SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
--------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission File Number 1-7416
VISHAY INTERTECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
-------- ----------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
(Address of principal executive offices)
(610) 644-1300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
As of May 13, 2002 registrant had 144,065,269 shares of its Common Stock and
15,383,663 shares of its Class B Common Stock outstanding.
VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
MARCH 31, 2002
CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets -
March 31, 2002 and December 31, 2001 3
Consolidated Condensed Statements of Operations -
Three Months Ended March 31, 2002 and 2001 5
Consolidated Condensed Statements of Cash Flows -
Three Months Ended March 31, 2002 and 2001 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION 20
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited - In thousands)
March 31, December 31,
ASSETS 2002 2001
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 380,325 $ 367,115
Accounts receivable 368,604 382,358
Inventories:
Finished goods 221,747 260,161
Work in process 129,143 136,842
Raw materials 174,671 204,454
Deferred income taxes 68,248 63,084
Prepaid expenses and other current assets 151,772 160,613
----------- -----------
TOTAL CURRENT ASSETS 1,494,510 1,574,627
PROPERTY AND EQUIPMENT - AT COST
Land 93,582 92,311
Buildings and improvements 291,967 289,672
Machinery and equipment 1,396,267 1,397,262
Construction in progress 79,234 82,269
Allowance for depreciation (718,148) (693,981)
----------- -----------
1,142,902 1,167,533
GOODWILL 1,085,570 1,077,790
OTHER INTANGIBLE ASSETS 82,162 83,337
OTHER ASSETS 57,839 48,236
----------- -----------
$ 3,862,983 $ 3,951,523
=========== ===========
3
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
------------- -------------
CURRENT LIABILITIES
Notes payable to banks $ 1,104 $ 11,241
Trade accounts payable 89,263 89,467
Payroll and related expenses 68,808 71,841
Other accrued expenses 274,821 292,596
Income taxes 5,066 13,081
Current portion of long-term debt 223 367
----------- -----------
TOTAL CURRENT LIABILITIES 439,285 478,593
LONG-TERM DEBT 557,096 605,031
DEFERRED INCOME TAXES 86,656 90,340
DEFERRED INCOME 52,587 57,208
MINORITY INTEREST 68,060 66,516
OTHER LIABILITIES 140,673 139,273
ACCRUED PENSION COSTS 146,841 148,017
STOCKHOLDERS' EQUITY
Common Stock 14,395 14,380
Class B Common Stock 1,550 1,550
Capital in excess of par value 1,868,302 1,865,979
Retained earnings 618,388 615,968
Accumulated other comprehensive loss (130,109) (130,411)
Unearned compensation (741) (921)
----------- -----------
2,371,785 2,366,545
----------- -----------
$ 3,862,983 $ 3,951,523
=========== ===========
See Notes to Consolidated Condensed Financial Statements.
4
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Three Months Ended
March 31,
2002 2001
--------- ---------
Net sales $ 434,140 $ 558,465
Costs of products sold 347,203 359,611
--------- ---------
GROSS PROFIT 86,937 198,854
Selling, general, and administrative expenses 74,659 72,229
Restructuring expense 3,024 5,971
Amortization of goodwill -- 2,915
--------- ---------
OPERATING INCOME 9,254 117,739
Other income (expense):
Interest expense (6,909) (2,938)
Other 2,549 4,737
--------- ---------
(4,360) 1,799
--------- ---------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 4,894 119,538
Income taxes 807 26,921
Minority interest 1,667 2,491
--------- ---------
NET EARNINGS $ 2,420 $ 90,126
========= =========
Basic earnings per share $ 0.02 $ 0.65
Diluted earnings per share $ 0.02 $ 0.65
Weighted average shares outstanding - basic 159,177 137,690
Weighted average shares outstanding - diluted 160,605 138,916
See Notes to Consolidated Condensed Financial Statements.
