide
semiconductor (DMOS) technology.
Discrete power metal-oxide-semiconductor field-effect transistors
(MOSFETs) are specialized field effect transistors used to switch and manage
power in a broad range of electronic devices. These include particularly
low-voltage applications such as cell phones, portable and desktop computers,
automobiles, instrumentation and industrial applications. Our innovative
"trench" power MOSFET technology offers very high cell density, very low on
resistance and optimized switching parameters for high frequency DC-DC power
conversion. Power MOSFETs conserve power and help prevent components from
heating up.
Integrated Circuits
Power ICs are used in applications such as cellular phones, where an
input voltage from a battery or other supply source must be switched, interfaced
or converted to a level that is compatible with logic signals used by
microprocessors and other digital components. Our ICs are designed to operate at
higher frequencies without compromising efficiencies. Often our power MOSFETs
and power ICs can be used together as chip sets with complementary performance
characteristics optimized for a specific application.
Motor control ICs control the starting, speed or position of electric
motors, such as the head positioning and spindle motors in hard disk drives.
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Signal processing ICs are used for analog switching and multiplexing in
devices that either receive or output analog (non-digital) signals. A recent
application of this technology is in broadband communications devices such as
DSL modems.
Optoelectronics
Our line of optoelectronic components includes photo emitters and
detectors, optocouplers and IRDCs.
Our photo detectors are light-sensitive semiconductor devices, and
include linear photo diodes for light measurement, photo-transistors for light
switching applications in printers, copiers, facsimile machines, vending
machines and automobiles and high speed photo PIN diodes specially designed for
infrared data transfer. Our photo detector products are available in a wide
variety of sensitivity angles, light sensitivities, daylight filters and
packaging shapes. Our infrared photo emitters are used for optical switching and
data transfer applications, often in conjunction with our photo detectors, and
in devices like infrared remote controls for televisions.
An optocoupler consists of a light emitting diode and a receiver facing
each other through an insulation medium inside a light-isolated housing. The
receiver may either be a photodetector or a pair of MOSFETs, and in the latter
case the device is referred to as a solid state relay (SSR). The function of an
optocoupler is to electrically isolate input and output signals. Our
optocouplers are used in switchable power supplies, safety circuitry and
programmable controllers for computer monitors, consumer electronics,
telecommunications equipment and industrial systems.
Infrared data tranceivers (IRDCs) consist of a detector photo diode, an
infrared light emitting diode and a control IC. IRDCs are used for short range,
two-way wireless, infrared data transfer between electronic devices such as
mobile phones and other telecommunications equipment, computers and personal
digital assistants (PDAs).
Packaging
We have taken advantage of the growth of the surface mount component
market, and we are an industry leader in designing and marketing surface mount
devices. Surface mount devices adhere to the surface of a circuit board rather
than being secured by leads that pass through holes to the back side of the
board. Surface mounting provides distinct advantages over through-hole mounting.
For example, surface mounting allows the placement of more components on a
circuit board, which is particularly desirable in applications such as hand held
computers and cellular phones where there is a continuing design trend towards
product miniaturization. Surface mounting also facilitates automation, resulting
in lower production costs for equipment manufacturers than those associated with
leaded or through-hole mounted devices. We believe that we are a market leader
in the development and production of a wide range of surface mount devices,
including:
o thick film chip resistors,
o thick film resistor networks and arrays,
o metal film leadless resistors (MELFs),
o molded tantalum chip capacitors,
o coated tantalum chip capacitors,
o film capacitors,
o multi-layer ceramic chip capacitors,
o thin film chip resistors,
o thin film networks,
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o wirewound chip resistors,
o power strip resistors,
o bulk metal foil chip resistors,
o current sensing chips,
o chip inductors,
o chip transformers,
o chip trimmers,
o NTC chip thermistors, and
o certain diodes and transistor products.
We also provide a number of component packaging styles to facilitate automated
product assembly by our customers.
Military Qualifications
We have qualified certain products under various military
specifications, approved and monitored by the United States Defense Electronic
Supply Center (DESC), and under certain European military specifications. DESC
qualification levels are based in part upon the rate of failure of products. In
order to maintain the classification level of a product, we must continuously
perform tests on the product and the results of these tests must be reported to
DESC. If the product fails to meet the requirements for the applicable
classification level, the product's classification may be reduced to a lower
level. Products from some of our United States manufacturing facilities
experience a reduction in product classification levels from time to time.
During the time that the DESC classification level is reduced for a product with
military application, net sales and earnings attributable to that product may be
adversely affected.
Customers
We sell our products primarily to original equipment manufacturers
(OEMs), OEM subcontractors that assemble printed circuit boards and independent
distributors that maintain large inventories of electronic components for resale
to OEMs.
To better serve our customers, we maintain production facilities in
regions where we market the bulk of our products, principally in the U.S.,
Germany, France and the U.K. We work with our customers so that our products are
incorporated into the design of electronic equipment at the research and
prototype stages. We also employ a staff of application and field engineers to
assist our customers, independent manufacturers' representatives and
distributors in solving technical problems and developing products to meet
specific needs.
Our largest customers vary from year to year, and no customer has
long-term commitments to purchase our products. During 2001, no one customer
accounted for more than 10% of our sales.
During 2001, approximately 41% of our net sales were attributable to
customers in the United States, while the remainder was attributable to sales
primarily in Europe and Asia.
Marketing
Our products are marketed through independent manufacturers'
representatives compensated solely on a commission basis, by our own sales
personnel and by independent distributors. We have regional sales personnel in
several North American locations that make sales directly to OEMs and provide
technical and sales support for independent manufacturers' representatives
throughout the United States, Mexico and Canada. As noted, we also use
independent distributors to resell our products. Outside North America, we use
similar channels to sell our products in Brazil, France, Israel, Japan, the
Republic of China (Taiwan), Singapore, South Korea,the United Kingdom and other
countries in Europe and the Pacific Rim.
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Research and Development
Many of our products and manufacturing processes have been invented,
designed and developed by our engineers and scientists. We maintain
strategically placed design centers where proximity to customers enables us to
more easily gauge and satisfy the needs of local markets. These design centers
are located in the United States, Germany, France, South Korea, Israel, the
Republic of China (Taiwan) and the People's Republic of China.
We also maintain research and development staffs and promote programs
at a number of our production facilities to develop new products and new
applications of existing products, and to improve manufacturing techniques. This
decentralized system encourages individual product development at individual
manufacturing facilities that occasionally have applications at other
facilities. Company research and development costs (exclusive of purchased
in-process research and development) were approximately $30.2 million for 2001,
$37.1 million for 2000 and $35.0 million for 1999. These amounts include
expenditures of our Siliconix subsidiary of $17.2 million, $21.0 million and
$17.0 million in 2001, 2000 and 1999, respectively, principally for the
development of new power products and power ICs. These amounts do not include
substantial expenditures for the development and manufacturing of machinery and
equipment for new processes and for cost reduction measures.
Although we have numerous United States and foreign patents covering
certain of our products and manufacturing processes, no particular patent is
considered material to our business.
Sources of Supplies
Although most materials incorporated in our products are available from
a number of sources, certain materials, particularly tantalum and palladium, are
available only from a relatively limited number of suppliers.
We are a major consumer of the world's annual production of tantalum.
Tantalum, a metal purchased in powder or wire form, is the principal material
used in the manufacture of tantalum capacitors. There are currently three major
suppliers that process tantalum ore into capacitor grade tantalum powder. Due to
the strong demand for our tantalum capacitors and difficulty in obtaining
sufficient quantities of tantalum powder from our suppliers, we stockpiled
tantalum ore in 2000 and early 2001. During the year ended December 31, 2001, we
subsequently experienced a significant decrease in sales due to declining orders
and the deferral or cancellation of existing orders. Our tantalum capacitor
business was particularly affected by this year's slowdown in sales. Prices for
tantalum ore and powder decreased during this period. As a result, we recorded
in cost of goods sold write-downs of $52,000,000 on tantalum inventories during
the year ended December 31, 2001. If the downward pricing trend were to
continue, we could again be required to write down the carrying amount of
tantalum ore.
During the period of shortage, we entered into long-term contracts to
purchase specified quantities of tantalum at fixed prices through 2005. Under
the terms of these contracts, the tantalum purchase commitments are
approximately $145,000,000 for 2002 and approximately $150,000,000 annually for
2003 through 2005. In addition, we may make purchases of tantalum from our other
suppliers at prices that are subject to periodic adjustment. The fixed prices
for tantalum under the long term contracts could exceed the market price at
various times during the terms of the contracts. Also, the quantities of powder
and wire committed to or that we otherwise purchase could exceed our production
demands. If this were to happen we could be required to take further
write-downs.
Palladium, a metal used to produce multi-layered ceramic capacitors, is
found primarily in 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. As of
December 31, 2001, the price of palladium was approximately $446 per troy ounce.
During the year ended December 31, 2001, we recorded in cost of products sold a
write-down of $18,000,000 on palladium inventories.
From time to time there have been short-term market shortages of raw
materials. While these shortages have not historically adversely affected our
ability to increase production of products containing tantalum and palladium,
they have historically resulted in higher raw material costs. We cannot assure
you that any of these market shortages in the future would not adversely affect
our ability to increase production, particularly during periods of growing
demand for our products, such as at the beginning of an economic upturn.
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Inventory and Backlog
We manufacture both standardized products and those designed and
produced to meet customer specifications. We maintain an inventory of resistors
and other standardized components. Backlogs of outstanding orders for our
products were $337.9 million, $773.1 million and $505.1 million, respectively,
at December 31, 2001, 2000 and 1999. The decrease in backlog at December 31,
2001 primarily reflects the decrease in demand during 2001 for both our passive
and active components as a result of the global slowdown in the electronics
industry, particularly in the personal computer and cell phone markets.
Many of the orders that comprise our backlog may be canceled by
customers without penalty. Customers may on occasion double and triple order
components from multiple sources to ensure timely delivery when backlog is
particularly long. Customers often cancel orders when business is weak and
inventories are excessive, a phenomenon that we have experienced in the current
economic slowdown. Therefore, the amount of our backlog may exceed the level of
orders that will ultimately be delivered. Our results of operations could be
adversely impacted if customers cancel a material portion of orders in our
backlog.
Competition
We face strong competition in various product lines from both domestic
and foreign manufacturers that produce products using technologies similar to
ours. Our main competitors for tantalum capacitors are KEMET Corporation, AVX
Corporation and NEC Electronics, Inc. For MLCC capacitors, our principal
competitors are KEMET, AVX, Murata and TDK Corp. For thick film chip resistors,
our competitors are Rohm Corp., Koa Speer Electronics Inc. and Yageo
Corporation. For wirewound and metal film resistors, the principal competitors
are I.R.C. Inc., Rohm Corp. and Ohmite Manufacturing Company. For active
components, competitors are International Rectifier, Philips, N.V., ON
Semiconductor, Rohm Corp., Motorola, Inc., Fairchild Semiconductor Corp., Maxim,
Shindengen Electric Manufacturing Co. Ltd., Sanken Electric Co. Ltd., ST
Microelectronics N.V. and Samsung Electro-Mechanics Co., Ltd. There are many
other companies that produce products in the markets in which we compete.
Our competitive position depends on our product quality, know-how,
proprietary data, marketing and service capabilities and business reputation, as
well as on price. We compete for sales of certain products on the basis of our
marketing and distribution network, which provides a high level of customer
service. For example, we work closely with our customers to have our components
incorporated into their electronic equipment at the early stages of design and
production and maintain redundant production sites for most of our products to
ensure an uninterrupted supply of products. We have also established a National
Accounts Management Program, which provides our largest customers with one
national account executive who can cut across business unit lines for sales,
marketing and contract coordination. In addition, the breadth of our product
offerings enables us to strengthen our market position by providing customers
with "one-stop" access to one of the broadest selections of passive electronic
components available directly from a manufacturing source.
Manufacturing Operations
We strive to balance the location of our manufacturing facilities. In
order to better serve our customers, we maintain some of our production
facilities in regions where we market the bulk of our products, such as the
United States, Germany, France, Asia and the United Kingdom. To maximize
production efficiencies, we seek whenever practicable, to establish
manufacturing facilities in countries, such as the Czech Republic, Israel,
Malaysia, Mexico, the People's Republic of China, the Philippines, Portugal, and
the Republic of China (Taiwan), where we can take advantage of lower labor and
tax costs and, in the case of Israel, to take advantage of various government
incentives, including grants and tax relief.
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Some of our most sophisticated manufacturing operations are the
production of power semiconductor components. This manufacturing process
involves two phases of production: wafer fabrication and assembly (or
packaging). Wafer fabrication subjects silicon wafers to various thermal,
metallurgical and chemical process steps that change their electrical and
physical properties. These process steps define cells or circuits within
numerous individual devices (termed "dies" or "chips") on each wafer. Assembly
is the sequence of production steps that divides the wafer into individual chips
and encloses the chips in structures (termed "packages") that make them usable
in a circuit. Both wafer fabrication and assembly phases incorporate wafer level
and device level electrical testing to ensure that device design integrity has
been achieved.
At December 31, 2001, approximately 44% of our identifiable assets were
located in the United States, approximately 22% were located in Europe,
approximately 16% were located in Israel, and approximately 18% were located in
Asia. In the United States, our manufacturing facilities are located in
Nebraska, Maine, Pennsylvania, California, North Carolina, Wisconsin, Virginia,
Connecticut, Florida, Maryland, New York and South Dakota. In Europe, our main
manufacturing facilities are located in Germany and France. We also have
manufacturing facilities in the Czech Republic, Hungary, Israel, Malaysia,
Mexico, the People's Republic of China, the Philippines, Portugal and the
Republic of China (Taiwan). Over the past several years, we have invested
substantial resources to increase capacity and to maximize automation in our
plants, which we believe will further reduce production costs.
We are aggressively undertaking to have the quality systems at most of
our major manufacturing facilities approved under the ISO 9001 international
quality control standard. ISO 9001 is a comprehensive set of quality program
standards developed by the International Standards Organization. A majority of
our manufacturing operations have already received ISO 9001 approval and others
are actively pursuing such approval.
In 2001, we accelerated the implementation of our strategy to shift
manufacturing emphasis to higher automation in higher labor cost regions and to
relocate a fair amount of production to regions with lower labor costs. As a
result, we incurred significant restructuring costs in the year ended December
31, 2001, associated with the downsizing and closing of manufacturing facilities
in Europe. We may continue to incur such expenses in 2002.
See Note 14 of the Notes to the Consolidated Financial Statements,
"Business Segment and Geographic Area Data," for financial information by
geographic area.
Israeli Government Incentives
We have substantial manufacturing operations in Israel, where we
benefit from the government's employment and tax incentive programs designed to
increase employment, lower wage rates and increase our ability to attract a
highly-skilled labor force, all of which have contributed substantially to our
growth and profitability. For the year ended December 31, 2001, sales of
products manufactured in Israel accounted for approximately 25.3% of our net
sales.
Under the terms of the Israeli government's incentive programs, once a
project is approved, the recipient is eligible to receive the benefits of the
related grants for the life of the project, so long as the recipient continues
to meet preset eligibility standards. None of our approved projects has ever
been cancelled or modified, and we have already received approval for a majority
of the projects contemplated by our capital expenditure program. However, as a
result of the recent economic downturn, we were forced to lay off a significant
number of employees in Israel. While the number of employees continues to
satisfy the eligibility requirements for our Israeli government grants, economic
circumstances could compel future additional layoffs. Also, over the past few
years, the Israeli government has scaled back or discontinued some of its
incentive programs. There can be no assurance that we will maintain our
eligibility for existing projects or that in the future the Israeli government
will continue to offer new incentive programs applicable to us or that, if it
does, such programs will provide the same level of benefits we have historically
received or that we will continue to be eligible to take advantage of them.
Because we have received approvals for most projects currently contemplated, we
do not anticipate that cutbacks in the incentive programs for new projects would
have an adverse impact on our earnings and operations for at least several
years.
We might be materially adversely affected if events were to occur in
the Middle East that interfered with our operations in Israel. However, we have
never experienced any material interruption in our Israeli operations in our 31
years of operations there, in spite of several Middle East crises, including
wars.
-11-
Environment, Health and Safety
We have adopted an Environmental Health and Safety Corporate Policy
that commits us to achieve and maintain compliance with applicable environmental
laws, to promote proper management of hazardous materials for the safety of our
employees and the protection of the environment, and to minimize the hazardous
materials generated in the course of our operations. This policy is implemented
with accountability directly to the Chairman of the Board of Directors. In
addition, our manufacturing operations are subject to various federal, state and
local laws restricting discharge of materials into the environment.
We are not involved in any pending or threatened proceedings that would
require curtailment of our operations. We continually expend funds to ensure
that our facilities comply with applicable environmental regulations. In regard
to all of our facilities, we have completed our undertaking to comply with
environmental regulations relating to the elimination of chlorofluorocarbons
("CFCs") and ozone depleting substances ("ODS") pursuant to the Clean Air Act
amendments of 1990. We have completely eliminated the use of CFCs and ODS in our
manufacturing processes, and all facilities are currently in compliance with the
Clean Air Act.
While we believe that we are in material compliance with applicable
environmental laws, we cannot accurately predict future developments and do not
necessarily have knowledge of past occurrences on sites that we currently
occupy. More stringent environmental regulations may be enacted in the future,
and we cannot determine the modifications, if any, in our operations that any
such future regulations might require, or the cost of compliance with these
regulations. Moreover, the risk of environmental liability and remediation costs
is inherent in the nature of our business and, therefore, there can be no
assurance that material environmental costs, including remediation costs, will
not arise in the future.
We have been named a Potentially Responsible Party ("PRP") at nine
Superfund sites, including two Siliconix facilities and have become responsible
for certain obligations as a PRP in connection with our acquisition of General
Semiconductor. We expend minimal amounts in connection with several of these
sites and do not expect costs associated with the others to be material.
The ultimate cost of site cleanup is difficult to predict given the
uncertainties regarding the extent of the required cleanup, the interpretation
of applicable laws and regulations and alternative cleanup methods. Based upon
our experience with the foregoing environmental matters, we have concluded that
there is at least a reasonable possibility that we will incur remedial costs in
the range of $30 million to $35 million. As of December 31, 2001, we concluded
that the best estimate within this range is $32.5 million, of which $2.5 million
is included in accrued expenses and other current liabilities and $30.0 million
is included in other long-term liabilities on the Consolidated Balance Sheet.
The majority of the environmental reserve is due to the acquisition of General
Semiconductor, Inc. In view of our financial position and reserves for
environmental matters of $32.5 million, we have concluded that any potential
payment of such estimated amounts will not have a material adverse effect on our
consolidated financial position, results of operations or liquidity.
With each acquisition, we attempt to identify potential environmental
concerns and to minimize, or obtain indemnification for, the environmental
matters we may be required to address. In addition, we establish reserves for
specifically identified potential environmental liabilities. We believe that the
reserves we have established are adequate. Nevertheless, we often unavoidably
inherit certain pre-existing environmental liabilities, generally based on
successor liability doctrines. Although we have never been involved in any
environmental matter that has had a material adverse impact on our overall
operations, there can be no assurance that in connection with any past or future
acquisition we will not be obligated to address environmental matters that could
have a material adverse impact on our operations.
-12-
Employees
As of December 31, 2001, we employ approximately 21,410 full time
employees of whom approximately 16,015 are located outside the United States.
Some of our employees outside the U.S. are members of trade unions, and
employees at one small U.S. facility are represented by a union. Our
relationship with our employees is good. However, no assurance can be given
that, if we continue to restructure our operations in response to changing
economic conditions, labor unrest or strikes, especially at European facilities,
will not occur. See "Legal Proceedings."
-13-
Item 2. PROPERTIES
As of December 31, 2001, we maintain approximately 68 manufacturing
facilities. The principal locations of such facilities, along with available
space including administrative offices, are:
Approx. Available
Owned Locations Space (Square Feet)
- --------------- -------------------
United States
Columbus and Norfolk, NE* 298,000
Sanford, ME 225,000
Malvern and Bradford, PA* 222,000
Santa Clara, CA 220,000
Wendell and Statesville, NC* 194,000
Grafton and Oconto, WI* 165,000
Roanoke, VA 128,000
Monroe, CT 91,000
- ----------------
* 2 locations
Non-U.S.
Israel (4 locations) 990,000
Germany (12 locations) 845,000
France (5 locations) 449,000
Republic of China (Taiwan) (2 locations) 400,000
Czech Republic (5 locations) 368,000
Portugal 301,000
Malaysia 296,000
Hungary 194,000
Austria 153,000
Philippines 146,000
People's Republic of China 84,000
We own an additional 180,000 square feet of manufacturing facilities
located in Florida, Maryland, New York, South Dakota, and Mexico.
Available leased facilities in the United States include 265,000 square
feet of space located in California, Massachusetts, New York, Rhode Island and
South Dakota. Foreign leased facilities consist of 224,000 square feet in China,
220,000 square feet in Mexico, 13,000 square feet in England, 204,000 square
feet in Germany, 131,000 square feet in Hungary, 75,000 square feet in the Czech
Republic and 4,000 square feet in Japan.
In the opinion of management, our properties and equipment generally
are in good operating condition and are adequate for our present needs. We do
not anticipate difficulty in renewing existing leases as they expire or in
finding alternative facilities.
Item 3. LEGAL PROCEEDINGS
From time to time we are involved in routine litigation incidental to
our business. Management believes that such matters, either individually or in
the aggregate, should not have a material adverse effect on our business or
financial condition.
