In the past we have grown through successful integration of acquired businesses, but this may not continue.
Our long-term historical growth in revenues and net earnings has resulted in large part from our strategy of expansion through acquisitions. Despite our plan to continue to grow, in part, through targeted acquisitions, we may be unable to continue to identify, have the financial capabilities to acquire, or successfully complete transactions with suitable acquisition candidates. The rapid consolidation that our industry has experienced may further decrease our ability to identify attractive opportunities for acquisition. We are subject to various U.S. and foreign competition laws and regulations that may affect our ability to complete certain acquisitions. Also, if an acquired business fails to operate as anticipated, cannot be successfully integrated with our other businesses, or we cannot effectively mitigate the assumed, contingent, and unknown liabilities acquired, our results of operations, financial condition, enterprise value, market value, and prospects could all be materially adversely affected.
Our future operating results are dependent on our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change, and to customize certain products to meet customer requirements. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of operations.
In addition to our own research and development initiatives, we periodically invest in technology start-up enterprises, in which we may acquire a controlling or noncontrolling interest but whose technology would be available to be commercialized by us. There are numerous risks in investments of this nature including the limited operating history of such start-up entities, their need for capital, and their limited or absence of production experience, as well as the risk that their technologies may prove ineffective or fail to gain acceptance in the marketplace. Certain of our historical investments in start-up companies have not succeeded, and there can be no assurance that our current and future investments in start-up enterprises will prove successful.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology and to operate our business without infringing or violating the intellectual property rights of others.
Protection of intellectual property often involves complex legal and factual issues. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We have applied, and will continue to apply, for patents covering our technologies and products, as we deem appropriate. However, our applications may not result in issued patents. Also, our existing patents and any future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies, design around our patented technologies, or may challenge or seek to invalidate our patents. Also, the legal system in certain countries in which we operate may not provide or may not continue to provide sufficient, intellectual property legal protections and remedies.
Litigation regarding patent and other intellectual property rights is prevalent in the electronic components industry, particularly the discrete semiconductor sector. We have on occasion been notified that we may be infringing on patent and other intellectual property rights of others. In addition, customers purchasing components from us have rights to indemnification under certain circumstances if such components violate the intellectual property rights of others. Further, we have observed that in the current business environment, electronic component and semiconductor companies have become more aggressive in asserting and defending patent claims against competitors. We will continue to vigorously defend our intellectual property rights, and may become party to disputes regarding patent licensing and cross patent licensing. Although licenses are generally offered in such situations and we have successfully resolved these situations in the past, there can be no assurance that we will not be subject to future litigation alleging intellectual property rights infringement, or that we will be able to obtain licenses on acceptable terms. An unfavorable outcome regarding one of these matters could have a material adverse effect on our business and results of operations.
Our business is highly competitive worldwide, with low transportation costs and few import barriers. We compete principally on the bases of product quality and reliability, availability, customer service, technological innovation, timely delivery, and price. Our ability to compete successfully also depends on elements out of our control. We face significant competition within each of our product segments from larger global manufacturers and smaller manufacturers focused on specific market niches. The electronic component industry has become increasingly concentrated and globalized in recent years as many of our primary competitors have been acquired. The acquiring companies, most of which are larger than us, have significant financial resources and technological capabilities.
OurA material portion of our revenues are derived from the worldwide industrial, automotive, telecommunications, and computing markets. These markets have historically experienced wide variations in demand for end products. If demand for these end products should decrease, the producers thereof could reduce their purchases of our products, which could have an adverse effect on our results of operations and financial position.
While no customer comprises over 10% of our consolidated net revenues, certain subsidiaries and product lines are susceptible to customer concentrations and have customers which comprise greater than 10% of the subsidiary’s or product line’s net revenues. The loss of one of these customers could have also become increasingly concentrateda material effect on the results of operations of the subsidiary or product line and financial position of the subsidiary, which could result in recent years, and as a result, their buying power has increased and they have had greater abilityan impairment charge which could be material to negotiate favorable pricing and terms. This trend has adversely affected our average selling prices, particularly for commodity components.
consolidated financial statements.
Our backlog is subject to customer cancellation.
Many of the orders that comprise our backlog may be canceled by our customers without penalty. Our customers may on occasion double and triple order components from multiple sources to ensure timely delivery when demand exceeds global supply. They often cancel orders when business is weak and inventories are excessive. Therefore, we cannot be certain that the amount of our backlog accurately reflects the level of orders that we will ultimately deliver. Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog.
Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing, finance, and administrative personnel.
Rapid changes in technologies, frequent new product introductions, and declining average selling prices over product life cycles require us to attract and retain highly qualified personnel to develop and manufacture products that feature technological innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified administrative personnel in functions such as legal, tax, accounting, financial reporting, auditing, and treasury. The market for personnel with such qualifications is highly competitive. While we have employment agreements with certain of our executives, we have not entered into employment agreements with all of our key personnel.
The loss of the services of or the failure to effectively recruit qualified personnel could have a material adverse effect on our business.
Significant fluctuations in interest rates could adversely affect our results of operations and financial position.
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. Our credit facility bears interest at variable rates based on LIBOR. A significant increase in LIBOR would significantly increase our interest expense. A general increase in interest rates would be largely offset by an increase in interest income earned on our cash and short-term investment balances, which are currently greater than our debt balances. However, there can be no assurance that the interest rate earned on cash and short-term investments will move in tandem with the interest rate paid on our variable rate debt.
Cyberattacks and other interruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. We are exposed to, and may be adversely affected by, potential cyberattacks or other disruptions to our information technology systems and data security. Any significant system or network disruption, including, but not limited to, new system implementations, computer viruses, security breaches, phishing, spoofing, cyberattacks, facility issues or energy blackouts could have a material adverse impact on our operations and results of operations. These incidents, which might be related to industrial or other espionage, include covertly introducing malware and spyware to our computers and networks (or to an electronic system operated by a third party for our benefit) and impersonating authorized users, among others. Such a network disruption could result in a loss of the confidentiality of our intellectual property or the release of sensitive competitive information or customer, supplier or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. We have implemented protective measures to prevent against and limit the effects of system or network disruptions, but there can be no assurance that such measures will be sufficient to prevent or limit the damage from any disruptions and any such disruption could have a material adverse impact on our business and results of operations.
We are subject to numerous laws and regulations regarding privacy and data protection. The scope of these laws and regulations is evolving rapidly and is subject to differing interpretations, and thus may be inconsistent among jurisdictions. Such laws and regulations have resulted and will continue to result in significantly greater compliance burdens and costs for us.
Third-party service providers, such as foundries, subcontractors, distributors, and vendors have access to certain portions of our sensitive data. In the event that these service providers do not properly safeguard our data that they hold, security breaches and loss of our data could result. Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.
Future acquisitions could require us to issue additional indebtedness or equity.
If we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through bank borrowings or the issuance of public or private debt. This acquisition financing would likely decrease our ratio of earnings to fixed charges and adversely affect other leverage criteria. Under our credit facility, we are required to obtain the lenders’ consent for certain additional debt financing and to comply with other covenants including the application of specific financial ratios. We cannot make any assurances that the necessary acquisition financing would be available to us on acceptable terms if and 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.
Regulatory and compliance related risks
Future changes in our environmental liability and compliance obligations may harm our ability to operate or increase our costs.
Our operations, products and/or product packaging are subject to, among other matters, environmental laws and regulations governing, among other matters, air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing processes, employee health and safety labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. We establish reserves for specifically identified potential environmental liabilities. Nevertheless, we have in the past and may in the future inherit certain pre-existing environmental liabilities, generally based on successor liability doctrines, or otherwise incur environmental liabilities. We are involved in remediation programs and related litigation at various current and former properties and at third-party disposal sites both within and outside of the U.S.,United States, including involvement as a potentially responsible party at Superfund sites. 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, future developments, including related to our remediation programs, or otherwise, we will not be obligated to address environmental matters that could have a material adverse impact on our results of operations. In addition, more stringent environmental laws and 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 current and future laws and 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.
Our products are sold to or used in goods sold to the U.S. government and other governments. By virtue of such sales, we are subject to various regulatory requirements and risks in the event of non-compliance.
We sell products under prime and subprime contracts with the U.S. government and other governments. Many of these products are used in military applications. Government contractors must comply with specific procurement regulations and other requirements. These requirements, although customary in government contracts, impact our performance and compliance costs. Failure to comply with these regulations and requirements could result in contract modifications or termination, and the assessment of penalties and fines, which could negatively impact our results of operations and financial condition. Our failure to comply with these regulations and requirements could also lead to suspension or debarment, for cause, from government contracting or subcontracting for a period of time. Among the causes for debarment are violations of various statutes, including those related to procurement integrity, export control, government security regulations, employment practices, protection of the environment, accuracy of records and the recording of costs, and foreign corruption. The termination of a government contract as a result of any of these acts could have a negative impact on our results of operations and financial condition and could have a negative impact on our reputation and ability to procure other government contracts in the future.
We have qualified certain of our products under various military specifications approved and monitored by the United States Defense Electronic Supply Center and under certain European military specifications. These products are assigned certain classification levels. In order to maintain the classification level of a product, we must continuously perform tests on the products and the results of these tests must be reported to governmental agencies. If a product fails to meet the requirements of the applicable classification level, its classification may be reduced to a lower level. A decrease in the classification level for a product with a military application could have an adverse impact on the net revenues and earnings attributable to that product.
Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing, finance, and administrative personnel.
Rapid changes in technologies, frequent new product introductions, and declining average selling prices over product life cycles require us to attract and retain highly qualified personnel to develop and manufacture products that feature technological innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified administrative personnel in functions such as legal, tax, accounting, financial reporting, auditing, and treasury. The market for personnel with such qualifications is highly competitive. While we have employment agreements with certain of our executives, we have not entered into employment agreements with all of our key personnel.
The loss of the services of or the failure to effectively recruit qualified personnel could have a material adverse effect on our business.
Interruptions in our information technology systems could adversely affect our business.
We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business. Any significant system or network disruption, including, but not limited to, new system implementations, computer viruses, security breaches, phishing, spoofing, cyberattacks, facility issues or energy blackouts could have a material adverse impact on our operations and results of operations. These incidents, which might be related to industrial or other espionage, include covertly introducing malware and spyware to our computers and networks (or to an electronic system operated by a third party for our benefit) and impersonating authorized users, among others. Such a network disruption could result in a loss of the confidentiality of our intellectual property or the release of sensitive competitive information or customer, supplier or employee personal data. Any loss of such information could harm our competitive position, result in a loss of customer confidence, and cause us to incur significant costs to remedy the damages caused by the disruptions or security breaches. We have implemented protective measures to prevent against and limit the effects of system or network disruptions, but there can be no assurance that such measures will be sufficient to prevent or limit the damage from any disruptions and any such disruption could have a material adverse impact on our business and results of operations.
Third-party service providers, such as foundries, subcontractors, distributors, and vendors have access to certain portions of our sensitive data. In the event that these service providers do not properly safeguard our data that they hold, security breaches and loss of our data could result. Any such loss of data by our third-party service providers could have a material adverse impact on our business and results of operations.
Significant fluctuations in interest rates could adversely affect our results of operations and financial position.
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. Our credit facility bears interest at variable rates based on LIBOR. A significant increase in LIBOR would significantly increase our interest expense. A general increase in interest rates would be largely offset by an increase in interest income earned on our cash and short-term investment balances, which are currently greater than our debt balances. However, there can be no assurance that the interest rate earned on cash and short-term investments will move in tandem with the interest rate paid on our variable rate debt.
Our credit facility restricts our current and future operations and requires compliance with certain financial covenants.
Our credit facility includes restrictions on, among other things, incurring indebtedness, incurring liens on assets, making investments and acquisitions, making asset sales, and paying cash dividends and making other restricted payments. Our credit facility also requires us to comply with other covenants, including the maintenance of specific financial ratios. If we are not in compliance with all of such covenants, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility could become immediately payable. Additionally, our convertible debt instruments have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
Future acquisitions could require us to issue additional indebtedness or equity.
If we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through bank borrowings or the issuance of public or private debt. This acquisition financing would likely decreaseRisks associated with our ratio of earnings to fixed charges and adversely affect other leverage criteria. Under our credit facility, we are required to obtain the lenders’ consent for certain additional debt financing and to comply with other covenants including the application of specific financial ratios. We cannot make any assurances that the necessary acquisition financing would be available to us on acceptable terms if and 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.
Risks relating to Vishay’s operations outside the United States
We are subject to the risks of political, economic, and military instability in countries outside the United States in which we operate.
We have substantial operations outside the United States, and approximately 73%76% of our revenues during 20192021 were derived from sales to customers outside the United States. Certain of our assets are located, and certain of our products are produced, in countries which are subject to risks of social, political, economic, and military instability. This instability could result in wars, riots, nationalization of industry, currency fluctuation, and labor 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, results of operations, and our ability to access our liquidity.
Our business has been in operation in Israel for 4951 years, where we have substantial manufacturing operations. Although we have never experienced any material interruption in our operations attributable to these factors, in spite of several Middle East crises, including wars, our financial condition and results of operations might be adversely affected if events were to occur in the Middle East that interfered with our operations in Israel.
Our global operations are subject to extensive anti-corruption laws and other regulations.
The U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business, or obtaining an unfair advantage. Recent years have seen a substantial increase in the global enforcement of anti-corruption laws. Our continued operation and expansion outside the United States, including in developing countries, could increase the risk of such violations or violations under other regulations relating to limitations on or licenses required for sales made to customers located in certain countries. Violations of these laws may result in severe criminal or civil sanctions, could disrupt our business, and result in a material adverse effect on our reputation, business and results of operations or financial condition.
We attempt to improve profitability by controlling labor costs, but these activities could result in labor unrest or considerable expense.
Historically, our primary labor cost controlling strategy was to transfer manufacturing operations to countries with lower production costs, such as the Dominican Republic, India, Malaysia, Mexico, the People’s Republic of China, and the Philippines. We believe that our manufacturing footprint is suitable to serve our customers and end markets, while maintaining lower manufacturing costs. We do not anticipate further transferring any significant existing operations to lower-labor-cost countries; however, acquired operations may be transferred to lower-labor-cost countries when integrated into Vishay. Currently, our primary labor cost controlling strategy involves reducing hours and limiting the use of subcontractors and foundries when demand for our products decreases. Shifting operations to lower-labor-cost countries, reducing hours, or limiting the use of subcontractors and foundries could result in production inefficiencies, higher costs, and/or strikes or other types of labor unrest.
We are subject to foreign currency exchange rate risks which may impact our results of operations.
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries. From time to time, we utilize forward contracts to hedge a portion of projected cash flows from these exposures.
Our significant foreign subsidiaries are located in Germany, Israel, and Asia. We finance our operations in Europe and certain locations in Asia in local currencies. Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the revenues earned in a particular currency offset one another. Our exposure to foreign currency risk is more pronounced in situations where, for example, production labor costs are predominantly paid in local currencies while the sales revenue for those products is denominated in U.S. dollars. This is particularly the case for products produced in Israel, the Czech Republic, and China.
A change in the mix of the currencies in which we transact our business could have a material effect on results of operations. Furthermore, the timing of cash receipts and disbursements could have a material effect on our results of operations, particularly if there are significant changes in exchange rates in a short period of time.
Most of our operating cash is generated by our non-U.S. subsidiaries, and our U.S. parent company and U.S. subsidiaries have significant payment obligations.
We generate a significant amount of cash and profits from our non-U.S. subsidiaries. We used substantially all of the amounts repatriated in 20182019 and 20192020 to significantly re-shape the capital structure of the Company. As of December 31, 2019,2021, substantially all of our cash and cash equivalents and short-term investments were held by subsidiaries outside of the United States. Our unused revolving credit facility provides us with additional U.S. liquidity.
U.S. tax obligations, cash dividends to stockholders, share repurchases, additional convertible debt repurchases, and principal and interest payments on our debt instruments need to be paid by our U.S. parent company, Vishay Intertechnology, Inc. Our U.S. subsidiaries have other operating cash needs.
If our U.S. cash and cash equivalents and short-term investment and other liquidity sources are inadequate to satisfy these obligations, we may be required to repatriate additional cash to the United States.States and would be required to accrue and pay additional taxes. If we are unable to repatriate adequate cash to the United States to satisfy these obligations, it could materially and adversely affect our overall financial condition, results of operations and our liquidity.
Changes in U.S. trade policies, and related factors beyond our control, may adversely impact our business, financial condition, and results of operations.
Our business is subject to risks associated with U.S. and foreign legislation and regulations relating to imports, including quotas, duties, tariffs or taxes, and other import charges or restrictions, which could adversely affect our operations and our ability to import products. The U.S. has taken actions that impact U.S. trade with China, including imposing tariffs on certain goods manufactured in China and imported into the U.S., including certain of our products. Such actions may impact our competitiveness and adversely affect the demand for these products, or if those costs cannot be passed on to our customers, could adversely impact our results of operations for affected segments and the Company as a whole.
Further changes in U.S. trade policy could trigger additional retaliatory actions by affected countries. If these consequences are realized, it could result in a general economic downturn or otherwise have a material adverse effect on our business.
Risks related to our capital structure
The holders of our Class B common stock have effective voting control of our company, giving them the effective ability to prevent a change in control transaction.
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. At December 31, 2019,2021, the holders of Class B common stock held approximately 47.8%47.7% of the voting power of the Company. The ownership of Class B common stock is highly concentrated, and holders of Class B common stock effectively can cause the election of directors and approve other actions as stockholders. Mrs. Ruta Zandman (a member of our Board of Directors) controls the voting of, solely or on a shared basis with Marc Zandman (our Executive Chairman) and Ziv Shoshani (a member of our Board of Directors), approximately 89.7% of our Class B common stock and 42.9%42.8% of the total voting power of our capital stock as of December 31, 2019.2021. Holders of our Class B common stock may act in ways that are contrary to, or not in the best interests of, holders of our common stock. The voting rights of the holders of our Class B common stock effectively give such holders the ability to prevent transactions that would result in a change in control of us, including transactions in which holders of our common stock might otherwise receive a premium for their shares over the then-current market price.
Our future growthacquisition strategy could be impeded if our Board of Directors were reluctant to authorize the issuance of substantial additional shares.