5
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
Three Months Ended
March 31,
2002 2001
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 2,420 $ 90,126
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 45,889 39,493
Gain (loss) on disposal of property and equipment (9) 19
Amortization of imputed interest 2,305 --
Minority interest in net earnings of consolidated
subsidiaries 1,667 2,491
Other (9,537) 14,875
Changes in operating assets and liabilities 68,499 (131,605)
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 111,234 15,399
INVESTING ACTIVITIES
Purchase of property and equipment (14,073) (54,311)
Proceeds from sale of property and equipment 4,677 1,018
Purchase of businesses, net of cash acquired (26,938) (18,251)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (36,334) (71,544)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 153 116
Principal payments on long-term debt (380) --
Net proceeds (payments) on revolving credit lines (50,311) 112,356
Net changes in short-term borrowings (10,119) (6,509)
Common stock repurchase -- (851)
Proceeds from stock options exercised 338 188
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (60,319) 105,300
Effect of exchange rate changes on cash (1,371) (4,194)
--------- ---------
INCREASE IN CASH AND
CASH EQUIVALENTS 13,210 44,961
Cash and cash equivalents at beginning of period 367,115 337,213
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 380,325 $ 382,174
========= =========
See Notes to Consolidated Condensed Financial Statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2002
Note 1: Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for
presentation of financial position, results of operations, and cash flows
required by generally accepted accounting principles for complete financial
statements. The information furnished reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair summary of the financial position, results of operations,
and cash flows for the interim period presented. The financial statements should
be read in conjunction with the financial statements and notes thereto filed
with the Company's Form 10-K for the year ended December 31, 2001. The results
of operations for the first three months of 2002 are not necessarily indicative
of the results to be expected for the full year.
Note 2: Change in Accounting
Effective January 1, 2002, amortization of goodwill is no longer permitted
in accordance with Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets". The non-amortization of goodwill in the first
quarter of 2001 would have resulted in an increase in net income of $2,740,000
or $0.02 per share.
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 all business combinations be accounted for using the
purchase method of accounting and requires that intangible assets that meet
certain criteria be recognized apart from goodwill. SFAS 142 prescribes that
goodwill and intangible assets with indefinite useful lives should no longer be
amortized to earnings, but instead should be reviewed for impairment on at least
an annual basis. Intangible assets with finite lives should continue to be
amortized over their estimated useful lives.
The Company adopted SFAS 141 and SFAS 142 on January 1, 2002. The adoption
of these statements did not result in any changes to the classification of the
Company's goodwill and other intangible assets. The Company has assigned an
indefinite useful life to its trademarks and discontinued the amortization of
both its goodwill and trademarks. Completed technology is being amortized over
useful lives of seven to ten years. Estimated amortization expense for each of
the next five years is approximately $5,414,000.
SFAS 142 requires the Company to perform transitional impairment tests of
its trademarks and goodwill as of January 1, 2002 as well perform impairment
tests on an annual basis and whenever events or circumstances occur indicating
that the trademarks or goodwill may be impaired. An impairment charge will be
recognized for the Company's trademarks when the estimated fair value of the
trademarks is less than the carrying amount. An impairment charge will be
recognized for the Company's goodwill when the estimated fair value of a
reporting unit, including the goodwill, is less than its carrying amount.
7
The Company has completed the impairment test of its trademarks as of
January 1, 2002. The fair value of the trademarks, as determined by an
independent appraiser, was measured as the discounted cash flow savings realized
from owning such trademarks and not having to pay a royalty for their use. No
impairment of the trademarks was determined to exist at January 1, 2002.
The Company expects to perform the first step of a two-step goodwill
impairment test, as prescribed in SFAS 142, during the second quarter ended June
30, 2002. The first step of the goodwill impairment test is a screen for
potential impairment, while the second step measures the amount of impairment,
if any. The Company has not yet determined what the effect of this test will be
on the earnings and financial position of the Company. Any impairment loss
resulting from this goodwill transitional impairment test will be reflected as
the cumulative effect of a change in accounting principle for the three months
ended March 31, 2002, regardless of the interim period in which the measurement
of the loss is completed.