-14-
As part of our 1996 restructuring program, our subsidiary, Sprague
France S.A., laid off certain workers at our facility in Tours, France. The
trade union representing the workers at the Sprague facility claimed that the
layoffs were not economically motivated, and were therefore prohibited under
French law. A court ruled that, although we would not be required to rehire the
employees, we would have to pay damages equal to approximately 10 million French
Francs (approximately U.S. $1,331,000) as of March 28, 2002, to the former
employees. We have appealed this decision.
Our 80.4% owned subsidiary, Siliconix, is a party to two environmental
proceedings. The first involves property that Siliconix vacated in 1972. In July
1989, the California Regional Water Quality Control Board (RWQCB) issued Cleanup
and Abatement Order No. 89-115 both to Siliconix and the current owner of the
property. The Order alleged that Siliconix contaminated both the soil and the
groundwater on the property by the improper disposal of certain chemical
solvents. The RWQCB considered both parties to be liable for the contamination
and sought to have them decontaminate the site to acceptable levels. Siliconix
subsequently reached a settlement of this matter with the current owner of the
property. The settlement provided that the current owner will indemnify
Siliconix and its employees, officers, and directors against any liability that
may arise out of any governmental agency actions brought for environmental
cleanup of the subject site, including liability arising out of RWQCB Order No.
89-115, to which Siliconix remains nominally subject.
The second proceeding involves Siliconix's Santa Clara, California
facility, which we have owned and occupied since 1969. In February 1989, the
RWQCB issued Cleanup and Abatement Order No. 89-27 to Siliconix. The Order is
based on the discovery of contamination of both the soil and the groundwater on
the property by certain chemical solvents. The Order calls for Siliconix to
specify and implement interim remedial actions and to evaluate final remedial
alternatives. The RWQCB issued a subsequent order requiring Siliconix to
complete the decontamination. Siliconix has substantially completed its
compliance with the RWQCB's orders.
Our subsidiary General Semiconductor has been named a PRP at several
Superfund sites. See "Environment, Health and Safety".
In February and March 2001, several purported class action complaints
were filed in the Delaware Court of Chancery and the California Superior Court
against us, Siliconix and the directors of Siliconix in connection with our
proposal in February 2001 to purchase all issued and outstanding shares of
Siliconix that we did not already own. The class actions alleged that our
proposed offer was unfair and a breach of fiduciary duty. One of the Delaware
class actions also alleged that we had usurped Siliconix inventory and patents,
appropriated Siliconix's separate corporate identity, and obtained a
below-market loan from Siliconix. The actions sought injunctive relief, damages
and other relief. The Delaware Chancery Court denied a preliminary injunction
motion seeking to enjoin our tender offer, which was commenced in May 2001 but
not successfully completed. Our motion and that of Siliconix to dismiss the
actions in Delaware and for summary judgment are pending. The actions in
California have been stayed.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 2, 2001, the following matters were submitted to the vote
of our security holders at a special meeting of stockholders:
1. amending our certificate of incorporation to increase the number of
authorized shares of capital stock of the Company; and
2. approving the issuance of common stock in connection with the
acquisition of General Semiconductor, Inc.
78,115,060 votes of common stock were cast on the proposal to amend our
certificate of incorporation, out of which 74,275,045 were voted in favor and
3,840,015 voted against. 78,143,382 votes of common stock were cast on the
proposal to issue common stock in connection with the acquisition of General
Semiconductor, Inc. out of
-15-
which 77,258,019 were voted in favor and 885,363 voted against. 15,378,108 votes
of Class B common stock were cast and all voted in favor of the proposal to
amend our certificate of incorporation and the proposal to issue common stock in
connection with the acquisition of General Semiconductor.
Each share of common stock is entitled to one vote and each share of
Class B common stock is entitled to 10 votes on matters voted upon by
stockholders.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding our
executive officers as of March 28, 2002.
Name Age Positions Held
Felix Zandman* 73 Chairman of the Board and Chief Executive
Officer
Avi D. Eden* 54 Vice-Chairman of the Board, Executive
Vice President and General Counsel
Gerald Paul* 53 Chief Operating Officer, President
and Director
Richard N. Grubb* 55 Executive Vice President, Treasurer,
Chief Financial Officer and Director
Robert A. Freece* 61 Senior Vice President and Director
William J. Spires 60 Vice President and Secretary
* Member of the Executive Committee of the Board of Directors.
-16-
Dr. Felix Zandman, a founder of the Company, has been the Chief
Executive Officer and a Director of the Company since its inception. Dr. Zandman
had been President of the Company from its inception until March 16, 1998, when
Dr. Gerald Paul was appointed President of the Company. Dr. Zandman has been
Chairman of the Board since March 1989.
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 an Executive Vice
President of the Company since August 1996.
Dr. Gerald Paul has served as a Director of the Company since May 1993
and has been Chief Operating Officer and an Executive Vice President of the
Company since August 1996. On March 16, 1998, Dr. Paul was appointed President
of the Company. He was President of Vishay Electronic Components, Europe from
January 1994 to August 1996. Dr. Paul has been Managing Director of Draloric
Electronic GmbH, an affiliate of the Company, since January 1991. Dr. Paul has
been employed by Draloric since February 1978.
Richard N. Grubb has been a Director, Vice President, Treasurer and
Chief Financial Officer of the Company since May 1994, and has been an Executive
Vice President of the Company since August 1996. Mr. Grubb has been associated
with the Company in various capacities since 1972.
Robert A. Freece has been a Director of the Company since 1972. He was
a Vice President of the Company from 1972 until 1994, and has been a Senior Vice
President since May 1994.
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.
-17-
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Our common stock is listed on the New York Stock Exchange under the
symbol VSH. The following table sets forth the high and low sales prices for our
common stock as reported on the New York Stock Exchange Composite Tape for the
quarterly periods within the 2000 and 2001 calendar years indicated. Stock
prices have been restated to reflect a stock split in June 2000. We do not
currently pay cash dividends on our capital stock. Our policy is to retain
earnings to support the growth of our business and we do not intend to change
this policy at the present time. In addition, we are restricted from paying cash
dividends under the terms of our revolving credit agreement. See Note 5 to the
Consolidated Financial Statements. Holders of record of our common stock totaled
approximately 1,900 at March 27, 2002.
COMMON STOCK MARKET PRICES
Calendar 2000 Calendar 2001
High Low High Low
---- --- ---- ---
First Quarter $40.88 $18.58 $22.75 $13.75
Second Quarter $62.63 $35.00 $27.98 $17.00
Third Quarter $44.75 $26.00 $25.25 $16.08
Fourth Quarter $31.75 $13.88 $21.88 $16.86
At March 27, 2002, we had outstanding 15,383,663 shares of Class B
common stock, par value $.10 per share, each of which entitles the holder to ten
votes. The Class B common stock generally is not transferable except in certain
very limited instances, and there is no market for those shares. The Class B
common stock is convertible, at the option of the holder, into common stock on a
share for share basis. Substantially all of such Class B common stock is owned
by Dr. Felix Zandman our chairman and chief executive officer, the estate of
Mrs. Luella B. Slaner, a former director, and trusts for the benefit of the
grandchildren of Mrs. Slaner, either directly or beneficially.
-18-
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information of the Company for the fiscal years ended December 31, 2001, 2000,
1999, 1998 and 1997. 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.
As of and for the Year Ended December 31,
------------------------------------------------------------------
2001 (1) 2000 1999 (2) 1998 (3) 1997 (4)
---- ---- ---- ---- ----
Income Statement Data (in thousands, except per share amounts):
Net sales $1,655,346 $2,465,066 $1,760,091 $1,572,745 $1,125,219
Interest expense 16,848 25,177 53,296 49,038 18,819
Earnings before income taxes and minority interest 10,103 690,225 134,711 42,646 89,561
Income taxes 5,695 148,186 36,940 30,624 34,167
Minority interest 3,895 24,175 14,534 3,810 2,092
Net earnings 513 517,864 83,237 8,212 53,302
Basic earnings per share(5) $0.00 $3.83 $0.66 $0.07 $0.42
Diluted earnings per share(5) $0.00 $3.77 $0.65 $0.07 $0.42
Weighted average shares outstanding - basic (5) 141,171 135,295 126,678 126,665 126,627
Weighted average shares outstanding - diluted (5) 142,514 137,463 128,233 126,797 126,904
Balance Sheet Data (in thousands):
Total assets $3,951,523 $2,783,658 $2,323,781 $2,462,744 $1,719,648
Long-term debt 605,031 140,467 656,943 814,838 347,463
Working capital 1,096,034 1,057,200 604,150 650,483 455,134
Stockholders' equity 2,366,545 1,833,855 1,013,592 1,002,519 959,648
- -----------------------------------------------------------------------
(1) Includes the results from January 1, 2001 of Tansitor, July 27, 2001 of
Infineon U.S., November 2, 2001 of General Semiconductor, and November 7,
2001 of Mallory. Also includes restructuring expenses net of taxes, of
$39,972,000; write-down of raw materials inventory, net of taxes, of
$57,431,000; purchased research and development (no tax effect) of
$16,000,000; and other expenses, net of taxes, of $5,373,000 for a total of
$118,776,000 ($0.84 per share).
(2) The sale of Nicolitch, S.A. and a tax rate change in Germany reduced net
earnings by $14,562,000 ($0.11 per share).
(3) Includes the results from March 1, 1998 of Siliconix and Telefunken and
special charges after taxes of $55,335,000 ($0.44 per share).
(4) Includes the results from July 1, 1997 of Lite-On Power Semiconductor
Corporation and special charges after taxes of $27,692,000 ($0.22 per
share).
(5) Adjusted to reflect a three-for-two stock split distributed June 9, 2000, a
five-for-four stock split distributed June 22, 1999 and 5% stock dividends
paid on June 11, 1998 and June 9, 1997.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OFOPERATIONS
Overview
2001 was a difficult year in the electronic components business, as it
was for economies in the United States and much of the world. In part, our
depressed operating results for 2001 were attributable to the same factors that
contributed to the exceptional operating results in 2000, results that far
exceeded any in the history of our Company. Throughout most of 2000 our
customers, especially our distributors, built up sizeable inventories, out of
concern over possible product shortages and rising prices fueled by overly
optimistic assessments of customer demand. Because inventories were out of
proportion to actual demand, orders for new products dropped off significantly
in 2001. In addition, the softening of demand for our products, which we began
to see in the fourth quarter of 2000, became more pronounced during 2001,
particularly in the telecommunications and computer markets.
Product Demand
Demand for our products, and for products in our industry generally,
affects our operating results in two ways. When demand is lower, we experience
substantial downward pressure on pricing. Also, lower demand results in lower
unit sales levels. With smaller revenues over which to spread our fixed costs,
our gross profit margins decline. We felt both of these effects in our business
in 2001.
Because we regard customer demand as such an important parameter in
analyzing our business, we carefully monitor the indicators of demand. One of
these indicators is our backlog level. Backlogs were down in 2001. Moreover, in
uncertain economic times, such as those we experienced in 2001, orders are more
susceptible to cancellation, so that backlog as a measure of future sales
becomes less reliable. We also have to look at the nature of the orders in our
backlog. Orders that provide for longer delivery times indicate that customers
are ordering for inventory rather than immediate requirements. The delivery
times for these types of orders could be pushed out and, especially in a soft
economy, provide less assurance of ultimate sales. Orders for short-term
delivery are less subject to push out or cancellation, are indicative of the
immediate needs of our customers and are likely to be a better barometer of the
direction of our business.
A second important indicator of demand in our industry is the
book-to-bill ratio, which is the ratio of the amount of product ordered during a
period as compared with the product that we ship during that period. A
book-to-bill ratio that is greater than one indicates that our orders are
building and that we are likely to see increasing revenues in future periods.
Conversely, a book-to-bill ratio that is less than one is an indicator of
declining demand and likely foretells declining sales.
The quarter-to-quarter trends in backlog and book-to-bill ratio can
also be an important indicator of the likely direction of our business. The
following table shows the end-of-period backlog and the book-to-bill ratio for
our business as a whole during the five quarters beginning with the last quarter
of 2000 and through the last quarter of 2001. We think that the improving trend
of book-to-bill ratio will continue in 2002, but we cannot assure you that this
will be so.
4th Quarter 2000 1st Quarter 2001 2nd Quarter 2001 3rd Quarter 2001 4th Quarter 2001
---------------- ---------------- ----------------- ---------------- ----------------
End of Period $773,089,000 $505,732,000 $342,144,000 $302,754,000 $337,883,000 (1)
Backlog
Book-to-Bill Ratio 0.69 0.53 0.59 0.77 0.89
(1) Includes $70,360,000 of backlog attributable to the business of General Semiconductor.
-20-
Segments
Our management evaluates our operating results along the lines of two
major segments, passive components and active components. Passive components
include resistors, capacitors and inductors. These are necessary elements of all
electronic circuits and are referred to as passive because they do not require
power to operate. We also include in this segment strain gages and load cells,
because the core components of these devices are resistors that are sensitive to
various types of mechanical stress. We began our business as a manufacturer of
passive components, this remains major part of our business.
We are now also one of the world's leading manufacturers of active
electronic components. These include transistors, diodes, rectifiers, certain
types of integrated circuits and optoelectronic products. These components are
referred to as active because they require power to function. We entered the
active component business in 1998 with the acquisition from Daimler-Benz of
Telefunken, a manufacturer of optoelectronic components and small signal
transistors, and of an 80.4% interest in Siliconix, a manufacturer of power
integrated circuits. In 2001, we substantially increased our presence in the
active component market, first with the acquisition in July of the
optoelectronic infrared business of Infineon A.G., and later with the
acquisition in November of General Semiconductor, a manufacturer of rectifiers
and power management components whose business is complementary to that of
Siliconix. As a percentage of our total sales, active components were 39% in
2001, 34% in 2000 and 43% in 1999.
The passive and active segments of our business have historically
responded differently to phases of the business cycle. Having strong
capabilities in both areas not only gives us a broad line of products to offer
our customers, it also smoothes, to some extent, the business swings that we
experience. When business slows down, active components are usually first to
feel the effects of the downturn that are later experienced by passive
components. Similarly, when business begins to increase, our semiconductor
products usually lead the recovery, followed some time later by capacitors and
resistors. We are seeing certain indications that this pattern of recovery may
repeat itself in the current environment.
We also find that the commodity and specialty products in our passive
segment react differently in different parts of the business cycle. Commodity
products, which have general use and application, experience significant
fluctuations in demand. The variations in demand experienced by specialty
products, which are produced for specific purposes and, in some cases, to the
specific design criteria of purchasers, are far less pronounced. This disparity
has a corresponding effect on the respective profit margins for commodity and
specialty products.
The following table shows our sales and book-to-bill ratios broken out
by segment for the five quarters beginning with the last quarter of 2000 and
through the last quarter of 2001:
Sales ($)/
Book-to-bill 4th Quarter 2000 1st Quarter 2001 2nd Quarter 2001 3rd Quarter 2001 4th Quarter 2001
------------ ---------------- ---------------- ---------------- ---------------- ----------------
Passive Components $451,264,000 $392,658,000 $250,973,000 $188,708,000 $178,295,000
0.67 0.49 0.49 0.72 0.83
Active Components $192,353,000 $165,807,000 $132,464,000 $143,585,000 $202,856,000 (1)
0.74 0.64 0.79 0.84 0.94 (1)
(1) Includes $51,274,000 attributable to General Semiconductor for active
components. Excluding General Semiconductor, the book-to-bill ratio for active
components during the fourth quarter of 2001 would have been 0.95.
Cost Management
We place a strong emphasis on reducing our costs. One way we do this is
by moving production to the extent possible from high labor cost markets, such
as the United States and Western Europe, to lower labor cost markets, such as
Israel, Mexico, the Republic of China (Taiwan), the People's Republic of China
and Eastern
-21-
Europe. The percentage of our total headcount in lower labor cost countries is a
measure of the extent to which we are successful in implementing this program.
This percentage was 61% at the end of 2001 as compared to 57% at the end of
2000, and was positively affected by our acquisition activity during 2001. We
are hopeful that as we integrate the new acquisitions we will be able to further
increase this percentage.
During 2001, we focused on reducing both variable and fixed costs in
response to our industry's downturn. We reduced our variable labor headcount by
6,050 positions or 35% and fixed labor headcount by 960 positions or 17%. These
numbers do not take into account the additions to our workforce as a result of
the 2001 acquisition activity. We also closed several factories during the year.
We estimate that as a result of our cost containment activities we were able to
reduce fixed costs during 2001 by approximately $14 million.
Israeli Government Incentives
Our production facilities in Israel benefit from incentives offered by
the Israeli government for creation of jobs and capital investment in that
country. These benefits take the form of government grants and reduced tax rates
that are lower than those in the United States. These reduced tax rates apply to
projects specifically approved by the Israeli government and, depending on
project size, are available for periods of ten or fifteen years. The effect of
lower tax rates in Israel, as compared to the statutory rate in the United
States, resulted in increases in net earnings of $3,009,000, $89,745,000 and
$12,469,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Israeli government grants are awarded to specific projects. These
grants are intended to promote employment in Israel's industrial sector and are
conditioned on the recipient maintaining certain prescribed employment levels.
Grants are paid when the related projects become operational, and the Israeli
government approves the project. Israel government grants, recorded as a
reduction in the costs of products sold, were $19,064,000, $15,721,000 and
$14,256,000 in the years 2001, 2000 and 1999, respectively. At December 31,
2001, our balance sheet reflected $57,208,000 in deferred grant income.
Our production in Israel has been adversely affected by the current
economic downturn. Despite the economic situation in which we were forced to
make lay-offs in Israel, in 2001 we were able to maintain employment at our
facilities in Israel at levels sufficient to maintain our qualification for
grants previously awarded to us. If we were no longer able to maintain the
required level of employment in the future, we could be required to return grant
funds that were previously awarded to us. The effect of the return of these
funds would be to reduce our income in future years. Also, if the current
business climate continues, we might not initiate new projects that qualify for
grants or reduced tax rates or the Israeli government could curtail or eliminate
the programs from which we have benefited in the past.
Inventory Write-Downs and Purchase Commitments
During 2001, we wrote-down our raw material inventories of tantalum,
which we use in the production of tantalum capacitors, and palladium, which is
used in the production of multi-layer ceramic capacitors. Demand for these
products, particularly on the commodity side, experienced a significant decline
in 2001, and market prices for tantalum ore and powder and palladium wire were
sharply lower. We purchased our inventories of tantalum and palladium when
demand was vigorous and prices were substantially higher. As required by
accounting rules, we recorded our inventories at the lower of cost or market,
and reduced the carrying value of our tantalum by $52,000,000 and palladium by
$18,000,000 in 2001. The write-downs are reflected in our income statement as an
increase in cost of goods sold.
During the period of shortage, we entered into long-term contracts to
purchase specified quantities of tantalum at fixed prices through 2005. Under
the terms of these contracts, the tantalum purchase commitments are
approximately $145,000,000 for 2002 and approximately $150,000,000 annually for
2003 through 2005. In addition, we may make purchases of tantalum from our other
suppliers at prices that are subject to periodic adjustment. The fixed prices
for tantalum under the long term contracts could exceed the market price at
various times during the terms of the contracts. Also, the quantities of powder
and wire committed to or that we otherwise purchase could exceed our production
demands. If this were to happen we could be required to take further
write-downs.
-22-
Foreign Currency
In 2001, we realized approximately 59% of our revenues from
customers outside the United States. Any third party sales not using the U.S.
dollar as the functional currency must report sales in local currency and be
translated at the weighted average exchange rate. This translation will have an
impact on the net sales line of the income statement and also on the expense
lines of the income statement. We generally do not purchase foreign currency
exchange contracts or other derivative instruments to hedge our exposure to
foreign currency fluctuations.
Critical Accounting Policies
Our significant accounting policies are summarized in Note 1 to our
Consolidated Financial Statements. We identify here a number of policies which
entail significant judgments or estimates.
Revenue recognition
We record revenues at the time that we ship products to our customers.
Many of our shipments are to distributors, who purchase for resale to end-users.
The distributors have certain limited rights to return products. They are also
entitled to certain price protection benefits, which give them credit for unsold
products that they continue to hold in inventory when we reduce our book prices
for these items. At the time we record sales to these distributors, we also
recognize allowances against net sales for estimated product returns and price
protection. To estimate these allowances, we review historical returns and price
adjustments on both a consolidated level and on an individual distributor level
as well as the general business and economic climate. These procedures require
the exercise of significant judgments, but we believe they enable us to estimate
reasonably future credits for returns and price adjustments.
Accounts Receivable
Our receivables represent a significant portion of our current assets.
We are required to estimate the collectability of our receivables and to
establish allowances for the amount of receivables that will prove
uncollectible. We base these allowances on our historical collection experience,
the length of time our receivables are outstanding, the financial circumstances
of individual customers, and general business and economic conditions. In
difficult economic periods such as in 2001, it becomes more difficult to
accurately assess collectability, and we are likely to increase the size of our
collection reserves relative to the amount of receivables outstanding.
Inventories
We value our inventories at the lower of cost or market, with cost
determined under the first-in first-out method and market based upon net
realizable value. The valuation of our inventories requires our management to
make market estimates. For instance, in the case of tantalum powder, we estimate
market value by obtaining current quotations from a number of available sources
of supply. For work in progress goods, we are required to estimate the cost to
completion of the products and the prices at which we will be able to sell the
products. For finished goods, we must assess the prices at which we believe the
inventory can be sold. As noted, we recorded substantial write-downs of our
tantalum and palladium inventories in 2001.