Our overall long-term business strategy has historically included a strong focus on acquisitions financed alternatively through cash on hand or the incurrence of indebtedness. We may in the future be presented with attractive investment or strategic opportunities that, because of their size and our financial condition at the time, would require the issuance of substantial additional amounts of our common stock. If such opportunities were to arise, our Board of Directors may consider the potentially dilutive effect on the interests and voting power of our existing stockholders, including our Class B stockholders, and may therefore be reluctant to authorize the issuance of additional shares. Any such reluctance could impede our future growth.ability to complete certain transactions.
Our outstanding convertible debt instruments may impact the trading price of our common stock.
We believe that many investors in, and potential purchasers of, convertible debt instruments employ, or seek to employ, a convertible arbitrage strategy with respect to these instruments. Investors that employ a convertible arbitrage strategy with respect to convertible debt instruments typically implement that strategy by selling short the common stock underlying the convertible instrument and dynamically adjusting their short position while they hold the instrument. The implementation of this strategy by investors in our convertible debentures, as well as related market regulatory actions, could have a significant impact on the trading prices of our common stock, and the trading prices and liquidity of our convertible debentures. The price of our common stock and our convertible debentures could also be affected by possible sales of our common stock by investors who view our convertible debentures as more attractive means of equity participation in us.
Anti-takeover defenses in our amended and restated certificate of incorporation, our amended and restated bylaws and under Delaware law may impede or discourage a merger, a takeover attempt or other business combinations, which could also reduce the market price of our common stock.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our amended and restated certificate of incorporation and amended and restated bylaws also contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our boardBoard of directorsDirectors or take other corporate actions, including effecting changes in our management. These provisions include:
• | the provision that our Class B common stock is generally entitled to ten votes per share, while our common stock is entitled to one vote per share, enabling the holders of our Class B common stock to effectively control the outcome of substantially all matters submitted to a vote of our stockholders, including the election of directors and change of control transactions; |
• | the provision establishing a classified board of directors with three-year staggered terms and the provision that a director may be removed only for cause, each of which could delay the ability of stockholders to change the membership of a majority of our board of directors; |
• | the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
• | the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
• | the requirement that a special meeting of stockholders may be called only by the directors or by any officer instructed by the directors to call the meeting, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and |
• | the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the bylaws to facilitate an unsolicited takeover attempt. |
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. This statute prohibits a Delaware corporation listed on a national securities exchange from engaging in a business combination with an interested stockholder (generally a person who, together with its affiliates, owns or within the last three years has owned 15% or more of our voting stock subject to certain exceptions) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. The application of Section 203 also could have the effect of delaying or preventing a change in control of us. Any of these provisions could, under certain circumstances, depress the market price of our common stock.
The ability of our board of directors or a committee thereof to create and issue a new series of preferred stock and certain provisions of Delaware law and our certificate of incorporation and bylaws could impede a merger, takeover attempt or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock.
Risks related to the spin-off of the Vishay Precision Group
Vishay Precision Group is using the Vishay name under license from us, which could result in product and market confusion or the loss of certain of our rights to the Vishay name.
VPG has a worldwide, perpetual and royalty-free license from us to use the “Vishay” mark as part of its corporate name and in connection with the manufacture, sale, and marketing of the products and services that comprise its measurements and foil resistors businesses. The license of the Vishay name to VPG is important to VPG because the success of VPG depends on the reputation of the Vishay brand for these products and services built over many years. Nonetheless, there exists the risk that the use by VPG could cause confusion in the marketplace over the products of the two companies, that any negative publicity associated with a product or service of VPG following the spin-off could be mistakenly attributed to our company or that we could lose our own rights to the “Vishay” mark if we fail to impose sufficient controls on VPG’s use of the mark.
General Economic and Business RisksRisk Factors
In addition to the risks relating specifically to our business, a variety of other factors relating to general conditions could cause actual results, performance, or achievements to differ materially from those expressed in any of our forward-looking statements. These factors include:
overall economic and business conditions; | · | overall economic and business conditions; |
competitive factors in the industries in which we conduct our business;changes in governmental regulation; | · | competitive factors in the industries in which we conduct our business; |
changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations;changes in GAAP or interpretations of GAAP by governmental agencies and self-regulatory groups; | · | changes in governmental regulation; |
interest rate fluctuations, foreign currency rate fluctuations, and other capital market conditions; and | · | changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations; |
| · | changes in GAAP or interpretations of GAAP by governmental agencies and self-regulatory groups; |
| · | interest rate fluctuations, foreign currency rate fluctuations, and other capital market conditions; and |
| · | economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders. |
Our common stock, traded on the New York Stock Exchange, has in the past experienced, and may continue to experience, significant fluctuations in price and volume. We believe that the financial performance and activities of other publicly traded companies in the electronic component industry could cause the price of our common stock to fluctuate substantially without regard to our operating performance.
We operate in a continually changing business environment, and new factors emerge from time to time. Other unknown and unpredictable factors also could have a material adverse effect on our future financial condition and results of operations.
Item 1B. | | UNRESOLVED STAFF COMMENTS |
Item 1B.UNRESOLVED STAFF COMMENTS
None.
At December 31, 2019,2021, our business had 5355 manufacturing locations. Our manufacturing facilities include owned and leased locations. Some locations include both owned and leased facilities in the same location. The list of manufacturing facilities below excludes former manufacturing facilities that are not presently used for manufacturing activities due to our restructuring activities. See Note 4 to our consolidated financial statements for further information related to our restructuring efforts, as well as additional information in “Cost Management” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our present needs. Owning many of our manufacturing facilities provides us meaningful financial and operating benefits, including long-term stability and a necessary buffer for economic downturns. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.
The principal locations of our owned manufacturing facilities, along with available space including administrative offices, are as follows:
Owned Locations | Business Segment | | Approx. Available Space (Square Feet) |
| | | |
United States | | | |
Columbus, NE | Resistors | | 199,000201,000 |
Bennington, VT | Capacitors | | 64,000 |
Yankton, SD | Inductors | | 60,000 |
Warwick, RI | Resistors | | 56,000 |
Niagara Falls, NY | Resistors | | 34,000 |
Marshall, MN | Inductors | | 22,000 |
| | | |
Non-U.S. | | | |
Vocklabruck, Austria | Diodes | | 100,000 |
People's Republic of China | | | |
Tianjin | Diodes | | 370,000 |
Shanghai | Diodes | | 195,000 |
Xi'an | MOSFETs and Diodes | | 121,000 |
Czech Republic | | | |
Blatna | Resistors and Capacitors | | 276,000 |
Dolni Rychnov | Resistors and Capacitors | | 183,000 |
Prachatice | Capacitors | | 92,000 |
Volary | Resistors | | 35,000 |
France | | | |
Nice | Resistors | | 221,000 |
Chateau Gontier | Resistors | | 82,000 |
Hyeres | Resistors | | 59,000 |
Germany | | | |
Selb | Resistors and Capacitors | | 402,000472,000 |
Heide | Resistors | | 234,000264,000 |
Landshut | Capacitors | | 75,000 |
Fichtelberg | Resistors | | 36,000 |
Budapest, Hungary | Diodes | | 101,000 |
Loni, India | Resistors and Capacitors | | 395,000 |
Israel | | | |
Dimona | Resistors and Capacitors | | 404,000 |
Migdal Ha'Emek | Capacitors | | 288,000 |
Be'er Sheva | Resistors, Inductors and Capacitors | | 276,000 |
Turin, Italy | Diodes | | 93,000102,000 |
Miharu, Japan | Capacitors | | 165,000 |
Melaka, Malaysia | Optoelectronic Components | | 156,000 |
Juarez, Mexico | Resistors | | 60,000 |
Famalicao, Portugal | Capacitors | | 222,000 |
Republic of China (Taiwan) | | | |
Taipei | Diodes | | 366,000 |
Kaohsiung | MOSFETs | | 63,000 |
The principal locations of our leased manufacturing facilities, along with available space including administrative offices, are as follows:
Leased Locations | Business Segment | | Approx. Available Space (Square Feet) |
| | | |
United States | | | |
Columbus, NE | Resistors | | 87,000 |
Milwaukee, WI | Resistors | | 42,000 |
Ontario, CA | Resistors | | 38,000 |
Attleboro, MA | Resistors | | 37,000 |
Dover, NH | Inductors | | 35,000 |
Hollis, NH | Resistors | | 25,000 |
Duluth, MNFremont, CA | InductorsResistors | | 10,00018,000 |
East Windsor, CT | Resistors | | 17,000 |
Duluth, MN | Inductors | | 10,000 |
| | | |
Non-U.S. | | | |
Klagenfurt, Austria | Capacitors | | 150,000 |
People’s Republic of China | | | |
Danshui | Capacitors, Inductors, and Resistors | | 446,000 |
Shanghai | MOSFETs | | 300,000 |
Shatian | Capacitors and Resistors | | 218,000 |
Zhuhai | Inductors | | 179,000 |
Long Xi | Resistors | | 36,000 |
Prestice, Czech Republic | Capacitors | | 15,000 |
Santo Domingo, Dominican Republic | Inductors | | 44,000 |
Germany | | | |
Itzehoe | MOSFETs | | 199,000217,000 |
Heilbronn | Diodes and Optoelectronic Components | | 139,000163,000 |
Selb | Capacitors | | 47,000 |
Mumbai, India | Diodes | | 34,000 |
Mexico | | | |
Juarez | Resistors | | 102,000 |
Mexicali | Resistors | | 15,000 |
Manila, Philippines | Optoelectronic Components | | 149,000 |
Kaohsiung, Republic of China (Taiwan) | Diodes | | 130,000 |
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.
Antitrust Class Action Complaints
Holy Stone, Vishay and Vishay Polytech Co., Ltd. ("VPC"(“VPC”), have reached a subsidiary of Vishay which was purchased from Holy Stone Enterprises Co., Ltd. ("Holy Stone"settlement agreement with the plaintiffs in the electrolytic and film capacitors class actions (the “Capacitors Class Actions”) in June 2014, is a named defendant, among other manufacturers, in antitrust class action complaints inCanada. According to the United States. The complaints allege restraints of trade in aluminum and tantalum electrolytic capacitors, and in some cases, film capacitors, and seek injunctive relief and unspecified joint and several treble damages. Vishay Intertechnology, Inc. and VPC are parties to similar cases, including with respect to resistors, filed in Canada.
settlement agreement, Holy Stone has agreed to indemnifypay on behalf of itself, Vishay and VPC the amount of CAD 0.8 million. There will be court hearings in Ontario, British Columbia and Québec for losses, including penalties and expenses associated with the subject matterapproval of the litigation described above. Notwithstanding this indemnity obligation,settlement. The class action complaints that were commenced against Vishay in Ontario and British Columbia, Canada, related to price fixing of resistors have been discontinued as against Vishay pursuant to an agreement entered by the Companyparties. In sum, Vishay and VPC intendadmitted no liability and have not paid any amount towards the class action proceedings related to defend vigorouslyprice fixing of capacitors or resistors that were initiated against them in Canada. Upon final approval of the civil complaints.settlement reached in the Capacitors Class Actions by all applicable courts, Vishay and VPC will no longer be defendants in any active antitrust litigation in Canada.
Intellectual Property Matters
We are engaged in discussions with various parties regarding patent licensing and cross patent licensing issues. In addition, we have observed that in the current business environment, electronic component and semiconductor companies have become more aggressive in asserting and defending patent claims against competitors. We are a party to disputes alleging infringement of third-party patents. When we believe other companies are misappropriating our intellectual property rights, we vigorously enforce those rights through legal action, and we intend to continue to do so.
Environmental Matters
Vishay is involved in environmental remediation programs at various sites currently or formerly owned by Vishay and its subsidiaries both within and outside of the U.S., in addition to involvement as a potentially responsible party (“PRP”) at Superfund sites. Certain obligations as a PRP have arisen in connection with business acquisitions. The remediation programs are on-going and 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. See also Note 13 to our consolidated financial statements.
Item 4. | | MINE SAFETY DISCLOSURES |
Vishay GSI, Inc. (“VGSI”), a wholly owned subsidiary of the Company, is a direct defendant in two separate, but related, litigation matters: (1) 101 Frost Street Associates, L.P. v. United States Department of Energy et al.; and (2) Hicksville Water District v. United States Department of Energy, et al. VGSI is also a third-party defendant in a third related matter, United States v Island Transportation Corp. et al. All three cases are pending in the United State District Court for the Eastern District of New York.
The three cases contain claims for recovery of response costs under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and allege that a predecessor’s manufacturing operations in Hicksville, New York (the “Site”), between 1960 and 1993, impacted groundwater beneath and downgradient of the Site. The groundwater beneath and downgradient of the Site is part of the New Cassel/Hicksville Groundwater Contamination Site, which was added to the National Priorities List pursuant to CERCLA on September 15, 2011. The Company is vigorously contesting plaintiff’s claims and will aggressively prosecute its affirmative claims.
Item 4.MINE SAFETY DISCLOSURES
None.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers as of February 14, 2020:December 31, 2021:
Name | Age | | Positions Held |
Marc Zandman* | 5860 | | Executive Chairman of the Board, Chief Business Development Officer, and President, Vishay Israel Ltd. |
Dr. Gerald Paul* | 7072 | | Chief Executive Officer, President, and Director |
Lori Lipcaman | 6264 | | Executive Vice President and Chief Financial Officer |
Johan Vandoorn | 6264 | | Executive Vice President and Chief Technical Officer |
David Valletta | 5961 | | Executive Vice President Worldwide Sales |
Joel Smejkal | 5355 | | Executive Vice President Corporate Business Development |
Clarence Tse | 63 | | Executive Vice President and Business Head Semiconductors |
Jeff Webster | 51 | | Executive Vice President and Business Head Passive Components |
Clarence TseAndreas Randebrock | 61 | | Executive Vice President and Business Head Semiconductors |
Werner Gebhardt | 6157 | | Executive Vice President Global Human Resources |
* Member of the Executive Committee of the Board of Directors.
Marc Zandman was appointed Executive Chairman of the Board and Chief Business Development Officer effective June 5, 2011. Mr. Zandman has served as a Director of Vishay since 2001 and President of Vishay Israel Ltd. since 1998. Mr. Zandman previously was Vice Chairman of the Board from 2003 to June 2011, and Chief Administration Officer from 2007 to June 2011. Mr. Zandman was Group Vice President of Vishay Measurements Group from 2002 to 2004. Mr. Zandman has served in various other capacities with Vishay since 1984. He is the son of the late Dr. Felix Zandman, Vishay’s Founder. Mr. Zandman controls, on a shared basis with Ruta Zandman and Ziv Shoshani, approximately 34.0% of the total voting power of our capital stock as of December 31, 2019.2021. He also is non-executive Chairman of Vishay Precision Group, Inc., an independent, publicly-traded company spun-off from Vishay Intertechnology in 2010.
Dr. Gerald Paul was appointed Chief Executive Officer effective January 1, 2005. Dr. Paul has served as a Director of the Company since 1993, and has been President of the Company since March 1998. Dr. Paul also was Chief Operating Officer from 1996 to 2006. Dr. Paul previously was an Executive Vice President of the Company from 1996 to 1998, and President of Vishay Electronic Components, Europe from 1994 to 1996. Dr. Paul has been Managing Director of Vishay Electronic GmbH, a subsidiary of the Company, since 1991. Dr. Paul has been employed by Vishay and a predecessor company since 1978.
Lori Lipcaman was appointed Executive Vice President and Chief Financial Officer of the Company effective September 1, 2011. Ms. Lipcaman had been appointed Executive Vice President Finance and Chief Accounting Officer in September 2008. Previously, she served as Vishay’s Corporate Senior Vice President, Operations Controller, from March 1998 to September 2008. Prior to that, she served in various positions of increasing responsibility in finance and controlling since joining the Company in May 1989.
Johan Vandoorn was appointed Executive Vice President and Chief Technical Officer effective August 1, 2011. Mr. Vandoorn is responsible for Vishay’s technical development and internal growth programs. Mr. Vandoorn has held various positions of increasing responsibility since Vishay’s acquisition of BCcomponents Holdings BV (“BCcomponents”) in 2002, including Executive Vice President – Passive Components (2006 – 2012). Mr. Vandoorn had been Vice President – Global Operations of BCcomponents from 2000 until its acquisition by Vishay, and previously worked for Philips Components (“Philips”) from 1980 until Philips sold the BCcomponents business to a private equity firm in 1998.
David Valletta serves as Vishay’s Executive Vice President – Worldwide Sales, a position he has held since 2007. Mr. Valletta has held various positions of increasing responsibility since Vishay’s acquisition of Vitramon in 1994. Prior to joining Vitramon, Mr. Valletta also worked for AVX Corporation. His experience with Vishay includes various positions within the Americas region in direct and distribution sales management and global sales responsibility for the Company’s key strategic customers.
Joel Smejkal was appointed Executive Vice President Corporate Business Development effective July 1, 2020. Mr. Smejkal previously was Executive Vice President and Business Head Passive Components effective January 1, 2017.from 2017 to 2020. Mr. Smejkal has held various positions of increasing responsibility since joining Vishay in 1990 including Senior Vice President Global Distribution Sales (2012 - 2016). Mr. Smejkal's experience with Vishay includes worldwide and divisional leadership roles in engineering, marketing, operations and sales. He was a product developer of 18 U.S. Patents for the Power Metal Strip® resistor technology and brings significant business development, marketing and sales experience.
Clarence Tse was appointed Executive Vice President and Business Head Semiconductors effective January 1, 2017. Mr. Tse has held various positions of increasing responsibility since Vishay's acquisition of Siliconix/Telefunken in 1998, including Senior Vice President, Diodes Division (2008 - 2016), Senior Vice President, Power Diodes Division (2002 - 2008) and Vice President, Finance and Administration Asia (1998 - 2001). Mr. Tse was first hired by Siliconix in 1985.
Werner GebhardtJeff Webster was appointed Executive Vice President and Business Head Passive Components effective July 1, 2020. Mr. Webster has held various positions of increasing responsibility since joining Vishay in 2000 including Senior Vice President Global Quality (2014 - 2019) and Vice President Global Quality - Actives (2000 - 2014). Prior to joining Vishay, Mr. Webster worked for Intersil. Mr. Webster's experience includes roles in Quality, Operations, and R&D.