Note 3: Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except earnings per share):
Three Months Ended
March 31,
2002 2001
-------- -------
Numerator:
Net income $ 2,420 $ 90,126
-------- --------
Denominator:
Denominator for basic
earnings per share - 159,177 137,690
weighted average shares
Effect of dilutive securities:
Employee stock options 1,288 1,065
Other 140 161
-------- --------
Dilutive potential common shares 1,428 1,226
Denominator for diluted earnings
per share - adjusted weighted average
shares 160,605 138,916
Basic earnings per share $ 0.02 $ 0.65
======== ========
Diluted earnings per share $ 0.02 $ 0.65
======== ========
Diluted earnings per share does not reflect the assumed conversion of
convertible notes because the effect would be antidilutive for all periods
presented.
8
Note 4: Business Segment Information
The Company designs, manufactures, and markets electronic components that
cover a wide range of products and technologies. The Company has two reportable
segments: Passive Electronic Components (Passives) and Active Electronic
Components (Actives). The Company evaluates performance and allocates resources
based on several factors, of which the primary financial measure is business
segment operating income excluding amortization of intangibles. The corporate
component of operating income represents corporate selling, general, and
administrative expenses.
Three Months Ended
March 31,
2002 2001
-------- ---------
Business Segment Information
(in thousands)
Net Sales:
Passives $ 184,572 $ 393,485
Actives 249,568 164,980
--------- ---------
$ 434,140 $ 558,465
--------- ---------
Operating Income:
Passives $ (15,774) $ 100,020
Actives 29,269 25,701
Corporate (4,241) (5,067)
Amortization of goodwill -- (2,915)
--------- ---------
$ 9,254 $ 117,739
--------- ---------
Note 5: Comprehensive Income
Comprehensive income includes the following components (in thousands):
Three Months Ended
March 31,
2002 2001
---------- -----------
Net Income $ 2,420 $ 90,126
Cumulative effect of change
in accounting principle -- 51
Other comprehensive income (loss):
Foreign currency translation adjustment 8,148 (18,733)
Unrealized loss on interest rate swap (1,580) (2,238)
Pension liability adjustment, net of tax (6,265) 326
-------- --------
Total other comprehensive income (loss) 302 (20,645)
-------- --------
Comprehensive income $ 2,722 $ 69,532
======== ========
9
Note 6: Restructuring Expense
The Company recorded restructuring expense of $3,024,000 for the quarter
ended March 31, 2002. Restructuring of European and Israeli operations included
$1,292,000 of employee termination costs covering approximately 234 technical,
production, administrative and support employees located in Czech Republic,
France, Hungary, Israel, Portugal, and Austria. The remaining $1,732,000 of
restructuring expense related to termination costs for approximately 194
technical, production, administrative and support employees located in the
United States. The restructuring expense was part of the cost reduction programs
currently being implemented by the Company.
The Company recorded restructuring expense of $5,971,000 for the quarter
ended March 31, 2001. Restructuring of European operations included $4,568,000
of employee termination costs covering approximately 76 technical, production,
administrative and support employees located in France, Hungary, Portugal, and
Austria. The remaining $1,403,000 of restructuring expense related to
termination costs for approximately 350 technical, production, administrative
and support employees located in the United States. The restructuring expense
was part of the cost reduction programs currently being implemented by the
Company.
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 related to termination costs for
approximately 1,885 technical, production, administrative and support employees.
The remaining $18,783,000 of restructuring expense related to the noncash
write-down of buildings and equipment that are no longer in use. As of March 31,
2002, $32,155,000 of severance costs have been paid. The remaining $8,779,000 of
severance costs, currently shown in other accrued expenses, should be paid by
December 31, 2002.