-23-
Estimates of Restructuring Expense and Purchase Related Restructuring
Costs
In 2001, we recorded restructuring costs of approximately $95,000,000
related to our acquisitions and $61,908,000 related to our existing businesses.
Our acquisition-related restructuring costs included, among other things, costs
related to an exit plan that management began to formulate prior to the
acquisition of General Semiconductor. Our restructuring activities related
to our existing business were designed to cut both our fixed and variable costs,
particularly in response to the reduced demand for our products occasioned by
the electronics industry downturn experienced in 2001. These included the
closing of facilities and the termination of employees. Acquisition-related
costs are included in the allocation of the cost of the acquired business and
generally add to goodwill. Other restructuring costs are expensed during the
period in which we determine that we will incur those costs, and all of the
requirements for accrual are met.
Because these costs are recorded based upon estimates, our actual
expenditures for the restructuring activities may differ from the initially
recorded costs. If this happens, we will have to adjust our estimates in future
periods. In the case of acquisition-related restructuring costs, this would
generally require a change in value of the goodwill appearing on our balance
sheet, but would not affect our earnings. In the case of other restructuring
costs, we could be required either to record additional expenses in future
periods, if our initial estimates were too low, or to reverse part of the
charges that we recorded initially, if our initial estimates were too high.
Results of Operations
Income statement captions as a percentage of sales and the effective
tax rates were as follows:
Year Ended December 31
2001 2000 1999
---- ---- ----
Costs of products sold 77.0% 59.2% 73.8%
Gross profit 23.0 40.8 26.2
Selling, general and 16.8 12.1 14.5
administrative expenses
Operating income 0.9 28.3 11.0
Earnings before income taxes 0.6 28.0 7.7
and minority interest
Net earnings 0.0 21.0 4.7
Effective tax rate 56.4 21.5 27.4
Net Sales, Gross Profits and Margins
Sales for the year ended December 31, 2001 decreased $809,720,000 or
32.9% from the prior year, reflecting the downturn in the electronics industry
that we experienced in 2001. The strengthening of the U.S. dollar against
foreign currencies for the year ended December 31, 2001, in comparison to the
prior year, resulted in decreases in reported sales of $16,338,000. We
experienced lower sales in both our active and passive components businesses.
The decline was particularly pronounced in our commodity business for passive
components such as capacitors and resistors. The decline in the year-to-year
sales numbers reflects both lower unit sales volume and substantial downward
pricing pressure. The decline was evidenced in virtually all of our end markets,
but was particularly pronounced in wireless communications and computers.
Costs of products sold as a percentage of net sales were 77.0% for the
year ended December 31, 2001 as compared to 59.2% for the prior year. Gross
profit, as a percentage of net sales, for the year ended December 31, 2001 was
23.0% as compared to 40.8% for the prior year. The erosion in profit margins, in
both the active and passive segments, reflects reduced volume and lower prices
in 2001, offset, to some extent, by a reduction in fixed costs during the year.
For the year ended December 31, 2001, costs of products sold included
$70,000,000 for the write-down of tantalum and palladium inventories.
-24-
Net sales for the year ended December 31, 2000 increased $704,975,000
or 40.1% from the prior year. Both the passive and active components segments
contributed to this increase. The strengthening of the U.S. dollar against
foreign currencies for the year ended December 31, 2000, in comparison to the
prior year, resulted in decreases in reported sales of $105,615,000. Strong
demand, particularly in the wireless communications market, for our products and
increased average selling prices contributed to the sales growth.
Costs of products sold for the year ended December 31, 2000 were 59.2%
of net sales, as compared to 73.8% for the prior year. Gross profit, as a
percentage of net sales, for the year ended December 31, 2000 was 40.8% as
compared to 26.2% for the prior year. Both the passive and active components
segments contributed to the improved gross margins.
See "Israeli Government Incentives" regarding Israeli government
grants, which are recorded as a reduction in costs of products sold.
The following tables show sales and gross profit margins separately for
our passive and active segments.
Passive Components
Year Ended December 31
2001 2000 1999
---- ---- ----
Net Sales $1,010,634,000 $1,627,860,000 $1,008,266,000
Gross Profit Margin 20.6% 41.7% 22.4%
Net sales of passive components for the year ended December 31, 2001
decreased by $617,227,000 or 37.9% from comparable sales of the prior year. The
decrease in net sales was primarily due to low volume and strong pricing
pressure with respect to commodity products and tantalum molded capacitor
products. The decrease in the passive components business gross profit margins
in 2001 was related to strong pricing pressure, particularly with respect to
commodity products, excess capacity and higher costs for palladium and tantalum
powder. Additionally, write-downs of $70,000,000 on tantalum and palladium
inventories were taken during the year ended December 31, 2001, negatively
impacting gross profit.
Sales of passive components for the year ended December 31, 2000
increased by $619,595,000 or 61.5% over comparable sales from the prior year.
Strong demand, particularly in the wireless communications market, for our
products, and increased average selling prices contributed to the sales growth.
The increase in the passive components business gross profit margins in 2000
over 1999 were attributable to price and volume increases in the resistor,
tantalum capacitor, and multi-layer ceramic chip capacitor product lines.
Active Components
Year Ended December 31
2001 2000 1999
---- ---- ----
Net Sales $644,712,000 $837,206,000 $751,825,000
Gross Profit Margin 26.9% 39.0% 31.4%
Net sales of the active components business for the year ended December
31, 2001 decreased by $192,494,000 or 23% from comparable sales of the prior
year. The decrease in the active components business net sales was primarily due
to the decrease in net sales of Siliconix, of which Vishay owns 80.4%.
Siliconix's net sales for the year ended December 31, 2001 were $305,566,000 as
compared to $473,145,000, a 35.4% decrease. The decrease from the prior year was
primarily due to the downturn in the computer and cellular phone handset
markets, which resulted in reduced demand for the Company's products, and overly
optimistic industry forecasts for the cell phone handset market, which led to
excess handset inventories.
-25-
Revenues in the active segment for 2001 reflect revenues of $82,655,000
from the acquisitions of the U.S. infrared business of Infineon in July 2001 and
General Semiconductor in November 2001. Excluding the contribution of these
acquisitions, net sales in 2001 would have decreased by 32.9% as compared to
2000 and gross profit margin would have been 26.9%.
Net sales for the active components business for the year ended
December 31, 2000 increased by $85,381,000 or 11.4% as compared to the prior
year. The increase reflected strong demand and higher selling prices. Gross
profit margins in the active components business increased for the year ended
December 31, 2000 over the prior year as a result of continued cost reductions,
increased manufacturing efficiencies and an improved product mix. The increase
reflects improvements at the Siliconix operation, where gross profit margins
increased to 46.0% of net sales in 2000 compared to 41.0% in 1999. This increase
resulted from economies of scale in manufacturing operations, productivity
improvements, and further advances in technologies.
Selling, General and Administrative Expenses
Selling, general, and administrative expenses for the year ended
December 31, 2001 were 16.8% of net sales as compared to 12.1% of net sales for
the prior year. The higher percentage in 2001 was due to reduced sales levels.
Selling, general and administrative expenses decreased by $19,144,000 for the
year ended December 31, 2001, as compared to the prior year. We continue to
implement cost reduction initiatives company-wide, with particular emphasis on
reducing headcount in high labor cost countries.
Our selling, general, and administrative expenses for the year ended
December 31, 2000 were 12.1% of net sales, as compared to 14.5% for the prior
year. This reduction was a result of higher net sales in 2000 as compared to
1999 and reflects company-wide cost reduction initiatives, particularly the
reduction of headcount in high labor cost countries.
Restructuring Expense
Restructuring expense was $61,908,000 for the year ended December 31,
2001. Restructuring of European, Asia Pacific, and Israeli operations included
$27,064,000 of employee termination costs covering approximately 3,778
technical, production, administrative and support employees located in Austria,
France, Germany, Hungary, Israel, the Philippines and Portugal. Our European
operations also recorded $2,191,000 of noncash costs associated with the
write-down of buildings and equipment that are no longer in use. In the United
States, $13,870,000 of restructuring expense relates to termination costs for
approximately 1,885 technical, production, administrative and support employees.
The remaining $18,783,000 of restructuring expense relates to the noncash
write-down of buildings and equipment that are no longer in use.
The restructuring expense reflects the cost reduction programs that we
have currently implemented. As of December 31, 2001, $23,838,000 of severance
costs have been paid. The remaining $17,096,000 of severance costs, currently
shown in other accrued expenses, should be paid by December 31, 2002.
Purchased Research and Development
We estimated that $16,000,000 of the General Semiconductor purchase
price represents purchased in-process technology that had not reached
technological feasibility and had no alternative future use. Accordingly, this
amount was expensed with no tax benefit upon the acquisition of General
Semiconductor. The value assigned to purchased in-process technology was
determined by identifying research projects in areas for which technological
feasibility has not been established. The value was determined by estimating the
costs to develop the purchased in-process technology into commercially viable
products, estimating the resulting net cash flows from such projects, and
discounting the net cash flows back to their present value. The discount rate
included a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. If these projects
are not successfully developed, our future revenue and profitability may be
adversely affected. Additionally, the value of other intangible assets acquired
may become impaired.
-26-
Interest Expense
Interest expense for the year ended December 31, 2001 decreased by
$8,329,000 when compared to the prior year. This decrease was a result of lower
average outstanding bank borrowings and lower interest rates on borrowings in
2001 as compared to the prior year. During the second quarter of 2001, we paid
down the debt then outstanding under our revolving credit agreement with the
proceeds received from the issuance of Liquid Yield Option Notes (LYONs). We
also added $172,500,000 principal amount of 5.75% Convertible Subordinated
Debentures and $85,000,000 of bank debt in November 2001 from the acquisition of
General Semiconductor (see Note 5 to the Consolidated Financial Statements).
Our interest costs decreased by $28,119,000 for the year ended December
31, 2000 from the prior year. This decrease was a result of lower bank
borrowings during the year 2000 as compared to the prior year. We received net
proceeds of $395,449,000 from our offering of common stock in May 2000, which we
used to pay down long-term debt.
Other Income
Other income for the year ended December 31, 2001 was $12,701,000 as
compared to $18,904,000 for the comparable prior year period. Other income for
the year ended December 31, 2001 consists primarily of interest income, gains on
disposal of property and equipment, and foreign exchange gains.
Other income (expense) was $18,904,000 for the year ended December 31,
2000 as compared to an expense of $5,737,000 in the prior year. The 2000 amount
includes higher interest income, a gain on sale of subsidiaries, and a gain from
the termination of interest rate swap agreements. We used proceeds received from
our offering of common stock in May 2000 and cash flows from operations to pay
down debt outstanding under our long-term revolving credit agreement. In
connection with debt repayments, we terminated $200,000,000 notional amount of
interest rate swap agreements and recognized pretax gains of $8,919,000. These
amounts were partially offset by foreign exchange losses of $7,305,000.
Minority Interest
Minority interest decreased by $20,280,000 for the year ended December
31, 2001 as compared to the prior year primarily due to the decrease in net
earnings of Siliconix, of which we own 80.4%.
Minority interest increased by $9,641,000 for the year ended December
31, 2000 as compared to the prior year primarily due to the increase in net
earnings of Siliconix.
Income Taxes
The effective tax rate for the year ended December 31, 2001 was 56.4%
as compared to 21.5% for the prior year. The increase in the tax rate for 2001
reflects a significant decrease in net earnings, as compared to 2000, in low tax
jurisdictions, and the non-tax deductibility of the purchased research and
development expense ($16,000,000) related to the acquisition of General
Semiconductor. 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 $3,009,000 and $89,745,000 for the years ended December 31, 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.
Our effective tax rate for the year ended December 31, 2000 was 21.5%
as compared to 27.4% for the prior year. The higher tax rate for the year ended
December 31, 1999 reflects the non-tax deductibility of the loss on the sale of
Nicolitch, S.A. Tax expense on the sale of Nicolitch, S.A. was $1,416,000. Also,
a tax rate change in Germany resulted in a decrease in German deferred tax
assets, which increased tax expense by $1,939,000. Exclusive of the effect of
the sale of Nicolitch, S.A. and the tax rate change in Germany, the effective
tax rate on earnings before minority interest for the year ended December 31,
1999 would have been 23.2%.
-27-
Financial Condition and Liquidity
Cash flows from operations were $161,418,000 for the year ended
December 31, 2001 compared to $542,319,000 for the prior year. The decrease in
cash flows from operations reflects the effect of the economic downturn in 2001
on our operating results. Net purchases of property and equipment for the year
ended December 31, 2001 were $162,493,000 compared to $229,781,000 in the prior
year, reflecting the slowdown in the business. We also used cash of $172,468,000
for acquisitions in 2001, primarily for acquisitions of Tansitor in January
2001, the infrared business of Infineon A.G. in July 2001 and Mallory in
November 2001. The acquisitions were funded in part by our cash balances and in
part from borrowings. See Note 2 to the Consolidated Financial Statements for
discussion of these acquisitions.
We made net payments of $100,047,000 on our revolving credit lines
during 2001, which were funded primarily from the proceeds of our LYONs offering
referred to below. See Notes 2 and 3 to the Consolidated Financial Statements
for discussion of restructuring costs paid during 2001 and expected to be paid
in the future. Other accrued expenses include $112,096,000 of
acquisition-related costs and other restructuring costs expected to be paid in
cash subsequent to December 31, 2001.
In May 2001, we completed the offering of $550 million aggregate
principal amount at maturity of Liquid Yield Option Notes (LYONs) at an offering
price of price of $551.26 per $1,000 aggregate principal amount at maturity of
notes. The net proceeds to us of this offering were approximately $294.1
million. The LYONs are convertible into approximately 9.7 million shares of our
common stock. The LYONs may be put to us at their accreted value on June 4 of
each of 2004, 2006, 2011 and 2016 at a purchase price per $1,000 aggregate
principal amount at maturity of $602.77, $639.76, $742.47 and $816.67,
respectively. See Note 5 to the Consolidated Financial Statements for discussion
of the terms of the LYONs.
We completed our acquisition of General Semiconductor on November 2,
2001 in a stock-for-stock transaction resulting in the issuance of 21,305,127
shares of our common stock. General Semiconductor had outstanding $172.5 million
principal amount 5.75% convertible notes, which as a result of the acquisition
are now convertible into approximately 6.3 million shares of Vishay common
stock. As required by the terms of the notes, following the merger, General
Semiconductor made an offer to repurchase the notes at 101% of their principal
amount plus accrued interest. As a result of this offer, we acquired notes with
a principal amount of $1.5 million in January, 2002.
At December 31, 2001, we had a current ratio, (current assets to
current liabilities), of 3.3 to 1, compared with a ratio of 3.5 to 1 at December
31, 2000. Our ratio of long-term debt, less current portion, to stockholders'
equity was 0.26 to 1 at December 31, 2001 compared to 0.08 to 1 at December 31,
2000. The increase in long-term debt ratio reflects the issuance of the LYONs,
the effect of the General Semiconductor convertible notes, and the issuance of
shares of common stock in the General Semiconductor acquisition.
Our bank credit facility, as currently amended, provides for a
$660,000,000 long-term revolving credit and swing line facility maturing on June
1, 2005, subject to our right to request year-to-year renewals. Borrowings under
the facility bear interest at variable rates based, at our option, on the prime
rate or a eurocurrency rate, and in the case of any swing line advance, the
quoted rate. The borrowings are secured by pledges of stock in certain of our
significant subsidiaries and indirect subsidiaries and guaranteed by certain of
our significant subsidiaries. We are required to pay facility fees on the
long-term facility. The credit facility restricts us from paying cash dividends,
and requires us to comply with certain financial covenants. See Note 5 to the
Consolidated Financial Statements for additional information.
We believe that available sources of credit, together with cash
expected to be generated from operations, will be sufficient to satisfy our
anticipated financing needs for working capital, capital expenditures and
opportunistic acquisitions during the next twelve months.
-28-
Commitments
As of December 31, 2001 the Company had contractual obligations in the form of
non-cancelable operating leases (see Note 11 to the Consolidated Financial
Statements) and long-term contracts for the purchase of tantalum
powder and wire (see Note 13 to the Consolidated Financial Statements), as
follows:
(in thousands)
Payments Due by Period
----------------------
After
Less than 1-3 4-5 5
Total 1 year years years years
-------- -------- -------- -------- -------
Operating leases $113,365 $19,252 $30,134 $21,472 $42,507
Tantalum purchases $595,000 $145,000 $300,000 $150,000 -0-
-------- -------- -------- -------- -------
Total $708,365 $164,252 $330,134 $171,472 $42,507
======== ======== ======== ======== =======
Euro Conversion
On January 1, 2002, 11 of the 15 member countries of the European Union
implemented the adoption of the euro as their common legal currency. We do not
expect costs of system modifications required by this implementation to be
material, nor do we expect the use of the euro to materially and adversely
affect our financial condition or results of operations. We continue to evaluate
the impact of the euro introduction.
-29-
Inflation
Normally, inflation does not have a significant impact on our
operations as our products are not generally sold on long-term contracts.
Consequently, we can adjust our selling prices, to the extent permitted by
competition, to reflect cost increases caused by inflation.
Safe Harbor Statement
From time to time, information provided by us, including but not
limited to statements in this report, or other statements made by or on our
behalf, may contain "forward-looking" information within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements involve a
number of risks, uncertainties and contingencies, many of which are beyond our
control, which may cause actual results, performance or achievements to differ
materially from those anticipated. Set forth below are important factors that
could cause our results, performance or achievements to differ materially from
those in any forward-looking statements made by us or on our behalf.
Changes in Product Demand, Competition, Backlog
o We and others in the electronic and semiconductor component
industry have recently experienced a decline in product demand on
a global basis, resulting in order cancellations and deferrals.
This decline is primarily attributable to a slowing of growth in
the personal computer and cellular telephone product markets.
This slowdown may continue and may become more pronounced. The
current slowdown in demand, as well as recessionary trends in the
global economy, makes it more difficult for us to predict our
future sales, which also makes it more difficult to manage our
operations, and could adversely impact our results of operations.
In the past, adverse economic trends that resulted in a slowdown
in demand for electronic components have materially and adversely
impacted our results of operations. There is a risk that
distributors and other customers for our products have
inventories that are overstocked from the prior business cycle.
This could cause a lower demand for our products in the initial
phase of an economic upturn even if production in the electronics
markets increases. In addition, at the initial stage of a
business cycle, increased efforts by distributors to sell
inventory remaining from the prior cycle may cause average
selling prices to decrease. Our published operating results for
2001 reflect some of these industry trends. For example, during
2001, restructuring costs were approximately $61.9 million as a
result of our accelerated effort to streamline operations in
response to the continued weakness in the electronic components
market at the time.
o Our business is highly competitive worldwide, with low
transportation costs and few import barriers. We compete
principally on the basis of product quality and reliability,
availability, customer service, technological innovation, timely
delivery and price. The electronic components industry has become
increasingly concentrated and globalized in recent years and our
major competitors, some of which are larger than us, have
significant financial resources and technological capabilities.
o Many of the orders that comprise our backlog may be canceled by
customers without penalty. Customers may on occasion double and
triple order components from multiple sources to ensure timely
delivery when backlog is particularly long. Customers often
cancel orders when business is weak and inventories are
excessive, a phenomenon that we are experiencing in the current
economic slowdown. Therefore, we cannot be certain the amount of
our backlog does not exceed the level of orders that will
ultimately be delivered. Our results of operations could be
adversely impacted if customers cancel a material portion of
orders in our backlog.
-30-
Product Development, Business Expansion
o Our future operating results are dependent, in part, on our
ability to develop, produce and market new and innovative
products, to convert existing products to surface mount devices
and to customize certain products to meet customer requirements.
There are numerous risks inherent in this complex process,
including the risks that we will be unable to anticipate the
direction of technological change or that we will be unable to
timely develop and bring to market new products and applications
to meet customers' changing needs.
o Our long-term historical growth in revenues and net earnings has
resulted, in large part, from our strategy of expansion through
acquisitions. However, we cannot assure you that we will identify
or successfully complete transactions with suitable acquisition
candidates in the future. We also cannot assure you that
acquisitions we complete will be successful. If an acquired
business fails to operate as anticipated or cannot be
successfully integrated with our other businesses, our results of
operations, enterprise value, market value and prospects could
all be materially and adversely affected.
o If we were to undertake a substantial acquisition for cash, the
acquisition would likely need to be financed in part through bank
borrowings or the issuance of public or private debt. This would
likely decrease our ratio of earnings to fixed charges and
adversely affect other leverage criteria. Under our existing
credit facility, we are required to obtain our lenders' consent
for certain additional debt financing, to comply with other
covenants including the application of specific financial ratios,
and are restricted from paying cash dividends on our capital
stock. We cannot assure you that the necessary acquisition
financing would be available to us on acceptable terms when
required. If we were to undertake an acquisition for equity, the
acquisition may have a dilutive effect on the interests of the
holders of our common stock.
o Our business is cyclical and in periods of a rising economy may
experience intense demand for our products. During such periods,
we may have difficulty expanding our manufacturing to satisfy
demand. Factors which could limit such expansion include delays
in procurement of manufacturing equipment, shortages of skilled
personnel and capacity constraints at our facilities. If we are
unable to meet our customers' requirements and our competitors
sufficiently expand production, we could lose customers and/or
market share. This could have an adverse effect on our financial
condition and results of operations and prospects.
o Any drop in demand or increase in supply of our products due to
the expansion of production capacity by our competitors could
cause a dramatic drop in average sales prices causing a decrease
in gross margins.