Andreas Randebrock was appointed Executive Vice President Global Human Resources effective JanuaryJuly 1, 2017.2020. Mr. GebhardtRandebrock has been working for Vishay since 2015 as Senior Vice President Employee Development. Before Mr. Randebrock joined Vishay he worked as a management consultant in the field of leadership, human resources, and organizational consulting for more than 20 years. From 1998 until 2015, Mr. Randebrock was employed by the global human resources consultancy Hay Group (acquired in 2015 by Korn Ferry) where he held various positions of increasing responsibility since Vishay's acquisition of Draloric Electronic GmbH ("Draloric") in 1987, including Sr. Vice President Global Human Resources (2011 - 2014) and Administrative President Europe (2006 - 2011). Mr. Gebhardt's experience with Vishay includes leadership roles in Administration and Human Resources. Mr. Gebhardt had been employed by Draloric since 1975.was a partner.
Item 5. | | MARKET FOR REGISTRANT’SREGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
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 indicated fiscal quarters. Holders of record of our common stock totaled approximately 1,000 at February 12, 2020.18, 2022. Because many of the shares of our common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these stockholders of record.
In 2014, the Company's Board of Directors instituted a quarterly cash dividend program and declared the first cash dividend in the history of Vishay. Quarterly cash dividends have been paid in each quarter since the first fiscal quarter of 2014. We expect to continue to pay quarterly dividends, although the amount and timing of any future dividends remains subject to authorization of our Board of Directors.
The following table sets forth, for the indicated periods, the high and low sales prices of our common stock and the quarterly cash dividends declared.
| Common stock price range | | Dividends declared | | |
| 2019 | | 2018 | | per share | | Common stock price range | | Dividends declared | |
| High | | Low | | High | | Low | | 2019 | | 2018 | | 2021 | | 2020 | | per share | |
| | | | | | | | | | | | | | | | | | | High | | Low | | High | | Low | | 2021 | | 2020 | |
Fourth quarter | | $ | 21.61 | | | $ | 16.29 | | | $ | 21.37 | | | $ | 16.73 | | | $ | 0.0950 | | | $ | 0.0850 | | | $ | 22.65 | | | $ | 19.00 | | | $ | 20.99 | | | $ | 15.74 | | | $ | 0.1000 | | | $ | 0.0950 | |
Third quarter | | $ | 18.23 | | | $ | 14.36 | | | $ | 26.50 | | | $ | 20.08 | | | $ | 0.0950 | | | $ | 0.0850 | | | $ | 22.93 | | | $ | 19.67 | | | $ | 17.59 | | | $ | 14.50 | | | $ | 0.0950 | | | $ | 0.0950 | |
Second quarter | | $ | 20.85 | | | $ | 15.06 | | | $ | 25.00 | | | $ | 17.51 | | | $ | 0.0950 | | | $ | 0.0850 | | | $ | 26.50 | | | $ | 21.09 | | | $ | 18.41 | | | $ | 13.40 | | | $ | 0.0950 | | | $ | 0.0950 | |
First quarter | | $ | 22.94 | | | $ | 16.63 | | | $ | 23.85 | | | $ | 17.15 | | | $ | 0.0850 | | | $ | 0.0675 | | | $ | 25.26 | | | $ | 20.56 | | | $ | 23.25 | | | $ | 11.23 | | | $ | 0.0950 | | | $ | 0.0950 | |
At February
12, 2020,18, 2022, we had outstanding
12,097,40912,097,148 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. As a result of the passing of our founder and former Executive Chairman, Dr. Felix Zandman, Mrs. Ruta Zandman (a member of our Board of Directors) controls the voting of, solely or on a shared basis with Marc Zandman (our Executive Chairman) and Ziv Shoshani (a member of our Board of Directors) approximately 89.7% of our Class B common stock and
42.9%42.8% of the total voting power of our capital stock as of December 31,
2019.2021.
Certain of our debt obligations contain restrictions as to the payment of cash dividends. See "Financial Condition, Liquidity, and Capital Resources" included in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."
On November 19, 2019, the Company’sFebruary 8, 2022, Vishay announced that its Board of Directors authorized the Executive Committee ofhas adopted a Stockholder Return Policy that will remain in effect until such time as the Board votes to execute programsamend or rescind the policy. The Stockholder Return Policy calls for Vishay to repurchase upreturn at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. Vishay intends to $150 million of common stock on the open market and to repurchase all of the remaining outstanding convertible debentures due 2040 and due 2041 in open market repurchases or through privately negotiated transactions. Such transactions are subject to market and business conditions, legal requirements, and other factors. The programs implementingreturn such authorization does not obligate us to acquire any shares of common stock or any particular amount of convertible debentures, and it may be terminated or suspended at any time at our discretion, in accordance with applicable laws and regulations.
In the fourth fiscal quarter of 2019, the Company repurchased $0.1 million and $3.9 million of the Company's convertible senior debentures due 2040 and due 2041, respectively. The aggregate purchase price for the repurchases was $5.2 million. The convertible senior debentures the Company repurchasedamounts directly, in the fourth fiscal quarter had been convertible into 0.2 million sharesform of Vishay commondividends, or indirectly, in the form of stock assuming physical settlement.repurchases.
Stock Performance Graph
The line graph below compares the cumulative total stockholder return on Vishay’s common stock over a 5-year period with the returns on the Standard & Poor’s MidCap 400 Stock Index (of which Vishay is a component), the Standard & Poor’s 500 Stock Index, and the Philadelphia Semiconductor Index. The line graph assumes that $100 had been invested at December 31, 20142016 and assumes that all dividends were reinvested.
| Base | | Years Ending December 31, | Base | | Years Ending December 31, |
| Period | | | | | | | | | | | Period | | | | | | | | | | |
Company Name / Index | 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| | | | | | | | | | | | | | | | | | | | | | |
Vishay Intertechnology, Inc. | 100 | | 86.90 | | 119.02 | | 154.64 | | 136.26 | | 164.41 | 100 | | 129.92 | | 114.48 | | 138.13 | | 137.41 | | 147.65 |
S&P 500 Index | 100 | | 101.38 | | 113.51 | | 138.29 | | 132.23 | | 173.86 | 100 | | 121.83 | | 116.49 | | 153.17 | | 181.35 | | 233.41 |
S&P MidCap 400 Index | 100 | | 97.82 | | 118.11 | | 137.30 | | 122.08 | | 154.07 | 100 | | 116.24 | | 103.36 | | 130.44 | | 148.26 | | 184.97 |
Philadelphia Semiconductor Index | 100 | | 98.41 | | 137.10 | | 192.69 | | 181.04 | | 295.57 | 100 | | 140.54 | | 132.05 | | 215.58 | | 331.27 | | 473.22 |
Not applicable.
Item 6. | | SELECTED FINANCIAL DATA |
The following table sets forth selected consolidated financial information as of and for the fiscal years ended December 31, 2019, 2018, 2017, 2016, and 2015. This table should be read in conjunction with our consolidated financial statements and accompanying notes, filed herewith, commencing on page F-1 of this report (table and notes in thousands, except per share amounts):
| | As of and for the years ended December 31, | |
| | 2019 (2) | | | 2018 (3) | | | 2017 (4) | | | 2016 (5) | | | (1) 2015 (6) | |
| | | | | | | | | | | | | | | |
Statement of Operations Data: | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,668,305 | | | $ | 3,034,689 | | | $ | 2,599,368 | | | $ | 2,317,328 | | | $ | 2,300,488 | |
Costs of products sold | | | 1,997,105 | | | | 2,146,165 | | | | 1,896,259 | | | | 1,743,506 | | | | 1,758,268 | |
Gross profit | | | 671,200 | | | | 888,524 | | | | 703,109 | | | | 573,822 | | | | 542,220 | |
| | | | | | | | | | | | | | | | | | | | |
Selling, general, and administrative expenses | | | 384,631 | | | | 403,404 | | | | 367,831 | | | | 356,006 | | | | 362,226 | |
Restructuring and severance costs | | | 24,139 | | | | - | | | | 11,273 | | | | 19,199 | | | | 19,215 | |
Impairment of intangible assets | | | - | | | | - | | | | - | | | | 1,559 | | | | 57,600 | |
Impairment of goodwill | | | - | | | | - | | | | - | | | | - | | | | 5,380 | |
Operating income | | | 262,430 | | | | 485,120 | | | | 324,005 | | | | 197,058 | | | | 97,799 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (33,683 | ) | | | (36,680 | ) | | | (27,850 | ) | | | (25,623 | ) | | | (25,685 | ) |
Other components of net periodic pension expense | | | (13,959 | ) | | | (13,118 | ) | | | (12,417 | ) | | | (16,020 | ) | | | - | |
Other | | | 13,540 | | | | 8,037 | | | | 1,738 | | | | 4,716 | | | | 7,976 | |
Loss on disposal of equity affiliate | | | - | | | | - | | | | (6,112 | ) | | | - | | | | - | |
Gain (loss) on early extinguishment of debt | | | (2,030 | ) | | | (26,583 | ) | | | - | | | | 4,597 | | | | - | |
U.S. pension settlement charges | | | - | | | | - | | | | - | | | | (79,321 | ) | | | - | |
Gain (loss) related to Tianjin explosion | | | - | | | | - | | | | - | | | | 8,809 | | | | (5,350 | ) |
Total other income (expense) | | | (36,132 | ) | | | (68,344 | ) | | | (44,641 | ) | | | (102,842 | ) | | | (23,059 | ) |
| | | | | | | | | | | | | | | | | | | | |
Income before taxes and noncontrolling interest | | | 226,298 | | | | 416,776 | | | | 279,364 | | | | 94,216 | | | | 74,740 | |
Income taxes | | | 61,508 | | | | 70,239 | | | | 298,924 | | | | 44,843 | | | | 182,473 | |
Net earnings (loss) | | | 164,790 | | | | 346,537 | | | | (19,560 | ) | | | 49,373 | | | | (107,733 | ) |
Noncontrolling interest | | | 854 | | | | 779 | | | | 784 | | | | 581 | | | | 781 | |
Net earnings (loss) attributable to Vishay stockholders | | $ | 163,936 | | | $ | 345,758 | | | $ | (20,344 | ) | | $ | 48,792 | | | $ | (108,514 | ) |
| | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per share attributable to Vishay stockholders: | | $ | 1.13 | | | $ | 2.39 | | | $ | (0.14 | ) | | $ | 0.33 | | | $ | (0.73 | ) |
| | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share attributable to Vishay stockholders: | | $ | 1.13 | | | $ | 2.24 | | | $ | (0.14 | ) | | $ | 0.32 | | | $ | (0.73 | ) |
| | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding – basic | | | 144,608 | | | | 144,370 | | | | 145,633 | | | | 147,152 | | | | 147,700 | |
Weighted average shares outstanding – diluted | | | 145,136 | | | | 154,622 | | | | 145,633 | | | | 150,697 | | | | 147,700 | |
| | | | | | | | | | | | | | | | | | | | |
Cash dividends per share | | $ | 0.3700 | | | $ | 0.3225 | | | $ | 0.2550 | | | $ | 0.2500 | | | $ | 0.2400 | |
| | | | | | | | | | | | | | | | | | | | |
Balance Sheet Data: | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 3,120,775 | | | $ | 3,106,198 | | | $ | 3,462,089 | | | $ | 3,080,701 | | | $ | 3,152,986 | |
Long-term debt, less current portion | | | 499,147 | | | | 494,509 | | | | 370,470 | | | | 357,023 | | | | 436,738 | |
Working capital | | | 1,183,688 | | | | 1,139,780 | | | | 1,632,655 | | | | 1,410,522 | | | | 1,429,768 | |
Total Vishay stockholders’ equity | | | 1,485,149 | | | | 1,382,384 | | | | 1,430,367 | | | | 1,567,727 | | | | 1,622,476 | |
(1) | Does not include an adjustment to reflect the retrospective adoption of Financial Accounting Standards Board ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Effective January 1, 2018, we adopted two ASUs that required retrospective adoption to previously issued financial statements. We used a financial statement approach when adopting the ASUs and recorded a cumulative effect adjustment as of January 1, 2016. Periods prior to January 1, 2016 have not been adjusted to reflect the retrospective adoption of the ASUs.
|
| |
(2) | Includes the results of Bi-Metallix from January 3, 2019. Also includes $24,139 of restructuring and severance costs, $2,030 of loss on early extinguishment of debt, $1,601 net tax benefit due to the change in deferred taxes due to early extinguishment of debt, $7,554 net tax expense related to the a tax-basis foreign exchange gain on the settlement of an intercompany loan, $9,583 net tax benefit related to our repatriation of foreign earnings to the United States, and $2,831 net tax expense due to changes in uncertain tax positions. These items, net of their tax consequences, had a negative $0.13 effect on earnings per share attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements. |
| |
(3) | Includes the results of UltraSource from February 8, 2018 and EuroPower Holdings Ltd. from June 11, 2018. Also includes $26,583 of loss on early extinguishment of debt, $54,877 net tax benefit due to the change in deferred taxes due to early extinguishment of debt, $25,496 net tax expense related to the changes in estimates related to the enactment of the Tax Cuts and Jobs Act in the United States ("TCJA"), and $10,047 tax benefit related to our repatriation of foreign earnings to the United States plan. These items, net of their tax consequences, had a positive $0.12 effect on earnings per share attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements. |
| |
(4) | Includes $11,273 of restructuring and severance costs, $6,112 of loss on disposal of an equity affiliate, $234,855 net tax expense related to the enactment of the TCJA in the United States, $1,565 tax expense due to the effects of changes in uncertain tax positions, and $5,802 tax benefit related to our previous repatriation of foreign earnings to the United States plan. These items, net of their tax consequences, had a negative $1.57 effect on earnings (loss) per share attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements. |
| |
(5) | Includes the results of Sonntag Electronic GmbH from January 1, 2016. Also includes $19,199 of restructuring and severance costs, $1,559 of intangible asset impairment charges, a $4,597 gain on early extinguishment of debt, a $8,809 gain on the settlement of insurance claims related to the Tianjin explosion, $79,321 of non-cash pension settlement charges, $34,853 tax expense from accumulated other comprehensive income as a result of the pension settlement, $8,704 tax benefit due to the effects of changes in uncertain tax positions, and $3,553 tax benefit related to the planned repatriation of foreign earnings to the United States. These items, net of their tax consequences, had a negative $0.53 effect on earnings per share attributable to Vishay stockholders. |
| |
(6) | Includes $19,215 of restructuring and severance costs, $57,600 of intangible asset impairment charges, $5,380 of goodwill impairment charges, a loss of $5,350 related to the Tianjin explosion, a $163,954 tax expense related to the planned repatriation of foreign earnings to the United States, a $8,888 tax benefit due to the effects of changes in valuation allowances, and a $2,629 tax benefit due to the effects of changes in uncertain tax positions. These items, net of their tax consequences, had a negative $1.45 effect on earnings (loss) per share attributable to Vishay stockholders. |
Management believes that stating the impact on net earnings of items such as goodwill and intangible assets impairment charges, gains and losses on early extinguishment of debt, restructuring and severance costs, material pension settlement charges, material gains and losses on sales of property, special tax items, and other items is meaningful to investors because it provides insight with respect to intrinsic operating results of the Company.
Item 7. | | MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Management's Discussion and Analysis (“MD&A”) is intended to provide an understanding of Vishay's financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. The MD&A should be read in conjunction with our Consolidated Financial Statements and accompanying Notes filed herewith, commencing on page F-1 of this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. “Risk Factors.”
Overview
Vishay Intertechnology, Inc. ("Vishay," "we," "us," or "our") is a leading global manufacturer and suppliermanufactures one of the world’s largest portfolios of discrete semiconductors and passive electronic components including MOSFETs, diodes, optoelectronic components, resistors, inductors, and capacitors. Discrete semiconductors and passive components manufactured by Vishaythat are used in virtually all types of electronic products, including thoseessential to innovative designs in the automotive, industrial, computing, automotive, consumer, electronic products, telecommunications, power supplies, military/military, aerospace, and medical industries.markets.
We operate in six segments based on product functionality: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors. The current six segment alignment reflects a change in reporting structure made during the fourth fiscal quarter of 2019. Prior periods have been recast to separately present Resistors and Inductors.
We are focused on enhancing stockholder value by growing our business and improving earnings per share. Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions. We plan to continue to grow our business through intensified internal growth supplemented by opportunistic acquisitions, while at the same time maintaining a prudent capital structure. To foster intensified internal growth, we have increased our worldwide R&D and engineering technical staff; we are expanding critical manufacturing capacities; we are increasing our technical field sales force in Asia to increase our market access to the industrial segment and increase the design-in of our products in local markets; and we are directing increased funding and focus on developing products to capitalize on the connectivity, mobility, and sustainability growth drivers of our business. In addition to our growth plan, we also have opportunistically repurchased our stock and, as further described below, reduced dilution risks by repurchasing a portionsubstantially all of our convertible senior debentures. Over the next few years, we expect to experience higher growth rates than over the last decade. This expectation is based upon accelerated electrification, such as factory automation, electrical vehicles, and 5G infrastructures.
In 2014, our Board of Directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of Vishay. We have paid dividends each quarter since the first fiscal quarter of 2014, and further increased the quarterly cash dividend by 12%5% to $0.095$0.10 per share in the secondfourth fiscal quarter of 2019.2021. We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors.
During 2018 we reacted quickly to the opportunities created byWe have been re-shaping our capital structure since the enactment of the U.S. Tax Cuts and Jobs Act (“TCJA”) in December 2017. During 2018 weWe repatriated approximately $724.0 millionover $1 billion (net of withholding taxes) of cash to the U.S., netUnited States since the enactment of taxes, and further simplified our balance sheet by refinancing some of our debt. In June 2018, wethe TCJA. We used the repatriated cash, the net proceeds from issuingthe 2018 issuance of $600 million principal amount of new convertible senior notes due 2025, and our operating cash flows to repurchase some of our outstandingfully retire the convertible senior debentures, which had become less tax-efficient because of the TCJA. During the fourth quarter of 2018, we utilized repatriated cash to repurchase additional convertible senior debentures in open market and privately-negotiated transactions with holders. In 2019, we continued to repurchase convertible senior debentures in open market and privately-negotiated transactions with holders. As a result of these transactions, we reduced theWe repurchased $134.7 million principal amount of outstanding convertible senior debenturesnotes due 2040, 2041,2025 in the year ended December 31, 2020 and 2042 from $575remain authorized by our Board of Directors to repurchase an additional $65.3 million principal amount. Our debt instruments and transactions are more fully described in Note 6 to $17.2 million.the consolidated financial statements.