Note 7: Acquisitions
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. The purchase price was $10,000,000, which was funded
from cash on hand. The purchase price has been preliminary allocated, resulting
in goodwill of $3,027,000. The results of operations of Sensortronics are
included in the results of the passive segment from January 31, 2002.
10
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.
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
had 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 were included in the results of the actives segment from November
2, 2001. 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 an evaluation of the fair value
of General Semiconductor's tangible and identifiable intangible assets acquired
and liabilities assumed at the date of the merger.
On November 7, 2001, the Company acquired Yosemite Investment, Inc. d/b/a North
American Capacitor Company, also known as Mallory, for approximately $45 million
in cash. With manufacturing facilities in Greencastle, Indiana and Glasgow,
Kentucky, Mallory is a leading manufacturer of wet tantalum electrolytic
capacitors, among other businesses. Subsequently, in February 2002, Vishay sold
the audible signals business of Mallory for $4,925,000, consisting of
$3,925,000 in cash and a $1,000,000 promissory note.
As a result of 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 at March 31, 2002 of $ 76,511,000 is recorded in other accrued
expenses and is expected to be paid out by the first quarter of 2003.
Had the acquisitions been made as of January 1, 2001, the Company's pro forma
unaudited results would have been (in thousands, except per share amounts):
Three Months
Ended 3/31/01
Net sales $ 704,029
Net earnings $ 87,972
Basic earnings per share $ 0.55
Diluted earnings per share $ 0.55
11
Note 8: Subsequent Events
On April 1, 2002, the Company sold the resale business of Mallory for $8.8
million, consisting of $7.6 million in cash and a $1.2 million subordinated
promissory note.
On April 15, 2002, the Company announced that it had been sued by Cabot
Corporation in the Superior Court of the Commonwealth of Massachusetts alleging
that Vishay and/or its subsidiaries breached agreements for the supply by Cabot
to Vishay of tantalum powder and wire. The action arises out of two tantalum
supply agreements entered into between Cabot and a Vishay subsidiary in July and
November 2000. These agreements require the subsidiary to purchase and Cabot to
sell certain minimum amounts of tantalum powder and tantalum wire in the years
2001 through 2005. Vishay uses tantalum products in the manufacture of its line
of tantalum capacitors. Cabot asks the court to require the Company to provide
Cabot with identification of the particular tantalum products that Vishay
intends to purchase under the November agreement at appropriate intervals during
the year; to require the Company to inspect tantalum products that Cabot
manufactures for Vishay when and as they are produced and tendered by Cabot in
order to confirm that they meet specifications; to require the Company to
purchase the annual minimum quantities of tantalum products at regular periodic
intervals throughout the year; to enter a judgment in favor of Cabot in an
amount to be determined for breach of the July agreement and declaring Cabot's
entitlement to cancel that agreement; and to order other unspecified
declarations of rights and obligations of the parties. The Company believes that
its subsidiary that is a party to the Cabot agreements has sound defenses to all
of the claims raised by Cabot and has complied with its obligations under the
agreements.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Overview
Vishay operates in two segments, passive components and active
components. The Company is the leading manufacturer of passive components in the
United States and Europe. These components include resistors, capacitors,
inductors, strain gages and load cells. Vishay is also one of the world's
leading manufacturers of active electronic components, also referred to as
discrete semiconductors. These include transistors, diodes, rectifiers, certain
types of integrated circuits and optoelectronic products. Historically, the
passive components business has predominated at Vishay. However, following the
acquisition of General Semiconductor in November 2001, for the first time in the
Company's history the predominance has shifted to active components. In the
first quarter of 2002, revenues were derived 57% from the Company's active
business and 43% from its passive business. Actives also represented
approximately 62% of the Company's orders at March 31, 2002. The Company intends
that this shift will continue on a going forward basis.