Foreign Operations and Sales
o We have operations in 14 countries around the world outside the
United States, and approximately 59% of our revenues during 2001
were derived from sales to customers outside the United States.
Some of the countries in which we operate have in the past
experienced and may continue to experience political, economic
and military instability or unrest. These conditions could have
an adverse impact on our ability to operate in these regions and,
depending on the extent and severity of these conditions, could
materially and adversely affect our overall financial condition
and operating results.
o We have increased our operations in Israel over the past several
years. The low tax rates in Israel applicable to earnings of our
operations in that country, compared to the rates in the United
States, have had the effect of increasing our net earnings. In
addition, we have taken advantage of certain incentive programs
in Israel, which take the form of grants designed to increase
employment in Israel. Any significant increase in the Israeli tax
rates or reduction or elimination of the Israeli grant programs
that have benefited us could have an adverse impact
-31-
on our results of operations. See Note 1 to the Consolidated
Financial Statements for the year ended December 31, 2001,
contained in this annual report, for a description of our
accounting policy for grants received by certain subsidiaries
from governments outside the United States.
Restructuring and Cost Reduction Activities
o Our strategy is aimed at achieving significant production cost
savings through the transfer and expansion of manufacturing
operations to and in countries with lower production costs, such
as the Czech Republic, Israel, Mexico, the People's Republic of
China, Portugal and the Republic of China (Taiwan). In this
process, we may experience under-utilization of certain plants
and factories in high labor cost regions and capacity constraints
in plants and factories located in low labor cost regions. This
may result, initially, in production inefficiencies and higher
costs. These costs include those associated with compensation in
connection with work force reductions and plant closings in the
higher labor cost regions, start-up expenses, manufacturing and
construction delays, and increased depreciation costs in
connection with the initiation or expansion of production in
lower labor cost regions.
o As we implement transfers of certain of our operations, we may
experience strikes or other types of labor unrest as a result of
lay-offs or termination of employees in high labor cost
countries.
o Our 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. Our inability to achieve these
goals could have an adverse effect on our results of operations.
Raw Materials
o Our results of operations may be adversely impacted by:
1. difficulties in obtaining raw materials, supplies, power,
natural resources and any other items needed for the
production of our products;
2. the effects of quality deviations in raw materials,
particularly tantalum powder, palladium and ceramic
dielectric materials; and
3. the effects of significant price increases for tantalum
or palladium, or an inability to obtain adequate supplies of
tantalum or palladium from the limited number of suppliers.
4. the effects of significant decreases in the prices for
tantalum or palladium on existing inventories and purchase
commitments for these materials. See "Description of the
Business - Sources of Supplies" above.
Environmental Issues
o Our manufacturing operations, products and/or product packaging
are subject to environmental laws and regulations governing air
emissions, wastewater discharges, the handling, disposal and
remediation of hazardous substances, wastes and certain chemicals
used or generated in our manufacturing processes, employee health
and safety labeling or other notifications with respect to the
content or other aspects of our processes, products or packaging,
restrictions on the use of certain materials in or on design
aspects of our products or product packaging and responsibility
for disposal of products or product packaging. More stringent
environmental regulations may be enacted in the future, and we
cannot presently determine the modifications, if any, in our
operations that any such future regulations might require, or the
cost of compliance with these regulations. In order to resolve
liabilities at various sites, we have entered into various
administrative orders and consent decrees, some of which may be,
under certain conditions, reopened or subject to renegotiation.
The Class B Common Stock
o We have two classes of common stock: common stock and Class B
common stock. The holders of common stock are entitled to one
vote for each share held, while the holders of Class B common
stock are entitled to 10 votes for each share held. Currently,
the Chairman and CEO owns or has voting power over substantially
all of our Class B common stock and accordingly controls
approximately 49.1% of our outstanding voting power. As a result,
Dr. Zandman is able to effectively control stockholder action.
o Effective control of our company by holders of the Class B common
stock may make us less attractive as a target for a takeover
proposal. It may also make it more difficult or discourage a
merger proposal or proxy contest for the removal of the incumbent
directors. Accordingly, this
-32-
may deprive the holders of common stock of an opportunity they
might otherwise have to sell their shares at a premium over the
prevailing market price in connection with a merger or
acquisition of the Company with or by another company.
-33-
New Accounting Standards
Derivative Financial Instruments
Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 133 requires all derivative instruments to be recognized as
either assets or liabilities and measured at fair value. The accounting for
changes in fair value depends upon the purpose of the derivative instrument and
whether it is designated and qualifies for hedge accounting. We use interest
rate swap agreements to modify variable rate obligations to fixed rate
obligations, thereby reducing exposure to market rate fluctuations. The interest
rate swap agreements are designated as hedges. The effective portion of gains or
losses is reported in other comprehensive income and the ineffective portion, if
any, is reported in net income.
Business Combinations and Goodwill
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 141, Business Combinations
(SFAS 141), and No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS 141 also includes guidance on
the initial recognition and measurement of goodwill and other intangible assets
arising from business combinations completed after June 30, 2001. SFAS 142
prohibits the amortization of goodwill and intangible assets with indefinite
useful lives. SFAS 142 requires that these assets be reviewed for impairment at
least annually. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives.
We will apply SFAS 142 beginning in the first quarter of 2002.
Application of the non-amortization provisions of SFAS 142 is expected to result
in an increase in net income of $10,210,000 ($0.06 per share) in 2002. We will
test goodwill for impairment using the two-step process prescribed in SFAS 142.
The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. We expect to perform the first of
the required impairment tests of goodwill and indefinite lived intangible assets
as of January 1, 2002 in the first quarter of 2002. If an impairment charge were
to result from these transitional impairment tests, it would be reflected as the
cumulative effect of a change in accounting principle in the first quarter of
2002. We have not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosure
Our cash flows and earnings are subject to fluctuations resulting from
changes in foreign currency exchange rates and interest rates. We manage our
exposure to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of derivative financial
instruments. Our policies do not allow speculation in derivative instruments for
profit or execution of derivative instrument contracts for which there are no
underlying exposures. We do not use financial instruments for trading purposes
and we are not a party to any leveraged derivatives. We monitor our underlying
market risk exposures on an ongoing basis and believe that we can modify or
adapt our hedging strategies as needed.
We are exposed to changes in U.S. dollar LIBOR interest rates on our
floating rate revolving credit facility. At December 31, 2001, the outstanding
balance under this facility was $125,000,000. On a selective basis, we from time
to time enter into interest rate swap or cap agreements to reduce the potential
negative impact increases in interest rates could have on our outstanding
variable rate debt. The impact of interest rate instruments on our results of
operations in each of the three years ended December 31, 2001, December 31, 2000
and December 31, 1999 was not significant. See Notes 5 and 12 to Consolidated
Financial Statements for components of our long-term debt and interest rate swap
arrangements.
In August 1998, we entered into six interest rate swap agreements with
a total notional amount of $300,000,000 to manage interest rate risk related to
our multicurrency revolving line of credit. As of December 31,
-34-
2001, five of these six agreements had been terminated. The remaining agreement,
which expires in 2003, has a notional amount of $100,000,000 and requires us to
make payments to the counterparty at variable rates based on USD-LIBOR-BBA
rates. At December 2001, 2000 and 1999, we paid a weighted average fixed rate of
5.77%, 5.77% and 5.61%, respectively, and received a weighted average variable
rate of 1.93%, 6.66% and 6.49%, respectively. The fair value of our interest
rate swap agreements, based on current market rates, approximated a net payable
of $4,686,000 at December 31, 2001 and a net receivable of $51,000 at December
31, 2000. During the year ended December 31, 2001, the Company recorded a pre
tax loss of $3,668,000 relating to an ineffective hedge for a portion of time
relating to an interest rate swap agreement (see Note 7 to the Consolidated
Financial Statements).
Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks. Our significant
foreign subsidiaries are located in Germany, France, Israel and the Far East. In
most locations, we have introduced a "netting" policy where subsidiaries pay all
intercompany balances within thirty days. In September 1999, a subsidiary of
ours entered into foreign currency forward exchange contracts to manage the
effect of exchange rate changes on certain foreign currency denominated
transactions. As of December 31, 2001, we did not have any outstanding foreign
currency forward exchange contracts.
In the normal course of business, our financial position is routinely
subjected to a variety of risks, including market risks associated with interest
rate movements, currency rate movements on non-U.S. dollar denominated assets
and liabilities and collectability of accounts receivable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements of the Company and our
subsidiaries, together with the report of independent auditors thereon, are
presented under Item 14 of this report:
Report of Independent Auditors
Consolidated Balance Sheets -- December 31, 2001 and 2000.
Consolidated Statements of Operations -- for the years ended
December 31, 2001, 2000 and 1999.
Consolidated Statements of Cash Flows -- for the years ended
December 31, 2001, 2000, and 1999.
Consolidated Statements of Stockholders' Equity -- for the years
ended December 31, 2001, 2000 and 1999.
Notes to Consolidated Financial Statements-- December 31, 2001.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-35-
PART III
Information with respect to Items 10, 11, 12 and 13 on Form 10-K is set
forth in our definitive proxy statement, which will be filed within 120 days of
December 31, 2001, our 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."
-36-
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,
2001 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) None.
(c) Exhibits:
2.1 Agreement and Plan of Merger, dated as of July 31, 2001, by and among
Vishay Intertechnology, Inc., Vishay Acquisition Corp., and General
Semiconductor, Inc. Incorporated by reference to Annex A to the Joint
Proxy Statement/Prospectus forming a part of the Registration
Statement on Form S-4 (No. 333-69004) filed on September 6, 2001.
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"). Certificate of Amendment of the Amended and
Restated Certificate of Incorporation of the Company. Incorporated by
reference to Exhibit 3.1 to Form 8-K File filed November 13, 2001.
3.2 Amended and Restated Bylaws of Registrant. Incorporated by reference
to Exhibit 3.1 to Form 10-Q for the quarter ended March 31, 2001.
4.1 Indenture dated as of June 4, 2001 between the Vishay Intertechnology,
Inc. and Bank of New York as Trustee (incorporated by reference to
Exhibit 4.1 to Current Report of Registrant on Form 8-K filed on June
18, 2001 under the Securities Exchange Act of 1934 except that clause
(x) of Section 5 thereof is corrected to read "(x) 0.0625% of the
average LYON Market Price for the Five Day Period with respect to such
Contingent Interest Period and").
4.2 Indenture dated as of December 14, 1999 between General Semiconductor,
Inc. and The Bank of New York as Trustee (incorporated by reference to
Exhibit 4.5 to the Registration Statement on Form S-3 (No. 333-94513)
filed by General Semiconductor, Inc. on January 12, 2000).
4.3 First Supplemental Indenture dated as of November 2, 2001 among
General Semiconductor, Inc., Vishay Intertechnology, Inc., and The
Bank of New York as Trustee to Indenture dated as of December 14,
1999.
4.4 Second Supplemental Indenture dated as of January 8, 2002 among
General Semiconductor, Inc., Vishay Intertechnology, Inc., and The
Bank of New York as Trustee to Indenture dated as of December 14,
1999.
10.1 Performance-Based Compensation Plan for Chief Executive Officer of
Registrant. Incorporated by reference to Exhibit 10.1 to Form 10-K for
fiscal year ended December 31, 1993.
10.2 Vishay Intertechnology, Inc. Amended and Restated Long Term Revolving
Credit Agreement, dated as of June 1, 1999, by and among Vishay and
the Permitted Borrowers (as defined therein), the Lenders (as defined
therein), and Comerica Bank, as administrative agent. Incorporated by
reference to Exhibit 10.1 to the Company's Registration Statement on
Form S-3 (No. 333-52594) filed December 22, 2000.
-37-
10.3 First Amendment to Amended and Restated Vishay Intertechnology, Inc.
Long Term Revolving Credit Agreement and Other Loan Documents, dated
as of August 31, 2000, by and among the Company and the Permitted
Borrowers (as defined therein), Comerica Bank and the other Lenders
signatory thereto, and Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3 (No. 333-52594) filed December 22,
2000.
10.4 Employment Agreement, dated as of March 15, 1985, between the Company
and Dr. Felix Zandman. Incorporated by reference to Exhibit 10.12 to
the Company's Registration Statement on Form S-2 (No. 33-13833).
10.5 Vishay Intertechnology, Inc. 1995 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on Schedule
14ADR filed April 7, 1995.
10.6 Vishay Intertechnology, Inc. 1997 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on Schedule
14A filed April 16, 1998.
10.7 Vishay Intertechnology, Inc. 1998 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on Schedule
14A filed April 16, 1998.
10.8 Money Purchase Plan Agreement of Measurements Group, Inc. Incorporated
by reference to Exhibit 10(a)(6) to Amendment No. 1 to the Company's
Registration Statement on Form S-7 (No. 2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
-38-
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.
April 1, 2002 /s/Felix Zandman
---------------------
Felix Zandman, Chairman
of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated below.
April 1, 2002 /s/Felix Zandman
----------------------
Felix Zandman, Chairman
of the Board and Chief
Executive Officer
(Principal Executive Officer)
April 1, 2002 /s/Avi D. Eden
---------------------
Avi D. Eden, Vice-Chairman
of the Board, Executive Vice President
and General Counsel
April 1, 2002 /s/Gerald Paul
----------------------
Gerald Paul, Director, President
and Chief Operating Officer
April 1, 2002 /s/Richard N. Grubb
----------------------
Richard N. Grubb, Director,
Executive Vice President, Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
April 1, 2002 /s/Robert A. Freece
---------------------
Robert A. Freece, Director,
Senior Vice President
April 1, 2002 /s/Eli Hurvitz
---------------------
Eli Hurvitz, Director
April 1, 2002 /s/Edward B. Shils
---------------------
Edward B. Shils, Director
April 1, 2002 /s/Ziv Shoshani
-----------------
Ziv Shoshani, Director
April 1, 2002 /s/Mark I. Solomon
---------------------
Mark I. Solomon, Director
-39-
April 1, 2002 /s/Jean-Claude Tine
---------------------
Jean-Claude Tine, Director
April 1, 2002 /s/Marc Zandman
-----------------
Marc Zandman, Director
April 1, 2002 /s/Ruta Zandman
-----------------
Ruta Zandman, Director
-40-
Vishay Intertechnology, Inc.
Consolidated Financial Statements
Years ended December 31, 2001, 2000, and 1999
Contents
Report of Independent Auditors...............................................F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Cash Flows........................................F-5
Consolidated Statements of Stockholders' Equity..............................F-7
Notes to Consolidated Financial Statements...................................F-8
Report of Independent Auditors
Board of Directors and Stockholders
Vishay Intertechnology, Inc.
We have audited the accompanying consolidated balance sheets of Vishay
Intertechnology, Inc. as of December 31, 2001 and 2000, and the related
consolidated statements of operations, cash flows, and stockholders' equity for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vishay
Intertechnology, Inc. at December 31, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As discussed in Note 1 to the financial statements, the Company has not yet
adopted Statement of Financial Accounting Standards No. 142. However, the
transition provisions of that Statement preclude the amortization of goodwill
acquired in a business combination for which the acquisition date is after June
30, 2001.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 6, 2002, except for Note 17,
as to which the date is February 13, 2002
F-1
Vishay Intertechnology, Inc.
Consolidated Balance Sheets
(In thousands, except per share and share amounts)
December 31
2001 2000
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 367,115 $ 337,213
Accounts receivable, less allowances of $17,126 and $12,630 382,358 452,579
Inventories:
Finished goods 260,161 179,286
Work in process 136,842 130,682
Raw materials 204,454 215,894
Deferred income taxes 63,084 32,051
Prepaid expenses and other current assets 160,613 127,169
------------- -------------
Total current assets 1,574,627 1,474,874
Property and equipment - at cost:
Land 92,311 47,625
Buildings and improvements 289,672 265,311
Machinery and equipment 1,397,262 1,168,241
Construction in progress 82,269 83,768
------------- -------------
1,861,514 1,564,945
Less allowances for depreciation (693,981) (591,391)
------------- -------------
1,167,533 973,554
Goodwill 1,077,790 295,759
Other intangible assets 83,337 -
Other assets 48,236 39,471
------------- -------------
Total assets $ 3,951,523 $ 2,783,658
============= =============
F-2
December 31
2001 2000
-------------------------------
Liabilities and stockholders' equity
Current liabilities:
Notes payable to banks $ 11,241 $ 8,250
Trade accounts payable 89,467 120,070
Payroll and related expenses 71,841 111,132
Other accrued expenses 292,596 146,157
Income taxes 13,081 31,915
Current portion of long-term debt 367 150
------------- -------------
Total current liabilities 478,593 417,674
Long-term debt - less current portion 605,031 140,467
Deferred income taxes 90,340 79,109
Deferred income 57,208 55,162
Minority interest 66,516 63,480
Other liabilities 139,273 93,157
Accrued pension costs 148,017 100,754
Stockholders' equity:
Preferred Stock, par value $1.00 per share:
authorized - 1,000,000 shares; none issued
Common Stock, par value $.10 per share:
authorized - 300,000,000 shares; 143,795,355 and 122,408,402 shares
outstanding after deducting 332,850 and 225,673 shares in treasury 14,380 12,241
Class B convertible Common Stock, par value $.10 per share: authorized -
40,000,000 shares; 15,496,634 and 15,518,546 shares outstanding after
deducting 279,453 shares in treasury 1,550 1,552
Capital in excess of par value 1,865,979 1,319,426
Retained earnings 615,968 615,455
Unearned compensation (921) (1,248)
Accumulated other comprehensive loss (130,411) (113,571)
------------- -------------
Total stockholders' equity 2,366,545 1,833,855
------------- -------------
Total liabilities and stockholders' equity $ 3,951,523 $ 2,783,658
============= =============
See accompanying notes.
F-3
Vishay Intertechnology, Inc.
Consolidated Statements of Operations
(In thousands, except per share and share amounts)
Year ended December 31
2001 2000 1999
------------------------------------------------
Net sales $ 1,655,346 $ 2,465,066 $ 1,760,091
Costs of products sold 1,273,827 1,459,784 1,299,705
------------- ------------ ------------
Gross profit 381,519 1,005,282 460,386
Selling, general, and administrative expenses 278,171 297,315 254,282
Amortization of goodwill 11,190 11,469 12,360
Restructuring expense 61,908 - -
Purchased research and development 16,000 - -
------------- ------------ ------------
14,250 696,498 193,744
Other income (expense):
Interest expense (16,848) (25,177) (53,296)
Other 12,701 18,904 (5,737)
------------- ------------ ------------
(4,147) (6,273) (59,033)
------------- ------------ ------------
Earnings before income taxes and minority interest 10,103 690,225 134,711
Income taxes 5,695 148,186 36,940
Minority interest 3,895 24,175 14,534
------------- ------------ ------------
Net earnings $ 513 $ 517,864 $ 83,237
============= ============ ============
Basic earnings per share $ 0.00 $ 3.83 $ 0.66
============= ============ ============
Diluted earnings per share $ 0.00 $ 3.77 $ 0.65
============= ============ ============
Weighted average shares outstanding:
Basic 141,171,000 135,295,000 126,678,000
Diluted 142,514,000 137,463,000 128,233,000
See accompanying notes.
F-4
Vishay Intertechnology, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
2001 2000 1999
--------------------------------------------------
Operating activities
Net earnings $ 513 $ 517,864 $ 83,237
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 163,387 140,840 139,676
(Gain) loss on sale of subsidiaries - (5,851) 10,073
(Gain) loss on disposal of property and equipment (1,472) 2,320 1,146
Minority interest in net earnings of consolidated
subsidiaries 3,895 24,175 14,534
Equity in earnings of affiliate - 2,577 2,195
Purchased research and development 16,000 - -
Noncash charge for change in fair value of interest
rate swap 3,668 - -
Accretion of interest on convertible debentures 5,313 - -
Writedowns of property and equipment included in
restructuring expense 20,975 - -
Changes in operating assets and liabilities, net of
effects of businesses acquired or sold:
Accounts receivable 120,095 (148,414) (72,776)
Inventories 6,038 (140,084) 25,998
Prepaid expenses and other current assets (7,321) (62,687) 14,451
Accounts payable (71,761) 28,507 15,838
Other current liabilities (105,685) 106,084 24,146
Other 7,773 76,988 (18,971)
----------- ------------ ------------
Net cash provided by operating activities 161,418 542,319 239,547
Investing activities
Purchases of property and equipment (162,493) (229,781) (119,638)
Proceeds from sale of property and equipment 9,911 7,267 7,934
Purchases of businesses, net of cash acquired (172,468) (42,384) -
Net cash proceeds from divestitures - 33,162 9,118
----------- ------------ ------------
Net cash used in investing activities (325,050) (231,736) (102,586)
F-5
Vishay Intertechnology, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
Year ended December 31
2001 2000 1999
----------------------------------------------------
Financing activities
Net payments on revolving credit lines $ (100,047) $ (506,686) $ (143,496)
Proceeds from long-term borrowings 415 - 197
Principal payments on long-term debt (444) (385) (4,481)
Proceeds from convertible subordinated debentures 294,096 - -
Purchase of treasury stock (850) (5,765) -
Proceeds from sale of common stock - 395,449 -
Proceeds from stock options exercised 854 39,873 -
Net changes in short-term borrowings 3,274 39 6,752
----------- ----------- -----------
Net cash provided by (used in) financing activities 197,298 (77,475) (141,028)
Effect of exchange rate changes on cash (3,764) (1,088) (4,469)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 29,902 232,020 (8,536)
Cash and cash equivalents at beginning of year 337,213 105,193 113,729
----------- ----------- -----------
Cash and cash equivalents at end of year $ 367,115 $ 337,213 $ 105,193
=========== =========== ===========
See accompanying notes.