As a direct result of a change in Israeli tax law, we made the determination during the fourth fiscal quarter of 2021 that substantially all unremitted foreign earnings in Israel are no longer permanently reinvested. We continuedrecorded additional tax expense of $53.3 million during the fourth fiscal quarter of 2021 to re-shapeaccrue the claw-back tax on applicable earnings and withholding taxes necessary to distribute these approximately $385.0 million of accumulated earnings to the United States.
On February 8, 2022, we announced that our capital structure in 2019. We replaced our existing credit agreement that was due to expire in December 2020 withBoard of Directors has adopted a new agreementStockholder Return Policy that will expireremain in June 2024.effect until such time as the Board votes to amend or rescind the policy. The new credit facility increases the aggregate commitmentStockholder Return Policy calls for us to return at least 70% of revolving loans from $640 millionfree cash flow, net of scheduled principal payments of long-term debt, on an annual basis. We intend to $750 million; provides us with the ability to request up to $300 million of incremental facilities, subject to the satisfaction of certain conditions, which could takereturn such amounts directly, in the form of additional revolving commitments, incremental “term loan A”dividends, or “term loan B” facilities, or incremental equivalent debt; reducesindirectly, in the undrawn commitment fee while maintaining the same borrowing rates;form of stock repurchases. For 2022, we expect to return at least $100 million to stockholders consisting of approximately $58 million through our existing quarterly dividend program and provides greater operating flexibility, including with respect to intercompany funding and other transactions, to enable us to continue to streamline our complex subsidiary structure.
We repatriated $188.7at least $42 million through share repurchases. The distribution of earnings from Israel to the United States and paid withholding and foreign taxes of approximately $38.8 million during 2019. Substantially all of these amounts are beingwill initially be used to repay certain intercompany indebtedness, to repayfund our Stockholder Return Policy. Over the outstanding balance on the revolving credit facility, to pay the U.S. transition tax, andlong-term we expect to fund capital expansion projects.the Stockholder Return Policy from our historically strong cash flows from operations.
Our business and operating results have been and will continue to be impacted by worldwide economic conditions. Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets. For several years,The worldwide economy and, specifically, our business were impacted by the COVID-19 pandemic, particularly in 2020. The pandemic significantly impacted the global market, including our customers, suppliers, and shipping partners, which impacted our net revenues. In 2020, we implemented aggressivealso incurred incremental costs separable from normal operations that are directly attributable to the pandemic and containment efforts, primarily salaries and wages for employees impacted by quarantines and additional safety measures, including masks and temperature scanners, which were partially offset by government subsidies. The net impact of the costs and subsidies are classified as cost reduction programs.of products sold of $4.6 million and selling, general, and administrative benefits of $1.5 million based on employee function on the consolidated statement of operations for the year ended December 31, 2020. Directly attributable costs of the pandemic are no longer incremental and have become part of normal operations. Accordingly, in 2021, they are considered normal operating costs. We excluded indirect financial changes from the COVID-19 pandemic such as general macroeconomic effects and higher shipping costs due to reduced shipping capacity from the COVID-19 pandemic amounts reported. See additional information regarding our competitive strengths and key challenges as disclosed in Part 1.
While the COVID-19 pandemic continues to have a global impact, the widespread economic impact of the COVID-19 pandemic on Vishay was temporary, as evidenced by our record 2021 revenues. Similar disruptions may continue to monitor the currentoccur on a more limited scale. In this volatile economic environment, and its potential effects on our customers and the end markets that we serve. Additionally, we continue to closely monitor our fixed costs, capital expenditure plans, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs. InWe will react quickly and professionally to changes in demand to minimize manufacturing inefficiencies and excess inventory build in periods of decline and maximize opportunities in periods of growth. We have significant liquidity to withstand temporary disruptions in the third fiscal quarter of 2019, we announcedeconomic environment. The global cost reduction and management rejuvenation programs that we began as part of our continuous efforts to improve efficiency and operating performance.performance in 2019 have been fully implemented. Our cost reduction programs areprogram is more fully described in Note 4 to the consolidated financial statements and in "Cost Management" below. See additional information regarding our competitive strengths and key challenges as disclosed in Part 1.
We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business. See further discussion in “Financial Metrics” and “Financial Condition, Liquidity, and Capital Resources” below. We believe that supply, in general, caught up with market demand in the first fiscal quarter of 2019. The remainder of 2019 was significantly impacted by a substantial decrease in orders, particularly from distribution customers, as they reduced their inventory. This decrease has negativelyCOVID-19 pandemic impacted almost all key financial metrics including net revenues.in 2020. We experienced a broad recovery in orders and sales beginning in the third fiscal quarter of 2020 that continued through 2021. We continue to increase manufacturing capacities and have broadly implemented strategic price increases, which positively impacted almost all key financial metrics versus the prior year. The key financial metrics remained strong in the fourth fiscal quarter of 2021, but were slightly negatively impacted by cost increases, particularly in transportation and metal prices, and a slower rate of order and backlog increase versus the prior fiscal quarter.
Net revenues for the year ended December 31, 20192021 were $2.668$3.240 billion, compared to net revenues of $3.035$2.502 billion and $2.599$2.668 billion for the years ended December 31, 20182020 and 2017,2019, respectively. Net earnings attributable to Vishay stockholders for the year ended December 31, 20192021 were $298.0 million, or $2.05 per diluted share, compared to $122.9 million, or $0.85 per diluted share, and $163.9 million, or $1.13 per diluted share, compared to $345.8 million, or $2.24 per diluted share, for the yearyears ended December 31, 2018,2020 and net loss attributable to Vishay stockholders of $(20.3) million, or $(0.14) per share, for the year ended December 31, 2017.2019, respectively.
We define adjusted net earnings as net earnings determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business. We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment. The reconciliations below include certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings, adjusted earnings per share, and free cash. These non-GAAP measures should not be viewed as alternatives to GAAP measures of performance or liquidity. Non-GAAP measures such as adjusted net earnings, adjusted earnings per share, and free cash do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results. Management believes that free cash is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends.
Net earnings (loss) attributable to Vishay stockholders for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 include items affecting comparability. The items affecting comparability are (in thousands, except per share amounts):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
GAAP net earnings (loss) attributable to Vishay stockholders | | $ | 163,936 | | | $ | 345,758 | | | $ | (20,344 | ) | |
GAAP net earnings attributable to Vishay stockholders | | | $ | 297,970 | | | $ | 122,923 | | | $ | 163,936 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Reconciling items affecting operating income: | | | | | | | | | | | | | |
Reconciling items affecting gross income: | | | | | | | | | | | | | |
Impact of COVID-19 pandemic | | | | - | | | | 4,563 | | | | - | |
| | | | | | | | | | | | | |
Other reconciling items affecting operating income: | | | | | | | | | | | | | |
Impact of COVID-19 pandemic | | | | - | | | | (1,451 | ) | | | - | |
Restructuring and severance costs | | $ | 24,139 | | | $ | - | | | $ | 11,273 | | | | - | | | | 743 | | | | 24,139 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Reconciling items affecting other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Loss on early extinguishment of debt | | $ | 2,030 | | | $ | 26,583 | | | $ | - | | | | - | | | | 8,073 | | | | 2,030 | |
Loss on disposal of equity affiliate | | | - | | | | - | | | | 6,112 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Reconciling items affecting tax expense (benefit): | | | | | | | | | | | | | | | | | | | | | | | | |
Changes in tax laws and regulations | | | $ | 45,040 | | | $ | - | | | $ | - | |
Effects of changes in valuation allowances | | | | (5,714 | ) | | | - | | | | - | |
Change in deferred taxes due to early extinguishment of debt | | | | - | | | | (1,563 | ) | | | (1,601 | ) |
Effects of cash repatriation program | | | | - | | | | (190 | ) | | | (9,583 | ) |
Effects of changes in uncertain tax positions | | | | - | | | | 3,751 | | | | 2,831 | |
Effects of tax-basis foreign exchange gain | | $ | 7,554 | | | $ | - | | | $ | - | | | | - | | | | - | | | | 7,554 | |
Enactment of TCJA | | | - | | | | 25,496 | | | | 234,855 | | |
Effects of cash repatriation program | | | (9,583 | ) | | | (10,047 | ) | | | (5,802 | ) | |
Change in deferred taxes due to early extinguishment of debt | | | (1,601 | ) | | | (54,877 | ) | | | - | | |
Effects of changes in uncertain tax positions | | | 2,831 | | | | - | | | | 1,565 | | |
Tax effects of pre-tax items above | | | (6,211 | ) | | | (5,812 | ) | | | (3,331 | ) | | | - | | | | (2,799 | ) | | | (6,211 | ) |
| | | | | | | | | | | | | |
Adjusted net earnings | | $ | 183,095 | | | $ | 327,101 | | | $ | 224,328 | | | $ | 337,296 | | | $ | 134,050 | | | $ | 183,095 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted weighted average diluted shares outstanding | | | 145,136 | | | | 154,622 | | | | 157,010 | | | | 145,495 | | | | 145,228 | | | | 145,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted earnings per diluted share | | $ | 1.26 | | | $ | 2.12 | | | $ | 1.43 | | | $ | 2.32 | | | $ | 0.92 | | | $ | 1.26 | |
Although the term "free cash" is not defined in GAAP, each of the elements used to calculate free cash is presented as a line item on the face of our consolidated statements of cash flows prepared in accordance with GAAP. Our free cash results are as follows (in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
Net cash provided by continuing operating activities | | $ | 296,444 | | | $ | 258,506 | | | $ | 368,777 | | | $ | 457,104 | | | $ | 314,938 | | | $ | 296,444 | |
Proceeds from sale of property and equipment | | | 577 | | | | 55,561 | | | | 1,685 | | | | 1,317 | | | | 403 | | | | 577 | |
Less: Capital expenditures | | | (156,641 | ) | | | (229,899 | ) | | | (170,432 | ) | | | (218,372 | ) | | | (123,599 | ) | | | (156,641 | ) |
Free cash | | $ | 140,380 | | | $ | 84,168 | | | $ | 200,030 | | | $ | 240,049 | | | $ | 191,742 | | | $ | 140,380 | |
Our results for 20192021 and 2020 represent the effectsimpacts of the normalizationCOVID-19 pandemic on our business that resulted in a sharp decrease in demand in first half of demand that we began to experience2020 followed by a sharp and broad recovery in the fourth fiscal quarterlatter part of 2018 and accelerated2020 that continued through 2019 as supply, in general, caught up with demand, and customers, particularly distributors, significantly reduced their orders as they decreased their inventory.2021. Our percentage of euro-based sales approximates our percentage of euro-based expenses so the euro foreign currency impact on revenues was substantially offset by the impact on expenses. Our pre-tax results were consistent with expectations based on our business model.
Our free cash results were significantly impacted by the payment of cash taxes related to the cash repatriated to the U.S. in 2019of $16.3 million and 2018 of $38.8 million in 2020 and $156.8 million,2019, respectively, and the installment payments of the U.S. transition tax of $14.8 million in each year in 2019 and 2018.the reporting period.
Financial Metrics
We utilize several financial metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, operating margin, segment operating income, end-of-period backlog, and the book-to-bill ratio. We also monitor changes in our inventory turnover and our or publicly available average selling prices (“ASP”).
Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs. Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used. Gross profit margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.
Operating margin is computed as gross profit less operating expenses as a percentage of net revenues. We evaluate business segment performance on segment operating margin. Only dedicated, direct selling, general, and administrative expenses of the segments are included in the calculation of segment operating income. Segment operating margin is computed as operating income less items such as restructuring and severance costs, asset write-downs, goodwill and indefinite-lived intangible asset impairments, inventory write-downs, gain or losses on purchase commitments, global operations, sales and marketing, information systems, finance and administrative groups, and other items, expressed as a percentage of net revenues. We believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment. Operating margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.
End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that we expect to ship in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.
An 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 backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues.
We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period. A higher level of inventory turnover reflects more efficient use of our capital.
Pricing in our industry can be volatile. Using our and publicly available data, we analyze trends and changes in average selling prices to evaluate likely future pricing. The erosion of average selling prices of established products is typical for semiconductor products. We attempt to offset this deterioration with ongoing cost reduction activities and new product introductions. Our specialty passive components are more resistant to average selling price erosion. All pricing is subject to governing market conditions and is independently set by us.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 20182020 through the fourth fiscal quarter of 20192021 (dollars in thousands):
| | 4th Quarter 2018 | | | 1st Quarter 2019 | | | 2nd Quarter 2019 | | | 3rd Quarter 2019 | | | 4th Quarter 2019 | | | 4th Quarter 2020 | | | 1st Quarter 2021 | | | 2nd Quarter 2021 | | | 3rd Quarter 2021 | | | 4th Quarter 2021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 775,892 | | | $ | 745,159 | | | $ | 685,240 | | | $ | 628,329 | | | $ | 609,577 | | | $ | 667,180 | | | $ | 764,632 | | | $ | 819,120 | | | $ | 813,663 | | | $ | 843,072 | |
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Gross profit margin(1) | | | 28.3 | % | | | 28.3 | % | | | 25.5 | % | | | 23.9 | % | | | 22.2 | % | | | 22.8 | % | | | 26.5 | % | | | 28.0 | % | | | 27.7 | % | | | 27.3 | % |
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Operating margin (1)(2) | | | 15.4 | % | | | 14.5 | % | | | 11.6 | % | | | 8.1 | % | | | 4.0 | % | | | 9.0 | % | | | 12.7 | % | | | 15.3 | % | | | 15.2 | % | | | 14.4 | % |
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End-of-period backlog | | $ | 1,497,100 | | | $ | 1,331,800 | | | $ | 1,126,700 | | | $ | 935,400 | | | $ | 911,300 | | | $ | 1,239,800 | | | $ | 1,731,200 | | | $ | 2,050,200 | | | $ | 2,243,900 | | | $ | 2,306,500 | |
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Book-to-bill ratio | | | 0.94 | | | | 0.79 | | | | 0.69 | | | | 0.72 | | | | 0.94 | | | | 1.44 | | | | 1.67 | | | | 1.38 | | | | 1.26 | | | | 1.09 | |
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Inventory turnover | | | 4.5 | | | | 4.3 | | | | 4.3 | | | | 4.1 | | | | 4.3 | | | | 4.6 | | | | 4.8 | | | | 4.8 | | | | 4.5 | | | | 4.5 | |
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Change in ASP vs. prior quarter | | | 0.7 | % | | | -0.4 | % | | | -0.9 | % | | | -1.1 | % | | | -0.8 | % | | | -0.3 | % | | | -0.5 | % | | | 1.0 | % | | | 1.3 | % | | | 1.3 | % |
_______________
(1) Gross margin for the fourth fiscal quarter of 2020 includes $0.3 million of expenses directly related to the COVID-19 pandemic (see Note 8 to our consolidated financial statements).
(2) Operating margin for the third and fourth fiscal quartersquarter of 20192020 also includes $7.3in total $(0.3) million and $16.9 million, respectively, of restructuring and severance expenses (benefits) directly related to the COVID-19 outbreak (see Note 48 to our consolidated financial statements).
See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment.
Revenues decreasedincreased significantly versus the fourth fiscal quarter of 2020 and slightly versus the prior fiscal quarter, andprimarily due to higher volume. We continue to experience robust demand for our products, with the fourth fiscal quarter of 2018. In periods where customers, particularly distributors, have high levels of inventory, backlog is less indicative of future revenues. Distributors, particularly of semiconductor products in Asia, begancontinuing to normalize their backlogs in the third fiscal quarter of 2018grow. Sales at this time continue to be limited by our capacity. Pressure on average selling prices continues to be very low and we experienced a further normalization of demand throughout 2019. Inventory inare implementing strategic price increases across the supply chain remains at a relatively high level, which continuesproduct portfolio to negatively impact orders. Average selling prices, particularly of commodity semiconductor products, have begun to decrease consistent with the decrease in demand.offset increased materials and transportation costs.
Gross profit margin decreased versus the prior fiscal quarter primarily due to higher transportation and metals and materials costs. Gross profit margin increased versus the fourth fiscal quarter of 2018. The decreases are2020 primarily volume-driven,due to increased volume and include temporary manufacturing inefficiencies as we adapt manufacturing capacities. efficiencies.
The book-to-bill ratio increased to 0.94 in the fourth fiscal quarter of 2019 from 0.722021 remained strong, but decreased to 1.09 versus 1.26 in the third fiscal quarter of 2019.2021. The book-to-bill ratios in the fourth fiscal quarter of 2021 for distributors and original equipment manufacturers ("OEM") were 0.941.06 and 0.95,1.15, respectively, versus ratios of 0.551.29 and 0.90,1.23, respectively, during the third fiscal quarter of 2019.2021.