The results for the first quarter 2002 show clear signs of a recovery in
the active business, as well as the beginnings of a recovery in the passive
components business. The Company has observed particular improvements in
computers, mainly laptops, and in the automotive and consumer end markets, hints
of recovery in telecommunication networks and a leveling off of the decline in
mobile phones. This follows a difficult 2001, in which the electronic components
business generally was depressed both in the United States and much of the
world. The leading recovery in actives is consistent with the Company's
experience from prior recessionary periods, in which recovery in the passive
component business has trailed the recovery in the discrete semiconductor
business. The Company's book-to-bill ratio for the for the 2002 first quarter
was 1.14, reflecting a book-to-bill for the discrete semiconductor business of
1.22 and a book-to-bill ratio for the passive business of 1.02. This is the
first time in six quarters that the Company's book-to-bill ratio was greater
than one. Another indication of impending recovery is the Company's backlog,
which increased by $60 million, from $337 million at the end of fiscal 2001 to
$397 million at March 31, 2002. The Company has also noted a substantial
increase in short-term orders and a drop in cancellation of orders in backlog.
The following table shows the end-of-period backlog and the book-to-bill
ratio for Vishay's business as a whole during the five quarters beginning with
the first quarter of 2001 through the first quarter of 2002.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter
------------- ------------ ------------ ------------ ------------
2001 2001 2001 2001 2002
---- ---- ---- ---- ----
End of Period $ 505,732,000 $ 342,144,000 $ 302,754,000 $ 337,883,000 $ 396,900,000
Backlog (1) (1) (2) (1) (2)
Book-to-Bill 0.53 0.59 0.77 0.89 1.14
Ratio
13
(1) Includes $18,900,000, $15,600,000 and $17,100,000 of backlog attributable
to Infineon's optoelectric infrared component business for the third
quarter of 2001, the fourth quarter of 2001 and the first quarter of 2002,
respectively.
(2) Includes $70,360,000 and $93,700,000 of backlog attributable to the
business of General Semiconductor for the fourth quarter of 2001 and the
first quarter of 2002, respectively.
The following table shows sales and book-to-bill ratios broken out by
segment for the five quarters beginning with the first quarter of 2001 and
through the first quarter of 2002:
Sales ($)/ 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter
Book-to-bill 2001 2001 2001 2001 2002
- ------------ ------------ ------------ ------------ ------------- --------------
Passive $ 393,485,000 $ 250,973,000 $188,708,000 $ 178,295,000 $ 184,572,000
Components 0.49 0.49 0.72 0.83 1.02
Active $ 164,980,000 $ 132,464,000 $143,585,000 $ 202,856,000 $ 249,568,000
Components 0.64 0.79 (1) (1) (2) (1) (2)
0.84 0.94 1.22
(1) Includes $8,200,000, $16,800,000 and $15,877,000 attributable to Infineon's
optoelectric infrared components business for the third quarter of 2001,
the fourth quarter of 2001 and the first quarter of 2002, respectively.
(2) Includes $51,274,000 and $80,806,000 attributable to General Semiconductor
for the fourth quarter of 2001 and the first quarter of 2002, respectively.
The Company continued with its cost control programs in the first quarter
of 2002. Total headcount decreased by approximately 1,000 positions from 21,410
at December 31, 2001 to 20,441 at March 31, 2002. A major element of the
Company's cost control strategy has been to position its manufacturing
facilities to the extent practicable in jurisdictions with low labor costs. The
percentage of headcount in low labor cost countries was 63% at the end of the
first 2002 quarter, a 2% increase over the prior quarter. The Company continues
to target improvement in this area. Also in the first quarter of 2002, the
Company completed the closure of three production facilities in the U.S.,
Germany and France, completed the integration of the Infineon production
facility in Malaysia and was ahead of plan to integrate the business of General
Semiconductor. The integration of General Semiconductor, including facility
rationalization and sales and workforce reductions, is expected to yield
significant annualized savings.