F-6
Vishay Intertechnology, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
Class B Accumulated
Convertible Capital in Other Total
Common Common Excess of Retained Compensation Comprehensive Stockholders'
Stock Stock Par Value Earnings Unearned Income (Loss) Equity
-----------------------------------------------------------------------------------------
Balance at January 1, 1999 $ 11,129 $ 1,560 $ 984,406 $ 14,354 $ (1,131) $ (7,799) $ 1,002,519
Net earnings -- -- -- 83,237 -- -- 83,237
Foreign currency
translation adjustment -- -- -- -- -- (76,553) (76,553)
Pension liability adjustment -- -- -- -- -- 3,343 3,343
-----------
Comprehensive income 10,027
-----------
Stock issued (46,511 shares) 5 -- 503 -- (508) -- --
Stock options exercised
(87,819 shares) 9 -- 482 -- -- -- 491
Conversions from Class B to common
(42,206 shares) 4 (4) -- -- -- -- --
Tax effects relating to stock plan -- -- 2 -- -- -- 2
Amortization of unearned compensation -- -- -- -- 553 -- 553
-------- -------- ----------- ---------- --------- ---------- -----------
Balance at December 31, 1999 11,147 1,556 985,393 97,591 (1,086) (81,009) 1,013,592
Net earnings -- -- -- 517,864 -- -- 517,864
Foreign currency translation adjustment -- -- -- -- -- (32,468) (32,468)
Pension liability adjustment -- -- -- -- -- (94) (94)
-----------
Comprehensive income 485,302
-----------
Stock issued (53,716 shares) 5 -- 1,699 -- (1,704) -- --
Stock options exercised
(2,656,171 shares) 266 -- 39,607 -- -- -- 39,873
Conversions from Class B to common
(36,347 shares) 4 (4) -- -- -- -- --
Common stock repurchase
(200,000 shares) (20) -- (5,745) -- -- -- (5,765)
Sale of common stock
(8,392,500 shares) 839 -- 394,610 -- -- -- 395,449
Termination of Lite-On stock
appreciation rights -- -- (108,495) -- -- -- (108,495)
Tax effects relating to stock plan -- -- 12,357 -- -- -- 12,357
Amortization of unearned compensation -- -- -- -- 1,542 -- 1,542
-------- -------- ----------- ---------- --------- ---------- -----------
Balance at December 31, 2000 12,241 1,552 1,319,426 615,455 (1,248) (113,571) 1,833,855
Net earnings -- -- -- 513 -- -- 513
Foreign currency translation adjustment -- -- -- -- -- (7,638) (7,638)
Pension liability adjustment -- -- -- -- -- (8,557) (8,557)
Cumulative effect of adoption of
SFAS No. 133 -- -- -- -- -- 51 51
Loss on derivative financial
instruments, net of taxes of $374 -- -- -- -- -- (696) (696)
-----------
Comprehensive loss (16,327)
-----------
Stock issued (22,573 shares) 2 -- 443 -- (446) -- (1)
Stock options exercised
(85,877 shares) 9 -- 845 -- -- -- 854
Conversions from Class B to common
(21,917 shares) 2 (2) -- -- -- -- --
Common stock repurchase (48,500 shares) (5) -- (846) -- -- -- (851)
Tax effects relating to stock plan -- -- 423 -- -- -- 423
Amortization of unearned compensation -- -- -- -- 773 -- 773
Stock issued - General Semiconductor
acquisition (21,305,127 shares) 2,131 -- 497,688 -- -- -- 499,819
Stock options issued - General
Semiconductor acquisition -- -- 48,000 -- -- -- 48,000
-------- -------- ----------- ---------- --------- ---------- -----------
Balance at December 31, 2001 $ 14,380 $ 1,550 $ 1,865,979 $ 615,968 $ (921) $ (130,411) $ 2,366,545
======== ======== =========== ========== ========= ========== ===========
See accompanying notes.
F-7
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements
December 31, 2001
Vishay Intertechnology, Inc. is an international manufacturer and supplier of
passive and active electronic components, particularly resistors, capacitors,
inductors, power MOSFETS, power conversion and motor control integrated
circuits, transistors, diodes and optoelectronic components. Electronic
components manufactured by the Company are used in virtually all types of
electronic products, including those in the computer, telecommunications,
military/aerospace, instrument, automotive, medical, and consumer electronics
industries.
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Vishay
Intertechnology, Inc. and its majority-owned subsidiaries, after elimination of
all significant intercompany transactions, accounts, and profits. Investments in
20%- to 50%-owned companies are accounted for on the equity method. Investments
in other companies are carried at cost.
Revenue Recognition
The Company recognizes revenue when products are shipped to customers. The
Company has agreements with distributors that provide limited rights of return
and protection against price reductions initiated by the Company. The effect of
these programs is estimated based on historical experience and provisions are
recorded at the time of shipment.
Shipping and Handling Costs
Shipping and handling costs are included in costs of products sold.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ significantly from those
estimates.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
F-8
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
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 $149,225,000,
$126,285,000, and $125,847,000 for the years ended December 31, 2001, 2000, and
1999, respectively.
Construction in Progress
The estimated cost to complete construction in progress at December 31, 2001 was
$7,531,000.
Goodwill
Goodwill represents the excess of purchase price over net assets acquired.
Goodwill acquired prior to July 1, 2001 has been amortized principally over
periods ranging from 20-40 years using the straight-line method. Goodwill
acquired after June 30, 2001 has not been amortized in accordance with the
transition provisions of Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets. The recoverability of goodwill was
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 had current operating losses, and based upon
projections there was a likelihood that such operating losses would continue,
the Company determined whether impairment existed on the basis of undiscounted
expected future cash flows from operations before interest for the remaining
amortization period. If impairment existed, goodwill was reduced by the
estimated shortfall of discounted cash flows. Goodwill will be subject to an
initial impairment test in connection with the adoption of SFAS No. 142
effective January 1, 2002, and annual impairment tests as required by SFAS No.
142 thereafter. Accumulated amortization amounted to $69,995,000 and $60,061,000
at December 31, 2001 and 2000, respectively.
Intangible Assets
Other intangible assets consist of trademarks ($35,000,000) and completed
technology of businesses acquired after June 30, 2001 ($48,337,000). Trademarks
have an indefinite life and therefore are not amortized. Completed technology is
being amortized over estimated useful lives of seven to ten years.
F-9
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Cash Equivalents
Cash and cash equivalents includes demand deposits and all highly liquid
investments with maturities of three months or less when purchased.
Research and Development Expenses
The amount charged to expense for research and development (exclusive of
purchased in-process research and development) aggregated $30,176,000,
$37,103,000, and $35,038,000, for the years ended December 31, 2001, 2000, and
1999, respectively. The Company spends additional amounts for the development of
machinery and equipment for new processes and for cost reduction measures.
Grants
Grants received by certain foreign subsidiaries from foreign governments,
primarily in Israel, are recognized as income in accordance with the purpose of
the specific contract and in the period in which the related expense is
incurred. Grants from the Israeli government recognized as a reduction of costs
of products sold were $19,064,000, $15,721,000, and $14,256,000 for the years
ended December 31, 2001, 2000, and 1999, respectively. Grants receivable of
$14,858,000 and $23,792,000 are included in other current assets at December 31,
2001 and 2000, respectively. Deferred grant income was $57,208,000 and
$55,162,000 at December 31, 2001 and 2000, respectively. The grants are subject
to certain conditions, including maintaining specified levels of employment for
periods up to ten years. Noncompliance with such conditions could result in the
repayment of grants. However, management expects that the Company will comply
with all terms and conditions of the grants.
Minority Interest
Minority interest represents the ownership interests of third parties in the net
assets and results of operations of certain consolidated subsidiaries.
F-10
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages entities to
record compensation expense for stock-based employee compensation plans at fair
value but provides the option of measuring compensation expense using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees. The Company accounts for
stock-based compensation in accordance with APB No. 25. Note 10 presents pro
forma results of operations as if SFAS No. 123 had been used to account for
stock-based compensation plans.
Derivative Financial Instruments
Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires all
derivative instruments to be recognized as either assets or liabilities and
measured at fair value. The accounting for changes in fair value depends upon
the purpose of the derivative instrument and whether it is designated and
qualifies for hedge accounting. The Company uses interest rate swap agreements
to modify variable rate obligations to fixed rate obligations, thereby reducing
exposure to market rate fluctuations. The interest rate swap agreements are
designated as hedges. The effective portion of gains or losses is reported in
other comprehensive income and the ineffective portion, if any, is reported in
net income.
Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation costs,
arising from claims, assessments, litigation, fines, penalties, and other
sources are recorded when it is probable that a liability has been incurred and
the amount of the assessment and/or remediation can be reasonably estimated. The
costs for a specific environmental cleanup site are discounted if the aggregate
amount of the obligation and the amount and timing of the cash payments for that
site are fixed or reliably determinable generally based upon information derived
from the remediation plan for that site. Recoveries from third parties that are
probable of realization and can be reasonably estimated are separately recorded,
and are not offset against the related environmental liability.
F-11
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Accounting Pronouncements Pending Adoption
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after June
30, 2001. SFAS No. 142 prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. SFAS No. 142 requires that these assets be
reviewed for impairment as least annually. Intangible assets with finite lives
will continue to be amortized over their estimated useful lives.
The Company will apply SFAS No. 142 beginning in the first quarter of 2002.
Application of the nonamortization provisions of SFAS No. 142 is expected to
result in an increase in net income of $10,210,000 ($0.06 per share) in 2002.
The Company will test goodwill for impairment using the two-step process
prescribed in SFAS No. 142. The first step is a screen for potential impairment,
while the second step measures the amount of the impairment, if any. The Company
expects to perform the first of the required impairment tests of goodwill and
indefinite-lived intangible assets as of January 1, 2002 in the first quarter of
2002. If an impairment charge were to result from these transitional impairment
tests, it would be reflected as the cumulative effect of a change in accounting
principle in the first quarter of 2002. The Company has not yet determined what
the effect, if any, of these tests will be on the earnings and financial
position of the Company.
Goodwill related to the Company's acquisitions of General Semiconductor,
Infineon and Mallory, described in Note 2, all of which were completed after
June 30, 2001, has not been amortized in accordance with the transition
provisions of SFAS No. 142. This had the effect of increasing net income by
$6,485,000 ($0.05 per share) in 2001.
In 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. 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 and
broadens the presentation of discontinued operations to include more disposal
transactions. SFAS No. 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.
F-12
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain prior-year amounts have been reclassified to conform to the current
financial statement presentation.
2. Acquisitions and Divestitures
In January 2001, the Company purchased Tansitor, a manufacturer of wet tantalum
electrolytic capacitors and miniature conformal coated solid tantalum
capacitors, for $18.3 million in cash. The acquisition was accounted for as a
purchase and included in the results of operations of the passives segment from
January 1, 2001. Goodwill of $14,539,000 was amortized in 2001 based on a
twenty-year life.
On July 27, 2001, the Company agreed to purchase from Infineon Technologies AG,
Munich, the Infineon optoelectronic infrared components business. This business
produces optocouplers and optoelectric infrared data components transceivers
(IRDC). The total purchase price for this transaction was approximately $116
million in cash. A partial payment of $78 million was made on July 27, 2001. A
second payment of $38 million was made on December 31, 2001. The acquisition 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 manufacturing facility
located in Malaysia. The results of operations of Infineon's U.S. infrared
components business are included in the results of the actives segment from July
27, 2001. The results of operations of the Malaysia facility are included as of
December 31, 2001. The purchase price has been preliminarily allocated, pending
finalization of appraisals, as follows:
Current assets $ 35,444,000
Property, plant, and equipment 27,575,000
Completed technology 12,000,000
Current liabilities (12,125,000)
Goodwill 53,179,000
--------------
Total purchase price $ 116,073,000
==============
F-13
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions and Divestitures (continued)
On November 7, 2001, the Company acquired Yosemite Investment, Inc. d/b/a North
American Capacitor Company, also known as Mallory, for approximately $45 million
in cash. 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
electrolytic capacitors, among other businesses. The results of operations of
Mallory are included in the passives segment as of November 7, 2001. The
preliminary purchase price allocation is as follows:
Current assets $ 11,033,000
Property, plant, and equipment 6,347,000
Current liabilities (3,555,000)
Long-term debt (857,000)
Goodwill 31,684,000
-------------
Total purchase price $ 44,652,000
=============
On November 2, 2001, the Company acquired General Semiconductor, Inc. a leading
manufacturer of rectifiers and power management devices, following approval of
the transaction and related matters by stockholders of the two companies.
Stockholders of General Semiconductor received 0.563 shares of Vishay Common
Stock for each General Semiconductor share in a tax-free exchange (21,305,127
shares). Vested options to purchase 4,282,000 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. The results of operations of General
Semiconductor are included in the results of the actives segment from November
2, 2001. The purchase price was as follows:
Fair value of shares issued $ 499,818,000
Fair value of options issued 48,000,000
Acquisition expenses 7,028,000
---------------
Total purchase price $ 554,846,000
===============
F-14
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions and Divestitures (continued)
Under purchase accounting, the total purchase price is allocated to assets
acquired and liabilities assumed based on their estimated fair values. The
allocation of the purchase price is based on a preliminary evaluation of the
fair value of General Semiconductor's tangible and identifiable intangible
assets acquired and liabilities assumed at the date of the merger based upon
currently available information. There can be no assurance that the estimated
amounts represent the final purchase allocation. The purchase price has been
preliminarily allocated, pending finalization of appraisals, to the acquired
assets and liabilities based on fair values as follows:
Current assets $ 122,111,000
Property, plant, and equipment 189,297,000
Other assets 48,963,000
Trademarks 35,000,000
Completed technology 36,337,000
Current liabilities (181,193,000)
Long-term debt (255,502,000)
Other noncurrent liabilities (132,284,000)
Goodwill 692,117,000
--------------
Total purchase price $ 554,846,000
==============
In connection with the General Semiconductor acquisition, the Company recorded
restructuring liabilities of $94,643,000 in connection with an exit plan that
management began to formulate prior to the acquisition date. Approximately
$88,242,000 of these liabilities relate to employee termination costs covering
approximately 1,460 technical, production, administrative and support employees
located in the United States, Europe, and the Pacific Rim. The remaining
$6,401,000 relate to provisions for lease cancellations and other costs. The
liability is recorded in other accrued expenses and is expected to be paid out
by the first quarter of 2003. The exit plan is not yet finalized. Future
adjustments to increase or decrease the restructuring liabilities would increase
or decrease goodwill.
Management estimated that $16,000,000 of the General Semiconductor purchase
price represents purchased in-process technology that had not reached
technological feasibility and had no alternative future use. Accordingly, this
amount was expensed with no tax benefit upon consummation of the acquisition.
The value assigned to purchased in-process technology was determined by
identifying research projects in areas for which technological feasibility has
not been established. The value was determined by estimating the costs to
develop the purchased in-process technology into commercially viable products,
estimating the resulting net cash flows from such projects, and discounting the
net cash flows back to their present value. The discount rate included a
F-15
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions and Divestitures (continued)
factor that takes into account the uncertainty surrounding the successful
development of the purchased in-process technology. If these projects are not
successfully developed, future revenue and profitability of Vishay may be
adversely affected. Additionally, the value of other intangible assets acquired
may become impaired.
Had the acquisitions been made at the beginning of the respective periods, the
Company's pro forma unaudited results would have been (in thousands, except per
share amounts):
Year ended December 31
2001 2000
-------------------------------
Net sales $ 2,089,213 $ 3,153,616
Net earnings (loss) (39,335) 575,594
Basic earnings (loss) per share (0.25) 3.68
Diluted earnings (loss) per share (0.25) 3.46
The pro forma information includes adjustments for interest expense that would
have been incurred to finance the acquisitions, adjustments to depreciation
based on the fair value of property, plant, and equipment acquired, write-off of
purchased in-process research and development, amortization of goodwill for
acquisitions prior to July 1, 2001, and related tax effects. Goodwill related to
the acquisitions is not tax deductible.
The unaudited pro forma results are not necessarily indicative of the results
that would have been attained had the acquisitions occurred at the beginning of
the periods presented.
During 2000, the Company acquired certain assets and assumed certain liabilities
of Spectrol Electronics Corporation and Spectrol Electronics Limited and
acquired 100% of the common stock of Cera-Mite Corporation and of Electro-Films,
Inc. The combined cash purchase price was $42,384,000. The results of operations
of Electro-Films, Cera-Mite, and Spectrol have been included in the Company's
results from June 1, 2000, August 1, 2000, and September 1, 2000, respectively.
Goodwill ($19,707,000) has been amortized over 20 years using the straight-line
method. The pro forma effect of these acquisitions was not material for 2000 or
1999.
F-16
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
2. Acquisitions and Divestitures (continued)
On May 31, 2000, the Company entered into a definitive agreement for the sale of
its 65% interest in Lite-On Power Semiconductor Corporation (LPSC) to the
Lite-On Group for $40,736,000 in cash and the transfer to the Company of the
rights under the SARs (see Note 6) issued in July 1997. The fair value of the
SARs was $108,495,000 as of May 31, 2000. A pretax gain of $8,401,000 is
included in other income in 2000 in connection with the sale of the Company's
65% interest in LPSC.
On November 30, 2000, the Company sold V-Tech Latino Americana LTDA, its
Brazilian distribution subsidiary. In connection with the sale, the Company
received cash proceeds of approximately $400,000 and recorded a noncash pretax
loss of $2,550,000, which is included in other income (expense).
On March 26, 1999, the Company sold Nicolitch, S.A., its French manufacturer of
printed circuit boards. In connection with the sale, the Company received
proceeds of approximately $9,118,000 and recorded a noncash pretax loss of
$10,073,000, which is included in other income (expense).
3. Restructuring Expense
Restructuring expense was $61,908,000 for the year ended December 31, 2001.
Restructuring of European, Asia Pacific, and Israeli operations included
$27,064,000 of employee termination costs covering approximately 3,778
technical, production, administrative and support employees located in France,
Hungary, Portugal, Austria, the Philippines, Germany, and Israel. The European
operations also recorded $2,191,000 of noncash costs associated with the
writedown of buildings and equipment that are no longer in use. In the United
States, $13,870,000 of restructuring expense relates to termination costs for
approximately 1,885 technical, production, administrative and support employees.
The remaining $18,783,000 of restructuring expense relates to the noncash
writedown of buildings and equipment that are no longer in use.
The restructuring expense reflects the cost reduction programs currently being
implemented by the Company. As of December 31, 2001, $23,838,000 of severance
costs has been paid. The remaining $17,096,000 of severance costs, currently
shown in other accrued expenses, should be paid by December 31, 2002.
F-17
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes
Earnings before income taxes and minority interest consists of the following
components:
Year ended December 31
2001 2000 1999
-------------------------------------------------
(In thousands)
Domestic $ (55,598) $ 177,852 $ 26,717
Foreign 65,701 512,373 107,994
---------- ----------- -----------
$ 10,103 $ 690,225 $ 134,711
========== =========== ===========
Significant components of income taxes are as follows:
Year ended December 31
2001 2000 1999
------------------------------------------------
(In thousands)
Current:
U.S. $ 6,194 $ 51,965 $ 1,685
Foreign 9,197 11,936 6,810
State 641 4,744 728
---------- ----------- ------------
16,032 68,645 9,223
Deferred:
U.S. (12,392) 62,156 21,957
Foreign 4,031 17,540 5,333
State (1,976) (155) 427
---------- ----------- ------------
(10,337) 79,541 27,717
---------- ----------- ------------
$ 5,695 $ 148,186 $ 36,940
========== =========== ============
F-18
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 assets and liabilities are as follows:
December 31
2001 2000
--------------------------------
(In thousands)
Deferred tax assets:
Pension and other retiree obligations $ 41,500 $ 18,393
Net operating loss carryforwards 38,869 32,406
Tax credit carryforwards 13,080 2,143
Restructuring reserves 23,678 3,412
Other accruals and reserves 51,348 32,595
----------- -----------
Total deferred tax assets 168,475 88,949
Less valuation allowance (10,256) (19,658)
----------- -----------
Net deferred tax assets 158,219 69,291
Deferred tax liabilities:
Tax over book depreciation 88,377 83,489
Non-amortizable intangible assets 26,412 -
Other - net 16,284 16,966
----------- -----------
Total deferred tax liabilities 131,073 100,455
----------- -----------
Net deferred tax assets (liabilities) $ 27,146 $ (31,164)
=========== ===========
F-19
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
A reconciliation of income tax expense at the U.S. federal statutory income tax
rate to actual income tax expense is as follows:
Year ended December 31
2001 2000 1999
--------------------------------------------
(In thousands)
Tax at statutory rate $ 3,536 $ 241,579 $ 47,149
State income taxes, net of U.S. federal tax benefit (382) 3,064 606
Effect of foreign operations (4,894) (99,520) (13,717)
Purchased research and development 5,600 - -
Other 1,835 3,063 2,902
---------- ----------- ---------
$ 5,695 $ 148,186 $ 36,940
========== =========== =========
At December 31, 2001, the Company had the following significant net operating
loss carryforwards for tax purposes (in thousands):
Expires
------------------
Czech Republic $ 3,411 2005 - 2007
France 4,594 2006
Germany 44,972 No expiration
Israel 2,471 No expiration
Portugal 6,680 2002 - 2007
United States 51,151 2021
Approximately $22,486,000 of the carryforward in Germany resulted from the
Company's acquisition of Roederstein, GmbH in 1993. Valuation allowances of
$7,324,000 and $19,068,000 have been recorded at December 31, 2001 and 2000,
respectively, for deferred tax assets related to foreign net operating loss
carryforwards. In 2001 and 2000, respectively, tax benefits recognized through
reductions of the valuation allowance had the effect of reducing goodwill of
acquired companies by $4,901,000 and $2,693,000. If additional tax benefits are
recognized in the future through further reduction of the valuation allowance,
$2,547,000 of such benefits will reduce goodwill.