Financial Metrics by Segment
The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 20182020 through the fourth fiscal quarter of 20192021 (dollars in thousands):
| | 4th Quarter 2018 | | | 1st Quarter 2019 | | | 2nd Quarter 2019 | | | 3rd Quarter 2019 | | | 4th Quarter 2019 | | | 4th Quarter 2020 | | | 1st Quarter 2021 | | | 2nd Quarter 2021 | | | 3rd Quarter 2021 | | | 4th Quarter 2021 | |
MOSFETs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 139,318 | | | $ | 137,341 | | | $ | 128,842 | | | $ | 126,747 | | | $ | 116,215 | | | $ | 131,567 | | | $ | 153,223 | | | $ | 167,937 | | | $ | 175,499 | | | $ | 171,339 | |
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Book-to-bill ratio | | | 1.08 | | | | 0.84 | | | | 0.54 | | | | 0.54 | | | | 0.94 | | | | 1.64 | | | | 1.97 | | | | 1.26 | | | | 1.19 | | | | 1.01 | |
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Gross profit margin | | | 26.2 | % | | | 26.3 | % | | | 24.8 | % | | | 24.1 | % | | | 23.7 | % | | | 22.4 | % | | | 24.2 | % | | | 28.2 | % | | | 30.7 | % | | | 30.1 | % |
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Segment operating margin | | | 18.9 | % | | | 19.4 | % | | | 17.5 | % | | | 16.6 | % | | | 16.1 | % | | | 15.3 | % | | | 17.8 | % | | | 22.3 | % | | | 24.9 | % | | | 23.5 | % |
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Diodes | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 176,961 | | | $ | 167,840 | | | $ | 142,042 | | | $ | 123,879 | | | $ | 123,382 | | | $ | 139,274 | | | $ | 157,178 | | | $ | 174,815 | | | $ | 185,306 | | | $ | 192,117 | |
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Book-to-bill ratio | | | 0.83 | | | | 0.63 | | | | 0.52 | | | | 0.57 | | | | 0.88 | | | | 1.65 | | | | 1.85 | | | | 1.45 | | | | 1.31 | | | | 1.10 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit margin | | | 26.2 | % | | | 25.9 | % | | | 20.3 | % | | | 17.1 | % | | | 16.3 | % | | | 17.8 | % | | | 21.9 | % | | | 23.9 | % | | | 25.2 | % | | | 23.7 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating margin | | | 23.3 | % | | | 22.7 | % | | | 16.9 | % | | | 13.3 | % | | | 12.6 | % | | | 14.1 | % | | | 18.3 | % | | | 20.7 | % | | | 22.3 | % | | | 20.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Optoelectronic Components | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 65,617 | | | $ | 60,562 | | | $ | 60,675 | | | $ | 50,702 | | | $ | 51,047 | | | $ | 68,352 | | | $ | 77,771 | | | $ | 75,795 | | | $ | 70,750 | | | $ | 78,398 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book-to-bill ratio | | | 0.75 | | | | 0.83 | | | | 0.70 | | | | 0.86 | | | | 1.11 | | | | 1.46 | | | | 1.66 | | | | 1.69 | | | | 1.36 | | | | 1.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit margin | | | 28.8 | % | | | 26.4 | % | | | 26.8 | % | | | 21.5 | % | | | 20.2 | % | | | 27.7 | % | | | 33.0 | % | | | 32.4 | % | | | 33.7 | % | | | 34.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating margin | | | 22.2 | % | | | 19.3 | % | | | 19.8 | % | | | 13.7 | % | | | 12.7 | % | | | 21.3 | % | | | 27.3 | % | | | 26.6 | % | | | 27.9 | % | | | 27.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Resistors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 186,266 | | | $ | 188,831 | | | $ | 165,359 | | | $ | 155,119 | | | $ | 147,883 | | | $ | 161,201 | | | $ | 186,602 | | | $ | 194,722 | | | $ | 181,189 | | | $ | 190,041 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book-to-bill ratio | | | 0.91 | | | | 0.89 | | | | 0.81 | | | | 0.82 | | | | 0.95 | | | | 1.24 | | | | 1.50 | | | | 1.39 | | | | 1.26 | | | | 1.14 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit margin | | | 32.6 | % | | | 33.1 | % | | | 28.3 | % | | | 27.4 | % | | | 23.5 | % | | | 25.3 | % | | | 28.9 | % | | | 29.7 | % | | | 27.4 | % | | | 28.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating margin | | | 29.4 | % | | | 29.8 | % | | | 25.2 | % | | | 23.8 | % | | | 19.0 | % | | | 21.0 | % | | | 25.4 | % | | | 26.4 | % | | | 24.0 | % | | | 25.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Inductors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 76,697 | | | $ | 71,640 | | | $ | 77,024 | | | $ | 73,458 | | | $ | 76,520 | | | $ | 75,260 | | | $ | 83,458 | | | $ | 85,539 | | | $ | 84,816 | | | $ | 81,825 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book-to-bill ratio | | | 1.01 | | | | 0.97 | | | | 1.01 | | | | 0.95 | | | | 1.05 | | | | 1.03 | | | | 1.13 | | | | 1.21 | | | | 1.11 | | | | 1.13 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit margin | | | 32.5 | % | | | 32.5 | % | | | 31.9 | % | | | 31.9 | % | | | 33.5 | % | | | 30.1 | % | | | 33.3 | % | | | 33.5 | % | | | 31.7 | % | | | 29.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating margin | | | 29.2 | % | | | 28.8 | % | | | 28.3 | % | | | 28.3 | % | | | 30.3 | % | | | 27.0 | % | | | 30.3 | % | | | 30.7 | % | | | 28.7 | % | | | 26.4 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capacitors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 131,033 | | | $ | 118,945 | | | $ | 111,298 | | | $ | 98,424 | | | $ | 94,530 | | | $ | 91,526 | | | $ | 106,400 | | | $ | 120,312 | | | $ | 116,103 | | | $ | 129,352 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Book-to-bill ratio | | | 1.02 | | | | 0.67 | | | | 0.68 | | | | 0.76 | | | | 0.84 | | | | 1.54 | | | | 1.73 | | | | 1.37 | | | | 1.37 | | | | 1.04 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit margin | | | 24.7 | % | | | 25.0 | % | | | 23.5 | % | | | 22.0 | % | | | 17.9 | % | | | 17.5 | % | | | 22.6 | % | | | 24.1 | % | | | 21.3 | % | | | 21.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment operating margin | | | 20.4 | % | | | 20.7 | % | | | 19.0 | % | | | 16.9 | % | | | 12.3 | % | | | 12.5 | % | | | 17.7 | % | | | 19.7 | % | | | 17.2 | % | | | 17.7 | % |
_________
Stockholder Value
We are focused on enhancing stockholder value by growing our business and improving earnings per share. Over the next few years, we expect to experience higher internal growth rates than over the last decade. This expectation is based upon accelerated electrification, such as factory automation, electrical vehicles, and 5G infrastructures. To meet this expected increase in demand and to fully participate in growing markets, we intend to increase our capital expenditures for expansion in the mid-term. The increased capital expenditures will be primarily used to increase manufacturing capacity for our strategic product lines. The most significant expansion projects include building a 12-inch wafer fab in Itzehoe, Germany adjacent to our existing 8-inch fab, expanding our Inductors manufacturing, and expanding our GaAs fab in Heilbronn, Germany.
Changes in Israel tax law enacted effective November 15, 2021 provide us with an opportunity to efficiently repatriate earnings that we intend to use to enhance stockholder value.
On February 8, 2022, we announced that our Board of Directors has adopted a Stockholder Return Policy that will remain in effect until such time as the Board votes to amend or rescind the policy. The Stockholder Return Policy calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. We intend to return such amounts directly, in the form of dividends, or indirectly, in the form of stock repurchases. For 2022, we expect to return at least $100 million to stockholders consisting of approximately $58 million through our existing quarterly dividend program and at least $42 million through share repurchases. The distribution of earnings from Israel to the United States will initially be used to fund our Stockholder Return Policy. Over the long-term we expect to fund the Stockholder Return Policy from our historically strong cash flows from operations.
Our confidence in the sustainability of our strong cash flow generation and balance sheet allows us to increase our allocation of capital to stockholders and enhance stockholder returns over the long-term.
The structure of the Stockholder Return Policy enables us to allocate capital between our business, our lenders, and our stockholders. We will continue to invest in growth initiatives including key product line expansions, targeted R&D, and synergistic acquisitions.
As a direct result of a change in tax law in Israel, we made the determination during the fourth fiscal quarter of 2021 that substantially all unremitted foreign earnings in Israel are no longer permanently reinvested. Because most of our operating cash flow is typically generated by our non-U.S. subsidiaries, we may in the future need to change our permanent reinvestment assertion on current earnings of certain subsidiaries, which would have the effect of increasing the effective tax rate. Substantially all of these additional taxes would be withholding and foreign taxes on cash remitted to the U.S., as such dividends are generally not subject to U.S. federal income tax.
Acquisition Activity
As part of our growth strategy, we seek to expand through targeted acquisitions 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. This includes exploring opportunities to acquire targets to gain market share, penetrate different geographic markets, enhance new product development, round out our existing product lines, or grow our high margin niche market businesses. Acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier; acquisitions of discrete semiconductor businesses would be made to increase market share and to generate synergies. To limit our financial exposure, we have implemented a policy not to pursue acquisitions if our post-acquisition debt would exceed 2.5x our pro forma earnings before interest, taxes, depreciation, and amortization (“EBITDA”). For these purposes, we calculate pro forma EBITDA as the adjusted EBITDA of Vishay and the target for Vishay’s four preceding fiscal quarters, with a pro forma adjustment for savings which management estimates would have been achieved had the target been acquired by Vishay at the beginning of the four fiscal quarter period.
On January 3, 2019,December 31, 2021, we acquired substantially all of the assets and certain liabilities of Bi-Metallix, Inc. ("Bi-Metallix"),Barry Industries, a U.S.-based,Massachusetts-based, privately-held providermanufacturer of electron beam continuous strip welding servicesresistive products for $11.9$20.8 million. We wereBased on our estimate of their fair values pending finalization of the net working capital adjustment, we allocated $9.6 million of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on a major customerpreliminary estimation of Bi-Metallix, andtheir fair values at the acquired business has been vertically integrated into our Resistors segment.date of acquisition, we recorded goodwill of $7.8 million related to this acquisition. The results and operationsinclusion of this acquisition have been included in the Resistors segment since January 3, 2019. Bi-Metallix did not have a materialan impact on the Company's consolidated results for the year ended December 31, 2019.2021. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
On February 8, 2018,October 1, 2020, we acquired the worldwide business and substantially all of the U.S. assets and liabilities of UltraSource, Inc.Applied Thin-Film Products ("UltraSource"ATP"), a U.S.-based,California-based, privately-held manufacturer of custom, build-to-print thin film circuitsubstrates for the microwave, fiber optic, and thin film interconnect manufacturer, for $13.6life science industries. The total acquisition price was $25.9 million. The results and operations of this acquisition have been included in the Resistors segment since February 8, 2018. UltraSource contributed $17.4 million of net revenues to the year ended December 31, 2018.
On June 11, 2018, we acquired EuroPower Holdings Ltd. ("EuroPower"), a distributor of electronic components in the United Kingdom, for $2.9 million, net of cash acquired. The results and operations of this acquisition have been included in the Resistors segment since June 11, 2018. EuroPowerOctober 1, 2020. ATP did not have a material impact on the Company'sour consolidated results for the yearyears ended December 31, 2018. 2021 and 2020.
There is no assurance that we will be able to identify and acquire additional suitable acquisition candidates at price levels and on terms and conditions we consider acceptable.
Cost Management
We place a strong emphasis on controlling our costs, and use various measures and metrics to evaluate our cost structure.
We define variable costs as expenses that vary with respect to quantity produced. Fixed costs do not vary with respect to quantity produced over the relevant time period. Contributive margin is calculated as net revenue less variable costs. It may be expressed in dollars or as a percentage of net revenue. Management uses this measure to determine the amount of profit to be expected for any change in revenues. While these measures are typical cost accounting measures, none of these measures are recognized in accordance with GAAP. The classification of expenses as either variable or fixed is judgmental and other companies might classify such expenses differently. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies.
We closely monitor variable costs and seek to achieve the contributive margin in our business model. Over a period of many years, we have generally maintained a contributive margin of between 45% -and 47% of revenues. The erosion of average selling prices, particularly of our semiconductor products, that is typical of our industry, and inflation negatively impact contributive margin and drive us to continually seek ways to reduce our variable costs. Our variable cost reduction efforts include increasing the efficiency in our production facilities by expending capital for automation, reducing materials costs, materials substitution, increasing wafer size and shrinking dies to maximize efficiency in our semiconductor production processes, and other yield improvement activities.
Our cost management strategy also includes a focus on controlling fixed costs recorded as costs of products sold or selling, general, and administrative expenses and maintaining our break-even point (adjusted for acquisitions). We seek to limit increases in selling, general, and administrative expenses to the rate of inflation, excluding foreign currency exchange effects and substantially independent of sales volume changes. At constant fixed costs, we would expect each $1 million increase in revenues to increase our operating income by approximately $450,000 to $470,000. Sudden changes in the business conditions, however, may not allow us to quickly adapt our manufacturing capacity and cost structure.
Occasionally, our ongoing cost containment activities are not adequate and we must take actions to maintain our cost competitiveness. We incurred significant restructuring expenses in our past to reduce our cost structure. Historically, our primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost countries to lower-labor-cost countries. We believe that our manufacturing footprint is suitable to serve our customers and end markets, while maintaining lower manufacturing costs. Since 2013, our cost reduction programs have primarily focused on reducing fixed costs, including selling, general, and administrative expenses.
We continue to monitor the economic environment and its potential effects on our customers and the end markets that we serve.
In the third fiscal quarter of 2019, we announced global cost reduction and management rejuvenation programs as part of our continuous efforts to improve efficiency and operating performance. We incurred restructuring expense of $24.1 million related to this program in 2019.
The programs arewere primarily designed to reduce manufacturing fixed costs and selling, general, and administrative ("SG&A") costs company-wide, and provide management rejuvenation. The programs in total are expectedfully implemented. We incurred restructuring expense of $24.9 million, primarily related to lower costs by approximately $15 million annually when fully implemented, of which approximately 50% is expected to be realized as reduced manufacturing fixed costs and 50% is expected to be realized as reduced SG&A expenses. We expect to incur costs (primarily cash severance expenses) of approximately $25 million relatedcosts, to theimplement these programs. The implementation of these programs willdid not impact planned research and development activities.
We first solicited volunteers to accept a voluntary separation / early retirement offer, which has been generally successful. The voluntary separation benefits vary by country and job classification, but generally offer a cash loyalty bonus. A limited number of involuntary terminations are necessary to achieve the cost reduction targets. We expect these cost reductions to be fully achieved by December 2020.
No manufacturing facility closures are currently expectedoccurred pursuant to these programs. Except for these programs, we
We do not anticipate any other material restructuring activities in 2020.2022. However, a continued sluggishworsening business environment for the electronics industry, a prolonged impact of the COVID-19 pandemic, or a significant economic downturn may require us to implement additional restructuring initiatives.
See Note 4 to our consolidated financial statements for additional information.
In uncertain times, we focus on managing our production capacities in accordance with customer requirements, and maintain discipline in terms of our fixed costs and capital expenditures. Even as we seek to manage our costs, we remain cognizant of the future requirements of our demanding markets. We continue to pursue our growth plans through investing in capacities for strategic product lines, and through increasing our resources for R&D, technical marketing, and field application engineering; supplemented by opportunistic acquisitions of specialty businesses.
Our long-term strategy includes growth through the integration of acquired businesses, and GAAP requires plant closure and employee termination costs that we incur in connection with our acquisition activities to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred. We have not incurred any material plant closure or employee termination costs related to any of the businesses acquired since 2011, but we expect to have some level of future restructuring expenses due to acquisitions.
Foreign Currency Translation
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. We occasionally use forward exchange contracts to economically hedge a portion of our projected cash flows from these exposures.
GAAP requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have both situations among our subsidiaries.
Foreign Subsidiaries which use the Local Currency as the Functional Currency
We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity.
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies. The dollar was stronger during 2019 versus 2018, with the translation of foreign currency revenues and expenses into U.S. dollars decreasing reported revenues and expenses versus 2018, but weaker during 20182021 versus 2017,2020 and 2020 versus 2019, with the translation of foreign currency revenues and expenses into U.S. dollars increasing reported revenues and expenses in 2021 versus 2017.2020 and 2020 versus 2019.
Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. The cost of products sold and selling, general, and administrative expense for the yearyears ended December 31, 20192021 and 2020 have been slightly favorablyunfavorably impacted (compared to the respective prior year)years) by local currency transactions of subsidiaries which use the U.S. dollar as their functional currency.
See Item 7A for additional discussion of foreign currency exchange risk.
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number of policies that entail significant judgments or estimates.
Revenue Recognition
Revenue is measured based on the consideration specified in contracts with customers, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy our performance obligations.
We have a broad line of products that we sell to original equipment manufacturers ("OEMs"),OEMs, electronic manufacturing services ("EMS") companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large inventories of electronic components for resale to OEMs and EMS companies.
We recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). We have agreements with distributors that allow distributors a limited credit for unsaleable products, which we refer to as a "scrap allowance." Consistent with industry practice, we also have a "stock, ship and debit" program whereby we consider requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. In addition, we have contractual arrangements whereby we provide distributors with protection against price reductions initiated by us after product is sold by us to the distributor and prior to resale by the distributor.
We recognize the estimated variable consideration to be received as revenue and record a related accrued expense for the consideration not expected to be received, based upon an estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. We make these estimates based upon sales levels to our customers during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. While we utilize a number of different methodologies to estimate the accruals, all of the methodologies take into account sales levels to customers during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. These procedures require the exercise of significant judgments. We believe that we have a reasonable basis to estimate future credits under the programs.
See Notes 1 and 9 to our consolidated financial statements for further information.
Convertible Debt Instruments
We currently have three issuances of convertible debt instruments outstanding. GAAP requires us to separately account for the liability and equity components of convertible debt instruments in a manner that reflects our nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. The resulting discount on the debt is amortized as non-cash interest expense in future periods. Additionally, upon extinguishment of convertible debt instruments, GAAP requires the aggregate repurchase payment to be allocated between the liability and equity (including temporary equity) components of the convertible debt instruments, using our nonconvertible debt borrowing rate at the time of extinguishment. The estimated nonconvertible debt borrowing rate can significantly impact the accounting for convertible debt instruments. The estimation of our nonconvertible debt borrowing rate requires significant judgment. We employ a market approach and base our estimate on observed data from companies with similar capital structures and debt instruments as well as data obtained from third-party financial institutions. We believe we have a reasonable basis to estimate our nonconvertible debt borrowing rate.
See Notes 1 and 6 to our consolidated financial statements for further information.
Inventories
We value our inventories at the lower of cost or net realizable value, with cost determined under the first-in, first-out method. The valuation of our inventories requires our management to make market estimates. For work in process 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. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments and market conditions.
Goodwill
See Note 1 to our consolidated financial statements for a description of our goodwill impairment tests.
The fair value of reporting units for goodwill impairment testing purposes is measured primarily using present value techniques based on projected cash flows from the reporting unit. The calculated results are evaluated for reasonableness using comparable company data. The determination of the fair value of the reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which we compete; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures.