Income statement captions as a percentage of sales, and the effective tax
rates, were as follows:
Three Months ended
March 31,
2002 2001
---- ----
Costs of products sold 80.0% 64.4%
Gross profit 20.0 35.6
Selling, general, and
administrative 17.2 12.9
Expenses
Operating income 2.1 21.1
Earnings before income taxes and
minority interest 1.1 21.4
Effective tax rate 16.5 22.5
Net earnings 0.6 16.1
14
Net Sales, Gross Profits and Margins
First quarter net sales for 2002 decreased by $124,325,000 or 22.3% from
$558,465,000 in the first quarter of 2001 to $434,140,000 in the first quarter
of 2002. The decrease in revenues reflects the continuing effects of the
downturn in the electronics industry experienced in 2001, particularly in the
passive segment, and resulted from both lower unit sales volume and substantial
downward pricing pressure. The decline was particularly pronounced in our
commodity passive components products such as capacitors and resistors. It was
found in virtually all of our end markets, with wireless communications and
computers being most affected. The decreased revenues from passive components
were offset in part by an increase in active component revenue. The increase in
active sales was attributable to the acquisition of the infrared business of
Infineon in July 2001 and of General Semiconductor in November 2001. Excluding
the effects of these acquisitions, revenues for the first quarter of 2002 would
have declined by an additional 17% as compared with the prior year quarter.
Costs of products sold as a percentage of net sales were 80.0% for the
quarter ended March 31, 2002 as compared to 64.4% for the prior year's quarter.
Gross profit, as a percentage of net sales, for the quarter ended March 31, 2002
was 20.0% as compared to 35.6% for the prior year's quarter. The erosion in
profit margins, in both the active and passive segments, reflects lower prices
in 2002, and in the passive segment lower volume, offset, to some extent, by a
reduction in fixed costs during the year.
The following tables show sales and gross profit margins separately for
our passive and active segments.
Passive Components
Quarter Ended March 31
2002 2001
---- ----
Net Sales $184,572,000 $393,485,000
Gross Profit Margin 10.8% 37.6%
Net sales of passive components for the quarter ended March 31, 2002
decreased by $208,913,000 or 53.1% from sales of the comparable prior year
period. Without the acquisitions of Mallory in November 2001 and Sensortronics
in January 2002, the passive components business would have decreased by an
additional $10.9 million on a total of 55.9%. 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 margin in 2002 was related to strong
pricing pressure, particularly with respect to commodity products, excess
capacity and higher costs for palladium and tantalum powder. In contrast to the
commodity side of the business, prices for specialty resistors and capacitors
showed little or no
15
decline during the quarter. The lingering weakness in demand on the commodity
side of the passive business is reflected in plant utilization, which continues
to be at or below 50% for these products.
Net sales of the passive components business increased by $8,208,000 or
4.7% compared to the quarter ended December 31, 2001, reflecting some signs of
an impending recovery.
Active Components
Quarter Ended March 31
2002 2001
---- ----
Net Sales $249,568,000 $164,980,000
Gross Profit Margin 26.9% 31.0%
Net sales of the active components business for the quarter ended March
31, 2002 increased by $84,588,000 or 51.3% from comparable sales of the prior
year period. The increase in the active components business net sales was
primarily due to the acquisition of the infrared business of Infineon and of
General Semiconductor. Net sales for the quarter ended March 31, 2002 relating
to Infineon and General Semiconductor were $15,877,000 and $80,806,000,
respectively. Without the acquisitions, the active components business for the
quarter ended March 31, 2002 would have decreased by $12,095,000 or 7.3%. This
decrease reflects in particular the downturn in the computer and cellular phone
handset markets, which resulted in reduced demand for the Company's products.