F-20
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
At December 31, 2001, the Company had the following tax credit carryforwards
available (in thousands):
Expires
-----------------
Federal Alternative Minimum Tax $ 7,625 No expiration
California Investment Credit 6,094 2007 - 2010
California Research Credit 2,169 No expiration
At December 31, 2001, no provision had been made for U.S. federal and state
income taxes on approximately $937,880,000 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), state income taxes,
and withholding taxes payable to the various foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not practicable
because of the complexities associated with its hypothetical calculation.
Income taxes paid were $72,953,000, $45,703,000, and $5,463,000 for the years
ended December 31, 2001, 2000, and 1999, respectively.
5. Long-Term Debt
Long-term debt consists of the following:
December 31
2001 2000
----------------------------
(In thousands)
Multicurrency revolving credit loans $ 125,000 $ 140,000
Convertible subordinated notes, LYONs, due 2021 308,506 -
Other debt and capital lease obligations 1,390 617
Convertible subordinated notes, GSI,
due 2006 170,502 -
----------- -----------
605,398 140,617
Less current portion 367 150
----------- -----------
$ 605,031 $ 140,467
=========== ===========
F-21
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
The Company has a $660,000,000 long-term revolving credit and swing line
facility which matures on June 1, 2005, subject to the Company's right to
request year-to-year renewals. Interest on the long-term facility is payable at
prime or other variable interest rate options. The Company is required to pay
facility fees on the long-term facility. As of December 31, 2001, the Company
had $125,000,000 outstanding under the long-term revolving credit facility
(interest rate of 2.43%; 5.77% after giving effect to interest rate swaps).
Borrowings under the loan agreement are secured by pledges of stock in certain
significant subsidiaries and certain guaranties by significant subsidiaries. The
credit facility restricts the Company from paying cash dividends and requires
the Company to comply with other covenants, including the maintenance of
specific financial ratios.
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 principal 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
F-22
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-Term Debt (continued)
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 notes. 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 notes.
General Semiconductor, which was acquired by the Company on November 2, 2001,
has outstanding $172.5 million principal amount of 5.75% convertible
subordinated notes due December 15, 2006. The notes were recorded at their fair
value of $170.5 million as of the November 2, 2001 acquisition date. Interest on
the convertible notes is payable semiannually on June 15 and December 15 of each
year. As a consequence of the Company's acquisition of General Semiconductor,
the convertible notes became convertible into approximately 6.3 million shares
of the Company's Common Stock. The convertible notes are redeemable at the
Company's option, in whole or in part, at any time on or after December 15, 2002
at a premium of 103.286% of par value declining annually to 100.821% at December
15, 2005 and thereafter.
Aggregate annual maturities of long-term debt, assuming that the Company is
required to repurchase the LYONs in 2004, are as follows: 2002 - $367,000;
2003 - $255,000; 2004 - $308,755,000; 2005 - $214,000; 2006 - $295,664,000; and
thereafter - $143,000.
At December 31, 2001, the Company had committed and uncommitted short-term
credit lines with various U.S. and foreign banks aggregating $78,516,000, of
which $67,275,000 was unused. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 2001 and 2000 was 2.53% and 6.57%,
respectively.
Interest paid was $15,685,000, $29,930,000, and $53,605,000 for the years ended
December 31, 2001, 2000, and 1999, respectively.
F-23
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stockholders' Equity
The Company's Class B Common Stock carries ten votes per share while the Common
Stock carries one vote per share. Class B shares are transferable only to
certain permitted transferees while the Common Stock is freely transferable.
Class B shares are convertible on a one-for-one basis at any time into shares of
Common Stock.
The Company completed a public offering of its Common Stock on May 15, 2000,
selling 8,392,500 shares at a price of $49.00 (adjusted for the June 9, 2000
three-for-two stock split). The total net proceeds to the Company from the
offering, after deducting the underwriting discount and estimated expenses, were
approximately $395,449,000. These proceeds were used to repay a portion of the
debt outstanding under its long-term revolving credit facility.
In connection with the Company's acquisition of 65% of LPSC in July 1997, the
Company issued stock appreciation rights (SARs) to the Lite-On Group (former
owners of LPSC). The SARs represented the right to receive, in stock, the
increase in value on the equivalent of 3,200,000 shares of the Company's Common
Stock, above $11.68 per share. On January 24, 2000, the Company exercised its
right to call the SARs. Based on the call price of $26.43 per share and the
average closing price of Vishay shares for the thirty days prior to January 24,
2000, the Company would have had to issue 2,294,000 shares of Common Stock to
settle the SARs. In connection with the sale of its 65% interest in LPSC to the
Lite-On Group (see Note 2), the Lite-On Group transferred its rights under the
SARs to Vishay.
On November 2, 2001, the stockholders approved an increase in the authorized
capital stock of the Company. The total authorized Common Stock was increased
from 150,000,000 to 300,000,000 shares and the Class B Common Stock was
increased from 20,000,000 to 40,000,000 shares.
On August 10, 2000, the Board of Directors of the Company authorized the
repurchase of up to 5,000,000 shares of its Common Stock from time to time in
the open market. As of December 31, 2001, the Company had repurchased 248,500
shares for a total of $6,616,000.
Unearned compensation relating to Common Stock issued under employee stock plans
is being amortized over periods ranging from three to five years. At December
31, 2001, 305,126 shares were available for issuance under stock plans.
F-24
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
7. Other Income (Expense)
Other income (expense) consists of the following:
Year ended December 31
2001 2000 1999
-------------------------------------------
(In thousands)
Foreign exchange gains (losses) $ 611 $ (7,305) $ 86
Loss on ineffective interest rate swap (3,668) - -
Interest income 15,092 9,652 3,968
Equity in net income of affiliates - 2,577 2,195
Gain on termination of interest rate swap agreements - 8,919 -
Gains (losses) on sale of subsidiaries - 5,851 (10,073)
Gains (losses) on disposal of property and equipment 1,472 (2,320) (1,179)
Other (806) 1,530 (734)
---------- ---------- ----------
$ 12,701 $ 18,904 $ (5,737)
========== ========== ==========
In connection with repayments of debt in 2000, the Company terminated
$200,000,000 notional amount of interest rate swap agreements (see Note 12) and
recognized pretax gains of $8,919,000.
During the year ended December 31, 2000, the Company sold its 65% interest in
LPSC and all of the assets of V-Tech Latino American LTDA. The sale of LPSC
resulted in a pretax gain of $8,401,000 and the sale of V-Tech resulted in a
pretax loss of $2,550,000. During the year ended December 31, 1999, the Company
sold Nicolitch S.A. and recorded a pretax loss of $10,073,000 (see Note 2).
F-25
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
8. Other Comprehensive Income
The income tax effects allocated to and the cumulative balance of each component
of other comprehensive income (loss) are as follows:
Tax
Beginning Before-Tax Benefit Net-of-Tax
Balance Amount (Expense) Amount Ending Balance
---------------------------------------------------------------------------------
(In thousands)
December 31, 2001
Pension liability adjustment $ (5,137) $ (13,281) $ 4,724 $ (8,557) $ (13,694)
Currency translation adjustment (108,434) (7,638) - (7,638) (116,072)
Loss on derivative financial instruments - (1,019) 374 (645) (645)
------------ ---------- --------- ---------- ------------
$ (113,571) $ (21,938) $ 5,098 $ (16,840) $ (130,411)
============ ========== ========= ========== ============
December 31, 2000
Pension liability adjustment $ (5,043) $ 1,258 $ (1,352) $ (94) $ (5,137)
Currency translation adjustment (75,966) (32,468) - (32,468) (108,434)
------------ ---------- --------- ---------- ------------
$ (81,009) $ (31,210) $ (1,352) $ (32,562) $ (113,571)
============ ========== ========= ========== ============
December 31, 1999
Pension liability adjustment $ (8,386) $ 6,177 $ (2,834) $ 3,343 $ (5,043)
Currency translation adjustment 587 (76,553) - (76,553) (75,966)
------------ ---------- --------- ---------- ------------
$ (7,799) $ (70,376) $ (2,834) $ (73,210) $ (81,009)
============ ========== ========= ========== ============
F-26
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits
The Company maintains several defined benefit pension and nonpension
postretirement plans which cover substantially all full-time U.S. employees. The
U.S. pension plans of General Semiconductor are included as of November 2,
2001. The following table sets forth a reconciliation of the benefit obligation,
plan assets, and accrued benefit cost related to these plans:
Pension Benefits Other Benefits
----------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 116,008 $ 104,447 $ 7,964 $ 7,331
Service cost 3,092 2,528 240 225
Interest cost 9,023 7,858 678 545
Employee contributions 2,019 2,067 - -
Actuarial losses (gains) (169) 6,152 325 104
Plan amendments - - - 314
Benefits paid (7,565) (7,044) (523) (555)
Acquisition of General Semiconductor 70,865 - 11,602 -
------------- ------------- ------------- --------------
Benefit obligation at end of year $ 193,273 $ 116,008 $ 20,286 $ 7,964
============= ============= ============= =============
Change in plan assets:
Fair value of plan assets at beginning
of year $ 102,918 $ 99,440
Actual return on plan assets (1,078) 2,982
Company contributions 5,113 5,473
Plan participants' contributions 2,019 2,067
Benefits paid (7,565) (7,044)
Acquisition of General Semiconductor 63,779 -
------------- --------------
Fair value of plan assets at end of year $ 165,186 $ 102,918
============= =============
Funded status $ (28,087) $ (13,090) $ (20,286) $ (7,964)
Unrecognized net actuarial loss (gain) 26,812 15,772 (671) (187)
Unrecognized transition obligation (asset) (302) (193) 2,128 2,322
Unamortized prior service cost - 8 639 732
Additional minimum liability (8,864) - - -
------------- ------------- ------------- -------------
Net amount recognized $ (10,441) $ 2,497 $ (18,190) $ (5,097)
============= ============= ============= =============
F-27
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
Pension Benefits Other Benefits
-------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------
(In thousands)
Amounts recognized in the consolidated
balance sheets consist of:
Prepaid benefit cost $ -- $ 7,018 $ -- $ --
Accrued benefit liability (19,305) (4,521) (18,190) (5,097)
Accumulated other comprehensive loss 8,864 -- -- --
----------- ----------- ----------- -----------
Net amount recognized $ (10,441) $ 2,497 $ (18,190) $ (5,097)
=========== =========== =========== ===========
Weighted-average assumptions
as of December 31:
Discount rate 7.25% 7.25% 7.25% 7.25%
Expected return on plan assets 8.50%-9.50% 8.50%-9.50%
Rate of compensation increase 4.50% 4.50%
Pension Benefits Other Benefits
-----------------------------------------------------------------------
2001 2000 1999 2001 2000 1999
-----------------------------------------------------------------------
(In thousands)
Components of net periodic benefit cost:
Annual service cost $ 5,388 $ 4,595 $ 5,255 $ 240 $ 225 $ 264
Less expected employee
contributions 2,296 2,067 1,959 -- -- --
-------- -------- -------- -------- -------- --------
Net service cost 3,092 2,528 3,296 240 225 264
Interest cost 9,023 7,858 6,981 678 545 496
Expected return on plan
assets (10,048) (8,703) (8,259) -- -- --
Amortization of prior
service cost 6 67 98 93 93 31
Amortization of transition
obligation 311 110 110 194 194 214
Amortization of (gains)
losses 514 556 461 -- (17) 6
-------- -------- -------- -------- -------- --------
Net periodic benefit cost $ 2,898 $ 2,416 $ 2,687 $ 1,205 $ 1,040 $ 1,011
======== ======== ======== ======== ======== ========
F-28
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $121,472,000, $107,553,000, and $99,210,000,
respectively, as of December 31, 2001 and $21,829,000, $21,355,000, and
$15,899,000, respectively, as of December 31, 2000.
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with projected benefit obligations in
excess of plan assets were $121,472,000, $107,553,000, and $99,210,000,
respectively, as of December 31, 2001 and $116,008,000, $102,340,000, and
$102,918,000, respectively, as of December 31, 2000.
The Company maintains two unfunded nonpension postretirement plans funded as
costs are incurred. One plan, which covers the Company's employees, is
contributory, with employee contributions adjusted for general inflation or
inflation in costs under the plan. The plan was amended in 1993 to cap employer
contributions at 1993 levels. The second plan covers all full-time U.S. General
Semiconductor employees not covered by a collective bargaining agreement who
meet defined age and service requirements. This plan is the primary provider of
benefits for retirees up to age 65, after which Medicare becomes the primary
provider. The impact of a one-percentage-point change in assumed health care
cost trend rates on the net periodic benefit cost and postretirement benefit
obligation is immaterial.
Many of the Company's U.S. employees are eligible to participate in 401(k)
savings plans, some of which provide for Company matching under various
formulas. The Company's matching expense for the plans was $3,182,000,
$3,161,000, and $3,196,000 for the years ended December 31, 2001, 2000, and
1999, respectively.
The Company provides pension and similar benefits to employees of certain
foreign subsidiaries consistent with local practices. German subsidiaries of the
Company have defined benefit pension plans. The German pension plans of General
Semiconductor are included as of November 2, 2001. The following table sets
forth a reconciliation of the benefit obligation, plan assets, and accrued
benefit cost related to the German plans:
F-29
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
2001 2000
-------------------------------------
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 90,548 $ 98,108
Service cost 391 440
Interest cost 5,301 5,755
Actuarial gains (26) (915)
Benefits paid (4,845) (4,871)
Foreign currency translation (3,845) (7,969)
Acquisition of General Semiconductor 5,873 -
------------ ------------
Benefit obligation at end of year $ 93,397 $ 90,548
============ ============
Change in plan assets:
Fair value of plan assets at beginning of year $ 13,417 $ 13,726
Actual return on plan assets 1,019 677
Company contributions 1,947 2,408
Benefits paid (2,440) (2,514)
Foreign currency translation (806) (880)
------------ ------------
Fair value of plan assets at end of year $ 13,137 $ 13,417
============ ============
Funded status $ (80,260) $ (77,131)
Unrecognized net actuarial losses 1,560 4,347
Unrecognized transition asset 18 (9)
Unamortized prior service cost (6) 58
------------ ------------
Net amount recognized $ (78,688) $ (72,735)
============ ============
F-30
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pensions and Other Postretirement Benefits (continued)
2001 2000
-----------------------------
(In thousands)
Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit liability $ (84,298) $ (78,742)
Accumulated other comprehensive income 5,610 6,007
---------- ----------
Net amount recognized $ (78,688) $ (72,735)
========== ==========
Weighted-average assumptions as of December 31:
Discount rate 6.50% 6.50%
Rate of compensation increase 3.00% 3.00%
2001 2000 1999
-----------------------------------------
(In thousands)
Components of net periodic benefit cost:
Service cost $ 391 $ 440 $ 554
Interest cost 5,301 5,755 6,501
Expected return on plan assets (444) (440) (488)
Amortization of prior service cost 36 45 65
Amortization of transition asset (3) (4) (6)
Amortization of losses 97 151 250
--------- --------- --------
Net periodic benefit cost $ 5,378 $ 5,947 $ 6,876
========= ========= ========
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the German pension plans with accumulated benefit obligations
and projected benefit obligations in excess of plan assets were $81,463,000,
$81,646,000, and $13,137,000, respectively, as of December 31, 2001 and
$90,548,000, $89,064,000, and $13,417,000, respectively, as of December 31,
2000.
F-31
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options
The Company has three stock option programs. Under the 1995 Stock Option
Program, certain key executives of the Company were granted options on March 19,
1995, to purchase 2,283,000 shares of the Company's Common Stock. The options
were fully vested on the date of grant and expired March 1, 2000, with one-third
exercisable at $12.21, one-third exercisable at $15.36, and one-third
exercisable at $21.94. As of December 31, 2000, options to purchase 2,010,000
shares had been exercised under this plan and the remaining options had been
canceled.
Under the 1997 Stock Option Program, certain executive officers, key employees,
and consultants of the Company were granted options on May 21, 1998, to purchase
2,687,000 shares of the Company's Common Stock. The options were fully vested on
the date of grant and expire June 1, 2008, with one-third exercisable at $10.89,
one-third exercisable at $12.53, and one-third exercisable at $13.61. As of
December 31, 2001, options to purchase 528,000 shares have been exercised under
this plan.
Under the 1998 Stock Option Program, certain executive officers and key
employees were granted options, as summarized in the following table:
Date of Grant # of Options Exercise Price Vesting Expiration
- -----------------------------------------------------------------------------------------------------------------------------
October 6, 1998 1,598,000 $ 5.60 Evenly over 6 years March 16, 2008
October 8, 1999 1,334,000 15.33 Evenly over 6 years October 8, 2009
August 4, 2000 50,000 30.00 Evenly over 5 years, beginning August August 4, 2010
4, 2003
October 12, 2000 1,114,000 25.13 Evenly over 6 years October 12, 2010
On May 18, 2000, the stockholders of the Company approved an increase in the
number of shares available for grant under Vishay's 1998 Stock Option Program.
As a result, the number of shares available for grant under this program
increased from 2,953,500 to 4,453,500. As of December 31, 2001, options to
purchase 278,000 shares have been exercised under this plan.
F-32
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options (continued)
On November 2, 2001, Vishay acquired General Semiconductor and General
Semiconductor became a wholly owned subsidiary of the Company. As a result of
the acquisition, each outstanding option to acquire General Semiconductor common
stock became exercisable for shares of Vishay Common Stock. Based on the
conversion ratio in the acquisition of 0.563 of a Vishay share for each General
Semiconductor share, the former General Semiconductor options became exercisable
in the aggregate for 4,282,000 shares of Vishay Common Stock. All such options
were immediately vested and exercisable as a result of the merger but the terms
of the options otherwise remained unchanged.
The following table summarizes the Company's stock option activity (options in
thousands):
2001 2000 1999
-------------------------- ---------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
-------------- ----------- ------------- ------------- ------------- ------------
Outstanding at beginning of year 5,646 $14.29 7,493 $12.67 6,295 $11.96
Granted - - 1,164 25.34 1,334 15.33
Exercised (86) 9.99 (2,656) 15.08 (88) 5.60
Forfeited - - - - - -
Canceled (273) 17.82 (355) 10.41 (48) 6.05
Acquisition of General
Semiconductor 4,282 18.10 - - - -
--------- ---------- ----------
Outstanding at end of year 9,569 15.97 5,646 14.29 7,493 12.67
========= ========== ==========
Exercisable at end of year 7,358 15.74 2,651 11.96 4,866 13.83
========= ========== ==========
Available for future grants 958 760 69
========= ========== ==========
F-33
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options (continued)
The following table summarizes information concerning stock options outstanding
and exercisable at December 31, 2001 (options in thousands):
Options Outstanding
-------------------------------------------------------
Weighted Options Exercisable
Average -------------------------------------
Range of Number of Remaining Weighted Average Number of Weighted Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
$2.64 3 2.57 $ 2.64 3 $ 2.64
$5.60 1,039 6.76 5.60 445 5.60
$10.89 - $12.53 1,289 6.39 11.76 1,289 11.76
$12.54 - $13.61 1,387 6.36 13.23 1,387 13.23
$14.32 - $14.99 93 2.34 14.43 93 14.43
$15.33 1,097 7.77 15.33 362 15.33
$15.43 - $16.41 1,394 8.56 15.97 1,394 15.97
$16.52 - $20.86 1,368 6.87 18.95 1,368 18.95
$21.43 - $24.30 593 4.20 22.42 593 22.42
$25.13 - $34.52 1,306 8.50 25.91 424 26.96
--------- --------
Total 9,569 7.08 $15.97 7,358 $15.74
========= ========
The following is provided to comply with the disclosure requirements of SFAS No.
123. If compensation cost for the Company's stock option programs had been
determined using the fair-value method prescribed by SFAS No. 123, the Company's
results would have been reduced to the pro forma amounts indicated below (in
thousands, except per share amounts):
Year ended December 31
2001 2000 1999
-------------------------------------------
Net earnings $(3,229) $515,296 $82,103
Basic earnings per share (0.02) 3.81 0.65
Diluted earnings per share (0.02) 3.75 0.64
F-34
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
10. Stock Options (continued)
The weighted average fair value of the options granted was estimated using the
Black-Scholes option pricing model, with the assumptions presented below. All
options granted in 2000 had a weighted average fair value of $11.64 and a
weighted average exercise price of $25.34. All options granted in 1999 had an
exercise price equal to the market value and a weighted average fair value of
$6.21.
2000 1999
-------------------- -------------------
1998 Stock Option 1998 Stock Option
Program Program
-------------------- -------------------
Expected dividend yield - -
Risk-free interest rate 5.8% 6.0%
Expected volatility 58.2% 51.3%
Expected life (in years) 4.7 4.5
11. Commitments and Contingencies
Total rental expense under operating leases was $22,994,000, $21,431,000, and
$21,390,000 for the years ended December 31, 2001, 2000, and 1999, respectively.