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. In addition, changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the fair value of the reporting unit and the amount of the goodwill impairment charge.
Pension and Other Postretirement Benefits
Our defined benefit plans are concentrated in the United States, Germany, and the Republic of China (Taiwan). At December 31, 2019,2021, our U.S. plans include various non-qualified plans. As further described below, our U.S. qualified plan was terminated and settled in 2016. The table below summarizes information about our pension and other postretirement benefit plans. This information should be read in conjunction with Note 11 to our consolidated financial statements (amounts in thousands):
| | Benefit obligation | | | Plan assets | | | Funded position | | | Informally funded assets | | | Net position | | | Unrecognized actuarial items | | | Benefit obligation | | | Plan assets | | | Funded position | | | Informally funded assets | | | Net position | | | Unrecognized actuarial items | |
U.S. non-qualified pension plans | | $ | 42,383 | | | $ | - | | | $ | (42,383 | ) | | $ | 27,617 | | | $ | (14,766 | ) | | $ | 8,839 | | | $ | 45,613 | | | $ | - | | | $ | (45,613 | ) | | $ | 28,234 | | | $ | (17,379 | ) | | $ | 9,403 | |
German pension plans | | | 179,078 | | | | - | | | | (179,078 | ) | | | 4,405 | | | | (174,673 | ) | | | 60,318 | | | | 175,913 | | | | - | | | | (175,913 | ) | | | 4,455 | | | | (171,458 | ) | | | 55,603 | |
Taiwanese pension plans | | | 61,797 | | | | 45,210 | | | | (16,587 | ) | | | - | | | | (16,587 | ) | | | 15,341 | | | | 59,773 | | | | 44,501 | | | | (15,272 | ) | | | - | | | | (15,272 | ) | | | 11,372 | |
Other pension plans | | | 42,686 | | | | 28,419 | | | | (14,267 | ) | | | - | | | | (14,267 | ) | | | 9,267 | | | | 42,487 | | | | 31,419 | | | | (11,068 | ) | | | - | | | | (11,068 | ) | | | 5,462 | |
OPEB plans | | | 15,798 | | | | - | | | | (15,798 | ) | | | - | | | | (15,798 | ) | | | 1,999 | | | | 15,393 | | | | - | | | | (15,393 | ) | | | - | | | | (15,393 | ) | | | 2,543 | |
Other retirement obligations | | | 12,871 | | | | - | | | | (12,871 | ) | | | - | | | | (12,871 | ) | | | - | | | | 14,576 | | | | - | | | | (14,576 | ) | | | - | | | | (14,576 | ) | | | - | |
| | $ | 354,613 | | | $ | 73,629 | | | $ | (280,984 | ) | | $ | 32,022 | | | $ | (248,962 | ) | | $ | 95,764 | | | $ | 353,755 | | | $ | 75,920 | | | $ | (277,835 | ) | | $ | 32,689 | | | $ | (245,146 | ) | | $ | 84,383 | |
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for certain postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries and investment advisers to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate.
In the U.S., we utilize published long-term high quality bonds to determine the discount rate at the measurement date. In Germany and the Republic of China (Taiwan), we utilize published long-term government bond rates to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates that reflect the timing of expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively be settled.
Non-qualified plans in the U.S. are considered by law to be unfunded. However, the Company maintains assets in a rabbi trust to fund benefit payments under certain of these plans. Such assets would be subject to creditor claims under certain conditions. (See also Notes 11 and 18 to our consolidated financial statements.)
Many of our non-U.S. plans are unfunded based on local laws and customs. For those non-U.S. plans that do maintain investments, their asset holdings are primarily cash and fixed income securities, based on local laws and customs. Some non-U.S. plans also informally fund their plans by holding certain available-for-sale investments. Such assets would be subject to creditor claims under certain conditions. (See also Note 18 to our consolidated financial statements.)
We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses (gains) affects the calculated value of plan assets and, ultimately, future pension expense (income).
We completed the termination and settlement of our principal U.S. defined benefit pension plan, the Vishay Retirement Plan, in December 2016. We continue to seek to de-risk our global pension exposures. Such actions could result in increased net periodic pension cost due to lower expected rates of return on plan assets and/or possible additional charges to recognize unamortized actuarial items if all or a portion of the obligations were to be settled.
We believe that the current assumptions used to estimate plan obligations and annual expenses are appropriate. However, if economic conditions change or if our investment strategy changes, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheet.
Income Taxes
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
These accruals for tax-related uncertainties are based on our best estimate of potential tax exposures. When particular matters arise, a number of years may elapse before such matters are audited by tax authorities and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.
Our U.S. federal income tax returns are generally subject to auditunder examination for the years ending on or afterended December 31, 2016.2017 through 2019. The IRS may, however, ask for supporting documentation for net operating losses for the years ended December 31, 2013 - 2015,2016, which were utilized in the year ended December 31, 2017. During 2019, the examinations of2021, certain tax returnsexaminations were concluded and certain statutes of limitations lapsed. Our tax provision for the year-ended December 31, 2019those years includes tax benefitsadjustments related to the resolution of these matters. The tax returns of significant non-U.S. subsidiaries which are currently under examination include India (2004 through 2016), Italy (2017),are located in the following jurisdictions: Germany (2013 through 2016), India (2004 through 2017), Israel (2018 and Israel (20162019), Singapore (2015 through 2019), and 2017)the Republic of China (Taiwan) (2019). WeThe Company and ourits subsidiaries also file income tax returns in other taxing jurisdictions in the U.S. and around the world, many of which are still open to examination.
See Notes 1 and 5 to consolidated financial statements for additional information.
Results of Operations
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Costs of products sold | | | 74.8 | % | | | 70.7 | % | | | 73.0 | % | | | 72.6 | % | | | 76.7 | % | | | 74.8 | % |
Gross profit | | | 25.2 | % | | | 29.3 | % | | | 27.0 | % | | | 27.4 | % | | | 23.3 | % | | | 25.2 | % |
Selling, general, and administrative expenses | | | 14.4 | % | | | 13.3 | % | | | 14.2 | % | | | 13.0 | % | | | 14.8 | % | | | 14.4 | % |
Operating income | | | 9.8 | % | | | 16.0 | % | | | 12.5 | % | | | 14.4 | % | | | 8.4 | % | | | 9.8 | % |
Income before taxes and noncontrolling interest | | | 8.5 | % | | | 13.7 | % | | | 10.7 | % | | | 13.4 | % | | | 6.3 | % | | | 8.5 | % |
Net earnings (loss) attributable to Vishay stockholders | | | 6.1 | % | | | 11.4 | % | | | (0.8 | )% | | | 9.2 | % | | | 4.9 | % | | | 6.1 | % |
________ | | | | | | | | | | | | | | | | | | | | | | | | |
Effective tax rate | | | 27.2 | % | | | 16.9 | % | | | 107.0 | % | | | 31.2 | % | | | 21.8 | % | | | 27.2 | % |
Net Revenues
Net revenues were as follows (dollars in thousands):
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,668,305 | | | $ | 3,034,689 | | | $ | 2,599,368 | | | $ | 3,240,487 | | | $ | 2,501,898 | | | $ | 2,668,305 | |
Change versus prior year | | $ | (366,384 | ) | | $ | 435,321 | | | | | | | $ | 738,589 | | | $ | (166,407 | ) | | | | |
Percentage change versus prior year | | | -12.1 | % | | | 16.7 | % | | | | | | | 29.5 | % | | | -6.2 | % | | | | |
Changes in net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -9.8 | % | | | 13.5 | % | | | 25.5 | % | | | -4.4 | % |
Change in average selling prices | | | -1.1 | % | | | 0.4 | % | | | 1.0 | % | | | -2.8 | % |
Foreign currency effects | | | -1.6 | % | | | 1.6 | % | | | 1.4 | % | | | 0.5 | % |
Acquisitions | | | 0.1 | % | | | 0.8 | % | | | 0.7 | % | | | 0.2 | % |
Other | | | 0.3 | % | | | 0.4 | % | | | 0.9 | % | | | 0.3 | % |
Net change | | | -12.1 | % | | | 16.7 | % | | | 29.5 | % | | | -6.2 | % |
We experiencedNet revenues increased significantly in 2021 versus the prior year. Net revenues for 2020 were negatively impacted by a substantial, broad-based increasesignificant decrease in demand for our products beginningdue to the COVID-19 pandemic that began to broadly recover in the first fiscal quarter of 2017 that continued through the third fiscal quarter of 2018. Demand started to decrease in the fourth fiscal quarter of 20182020 and the decrease acceleratedcontinued through 2019 as customers, particularly distributors, reduced orders as they decreased their inventory.2021. The decrease inincreasing demand and manufacturing capacities resulted in decreased net revenuesincreased sales volume compared to 2020. Due to high demand, we were able to implement strategic price increases across the prior year periods.product portfolio.
Gross Profit and Margins
Gross profit margins for the year ended December 31, 20192021 were 25.2%27.4%, as compared to 29.3%23.3% for the year ended December 31, 2018.2020. The decrease is primarily due to decreased sales volume, temporary manufacturing inefficiencies, and the impact of tariffs on products imported from China. We were not able to completely offset the normal negative impacts of inflation and average selling price decline by cost reductions and innovation due to the negative impact of manufacturing inefficiencies caused by capacity adaptations. As a result, our contributiveincrease in gross profit margin decreased in 2019.
Gross profit margins for the year ended December 31, 2018 were 29.3%, as compared to 27.0% for the year ended December 31, 2017. The increase is primarily due to increased sales volume. We were able to offsetHigher transportation and metals and materials costs negatively impacted the negative impacts of inflation by cost reductions and innovation, and maintain our contributive margin.
Segments
Analysis of revenues and gross profit margins for our segments is provided below.
MOSFETs
Net revenues of the MOSFETs segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 509,145 | | | $ | 547,643 | | | $ | 467,476 | | | $ | 667,998 | | | $ | 501,380 | | | $ | 509,145 | |
Change versus comparable prior year period | | $ | (38,498 | ) | | $ | 80,167 | | | | | | | $ | 166,618 | | | $ | (7,765 | ) | | | | |
Percentage change versus comparable prior year period | | | -7.0 | % | | | 17.1 | % | | | | | | | 33.2 | % | | | -1.5 | % | | | | |
Changes in MOSFETs segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -3.3 | % | | | 17.0 | % | |
Increase in volume | | | | 33.1 | % | | | 4.1 | % |
Decrease in average selling prices | | | -3.2 | % | | | -0.3 | % | | | -0.3 | % | | | -5.6 | % |
Foreign currency effects | | | -0.9 | % | | | 0.6 | % | | | 0.6 | % | | | 0.3 | % |
Other | | | 0.4 | % | | | -0.2 | % | | | -0.2 | % | | | -0.3 | % |
Net change | | | -7.0 | % | | | 17.1 | % | | | 33.2 | % | | | -1.5 | % |
Gross profit margins for the MOSFETs segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margins | | | 24.8 | % | | | 26.6 | % | | | 23.4 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margins | | | 28.4 | % | | | 22.8 | % | | | 24.8 | % |
The MOSFETs segment experienced a significant decreasenet revenues increased significantly in 2019 net revenues2021 versus the prior year. Sales volume decreased with distribution customers in all regions and with end customers in Asia. The decreases in our biggest market, Asian distributors, were partially offset by increases in our integrated circuits products. The business with European and American end customers also increased significantlyincrease is primarily due to dedicated products forincreased volume. Net revenues were negatively impacted by the temporary closure of our main manufacturing facility in China in the first fiscal quarter of 2020, while we had no significant closures in 2021. All end markets, particularly automotive, end-marketregions, and the singularity of a last-time-buy business. Declining selling prices and a weaker euro currency alsoall customer channels, particularly distributors, contributed to the revenue decrease.increase.
The gross profit margin for 2019 decreasedin 2021 increased versus the prior year primarily due to lowerincreased sales volume and the returning pressure on our selling prices. Measures taken to adjust the costs to the lower sales volumecost reduction measures, partially offset by cost increases particularly from inflation.inflation and negative foreign currency impacts.
The reduced customer demand increased the pressure on pricing for our established MOSFETs products in 2019 but the decline was below our historical level. We experienced a moderateslight decrease in average selling prices versus 2020. The net decrease was limited due to price increases in the prior year. The price decline was partially offset by U.S. tariffs on imports from China which were partially passed-throughsecond half of 2021 and positive customer mix. Due to customers.increased demand, we anticipate prices will stabilize in 2022.
We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines. We are building a 12-inch wafer fab in Itzehoe, Germany adjacent to our existing 8-inch wafer fab, which we expect will increase our in-house wafer capacity by approximately 70% within 3-4 years and allow us to balance our in-house and foundry wafer supply.
Diodes
Net revenues of the Diodes segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 557,143 | | | $ | 712,936 | | | $ | 619,958 | | | $ | 709,416 | | | $ | 502,548 | | | $ | 557,143 | |
Change versus comparable prior year period | | $ | (155,793 | ) | | $ | 92,978 | | | | | | | $ | 206,868 | | | $ | (54,595 | ) | | | | |
Percentage change versus comparable prior year period | | | -21.9 | % | | | 15.0 | % | | | | | | | 41.2 | % | | | -9.8 | % | | | | |
Changes in Diodes segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -19.6 | % | | | 10.9 | % | | | 34.2 | % | | | -6.2 | % |
Change in average selling prices | | | -2.0 | % | | | 2.0 | % | | | 2.9 | % | | | -4.4 | % |
Foreign currency effects | | | -1.1 | % | | | 1.3 | % | | | 1.2 | % | | | 0.4 | % |
Other | | | 0.8 | % | | | 0.8 | % | | | 2.9 | % | | | 0.4 | % |
Net change | | | -21.9 | % | | | 15.0 | % | | | 41.2 | % | | | -9.8 | % |
Gross profit margins for the Diodes segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margins | | | 20.4 | % | | | 27.6 | % | | | 26.6 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margins | | | 23.7 | % | | | 17.9 | % | | | 20.4 | % |
After two record years, netNet revenues of ourthe Diodes segment decreasedincreased significantly in 2019 versus the2021. The prior year.years were negatively impacted by excess inventory held by distributors, which was mostly consumed prior to 2021. The increase is primarily due to increased sales volume, decreased in all regions, and particularly for distributors. A decline in theincreased average selling prices, and a weaker euroforeign currency alsoimpacts. All regions and customer channels, particularly distributors, contributed to the decrease.growth.
Gross profit margin decreasedincreased versus the prior year primarily due to decreasesincreases in volume and in average selling prices. Our cost reduction efforts could not fully offset the impact from cost inflation, the costs associated with the adaptation of direct labor to the lower sales volume and the costs of establishing alternative capacities for products subject to U.S. tariffs on goods imported from China.average selling prices and cost reduction measures, partially offset by cost inflation.
The low level of demand in 2019 increased the pressure on selling prices. As a result, we experienced a slight decrease in averageAverage selling prices increased versus the prior year. The price decline was partially offset by more U.S. tariffs on imports from China being passed-throughStrong demand allowed us to customers.increase prices. Positive customer and product mix also contributed to the increased prices.
OptoelectronicOptoelectronic Components
Net revenues of the Optoelectronic Components segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 222,986 | | | $ | 289,727 | | | $ | 284,429 | | | $ | 302,714 | | | $ | 236,616 | | | $ | 222,986 | |
Change versus comparable prior year period | | $ | (66,741 | ) | | $ | 5,298 | | | | | | | $ | 66,098 | | | $ | 13,630 | | | | | |
Percentage change versus comparable prior year period | | | -23.0 | % | | | 1.9 | % | | | | | | | 27.9 | % | | | 6.1 | % | | | | |
Changes in Optoelectronic Components segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -19.3 | % | | | 0.6 | % | |
Decrease in average selling prices | | | -3.1 | % | | | -1.3 | % | |
Increase in volume | | | | 22.2 | % | | | 6.4 | % |
Change in average selling prices | | | | 2.7 | % | | | -1.4 | % |
Foreign currency effects | | | -1.7 | % | | | 1.9 | % | | | 1.7 | % | | | 0.9 | % |
Other | | | 1.1 | % | | | 0.7 | % | | | 1.3 | % | | | 0.2 | % |
Net change | | | -23.0 | % | | | 1.9 | % | | | 27.9 | % | | | 6.1 | % |
Gross profit margins for the Optoelectronic Components segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margin | | | 24.0 | % | | | 34.6 | % | | | 34.5 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margin | | | 33.3 | % | | | 28.1 | % | | | 24.0 | % |
The Optoelectronic Components segment net revenues decreasedincreased significantly in 2019 versus the prior year. We experienced the decrease in all regions andThe increase is primarily due to increased sales channels. Decliningvolume, increased average selling prices, and a weaker euroforeign currency alsoimpacts. The increase was limited by COVID-19-related restrictions on our manufacturing facility in Malaysia. All regions and customer channels, particularly distributors, contributed to the decrease.increase.
The gross profit margin decreasedincreased versus the prior year. The decreaseincrease is primarily due to decreased volume. Lowerthe significant increase in sales volume, increased average selling prices, and our cost inflation also contributed to the decrease.reduction measures, partially offset by cost inflation.
The pricing pressure for our established Optoelectronic Components products hasAverage selling prices increased due to the low demand. We experienced a moderate price decline versus the prior year, consistent with our historical experience.year. The high level of demand and cost inflation allowed us to increase average selling prices for certain customers.
The Optoelectronic Components segment has been affected by high inventories at distribution resultingWe have modernized and expanded our Heilbronn wafer fab and plan to increase production in a lower order rate and a general weakness in one of its main product lines. We expect the business to return to historical levels after this normalization phase.
facility during 2022.