Net sales of the active components business increased by $44,781,000 or
21.9% from the quarter ended December 31, 2001. In part, this increase reflects
the acquisition of General Semiconductor, which was included in the Company's
results for all of the first quarter of 2002 but only the last two months of the
fourth quarter of 2001. However, it also reflects a general improvement in
business at General Semiconductor and at Siliconix. The improvement resulted
from increased demand in the notebook computer, game console, digital camera and
other consumer product end markets. Certain of the Company's plants in the
active segment have ramped up to full capacity, with expansion being planned if
current demand continues.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the first quarter of
2002 were 17.2% of net sales, as compared to 12.9% of net sales for the first
quarter of 2001. The increase in the percentage of selling, general and
administrative expenses is due to lower net sales in the first quarter 2002. The
Company continues to implement cost reduction initiatives company-wide, with
particular emphasis placed on reducing headcount in high labor cost countries.
Restructuring Expense
The Company incurred restructuring expenses of $3,024,000 for the quarter
ended March 31, 2002. Restructuring of European and Israeli operations included
$1,292,000 of employee termination costs covering approximately 234 technical,
production, administrative and support employees
16
located in Czech Republic, France, Hungary, Israel, Portugal, and Austria. The
remaining $1,732,000 of restructuring expense related to termination costs for
approximately 194 technical, production, administrative and support employees
located in the United States. The restructuring expense was part of the cost
reduction programs currently being implemented by the Company.
Interest Expense
Interest expense for the first quarter of 2002 increased by $3,971,000 as
compared to the first quarter of 2001. This increase was primarily a result of
the $172,500,000 principal amount of 5.75% Convertible Subordinated Notes of
General Semiconductor and $85,000,000 of bank debt of General Semiconductor,
which was acquired in November 2001.
Other Income
Other income was $2,549,000 for the quarter ended March 31, 2002 as
compared to $4,737,000 for the quarter ended March 31, 2001. The 2002 amount
includes interest income of $1,729,000 as compared to interest income of
$4,625,000 for the first quarter of 2001. The decrease in interest income for
the quarter ended March 31, 2002 as compared to the comparable prior year period
is primarily due to lower interest rates. Foreign exchange gains were $713,000
for the quarter ended March 31, 2002 as compared to foreign exchange gains of
$219,000 for the quarter ended March 31, 2001.
Minority Interest
Minority interest for the first quarter of 2002 decreased by $824,000 as
compared to the first quarter of 2001 primarily due to the decrease in net
earnings of Siliconix.
Income Taxes
The effective tax rate for the first quarter of 2002 was 16.5% as compared
to 22.5% for the first quarter of 2001. The effective tax rate for the first
quarter 2002 was impacted by pretax earnings being earned in low tax rate
jurisdictions and restructuring expense being incurred in high tax rate
jurisdictions. The tax rate for 2002 is currently expected to be in the range of
22-24%.
The Company enjoys favorable Israeli tax rates, which are applied to
specific approved projects and are normally available for a period of ten or
fifteen years. The low tax rates in Israel applicable to the Company ordinarily
have resulted in increased earnings compared to what earnings would have been
had statutory United States tax rates applied. The Company experienced losses on
its operations in Israel during the first quarter of 2002. Consequently,
application of the Israeli tax rates resulted in a decrease in net earnings of
$1,044,000 for the quarter, compared to an increase in net earnings of
$12,000,000 for the first quarter of 2001. The first quarter losses in Israel
are not expected to be indicative of results in Israel for the full year 2002.
Financial Condition and Liquidity
Cash flows from operations were $111,234,000 for the first quarter of 2002
as compared to $15,399,000 for the first quarter of 2001. The increase in cash
generated from operations reflects improved working capital management,
including reductions in inventory and accounts receivable, partially offset by
decreased net earnings from the first quarter of 2001. The inventory contraction
17
reflects production adjustments implemented by the Company in March 2001 in
response to the business slowdown in order to control inventory levels. Net
purchases of property and equipment in the first quarter of 2002 were
$14,073,000 as compared to $54,311,000 in the first quarter of 2001, reflecting
the Company's efforts to control capital spending. The Company paid down
$50,311,000 on its revolving credit lines during the first quarter of 2002,
primarily from the cash generated from operations. Cash and cash equivalents
increased by $13,210,000 as compared to December 31, 2001. The Company's
financial condition at March 31, 2002 was strong, with a current ratio of 3.40
to 1. The Company's ratio of long-term debt, less current portion, to
stockholders' equity was .23 to 1 at March 31, 2002 as compared to .13 to 1 at
March 31, 2001 and .26 to 1 at December 31, 2001.