Future minimum lease payments for operating leases with initial or remaining
noncancelable lease terms in excess of one year are as follows: 2002 -
$19,252,000; 2003 - $17,230,000; 2004 - $12,904,000; 2005 - $11,007,000; 2006 -
$10,465,000; and thereafter - $42,507,000.
F-35
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies (continued)
Environmental Matters
The Company is subject to various federal, state, local and foreign laws and
regulations governing environmental matters, including the use, discharge and
disposal of hazardous materials. The Company's manufacturing facilities are
believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse
effect on the Company's financial condition. As part of the acquisition of
General Semiconductor by Vishay on November 2, 2001, the Company assumed ongoing
environmental matters.
The Company has engaged independent consultants to assist management in
evaluating potential liabilities related to environmental matters. Management
assesses the input from these independent consultants along with other
information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a
site-by-site basis, including those sites where the Company has been named as a
"potentially responsible party." Such assessments include the Company's share of
remediation costs, information known to the Company concerning the size of the
hazardous waste sites, their years of operation and the number of past users and
their financial viability. The Company has a reserve recorded at December 31,
2001 for environmental matters relating to General Semiconductor. While the
ultimate outcome of these matters cannot be determined, management does not
believe that the final disposition of these matters will have a material adverse
effect on the Company's financial position, results of operations, or cash flows
beyond the amounts previously provided for in the financial statements.
The Company's present and past facilities have been in operation for many years,
and over that time in the course of those operations, such facilities have used
substances which are or might be considered hazardous, and the Company has
generated and disposed of wastes which are or might be considered hazardous.
Therefore, it is possible that additional environmental issues may arise in the
future, which the Company cannot now predict.
F-36
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies (continued)
Litigation
In February and March 2001, several purported class action complaints were filed
in the Delaware Court of Chancery and the California Superior Court against the
Company, Siliconix and the directors of Siliconix in connection with a proposal
announced by the Company in February 2001 to purchase all issued and outstanding
shares of Siliconix that the Company did not already own. The class actions
alleged that the Company's proposed offer was unfair and a breach of fiduciary
duty. One of the Delaware class actions also alleged that the Company had
usurped Siliconix inventory and patents, appropriated Siliconix's separate
corporate identity, and obtained a below-market loan from Siliconix. The actions
sought injunctive relief, damages and other relief. The Delaware Chancery Court
denied a preliminary injunction motion seeking to enjoin the Company's tender
offer, which was commenced in May 2001 but not successfully completed. Motions
of the Company and Siliconix to dismiss the actions in Delaware and for summary
judgment are pending. The actions in California have been stayed.
The Company is not a party to any other pending legal proceedings other than
various claims and lawsuits arising in the normal course of business and those
for which the Company is indemnified. The Company is of the opinion that these
litigations or claims will not have a material negative effect on its
consolidated financial position, results of operations, or cash flows.
12. Financial Instruments
The Company uses financial instruments in the normal course of its business,
including derivative financial instruments, for purposes other than trading.
These financial instruments include debt and interest rate swap agreements. The
notional or contractual amounts of these commitments and other financial
instruments are discussed below.
Concentration of Credit Risk
Financial instruments with potential credit risk consist principally of cash and
cash equivalents and accounts receivable. The Company maintains cash and cash
equivalents with various major financial institutions. Concentrations of credit
risk with respect to receivables are generally limited due to the Company's
large number of customers and their dispersion across many countries and
industries. At December 31, 2001, the Company had no significant concentrations
of credit risk. At December 31, 2000, the Company had one customer that
represented 13.7% of accounts receivable. The customer's accounts receivable
balance has been collected as of December 31, 2001.
F-37
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
12. Financial Instruments (continued)
Interest Rate Swap Agreements
In August 1998, the Company entered into six interest rate swap agreements,
maturing in 2003, with a total notional amount of $300,000,000 to manage
interest rate risk related to its multicurrency revolving line of credit. These
interest rate swap agreements required the Company to make payments to the
counterparties at the fixed rate stated in the agreements, and in return to
receive payments from the counterparties at variable rates. During fiscal 2000,
the Company terminated $200,000,000 notional amount of interest rate swap
agreements and recognized a pretax gain of $8,919,000. At December 31, 2001, the
Company had outstanding one interest rate swap agreement with a notional amount
of $100,000,000. At December 31, 2001 and 2000, the Company paid a weighted
average fixed rate of 5.77%, respectively, and received a weighted average
variable rate of 1.93% and 6.66%, respectively. The fair value of the interest
rate swap agreements, based on current market rates, approximated a net payable
of $4,686,000 at December 31, 2001 and a net receivable of $51,000 at December
31, 2000. During the year ended December 31, 2001, the Company recorded a pretax
loss of $3,668,000 relating to an ineffective hedge for a portion of time
relating to an interest rate swap agreement (see Note 7).
Cash and Cash Equivalents, Notes Payable, and Long-Term Debt
The carrying amounts reported in the consolidated balance sheets approximate
fair value.
13. Current Vulnerability Due to Certain Concentrations
Customer Concentrations
A material portion of the Company's revenues are derived from the worldwide
communications and computer markets. These markets have historically experienced
wide variations in demand for end products. If demand for these end products
should decrease significantly, the producers thereof could reduce their
purchases of the Company's products, which could have a material adverse effect
on the Company's results of operations and financial position.
F-38
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Current Vulnerability Due to Certain Concentrations (continued)
Sources of Supply
Although most materials incorporated in the Company's products are available
from a number of sources, certain materials (particularly tantalum and
palladium) are available only from a relatively limited number of suppliers.
Many of Vishay's products require the use of raw materials that are produced in
only a limited number of regions around the world or are available from only a
limited number of suppliers. Vishay's results of operations may be materially
and adversely affected if Vishay has difficulty obtaining these raw materials,
the quality of available raw materials deteriorates or there are significant
price increases for these raw materials. For example, the prices for tantalum
and palladium, two raw materials that Vishay uses in its capacitors, are subject
to fluctuation. For periods in which the prices of these raw materials are
rising, Vishay may be unable to pass on the increased cost to Vishay's
customers, which would result in decreased margins for the products in which
they are used. For periods in which the prices are declining, Vishay may be
required to write down its inventory carrying cost of these raw materials which,
depending on the extent of the difference between market price and its carrying
cost, could have a material adverse effect on Vishay's net earnings.
Vishay is a major consumer of the world's annual production of tantalum.
Tantalum, a metal purchased in powder or wire form, is the principal material
used in the manufacture of tantalum capacitors. There are currently three major
suppliers that process tantalum ore into capacitor grade tantalum powder. Due to
the strong demand for its tantalum capacitors and difficulty in obtaining
sufficient quantities of tantalum powder from its suppliers, Vishay stockpiled
tantalum ore in 2000 and early 2001. During the year ended December 31, 2001,
Vishay experienced a significant decrease in sales due to declining orders and
the deferral or cancellation of existing orders. Vishay'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, Vishay recorded in
costs of products sold writedowns of $52,000,000 on tantalum inventories during
the year ended December 31, 2001. If the downward pricing trend were to
continue, Vishay could again be required to write down the carrying amount of
its inventory of tantalum ore. In addition, during the period of shortage, the
Company entered into long-term take or pay contracts to purchase specified
quantities of tantalum powder and wire at fixed prices through 2005. Under the
terms of these contracts, the tantalum purchase commitments are approximately
$145,000,000 for 2002
F-39
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
13. Current Vulnerability Due to Certain Concentrations (continued)
Sources of Supply (continued)
and approximately $150,000,000 annually for 2003 through 2005. The fixed prices
under these contracts may exceed the market price at various times during the
term of the contracts. Also, the quantities of powder and wire committed to
under the contracts may exceed the Company's production demands. In addition,
Vishay may make purchases of tantalum from its other suppliers at prices that
are subject to periodic adjustment. Any of these factors could have a material
adverse effect on Vishay's net earnings.
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently
found primarily in South Africa and Russia. Palladium is a commodity product
that is subject to price volatility. The price of palladium fluctuated in the
range of approximately $201 to $1,110 per troy ounce during the three years
ended December 31, 2001, and as of December 31, 2001, the price of palladium was
$446 per troy ounce. During the year ended December 31, 2001, the Company
recorded in costs of products sold a writedown of $18,000,000 on palladium
inventories.
From time to time there have been short-term market shortages of raw material
utilized by Vishay. While these shortages have not historically adversely
affected Vishay's ability to increase production of products containing tantalum
and palladium, they have historically resulted in higher raw material cost for
Vishay. Vishay cannot assure that any of these market shortages in the future
would not adversely affect Vishay's ability to increase production, particularly
during periods of growing demand for Vishay's products.
Geographic Concentration
To address the increasing demand for its products and to lower its costs, the
Company has expanded, and plans to continue to expand, its manufacturing
operations in Israel in order to take advantage of that country's lower wage
rates, highly skilled labor force, government-sponsored grants, and various tax
abatement programs. Israeli incentive programs have contributed substantially to
the growth and profitability of the Company. The Company might be materially and
adversely affected if these incentive programs were no longer available to the
Company or if events were to occur in the Middle East that materially interfered
with the Company's operations in Israel.
F-40
14. Business Segment and Geographic Area Data
Vishay designs, manufactures, and markets electronic components that cover a
wide range of products and technologies. The Company has two reportable
segments: Passive Electronic Components (Passives) consisting principally of
fixed resistors, solid tantalum surface mount chip capacitors, solid tantalum
leaded capacitors, wet/foil tantalum capacitors, multi-layer ceramic chip
capacitors, film capacitors and inductors, and Active Electronic Components
(Actives) consisting principally of diodes, transistors, power MOSFETS, power
conversion, motor control integrated circuits, optoelectronic components and
IRDCs.
The Company evaluates performance and allocates resources based on several
factors, of which the primary financial measure is business segment operating
income excluding amortization of intangibles and special charges. The accounting
policies of the business segments are the same as those described in the summary
of significant accounting policies (see Note 1). The operating results of
Actives reflect the acquisitions of General Semiconductor as of November 2,
2001 and Infineon U.S. as of July 27, 2001, and include LPSC from July 1, 1997
through its divestiture in 2000. Business segment assets are the owned or
allocated assets used by each business.
The corporate component of operating income represents corporate selling,
general, and administrative expenses. Corporate assets include corporate cash,
property, plant, and equipment, and certain other assets.
During the year 2000, one North American distributor accounted for 14% of total
net sales. During the years 2001 and 1999, no individual customer accounted for
more than 10% of net sales.
F-41
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Business Segment and Geographic Area Data (continued)
2001 2000 1999
------------------------------------------------
(In thousands)
Business segment information Net sales:
Passives $ 1,010,634 $ 1,627,860 $ 1,008,266
Actives 644,712 837,206 751,825
------------- ------------- -------------
$ 1,655,346 $ 2,465,066 $ 1,760,091
============= ============= =============
Operating income:
Passives $ 60,137 $ 547,156 $ 104,655
Actives 65,181 204,640 119,510
Corporate (21,970) (43,829) (18,061)
Restructuring expense (61,908) - -
Purchased research and development (16,000) - -
Amortization of goodwill (11,190) (11,469) (12,360)
------------- ------------- -------------
$ 14,250 $ 696,498 $ 193,744
============= ============= =============
Depreciation expense:
Passives $ 83,735 $ 73,803 $ 75,798
Actives 61,238 52,250 49,826
Corporate 4,252 232 223
------------- ------------- -------------
$ 149,225 $ 126,285 $ 125,847
============= ============= =============
Total assets:
Passives $ 1,876,282 $ 1,931,610 $ 1,429,177
Actives 1,980,841 809,360 882,296
Corporate 94,400 42,688 12,308
------------- ------------- -------------
$ 3,951,523 $ 2,783,658 $ 2,323,781
============= ============= =============
Capital expenditures:
Passives $ 91,028 $ 131,318 $ 52,903
Actives 68,463 95,343 61,409
Corporate 3,002 3,120 5,326
------------- ------------- -------------
$ 162,493 $ 229,781 $ 119,638
============= ============= =============
F-42
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
14. Business Segment and Geographic Area Data (continued)
The amount of investment in equity method investees included in the Actives
total assets above was $0, $0, and $12,495,000 for 2001, 2000, and 1999,
respectively.
The following geographic area data include net sales based on revenues generated
by subsidiaries located within that geographic area and property, plant, and
equipment based on physical location:
2001 2000 1999
----------------------------------------------
(In thousands)
Geographic area information Net sales:
United States $ 638,326 $ 1,034,985 $ 706,049
Germany 452,839 678,398 574,629
Asia Pacific 315,550 279,645 273,921
France 85,046 85,686 88,975
Israel 32,646 296,704 20,290
Other 130,939 89,648 96,227
------------ ------------ ------------
$ 1,655,346 $ 2,465,066 $ 1,760,091
============ ============ ============
Property, plant, and equipment - net:
United States $ 345,602 $ 355,291 $ 333,594
Germany 116,435 116,910 127,727
Israel 351,375 317,840 268,916
Asia Pacific 221,819 77,337 97,060
France 33,745 24,272 25,758
Other 98,557 81,904 77,490
------------ ------------ ------------
$ 1,167,533 $ 973,554 $ 930,545
============ ============ ============
15. 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 the weighted average number of common shares outstanding adjusted
to include the potentially dilutive effect of stock options granted under the
Company's 1995, 1997, and 1998 stock option plans (see Note 10), stock
appreciation rights issued in connection with the LPSC acquisition (see Note 6),
and other potentially dilutive securities.
F-43
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
15. Earnings per Share (continued)
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
Year ended December 31
2001 2000 1999
---------------------------------------------
Numerator:
Numerator for basic earnings per share - net income $ 513 $ 517,864 $ 83,237
=========== ========== ===========
Denominator:
Denominator for basic earnings per share - weighted
average shares 141,171 135,295 126,678
Effect of dilutive securities:
Employee stock options 1,201 1,831 809
Stock appreciation rights - 144 567
Other 142 193 179
----------- ---------- -----------
Dilutive potential common shares 1,343 2,168 1,555
----------- ---------- -----------
Denominator for diluted earnings per share - adjusted
weighted average shares 142,514 137,463 128,233
=========== ========== ===========
Basic earnings per share $ 0.00 $ 3.83 $ 0.66
=========== ========== ===========
Diluted earnings per share $ 0.00 $ 3.77 $ 0.65
=========== ========== ===========
For the years ended December 31, 2001, 2000, and 1999, respectively, options to
purchase 1,164,000 shares of common stock at prices ranging from $25.13 to
$30.00 per share, 1,114,000 shares of common stock at $25.13 per share, and
716,000 shares of common stock at $21.94 per share were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common shares.
F-44
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
16. Summary of Quarterly Financial Information (Unaudited)
Quarterly financial information for the years ended December 31, 2001 and 2000
is as follows (in thousands, except per share amounts):
First Quarter Second Quarter Third Quarter Fourth Quarter Total Year
----------------------------------------------------------------------------------------------------------
2001 2000 2001 2000 2001(1) 2000 2001(1)(2) 2000 2001(1)(2) 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $558,465 $538,894 $383,437 $612,771 $332,293 $669,784 $381,151 $643,617 $1,655,346 $2,465,066
Gross profit 198,854 187,716 101,051 254,096 29,388 299,376 52,226 264,094 381,519 1,005,282
Net earnings (loss) 90,126 74,271 3,126 131,853 (39,152) 171,111 (53,587) 140,629 513 517,864
Basic earnings (loss)
per share $ 0.65 $ 0.57 $ 0.02 $ 0.97 $ (0.28) $ 1.24 $ (0.35) $ 1.02 $ 0.00 $ 3.83
Diluted earnings (loss)
per share $ 0.65 $ 0.56 $ 0.02 $ 0.96 $ (0.28) $ 1.22 $ (0.35) $ 1.01 $ 0.00 $ 3.77
(1) Includes the results of Infineon U.S. from July 27, 2001.
(2) Includes the results of General Semiconductor from November 2, 2001 and
Mallory from November 7, 2001.
F-45
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements (continued)
17. Subsequent Events
On January 31, 2002, the Company announced the acquisition of the transducer and
strain gage businesses of Sensortronics, Inc. Sensortronics is a leading
manufacturer of load cells and torque transducers for domestic and international
customers in a wide range of industries with manufacturing facilities in Covina,
California, Costa Rica, and India. The acquisition includes the wholly owned
subsidiary of Sensortronics, JP Technologies, a manufacturer of strain gages,
located in San Bernardino, California. In the calendar year ended December 31,
2001, the acquired businesses had sales of approximately $16 million.
On February 13, 2002, a fire occurred at the Electro-Films, Inc. (EFI) facility
located in Providence, Rhode Island causing a production stoppage of this
product line. The Company is currently evaluating the extent of the damage and
preparing a plan of recovery.
F-46
EXHIBIT INDEX
Exhibit Description Page Number in
No. ----------- sequentially
- -- Numbered Copy
-------------
2.1 Agreement and Plan of Merger, dated as of July 31, 2001, by and
among Vishay Intertechnology, Inc., Vishay Acquisition Corp., and
General Semiconductor, Inc. incorporated by reference to Annex A
to the joint proxy statement/prospectus forming a part of the
registration statement on Form S-4 (No. 333-69004) filed on
September 6, 2001.
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"). Certificate of Amendment of the
Amended and Restated Certificate of Incorporation of the
Company Incorporated by reference to Exhibit 3.1 to Form
8-K, File Number 1-7416, filed November 13, 2001.
3.2 Amended and Restated Bylaws of Registrant. Incorporated by
reference to Exhibit 3.1 Form 10-Q for the quarter ended March
31, 2001.
4.1 Indenture dated as of June 4, 2001 between Vishay
Intertechnology, Inc. and Bank of New York as Trustee
(incorporated by reference to Exhibit 4.1 to Current Report
of Registrant on Form 8-K filed on June 18, 2001 under the
Securities Exchange Act of 1934 except that clause (x) of
Section 5 thereof is corrected to read "(x) 0.0625% of the
average LYON Market Price for the Five Day Period with respect to
such Contingent Interest Period and").
4.2 Indenture dated as of December 14, 1999 between General
Semiconductor, Inc. and The Bank of New York as Trustee
(incorporated by reference to Exhibit 4.5 to the Registration
Statement on Form S-3 (No. 333-94513) filed by General
Semiconductor, Inc. on January 12, 2000).
4.3 First Supplemental Indenture dated as of November 2, 2001
among General Semiconductor, Inc., Vishay Intertechnology, Inc.,
and The Bank of New York as Trustee to Indenture dated as of
December 14, 1999.
4.4 Second Supplemental Indenture dated as of January 8, 2002
among General Semiconductor, Inc., Vishay Intertechnology, Inc.,
and The Bank of New York as Trustee to Indenture dated as of
December 14, 1999.
10.1 Performance-Based Compensation Plan for Chief Executive
Officer of Registrant. Incorporated by reference to Exhibit
10.1 to Form 10-K for fiscal year ended December 31, 1993.
10.2 Vishay Intertechnology, Inc. Amended and Restated Long Term
Revolving Credit Agreement, dated as of June 1, 1999, by and
among Vishay and the Permitted Borrowers (as defined
therein), the Lenders (as defined therein), and Comerica
Bank, as administrative agent. Incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-3 (No. 333-52594) filed December 22, 2000.
10.3 First Amendment to Amended and Restated Vishay
Intertechnology, Inc. Long Term Revolving Credit Agreement
and Other Loan Documents, dated as of August 31, 2000, by
and among Vishay and the Permitted Lenders (as defined
therein), Comerica Bank and the other Lenders signatory
thereto, and Comerica Bank, as administrative agent.
Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3 (No. 333-52594) filed
December 22, 2000.
-41-
10.4 Employment Agreement, dated as of March 15, 1985, between the
Company and Dr. Felix Zandman. Incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on Form S-2
(No. 33-13833).
10.5 Vishay Intertechnology 1995 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on
Schedule 14ADR filed April 7, 1995.
10.6 Vishay Intertechnology 1997 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on
Schedule 14A filed April 16, 1998.
10.7 Vishay Intertechnology 1998 Stock Option Program. Incorporated
by reference to the Company's Definitive Proxy Statement on
Schedule 14A filed April 16, 1998.
10.8 Money Purchase Plan Agreement of Measurements Group,
Inc. Incorporated by reference to Exhibit 10(a)(6) to Amendment
No. 1 to the Company's Registration Statement on Form S-7 (No.
2-69970).
21. Subsidiaries of the Registrant.
23. Consent of Independent Auditors.
-42-
Figure 1 EXHIBIT 21
COMPANY SUBSIDIARIES
Name Jurisdiction Percent of Equity*
- ---- ------------ ------------------
Vishay Americas, Inc. Delaware 100%
Cera-Mite Corporation Wisconsin 100%
Vishay EFI, Inc. Rhode Island 100%
Vishay Infrared Components Inc. California 100%
Yosemite Investment, Inc. Indiana 100%
North American Capacitor Company Indiana LLC Indiana 100%
North American Capacitor Company Kentucky LLC Kentucky 100%
North American Capacitor Management Inc. Indiana 100%
Vishay Interterchnology Asia PTE Ltd. Singapore 100%
Vishay Japan K.K. Japan 100%
Vishay Hong Kong Ltd. Hong Kong 100%
Vishay Korea Korea 100%
Vishay Taiwan Taiwan 100%
Vishay Pte. Ltd. Singapore 100%
Vishay Temic Acquisition Holding Corporation Delaware 100%
Siliconix, Inc. Delaware 80.4%
Siliconix Technology C.V. Netherlands 100%
Siliconix Technology B.V. Netherlands 100%
Siliconix Israel Ltd. Israel 100%
Siliconix Ltd. England 100%
Siliconix Taiwan Ltd. Taiwan 100%
Siliconix, Ltd. Taiwan Taiwan 100%
Vishay Siliconix, LLC Delaware 100%
Shanghai Simconix Electronic Company Ltd. China 90%
Siliconix Semiconductor, Inc. Delaware 100%
General Semiconductor, Inc. Delaware 100%
General Semiconductor International Corp. Delaware 100%
General Semiconductor Japan, Ltd. Japan 50% by General
Semiconductor
International
50% by General
Semiconductor
ATC Corp. Delaware 100%
Century Components Inc. Delaware 100%
- --------------
Note: Names of Subsidiaries are indented under name of Parent.