Resistors
Net revenues of the Resistors segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 657,192 | | | $ | 716,394 | | | $ | 590,465 | | | $ | 752,554 | | | $ | 606,183 | | | $ | 657,192 | |
Change versus comparable prior year period | | $ | (59,202 | ) | | $ | 125,929 | | | | | | | $ | 146,371 | | | $ | (51,009 | ) | | | | |
Percentage change versus comparable prior year period | | | (8.3 | )% | | | 21.3 | % | | | | | | | 24.1 | % | | | (7.8 | )% | | | | |
Changes in Resistors segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -7.0 | % | | | 14.4 | % | | | 18.2 | % | | | -7.4 | % |
Increase in average selling prices | | | 0.2 | % | | | 0.3 | % | |
Change in average selling prices | | | | 0.3 | % | | | -1.9 | % |
Foreign currency effects | | | -2.5 | % | | | 2.5 | % | | | 2.0 | % | | | 0.7 | % |
Acquisitions | | | 0.5 | % | | | 3.4 | % | | | 3.0 | % | | | 0.8 | % |
Other | | | 0.5 | % | | | 0.7 | % | | | 0.6 | % | | | 0.0 | % |
Net change | | | -8.3 | % | | | 21.3 | % | | | 24.1 | % | | | -7.8 | % |
Gross profit margins for the Resistors segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margin | | | 28.4 | % | | | 33.3 | % | | | 30.4 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margin | | | 28.7 | % | | | 25.3 | % | | | 28.4 | % |
Net revenues of the Resistors segment decreasedincreased significantly versus the prior year. All regions, decreased. Distributionparticularly Asia and Europe, contributed to the increase. Sales to distributor customers and the industrial end-market decreasedand automotive end markets increased significantly.
The gross profit margin decreasedincreased versus the prior year. The decreaseincrease is due to increased sales volume, decrease, inefficiencies due to capacity adaptations, labormanufacturing efficiencies, increased average selling prices, and cost increases, negative impact of exchange rates, and increased fixed costs, which werereduction measures, partially offset by reduced variable costs, higher selling prices,increased labor, materials, metals, and materials price savings.transportation costs.
Average selling prices increased slightly versus the prior year, in part, reflecting price increasesyear.
We are increasing critical manufacturing capacities for certain product lines. We continue to broaden our business with targeted acquisitions of specialty resistor products.resistors businesses, such as Applied Thin Film Products and Barry Industries.
Inductors
Net revenues of the Inductors segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 298,642 | | | $ | 301,892 | | | $ | 253,064 | | | $ | 335,638 | | | $ | 293,629 | | | $ | 298,642 | |
Change versus comparable prior year period | | $ | (3,250 | ) | | $ | 48,828 | | | | | | | $ | 42,009 | | | $ | (5,013 | ) | | | | |
Percentage change versus comparable prior year period | | | (1.1 | )% | | | 19.3 | % | | | | | | | 14.3 | % | | | (1.7 | )% | | | | |
Changes in Inductors segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Increase in volume | | | 1.4 | % | | | 19.1 | % | | | 15.4 | % | | | 0.4 | % |
Decrease in average selling prices | | | -1.6 | % | | | -1.1 | % | | | -1.3 | % | | | -2.4 | % |
Foreign currency effects | | | -0.8 | % | | | 1.5 | % | | | 0.6 | % | | | 0.3 | % |
Other | | | -0.1 | % | | | -0.2 | % | | | -0.4 | % | | | 0.0 | % |
Net change | | | -1.1 | % | | | 19.3 | % | | | 14.3 | % | | | -1.7 | % |
Gross profit margins for the Inductors segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margin | | | 32.4 | % | | | 32.8 | % | | | 28.6 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margin | | | 32.0 | % | | | 31.5 | % | | | 32.4 | % |
Net revenues of the Inductors segment decreased slightlyincreased significantly versus the prior year. The decrease in Asia was partially offset by increases inAll regions, particularly Europe and Americas, contributed to the Americas. Distribution decreased significantly, while theincrease. Sales to distributor customers and automotive military, and medical end-markets increased.industrial end markets increased significantly.
The gross profit margin decreasedincreased versus the prior year. The decreaseincrease is primarily due to the decrease inincreased sales volume, manufacturing efficiencies, and cost reductions, partially offset by lower average selling prices, increased metals and fixedtransportation costs, increases, which were partially offset by increased sales volume, variable cost reductions, and manufacturing efficiencies.negative foreign currency impacts.
Average selling prices decreased slightly versus the prior year.
Capital spending projects to expand capacity are underway to meet the increased demandWe expect long-term growth in this growing segment.segment, and are continuously expanding manufacturing capacity and evaluating acquisition opportunities, particularly of specialty businesses.
Capacitors
Net revenues of the Capacitors segment were as follows (dollars in thousands):
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 423,197 | | | $ | 466,097 | | | $ | 383,976 | | | $ | 472,167 | | | $ | 361,542 | | | $ | 423,197 | |
Change versus comparable prior year period | | $ | (42,900 | ) | | $ | 82,121 | | | | | | | $ | 110,625 | | | $ | (61,655 | ) | | | | |
Percentage change versus comparable prior year period | | | -9.2 | % | | | 21.4 | % | | | | | | | 30.6 | % | | | -14.6 | % | | | | |
Changes in Capacitors segment net revenues were attributable to the following:
| | 2019 vs. 2018 | | | 2018 vs. 2017 | | | 2021 vs. 2020 | | | 2020 vs. 2019 | |
| | | | | | | | | | | | |
Change attributable to: | | | | | | | | | | | | |
Change in volume | | | -8.8 | % | | | 17.5 | % | | | 25.0 | % | | | -15.7 | % |
Increase in average selling prices | | | 2.3 | % | | | 1.1 | % | | | 1.8 | % | | | 1.1 | % |
Foreign currency effects | | | -2.3 | % | | | 2.0 | % | | | 2.0 | % | | | 0.4 | % |
Other | | | -0.4 | % | | | 0.8 | % | | | 1.8 | % | | | -0.4 | % |
Net change | | | -9.2 | % | | | 21.4 | % | | | 30.6 | % | | | -14.6 | % |
Gross profit margins for the Capacitors segment were as follows:
| | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | |
Gross profit margin | | | 22.3 | % | | | 23.3 | % | | | 20.4 | % |
| | Years ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | |
Gross profit margin | | | 22.4 | % | | | 19.4 | % | | | 22.3 | % |
Net revenues of the Capacitors segment decreasedincreased significantly versus the prior year. All regions, decreased. Distribution contributedparticularly Europe, increased. The increase is primarily due to increased sales to distributor customers and the most to the revenue decrease.industrial end market.
The gross profit margin decreased versus the prior year. The decrease is due to lower sales volume, manufacturing inefficiencies, increased labor costs, and higher material prices, which were partially offset by higher selling prices and fixed costs reductions.
Despite the lower sales volume, average selling prices have increased slightly versus the prior year. The increase is primarily due to increased sales volume, increased average selling prices, and manufacturing efficiencies, partially offset by the negative impact of product mix and increased metals costs.
Average selling prices have increased versus the prior year. Increased prices for certain materials that were passed through to our customers.
Selling, General, and Administrative Expenses
Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
| Years ended December 31, | | Years ended December 31, | |
| 2019 | | 2018 | | 2017 | | 2021 | | 2020 | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Total SG&A expenses | | $ | 384,631 | | | $ | 403,404 | | | $ | 367,831 | | | $ | 420,111 | | | $ | 371,450 | | | $ | 384,631 | |
as a percentage of sales | | | 14.4 | % | | | 13.3 | % | | | 14.2 | % | | | 13.0 | % | | | 14.8 | % | | | 14.4 | % |
The overall decrease in SG&A expenses is primarilyfor the year ended December 31, 2021 increased versus the year ended December 31, 2020 due to increased incentive compensation accruals. SG&A expenses for the year ended December 31, 2020 includes $(1.5) million of incremental net costs (benefits) separable from normal operations directly attributable to reductions to incentive compensation and favorable foreign currency exchange impacts. The overall increase in SG&A expenses in 2018 versus 2017 is primarily due to general salary and cost inflation, higher incentive compensation, increased R&D spending, and exchange rate impacts, which were partially offset by the effects of our restructuring programs.
Certain items included in SG&A expenses impact the comparability of these amounts, as summarized below (in thousands):
| Years ended December 31, | |
| 2019 | | 2018 | | 2017 | |
| | | | | | | | | |
Amortization of intangible assets | | $ | 8,476 | | | $ | 11,807 | | | $ | 14,263 | |
Net loss (gain) on sale of assets | | | (157 | ) | | | (2,216 | ) | | | (265 | ) |
Certain intangible assets became fully amortized in the second fiscal quarter of 2017 and in the third fiscal quarter of 2018.
In the third fiscal quarter of 2019, we announced a restructuring program targeting SG&A expenses. See "Cost Management" above.
COVID-19 outbreak.
Other Income (Expense)
20192021 Compared to 20182020
Interest expense for the year ended December 31, 20192021 decreased by $3.0$14.0 million versus the year ended December 31, 2018. 2020. The decrease is primarily attributabledue to reduced interest expense on the revolving credit facilityelimination of non-cash debt discount amortization upon the adoption of ASU No. 2020-06 effective January 1, 2021 and the convertible senior debentures as a result of using cash repatriated in 2018 to repay the balance of the credit facility in the third fiscal quarter of 2018 and to repurchase convertible senior debentures, partially offset by the issuancerepurchases of convertible senior notes due 2025 in the second and third fiscal quarterquarters of 2018.
We repurchased $19.4 million principal amount of convertible senior debentures in 2019. We recognized a $2.0 million loss on early extinguishment of the repurchased convertible debentures in 2019.2020. See Note 1 to our consolidated financial statements for further information.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
| | Years ended December 31, | | | | | | Years ended December 31, | | | | |
| | 2019 | | | 2018 | | | Change | | | 2021 | | | 2020 | | | Change | |
| | | | | | | | | | | | | | | | | | |
Foreign exchange gain (loss) | | $ | (1,414 | ) | | $ | (1,991 | ) | | $ | 577 | | | $ | (2,692 | ) | | $ | (4,095 | ) | | $ | 1,403 | |
Interest income | | | 8,445 | | | | 11,940 | | | | (3,495 | ) | | | 1,269 | | | | 3,709 | | | | (2,440 | ) |
Investment income (loss) | | | 6,448 | | | | (1,646 | ) | | | 8,094 | | |
Other components of net periodic pension expense | | | | (13,206 | ) | | | (13,613 | ) | | | 407 | |
Investment income | | | | (1,036 | ) | | | 2,271 | | | | (3,307 | ) |
Other | | | 61 | | | | (266 | ) | | | 327 | | | | 11 | | | | (26 | ) | | | 37 | |
| | $ | 13,540 | | | $ | 8,037 | | | $ | 5,503 | | | $ | (15,654 | ) | | $ | (11,754 | ) | | $ | (3,900 | ) |
20182020 Compared to 20172019
Interest expense for the year ended December 31, 2018 increased2020 decreased by $8.8$2.1 million versus the year ended December 31, 2017.2019. The increasedecrease is primarily attributable to the issuancerepurchases of convertible senior notesdebt instruments and the lower interest rate environment due 2025 into the second fiscal quarter of 2018. The increase is partially offset by reduced interest expense on the revolving credit facility and convertible senior debentures as a result of using cash repatriated in 2018 to reduce the outstanding balance of the revolving credit facility and to repurchase convertible senior debentures.COVID-19 pandemic.
In June 2018, we issued $600 million principal amount of 2.25% senior convertible notes due 2025 to qualified institutional investors. We used the net proceeds from this offering to repurchase $289.1 million principal amounts of convertible senior debentures for $585.0 million. We used repatriated cash to repurchase an additional $249.4repurchased $151.5 million principal amount of convertible senior debenturesdebt instruments in the fourth fiscal quarter of 2018 for $376.0 million.2020. We recognized a $26.6$8.1 million loss on early extinguishment of the repurchased convertible debenturesdebt instruments in 2018.2020.
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
| | Years ended December 31, | | | | | | Years ended December 31, | | | | |
| | 2018 | | | 2017 | | | Change | | | 2020 | | | 2019 | | | Change | |
| | | | | | | | | | | | | | | | | | |
Foreign exchange gain (loss) | | $ | (1,991 | ) | | $ | (4,536 | ) | | $ | 2,545 | | | $ | (4,095 | ) | | $ | (1,414 | ) | | $ | (2,681 | ) |
Interest income | | | 11,940 | | | | 6,482 | | | | 5,458 | | | | 3,709 | | | | 8,445 | | | | (4,736 | ) |
Investment income (loss)† | | | (1,646 | ) | | | - | | | | (1,646 | ) | |
Other components of net periodic pension expense | | | | (13,613 | ) | | | (13,959 | ) | | | 346 | |
Investment income (loss) | | | | 2,271 | | | | 6,448 | | | | (4,177 | ) |
Other | | | (266 | ) | | | (208 | ) | | | (58 | ) | | | (26 | ) | | | 61 | | | | (87 | ) |
| | $ | 8,037 | | | $ | 1,738 | | | $ | 6,299 | | | $ | (11,754 | ) | | $ | (419 | ) | | $ | (11,335 | ) |
† Recognized in "Other" subsequent to the prospective adoption of ASU 2016-01 on January 1, 2018. Previously recorded in accumulated other comprehensive income until realized.
Income Taxes
For the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, the effective tax rates were 27.2%31.2%, 16.9%21.8%, and 107.0%27.2%, respectively. With the reduction in the U.S. statutory rate to 21% beginning January 1, 2018, we expect that our effective tax rate will now be higher than the U.S. statutory rate, excluding unusual transactions. Historically, the effective tax rates were generally less than the U.S. statutory rate of 35% primarily because of earnings in foreign jurisdictions. Discrete tax items impacted our effective tax rate for each period presented. These items were $39.3 million in 2021, $2.0 million in 2020, and $0.8 million (tax benefit) in 2019, $39.42019.
The effective tax rate for the year ended December 31, 2021 was impacted by $53.3 million (tax benefit)of tax expense recognized upon a change in 2018,Israeli tax law that was enacted on November 15, 2021. We have historically benefited from tax incentive programs offered by the Israeli government, including the generation of income not subject to current income tax. Any tax-exempt earnings generated under these programs would incur an additional “claw-back” tax at approximately 11.1% if they were distributed or invested outside of Israel, in addition to normal withholding taxes on earnings distributed from Israel. Otherwise, taxes on such earnings were indefinitely deferred.
The change in Israeli tax law provided companies with an election to currently pay a reduced claw-back rate of as low as 6% upon meeting certain conditions, with the ability to distribute or invest those amounts outside of Israel at any time in the future. We will elect to pay taxes on all previously untaxed earnings at the reduced 6% claw-back rate. As a direct result of this change in tax law, we made the determination during the fourth fiscal quarter of 2021 that substantially all unremitted foreign earnings in Israel are no longer permanently reinvested. We recorded the additional tax expense during the fourth fiscal quarter of 2021 to accrue the claw-back tax on applicable earnings and $230.6withholding taxes necessary to distribute these approximately $385.0 million of accumulated earnings to the United States.
The effective tax rate for the year ended December 31, 2021 was also impacted by a $5.7 million tax benefit recognized upon the release of a valuation allowance outside the U.S. and $8.3 million of tax benefits recognized due to changes in tax regulations.
We repatriated $104.1 million and $188.7 million to the United States, and paid withholding and foreign taxes of $16.3 million and $38.8 million in 2017.the years ended December 31, 2020 and 2019, respectively, which completed the cash repatriation program that we initiated in 2017 in response to the TCJA enacted in the United States.
We recorded tax benefits of $0.2 million and $9.6 million during the yearyears ended December 31, 2020 and 2019, respectively, due to adjustments to remeasure the deferred taxes related to our cash repatriation program, such as foreign currency effects, and to consider certain corporate reorganizational activities that impact repatriation. During 2019, we repatriated $188.7 million to the United States and paid withholding and foreign taxes of $38.8 million.
As part of our cash repatriation activity, we settled an intercompany loan, which previously had been accounted for at the historical foreign exchange rate (akin to an equity contribution) because the debtor entity did not have the intent or ability to repay such intercompany loan. Currency translation adjustments were recorded in accumulated other comprehensive income, and were not included in U.S. GAAP pre-tax income. Our cash repatriation activity resulted in the ability to repay such intercompany loan. Upon settlement of this intercompany loan, the foreign entity realized a taxable gain. Income tax expense for the year ended December 31, 2019 includes tax expense of $7.6 million related to this tax-basis foreign exchange gain.
The effective tax raterates for the yearyears ended December 31, 2020 and 2019 was alsowere impacted by the effect of the repurchase of convertible senior debentures. We recognized a tax benefitbenefits of $1.6 million in both 2020 and 2019, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the extinguishedconvertible debentures. See Note 6 to our consolidated financial statements.
The effective tax raterates for the yearyears ended December 31, 2020 and 2019 waswere also impacted by $3.8 million and $2.8 million, respectively, of net tax expense for changes in uncertain tax positions.
The effective tax rate for the years ended December 31, 2018 and 2017 was significantly impacted by the enactment of the Tax Cuts and Jobs Act ("TCJA"). As permitted by SAB No. 118, the net tax expense recorded in our financial statements for the fourth fiscal quarter of 2017 due to the enactment of the TCJA was considered “provisional,” based on reasonable estimates. The net tax expense recorded in 2017 was $234.9 million. We recorded adjustments of $25.5 million during the 2018 measurement period, as defined in SAB No. 118, as additional details were collected and analyzed.
The effective tax rate for the year ended December 31, 2018 was also significantly impacted by the effect of the repurchase of convertible senior debentures. We recognized a tax benefit of $54.9 million resulting from the extinguishments, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures. See Note 6 to our consolidated financial statements.
We also recorded a tax benefit of $10.0 million due to the remeasurement of the deferred tax liability related to our cash repatriation program during 2018. These types of remeasurement adjustments will continue until the amounts are repatriated. We repatriated $724 million to the U.S. pursuant to this program in 2018. As a result of the repatriations, we paid cash taxes of $156.8 million in 2018.
The effective tax rate for the year ended December 31, 2017 was also impacted by a $5.8 million tax benefit recorded for the periodic remeasurement related to the 2015 cash repatriation program, and $1.6 million of net tax expense for changes in uncertain tax positions.
We operate in a global environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives.
Additional information about income taxes is included in Note 5 to our consolidated financial statements.
Financial Condition, Liquidity, and Capital Resources
We focus on our ability to generate cash flows from operations. The cash generated from operations is used to fund our capital expenditure plans, and cash in excess of our capital expenditure needs is available to fund our acquisition strategy, to reduce debt levels, and to pay dividends and repurchase stock. We have generated cash flows from operations in excess of $200 million in each of the last 1820 years, and cash flows from operations in excess of $100 million in each of the last 2527 years.