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.
Inflation
Normally, inflation does not have a significant impact on the Company's
operations. The Company's products are not generally sold on long-term
contracts. Consequently, selling prices, to the extent permitted by competition,
can be adjusted to reflect cost increases caused by inflation.
Safe Harbor Statement
Statements in this report that are not clearly historical are
"forward-looking statements" within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. These include, but are not limited to,
anticipated results for the rest of the 2002 year and expectations with respect
to recoveries in the economic and business climate in general and the Company's
businesses in particular. All forward-looking statements made by or on behalf of
the Company involve risks, uncertainties and contingencies, whether they are
contained in this report or other reports and documents filed with the
Securities and Exchange Commission, in press releases or in communications and
discussions with investors and analysts through meetings, web casts, phone calls
and conference calls. Many of these risks, uncertainties and contingencies are
beyond the Company's control, and they may cause actual results, performance or
achievements to differ materially from those anticipated. Please refer to the
Company's 2001 Annual Report on Form 10-K for important factors that could cause
the Company's actual results, performance or achievements to differ materially
from those in any forward-looking statements made by or on behalf of the
Company.
Market Risk Disclosure
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in foreign currency exchange rates and interest rates.
The Company manages its exposure to these market risks through internally
established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. The Company's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. The Company
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives. The Company monitors its
18
underlying market risk exposures on an ongoing basis and believes that it can
modify or adapt its hedging strategies as needed.
The Company is exposed to changes in U.S. dollar LIBOR interest rates on
its floating rate revolving credit facility. On a selective basis, the Company
from time to time enters into interest rate swap or cap agreements to reduce the
potential negative impact that increases in interest rates could have on its
outstanding variable rate debt. At March 31, 2002, a fixed rate swap agreement
with a notional amount of $100,000,000 was in place. On March 31, 2002, the
Company paid down $50,000,000 of its existing credit facility and its balance as
of that date is $75,000,000. The impact of interest rate instruments for the
quarter ended March 31, 2002 on the Company's results of operations was not
significant.
19
VISHAY INTERTECHNOLOGY, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 15, 2002, the Company announced that it had been sued
by Cabot Corporation in the Superior Court of the Commonwealth of Massachusetts
alleging that Vishay and/or its subsidiaries breached agreements for the supply
by Cabot to Vishay of tantalum powder and wire. The action arises out of two
tantalum supply agreements entered into between Cabot and a Vishay subsidiary in
July and November 2000. These agreements require the subsidiary to purchase and
Cabot to sell certain minimum amounts of tantalum powder and tantalum wire in
the years 2001 through 2005. Vishay uses tantalum products in the manufacture of
its line of tantalum capacitors. Cabot asks the court to require the Company to
provide Cabot with identification of the particular tantalum products that
Vishay intends to purchase under the November agreement at appropriate intervals
during the year; to require the Company to inspect tantalum products that Cabot
manufactures for Vishay when and as they are produced and tendered by Cabot in
order to confirm that they meet specifications; to require the Company to
purchase the annual minimum quantities of tantalum products at regular periodic
intervals throughout the year; to enter a judgment in favor of Cabot in an
amount to be determined for breach of the July agreement and declaring Cabot's
entitlement to cancel that agreement; and to order other unspecified
declarations of rights and obligations of the parties. The Company believes that
its subsidiary that is a party to the Cabot agreements has sound defenses to all
of the claims raised by Cabot and has complied with its obligations under the
agreements.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
/s/ Richard N. Grubb
-----------------------------------------
Richard N. Grubb
Executive Vice President, Treasurer
(Duly Authorized and Chief Financial Officer)
Date: May 14, 2002