* Directors' or other shares required by statute in foreign jurisdictions and
totaling less than 1% of equity are omitted.
- --------------------------------------------------------------------------------
-1-
Name Jurisdiction Percent of Equity*
- ---- ------------ ------------------
General Semiconductor (Arizona), Inc. Arizona 100%
General Semiconductor Remittance Products, Inc. Delaware 100%
General Semiconductor PSD (China) Holdings, Inc. Delaware 100%
General Semiconductor (China) Co., Ltd. China 100%
General Semiconductor Industries, Inc. Delaware 100%
GSI-General Semiconductor Ireland Ireland 70.25% by General
Semiconductor
Industries
29.75% by General
Semiconductor
GSI-General Semiconductor (Europe) Ltd. Ireland 100%
GSI-General Semiconductor Industries, Inc. Delaware 100%
General Semiconductor of Taiwan, Ltd. Taiwan 100%
General Semiconductor Korea Co., Ltd. Korea 100%
General Semiconductor France S.A. France 100%
General Semiconductor (Singapore) Pte. Ltd. Singapore 100%
General Semiconductor Hongkong Ltd. Hong Kong 100%
Nippon Vishay, K.K. Japan 100%
Vishay F.S.C., Inc. Barbados 100%
Vishay VSH Holdings, Inc. Delaware 100%
Vishay Roederstein Electronics, Inc. Delaware 100%
Vishay Measurements Group, Inc. Delaware 100%
Grupo Da Medidas Iberica S.L. Spain 100%
Vishay Israel Limited Israel 100%
Z.T.R. Electronics Ltd. Israel 100%
Vishay International Trade Ltd. Israel 100%
Dale Israel Electronics Israel 100%
Industries, Ltd.
Draloric Israel Ltd. Israel 100%
V.I.E.C. Ltd. Israel 100%
Vishay Advance Technology, Ltd. Israel 100%
Vilna Equities Holding, B.V. Netherlands 100%
Visra Electronics Financing Netherlands 100%
B.V.
Measurements Group (U.K.) Ltd. England & Wales 100%
Vishay Europe GmbH Germany 57.4% by Vishay
Israel;
39.4% by Vishay;
- -----------------
Note: Names of Subsidiaries are indented under name of Parent.
* Directors' or other shares required by statute in foreign jurisdictions and
totaling less than 1% of equity are omitted.
- --------------------------------------------------------------------------------
-2-
Name Jurisdiction Percent of Equity*
- ---- ------------ ------------------
2.0% by Vilna;
1.2% by Dale
Vishay Electronic GmbH Germany 100%
Roederstein Electronics Portgual Lda. Portugal 100%
Ecomal Deutschland GmbH Germany 78%
Ecomal Schweiz A.G. Switzerland 100%
Ecomal Austria Austria 100%
Ges.mbH
Klevestav-Roederstein Festigheter AB Sweden 50%
Vishay Components, S.A. Spain 100%
Ecomal Nederland BV Netherlands 100%
Ecomal Belgium N.V. Belgium 100%
Ecomal Denmark A/S Denmark 80%
Ecomal Finland OY Finland 100%
Okab Roederstein Finland OY Finland 44.4%
Rogin Electronic S.A. Spain 33%
Roederstein Norge AS Norway 40%
Roederstein-Hilfe-GmbH Germany 100%
Draloric Electronic SPOL S RO Czech Republic 100%
Vishay S.A. France 99.8%
Ultronix, Inc. Delaware 100%
Vishay Thin Film, Inc. New York 100%
Vishay Techno Components Corp. Delaware 100%
E-Sil Components Ltd. England & Wales 100%
Vishay Roederstein Limited England 100%
Vitramon Limited England 100%
Vishay Ltd. England & Wales 100%
Spectrol GmbH Germany 100%
Grued Corporation Delaware 100%
Con-Gro Corp. Delaware 100%
Gro-Con, Inc. Delaware 100%
Angstrohm Precision, Inc. Delaware 100%
Angstrohm Holdings, Inc. Delaware 100%
Sfernice, Ltd. England & Wales 100%
Heavybarter, Unlimited England & Wales 100%
Dale ACI Components England 100%
Facility Services, GmbH Germany 50%
Vishay Semiconductor GmbH Germany 100%
Vishay Semiconductor Itzehoe GmbH Germany 100%
Vishay (Phils.) Inc. Philippines 100%
Vishay Semiconductor GES.M.B.H. Austria 100%
- ----------
Note: Names of Subsidiaries are indented under name of Parent.
* Directors' or other shares required by statute in foreign jurisdictions and
totaling less than 1% of equity are omitted.
- --------------------------------------------------------------------------------
-3-
Name Jurisdiction Percent of Equity*
- ---- ------------ ------------------
Shanghai Vishay Discrete Semiconductors Ltd. China 100%
Shanghai Vishay Opto Semiconductors Ltd. China 70%
Vishay Hungary Hungary 100%
Infineon Technologies Krubong Sdn. Bhd. Malaysia 100%
ECOMAL France S.A. France 100%
Vishay Dale Holdings, Inc. Delaware 100%
Vishay Dale Electronics, Inc. Delaware 100%
Components Dale de Mexico S.A. de C.V. Mexico 100%
Electronica Dale de Mexico S.A. de C.V. Mexico 100%
Vishay Electronic Components Asia Pte.,Ltd. Singapore 100%
Angstrohm Precision, Inc. (Maryland) Maryland 100%
Vishay Bradford Electronics, Inc. Delaware 100%
Vishay Sprague Holdings Corp. Delaware 100%
Vishay Service Center, Inc. Massachusetts 100%
Vishay Sprague Sanford, Inc. Maine 100%
Vishay Sprague, Inc. Delaware 100%
Vishay Sprague Canada Holdings Canada 100%
Inc.
Sprague Electric of Canada Canada 100%
Limited
Sprague France S.A. France 100%
Vishay Sprague Palm Beach, Inc. Delaware 100%
Vishay Sprague Limited England 100%
Tansitor Electronics, Inc. Delaware 100%
Tansitor Barbados Limited Barbados 100%
Vishay Acquisition Holdings Corp. Delaware 100%
Vishay Vitramon, Inc. Delaware 100%
- ---------
Note: Names of Subsidiaries are indented under name of Parent.
* Directors' or other shares required by statute in foreign jurisdictions and
totaling less than 1% of equity are omitted.
- --------------------------------------------------------------------------------
-4-
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the following registration
statements of Vishay Intertechnology, Inc. and in the related Prospectuses of
our report dated February 6, 2002 (except for Note 17, as to which the date is
February 13, 2002), with respect to the consolidated financial statements of
Vishay Intertechnology, Inc. included in this Annual Report (Form 10-K) for the
year ended December 31, 2001.
Registration
Statement Number Form Description
---------------------------------------------------------------------------
33-7850 S-8 1986 Employee Stock Plan of
Vishay Intertechnology, Inc.
33-7851 S-8 1986 Employee Stock Plan of
Dale Electronics, Inc.
333-78045 S-8 1997 Stock Option Program
and 1998 Employee Stock
Option Program of Vishay
Intertechnology, Inc.
333-68090 S-3 $550,000,000 Liquid Yield
Option Notes Due 2021
333-72502 S-3 Shares of Common Stock upon
Conversion of General
Semiconductor, Inc. 5.75%
Convertible Notes due 2006
333-73496 S-8 Amended and Restated General
Semiconductor, Inc. 1993
Long-Term Incentive Plan and
General Semiconductor, Inc.
Amended and Restated 1998
Long-Term Incentive Plan
333-52594 S-3/A 2,887,134 Common Shares
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 28, 2002
GENERAL SEMICONDUCTOR, INC.
$172,500,000 5.75% Convertible Subordinated Notes Due 2006
FIRST SUPPLEMENTAL INDENTURE
Dated as of November 2, 2001
to
INDENTURE
Dated as of December 14, 1999
--------------------------
The Bank of New York, Trustee
------------------------------------------------
FIRST SUPPLEMENTAL INDENTURE, dated as of November 2, 2001
(the "First Supplemental Indenture"), among General Semiconductor, Inc., a
Delaware corporation (the "Company"), Vishay Intertechnology, Inc., a Delaware
corporation ("Vishay"), and The Bank of New York, a New York banking
corporation, as Trustee under the Indenture referred to below (the "Trustee").
WHEREAS, the Company and the Trustee executed an Indenture,
dated as of December 14, 1999 (the "Indenture"), in respect of $172,500,000 in
aggregate principal amount of 5.75% Convertible Subordinated Notes due 2006 (the
"Notes"); and
WHEREAS, the Company has entered into an agreement and plan of
merger dated as of July 31, 2001, among the Company, Vishay and Vishay
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Vishay
("Vishay Acquisition"), pursuant to which Vishay Acquisition will merge with and
into the Company, with the Company surviving as a wholly-owned subsidiary of
Vishay (the "Merger"); and
WHEREAS, upon consummation of the Merger, each share of the
Company's common stock will be exchanged for 0.563 of a share of Vishay common
stock; and
WHEREAS, pursuant to Section 13.6 of the Indenture, the
Company and Vishay, as the issuer of common stock into which, following the
Merger, the Notes will become convertible, are required to enter into a
supplemental indenture with the Trustee to provide for the issuance of Vishay
common stock upon conversion of the Notes;
WHEREAS, all conditions and requirements necessary to make
this First Supplemental Indenture a valid, binding and legal instrument in
accordance with its terms have been performed and fulfilled and the execution
and delivery hereof have been in all respects duly authorized; and
WHEREAS, for all purposes of this First Supplemental
Indenture, except as otherwise defined or unless the context otherwise requires,
terms used in capitalized form in this First Supplemental Indenture and defined
in the Indenture have the meanings specified in the Indenture;
NOW, THEREFORE, in consideration of the above premises, each
party agrees, for the benefit of the other parties and for the equal and ratable
benefit of the Holders of the Notes, as follows:
ARTICLE ONE
AMENDMENTS TO THE INDENTURE
Section 1.1 Continuation of Conversion Privilege Following the
Merger. The Holder of each Security outstanding shall have the right to convert
such Security only into the amount of shares of Vishay common stock, par value
$.10 per share ("Vishay Common Stock"), receivable upon consummation of the
Merger by a holder of the number of shares of the Company's common stock
issuable upon conversion of such Security immediately prior to the Merger,
subject, however, to the provisions of Article XIII.
-1-
Section 1.2. Definitions. (a) The definition of "Common Stock"
in Section 1.1 of the Indenture is hereby amended in its entirety to read as
follows:
"Common Stock" means the common stock, par value $.10 per
share, of Vishay or as such stock may be reconstituted from time to time."
(b) The following definition of "Vishay" is hereby added to
Section 1.1 of the Indenture.
"Vishay" means Vishay Intertechnology, Inc., a Delaware
corporation."
Section 1.3 Conversion Price. Section 13.4 of the Indenture is
hereby amended in its entirety to read as follows:
"CONVERSION PRICE.
The conversion price per share of Common Stock issuable upon
conversion of the Securities (as such price may be adjusted, herein called the
"Conversion Price") shall initially be $27.62 (which reflects a conversion rate
of 36.2058 shares of Common Stock per $1,000 in principal amount of
Securities)."
Section 1.4 Provision of Stock. Section 13.9 of the Indenture
is hereby amended in its entirety to read as follows:
"VISHAY TO PROVIDE STOCK.
Vishay shall reserve, free from preemptive rights, out of its
authorized but unissued shares, sufficient shares to provide for the conversion
of the Securities from time to time as such Securities are presented for
conversion, provided that nothing contained in this Section 13.9 shall be
construed to preclude Vishay from satisfying its obligations in respect of the
conversion of Securities by delivery of repurchased shares of Common Stock which
are held in the treasury of Vishay.
If any shares of Common Stock to be reserved for the purpose
of conversion of Securities hereunder require registration with or approval of
any governmental authority under any Federal or state law before such shares may
be validly issued or delivered upon conversion, Vishay covenants that it will in
good faith and as expeditiously as possible use its reasonable efforts to secure
such registration or approval, as the case may be, provided, however, that
nothing in this Section 13.9 shall be deemed to limit in any way the obligations
of the Company or Vishay provided in this Article XIII.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the Common
Stock, Vishay will take all corporate action which may, in the Opinion of
Counsel, be necessary in order that Vishay may validly and legally issue fully
paid and non-assessable shares of Common Stock at such adjusted Conversion
Price. Vishay covenants that all shares of Common Stock which may be issued upon
conversion of Securities will upon issue be fully paid and non-assessable by
Vishay and free of preemptive rights."
-2-
Section 1.5 Other. All of the provisions of Article XIII shall
continue in full force and effect as amended by this First Supplemental
Indenture.
Section 1.6 Amendment to the Notes. Section 11 of the Notes is
hereby amended in its entirety to read as follows:
"Subject to the provisions of the Indenture, as amended, the
Holders have the right to convert the principal amount of the Notes into fully
paid and nonassessable shares of Common Stock of Vishay at an office or agency
maintained for such purpose as provided in the Indenture, as amended, at the
initial conversion price per share of Common Stock of Vishay of $27.62 (which
reflects a conversion rate of approximately 36.2058 shares of Common Stock of
Vishay per $1,000 in principal amount of Notes), or at the adjusted conversion
price then in effect, if adjustment has been made as provided in the Indenture
upon surrender of the Note to the Company, together with a fully executed notice
in substantially the form attached hereto and, if required by the Indenture, an
amount equal to accrued interest payable on such Note."
ARTICLE TWO
MISCELLANEOUS
Section 2.1 Indenture. Except as amended hereby, the Indenture
and the Notes are in all respects ratified and confirmed and all their terms
shall remain in full force and effect.
Section 2.2 Governing Law. THIS FIRST SUPPLEMENTAL INDENTURE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
Section 2.3 Successors and Assigns. All agreements of the
Company in this First Supplemental Indenture shall bind its successors and
assigns. All agreements of the Trustee in this First Supplemental Indenture
shall bind its successors and assigns.
Section 2.4 Multiple Counterparts. This First Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
Section 2.5 Effectiveness and Operativeness. The provisions of
this First Supplemental Indenture shall become effective, immediately upon the
execution and delivery by the Trustee of this First Supplemental Indenture.
However, the amendments provided for in Article I of this First Supplemental
Indenture shall be operative if and only if the consummation of the Merger shall
occur.
-3-
Section 2.6 Trustee's Disclaimer. Except for the first recital
contained herein, the recitals contained herein shall be taken as the statements
of the Company and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Supplemental Indenture.
Section 2.7 Vishay. Vishay is executing this First
Supplemental Indenture solely for the purpose of satisfying Section 13.6 of the
Indenture and not for any other purpose.
[Remainder of this page left intentionally blank]
-4-
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the date first written
above.
GENERAL SEMICONDUCTOR, INC.
By: /s/ Avi D. Eden
---------------------------
Name: Avi D. Eden
Title: Vice Chairman and Executive Vice President
VISHAY INTERTECHNOLOGY, INC.
By: /s/ Avi D. Eden
---------------------------
Name: Avi D. Eden
Title: Vice Chairman and Executive Vice President
THE BANK OF NEW YORK,
as trustee
By: /s/ Julie Salovitch-Miller
---------------------------
Name: Julie Salovitch-Miller
Title: Vice President
GENERAL SEMICONDUCTOR, INC.
$172,500,000 5.75% Convertible Subordinated Notes Due 2006
SECOND SUPPLEMENTAL INDENTURE
Dated as of January 8, 2002
to
INDENTURE
Dated as of December 14, 1999
---------------
The Bank of New York, Trustee
-----------------------------------
SECOND SUPPLEMENTAL INDENTURE, dated as of January 8, 2002
(the "Second Supplemental Indenture"), among General Semiconductor, Inc., a
Delaware corporation (the "Company"), Vishay Intertechnology, Inc., a Delaware
corporation ("Vishay"), and The Bank of New York, a New York banking
corporation, as Trustee under the Indenture referred to below (the "Trustee").
WHEREAS, the Company and the Trustee executed an Indenture,
dated as of December 14, 1999 (as amended by the First Supplemental Indenture
defined below, the "Indenture"), in respect of $172,500,000 in aggregate
principal amount of 5.75% Convertible Subordinated Notes due 2006 (the "Notes");
and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as
of July 31, 2001, among the Company, Vishay and Vishay Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Vishay ("Vishay
Acquisition"), Vishay Acquisition merged with and into the Company, with the
Company surviving as a wholly-owned subsidiary of Vishay (the "Merger"); and
WHEREAS, pursuant to Section 13.6 of the Indenture, the
Company and Vishay, as the issuer of common stock into which, following the
Merger, the Notes became convertible, entered into the First Supplemental
Indenture dated as of November 2, 2001 (the "First Supplemental Indenture") with
the Trustee to provide for the issuance of Vishay common stock upon conversion
of the Notes; and
WHEREAS, pursuant to Section 9.2 of the Indenture, the Company
and the Trustee may amend the Indenture, with the consent of Holders of not less
than a majority in principal amount of the outstanding Notes, to change any of
the provisions of the Indenture; and
WHEREAS, the Company and Vishay would like to amend Section
4.6 of the Indenture to provide the Trustee with Vishay's financial statements
instead of the Company's financial statements; and
WHEREAS, the Company has received consents from Holders of at
least a majority in aggregate principal amount of the Notes to the proposed
amendment pursuant to the consent solicitation contained in the Offer to
Purchase and Consent Solicitation Statement, dated December 7, 2001; and
WHEREAS, all conditions and requirements necessary to make
this Second Supplemental Indenture a valid, binding and legal instrument in
accordance with its terms have been performed and fulfilled and the execution
and delivery hereof have been in all respects duly authorized; and
WHEREAS, for all purposes of this Second Supplemental
Indenture, except as otherwise defined or unless the context otherwise requires,
terms used in capitalized form in this Second Supplemental Indenture and defined
in the Indenture have the meanings specified in the Indenture;
-1-
NOW, THEREFORE, in consideration of the above premises, each
party agrees, for the benefit of the other parties and for the equal and ratable
benefit of the Holders of the Notes, as follows:
ARTICLE ONE
AMENDMENTS TO THE INDENTURE
Section 1.1 Reports. Section 4.6 of the Indenture is hereby
amended in its entirety to read as follows:
"REPORTS.
Whether or not Vishay is subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee within 15 days after Vishay is or would have been required to file such
with the SEC, annual and quarterly consolidated financial statements of Vishay
substantially equivalent to financial statements that would have been included
in reports filed with the SEC if Vishay were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Vishay's certified independent public
accountants as such would be required in such reports to the SEC and, in each
case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required. Delivery of such
reports, information and documents to the Trustee is for informational purposes
only and the Trustee's receipt of such shall not constitute constructive notice
of any information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates)."
Section 1.2 Other. All of the provisions of Article IV shall
continue in full force and effect as amended by this Second Supplemental
Indenture.
ARTICLE TWO
MISCELLANEOUS
Section 2.1 Indenture. Except as amended hereby, the Indenture
and the Notes are in all respects ratified and confirmed and all their terms
shall remain in full force and effect.
Section 2.2 Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
Section 2.3 Successors and Assigns. All agreements of the
Company in this Second Supplemental Indenture shall bind its successors and
assigns. All agreements of the Trustee in this Second Supplemental Indenture
shall bind its successors and assigns.
-2-
Section 2.4 Multiple Counterparts. This Second Supplemental
Indenture may be executed in any number of counterparts, each of which shall be
an original; but such counterparts shall together constitute but one and the
same instrument.
Section 2.5 Effectiveness and Operativeness. The provisions of
this Second Supplemental Indenture shall become effective immediately upon the
execution and delivery by the Trustee of this Second Supplemental Indenture.
Section 2.6 Trustee's Disclaimer. Except for the first recital
contained herein, the recitals contained herein shall be taken as the statements
of the Company and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Supplemental Indenture.
Section 2.7 Vishay. Vishay is executing this Second
Supplemental Indenture solely for the purpose of satisfying Section 4.6 of the
Indenture, as amended by this Second Supplemental Indenture, and not for any
other purpose.
[Remainder of this page left intentionally blank]
-3-
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, all as of the date first written
above.
GENERAL SEMICONDUCTOR, INC.
By: /s/ Avi D. Eden
---------------------------
Name: Avi D. Eden
Title: Vice Chairman and Executive Vice President
VISHAY INTERTECHNOLOGY, INC.
By: /s/ Avi D. Eden
---------------------------
Name: Avi D. Eden
Title: Vice Chairman and Executive Vice President
THE BANK OF NEW YORK,
as trustee
By: /s/ Julie Salovitch-Miller
---------------------------
Name: Julie Salovitch-Miller
Title: Vice President