Management uses a non-GAAP measure, "free cash," to evaluate our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends. See "Overview" above for "free cash" definition and reconciliation to GAAP. Vishay has generated positive "free cash" in each of the past 2325 years, and "free cash" in excess of $80 million in each of the last 1820 years. In this volatile economic environment, we continue to focus on the generation of free cash, including an emphasis on cost controls.
During 2018, we repatriated approximately $724 million to the United States, and paid cash taxes of $156.8 million related to the repatriations. We repatriated $188.7 million to the United States, and paid cash taxes of $38.8 million related to the repatriations in 2019. The payment of these cash taxes was recorded as an operating cash flow and any future cash taxes associated with the TCJA transition tax and related foreign taxes on repatriated cash will generally be recorded as operating cash flows. The payment of these cash taxes significantly impacted cash flows from operations and free cash for the years ended December 31, 2019 and 2018. We expect our business to continue to be a reliable generator of free cash, partially offset by such tax payments.cash. There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash at the same levels, or at all, going forward if the current economic environment worsens. We generated cash flows from operations of $457.1 million and "free cash" of $240.0 million in 2021.
InThe COVID-19 pandemic and the secondmitigation efforts by governments to control its spread did not have significant impact on our financial condition, liquidity, or capital resources.
As a direct result of a change in Israeli tax law, we made the determination during the fourth fiscal quarter of 2021 that substantially all unremitted foreign earnings in Israel are no longer permanently reinvested. We recorded the additional tax expense during the fourth fiscal quarter of 2021 to accrue the claw-back tax on applicable earnings and withholding taxes necessary to distribute these approximately $385.0 million of accumulated earnings to the United States.
On February 8, 2022, we announced that our Board of Directors has adopted a Stockholder Return Policy that will remain in effect until such time as the Board votes to amend or rescind the policy. The Stockholder Return Policy calls for us to return at least 70% of free cash flow, net of scheduled principal payments of long-term debt, on an annual basis. We intend to return such amounts directly, in the form of dividends, or indirectly, in the form of stock repurchases. For 2022, we expect to return at least $100 million to stockholders consisting of approximately $58 million through our existing quarterly dividend program and at least $42 million through share repurchases. The distribution of earnings from Israel to the United States will initially be used to fund our Stockholder Return Policy. Over the long-term we expect to fund the Stockholder Return Policy from our historically strong cash flows from operations.
We repatriated $104.1 million and $188.7 million to the United States, and paid cash taxes of $16.3 million and $38.8 million related to the repatriations in 2020 and 2019, respectively. The payment of these cash taxes significantly impacted cash flows from operations and free cash for the years ended December 31, 2020 and 2019. These repatriations completed our cash repatriation program that we entered intoinitiated in response to the TCJA.
We maintain a newrevolving credit facility, which provides an aggregate commitment of $750 million of revolving loans available until June 5, 2024. The newmaximum amount available on the revolving credit facility replaces our previous credit agreement that provided for an aggregate commitment of $640 million, and that was scheduled to mature on December 10, 2020.is restricted by the financial covenants described below. The new credit facility also provides us the ability to request up to $300 million of incremental facilities, subject to the satisfaction of certain conditions, which could take the form of additional revolving commitments, incremental “term loan A” or “term loan B” facilities, or incremental equivalent debt.
At December 31, 2019,2021, we had no amounts outstanding underon our revolving credit facility. We had no amounts outstanding at December 31, 2020. We borrowed $897.0 million and repaid $897.0 million on the revolving credit facility during the year ended December 31, 2021. The average outstanding balance on our revolving credit facility calculated at fiscal month-ends was $93.6 million and the highest amount outstanding on our revolving credit facility at a fiscal month end was $162.0 million during the year ended December 31, 2021.
The revolving credit facility limits or restricts us from, among other things, incurring indebtedness, incurring liens on its respective assets, making investments and acquisitions (assuming our pro forma leverage ratio is greater than 2.75 to 1.00), making asset sales, and paying cash dividends and making other restricted payments (assuming our pro forma leverage ratio is greater than 2.50 to 1.00), and requires us to comply with other covenants, including the maintenance of specific financial ratios.
The financial maintenance covenants include (a) an interest coverage ratio of not less than 2.00 to 1; and (b) a leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional debt). The computation of these ratios is prescribed in Article VI of the Credit Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., which has been filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed June 5, 2019.
We were in compliance with all financial covenants under the credit facility at December 31, 2021. Our interest coverage ratio and leverage ratio were 28.49 to 1 and 0.75 to 1, respectively. We expect to continue to be in compliance with these covenants based on current projections. Based on our current EBITDA and outstanding revolver balance, the full amount of the revolving credit facility is useable.
If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and any amounts then outstanding pursuant to the credit facility could become immediately payable. Additionally, our convertible senior notes due 2025 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
The credit facility allows an unlimited amount of defined “Investments,” which include certain intercompany transactions and acquisitions, provided our pro forma leverage ratio is equal to or less than 2.75 to 1.00. If our pro forma leverage ratio is greater than 2.75 to 1.00, such Investments are subject to certain limitations.
The credit facility also allows an unlimited amount of defined "Restricted Payments," which include cash dividends and share repurchases, provided our pro forma leverage ratio is equal to or less than 2.50 to 1.00. If our pro forma leverage ratio is greater than 2.50 to 1.00, the credit facility allows such payments up to $100 million per annum (subject to a cap of $300 million for the term of the facility, with up to $25 million of any unused amount of the $100 million per annum base available for use in the next succeeding calendar year).
Borrowings under the credit facility bear interest at LIBOR plus an interest margin. The applicable interest margin is based on our leverage ratio. Based on our current leverage ratio, any new borrowings will bear interest at LIBOR plus 1.50%, the same as pursuant to the previous credit agreement.. The interest rate on any borrowings increases to LIBOR plus 1.75% if our leverage ratio is between 1.50 to 1 and 2.50 to 1 and further increases to 2.00% if our leverage ratio equals or exceeds 2.50 to 1.
We also pay a commitment fee, also based on its leverage ratio, on undrawn amounts. The undrawn commitment fee, based on Vishay's current leverage ratio, is 0.25% per annum, an improvement of 5 basis points over the previous credit agreement.annum. Such undrawn commitment fee increases to 0.30% per annum if our leverage ratio is between 1.50 to 1 and 2.50 to 1 and further increases to 0.35% per annum if our leverage ratio equals or exceeds 2.50 to 1.
AnyThe borrowings under the credit facility are secured by a lien on substantially all assets, including accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate, intellectual property registered or licensed solely for use in, or arising solely under the laws of, any country other than the United States, assets located solely outside of the United States and deposit and securities accounts), of Vishay and certain significant subsidiaries located in the United States, and pledges of stock in certain significant domestic and foreign subsidiaries; and are guaranteed by certain significant subsidiaries.
The credit facility also limits or restricts us from, among other things, incurring indebtedness, incurring liens on our assets, making investments and acquisitions (assuming our pro forma leverage ratio is greater than 2.75 to 1.00), making asset sales, and paying cash dividends and making other restricted payments (assuming our pro forma leverage ratio is greater than 2.50 to 1.00), and requires us to comply with other covenants, including the maintenance of specific financial ratios.
The financial maintenance covenants include (a) an interest coverage ratio of not less than 2.00 to 1; and (b) a leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional debt). The computation of these ratios is prescribed in Article VI of the Credit Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., which has been filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed June 5, 2019.
We were in compliance with all financial covenants under the credit facility at December 31, 2019. Our interest coverage ratio and leverage ratio were 18.52 to 1 and 1.36 to 1, respectively. We expect to continue to be in compliance with these covenants based on current projections.
If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and any amounts then outstanding pursuant to the credit facility could become immediately payable. Additionally, our convertible senior debentures due 2040 and due 2041 and our convertible senior notes due 2025 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
We had no amounts outstanding on our revolving credit facility at December 31, 2018. We borrowed $42 million and repaid $42 million on the credit facility during the year ended December 31, 2019. The average outstanding balance on our credit facility calculated at fiscal month-ends was $6.1 million and the highest amount outstanding on our revolving credit facility at a fiscal month end was $28 million during the year ended December 31, 2019.
During 2018,2021, we issued $600 million principal amount of 2.25% convertible senior notes due 2025 to qualified institutional investors and repatriated approximately $724 million to the United States. We used substantially all of the proceeds from the issuance and the repatriated amounts to reduce the outstanding balance of the credit facility to zero, to repay certain intercompany indebtedness, and to fund our 2018 repurchases of convertible senior debentures.
During 2019, we repurchased $1.0 million, $16.2 million, andredeemed the remaining $2.2 million principal amount of convertible senior debentures due 2040, due 2041, and due 2042, respectively, for $27.9 million. We used cash on hand, primarily repatriated cash, to fund the repurchases.
Subsequent to December 31, 2019, through February 12, 2020, we have repurchased an additional $14.25$0.3 million principal amount of convertible senior debentures due 2041 for $19.8$0.3 million.
During 2019, we repatriated $188.7 million to the United States, and paid withholding and foreign taxes of $38.8 million. Substantially all of these amounts are being used to repay certain intercompany indebtedness, repay the outstanding balance on our revolving credit facility, to pay the US transition tax, and to fund capital expansion projects.
After completing this phase of cash repatriation, there is approximately $100 million of unremitted foreign earnings that we We have deemed not permanently reinvested and thus have accrued foreign withholding and other taxes. We continue to evaluate the timing of the reparation of theseno remaining amounts, and may decide to ultimately not repatriate some of these amounts.
We also continue to evaluate the TCJA's provisions and may further adjust our financial and capital structure and business practices accordingly.convertible senior debentures.
As of December 31, 2019,2021, substantially all of our cash and cash equivalents and short-term investmentinvestments were held in countries outside of the United States. Our substantially undrawn credit facility provides us with significant operating liquidity in the United States. We expect to fund any future repurchases of convertible debentures, as well as other obligations required to be paid by the U.S. parent company, Vishay Intertechnology, Inc., including cashCash dividends to stockholders, share repurchases, and principal and interest payments on our debt instruments need to be paid by borrowing under our revolving credit facility.the U.S. parent company, Vishay Intertechnology, Inc. Our U.S. subsidiaries also have cash operating cash needs.
Management expects The distribution of earnings from Israel to use the credit facility from time-to-timeUnited States will initially be used to meet certain short-term financing needs.fund our Stockholder Return Policy. We expect that cash on-hand and cash flows from operations will be sufficient to meet our longer-term financing needs related to normal operating requirements, regular dividend payments, share repurchases pursuant to our Stockholder Return Policy, and our research and development and capital expenditure plans.
Our substantially undrawn credit facility provides us with significant operating liquidity in the United States. We expect, at least initially, to fund certain future obligations required to be paid by the U.S. parent company by borrowing under our revolving credit facility. We also expect to continue to use the credit facility from time-to-time to meet certain short-term financing needs. Additional acquisition activity, share repurchases, convertible debt repurchases, or conversion of our convertible debenturesdebt instruments may require additional borrowing under our credit facility or may otherwise require us to incur additional debt. No principal payments on our debt are due before the maturity of2025 and our new revolving credit facility expires in June 2024.
Prior to three months before the maturity date, our convertible senior debentures are convertible by the holders under certain circumstances. The convertible senior debentures due 2040 and due 2041 and the convertible senior notes due 2025 are not currently convertible. AtPursuant to the direction of our Board of Directors,indenture governing convertible senior notes due 2025 and the amendments thereto incorporated in the Supplemental Indenture dated December 23, 2020, we intend, upon conversion, to repaywill cash-settle the principal amount of the any convertible debt instruments in cash$1,000 per note and settle any additional amounts in shares of our common stock. We intend to finance the principal amount of any converted debenturesdebt instruments using borrowings under our credit facility. No conversions have occurred to date.
We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated balance sheets. As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt).
The interest rates on our short-term investments vary by location, but can be up to 150 bps higher than the interest rates on our cash accounts.location. The average interest rate on our short-term investments was 0.4%approximately 0.14% due to the low interest rate environment in Europe.environment. Transactions related to these investments are classified as investing activities on our consolidated condensed statements of cash flows.
The amount of short-term investments at December 31, 2019 is lower than normal due to the recently completed cash repatriation activity.
The following table summarizes the components of net cash and short-term investments (debt) (in thousands):
| | December 31, 2019 | | | December 31, 2018 | | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | | | | | | | |
Credit Facility | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
Convertible senior notes, due 2025* | | | 509,128 | | | | 495,203 | | | | 465,344 | | | | 406,268 | |
Convertible senior debentures, due 2040* | | | 126 | | | | 539 | | | | - | | | | 130 | |
Convertible senior debentures, due 2041* | | | 6,677 | | | | 12,812 | | |
Convertible senior debentures, due 2042* | | | - | | | | 923 | | |
Deferred financing costs | | | (16,784 | ) | | | (14,968 | ) | | | (9,678 | ) | | | (11,512 | ) |
Total debt | | | 499,147 | | | | 494,509 | | | | 455,666 | | | | 394,886 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents | | | 694,133 | | | | 686,032 | | | | 774,108 | | | | 619,874 | |
Short-term investments | | | 108,822 | | | | 78,286 | | | | 146,743 | | | | 158,476 | |
| | | | | | | | | | | | | | | | |
Net cash and short-term investments (debt) | | $ | 303,808 | | | $ | 269,809 | | | $ | 465,185 | | | $ | 383,464 | |
*Represents the carrying amount of the convertible debentures,debt instruments, which is comprised of the principal amount of the instruments, net of the unamortized discount and the associated embedded derivative liability, when applicable.discount.
"Net cash and short-term investments (debt)" does not have a uniform definition and is not recognized in accordance with GAAP. This measure should not be viewed as an alternative to GAAP measures of performance or liquidity. However, management believes that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. The measure, as calculated by us, may not be comparable to similarly titled measures used by other companies.
Our financial condition as of December 31, 20192021 continued to be strong, with the current ratio (current assets to current liabilities) increasing to 3.3of 2.9 to 1, from 2.8as compared to 3.0 to 1 as of December 31, 2018.2020. The increaseslight decrease is primarily due to the decreaseincrease in trade accounts payable otherand accrued expenses, and income taxes payable.expenses. Our ratio of total debt to Vishay stockholders' equity was 0.340.26 to 1 at December 31, 20192021 as compared to a ratio of 0.360.25 to 1 at December 31, 2018. 2020. The decreaseslight increase in the ratio is primarily due to increasedthe increase in the carrying value of our long-term debt upon the adoption of ASU No. 2020-06, partially offset by an increase in retained earnings. See Notes 1 and 6 to our consolidated financial statements.
Cash flows provided by operating activities were $296.4$457.1 million for the year ended December 31, 2019,2021, as compared to cash flows provided by operations of $258.5$314.9 million for the year ended December 31, 2018. The increase in operating cash flows is partially due to less repatriation cash taxes paid in 2019 versus 2018.2020.
Cash paid for property and equipment for the year ended December 31, 20192021 was $156.6$218.4 million, as compared to $229.9$123.6 million for the year ended December 31, 2018. We2020. To be well positioned to service our customers and to fully participate in growing markets, we intend to increase our capital expenditures for expansion in the mid-term. For the year 2022, we expect capital spending ofto invest approximately $140$325 million in 2020, in accordance with requirements of our markets.capital expenditures.
Cash paid for dividends to our common and Class B common stockholders totalled $53.4$55.8 million and $46.5$55.0 million for the years ended December 31, 20192021 and 2018,2020, respectively. We expect dividend payments in 20202022 to total approximately $55.0 million.$58.0 million and stock repurchases of at least $42.0 million pursuant to our Stockholder Return Policy. However, any future dividend declaration and payment remains subject to authorization by our Board of Directors.
Contractual CommitmentsIn evaluating our liquidity and Off-Balance Sheet Arrangements
capital resources, we consider our outstanding contractual commitments. As of December 31, 20192021 we had contractual obligations as follows (in thousands):
| | | | | Payments due by period | | | | | | Payments due by period | |
| | Total | | | Year 1 | | | Years 2-3 | | | Years 4-5 | | | More than 5 | | | Total | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | 2026 | | | Thereafter | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | 617,190 | | | $ | - | | | $ | - | | | $ | - | | | $ | 617,190 | | | $ | 465,344 | | | $ | - | | | $ | - | | | $ | - | | | $ | 465,344 | | | $ | - | | | $ | - | |
Interest payments on long-term debt | | | 90,260 | | | | 15,762 | | | | 31,524 | | | | 30,456 | | | | 12,518 | | | | 40,767 | | | | 12,345 | | | | 12,345 | | | | 11,278 | | | | 4,799 | | | | - | | | | - | |
Operating leases | | | 127,753 | | | | 20,649 | | | | 32,494 | | | | 24,871 | | | | 49,739 | | | | 153,677 | | | | 23,617 | | | | 21,609 | | | | 19,174 | | | | 17,103 | | | | 15,674 | | | | 56,500 | |
Letters of credit | | | 2,088 | | | | - | | | | - | | | | 2,088 | | | | - | | | | 1,069 | | | | - | | | | - | | | | 1,069 | | | | - | | | | - | | | | - | |
Expected pension and postretirement plan funding | | | 209,707 | | | | 18,845 | | | | 45,778 | | | | 40,975 | | | | 104,109 | | | | 214,805 | | | | 22,535 | | | | 26,318 | | | | 20,478 | | | | 28,335 | | | | 23,104 | | | | 94,035 | |
Estimated costs to complete construction in progress | | | 92,000 | | | | 92,000 | | | | - | | | | - | | | | - | | | | 160,000 | | | | 145,200 | | | | 14,500 | | | | 300 | | | | - | | | | - | | | | - | |
TCJA transition tax | | | 154,953 | | | | 14,757 | | | | 29,514 | | | | 64,563 | | | | 46,119 | | | | 125,438 | | | | 14,757 | | | | 27,669 | | | | 36,893 | | | | 46,119 | | | | - | | | | - | |
Uncertain tax positions | | | 37,996 | | | | 342 | | | | - | | | | - | | | | 37,654 | | | | 28,277 | | | | 3,248 | | | | - | | | | - | | | | - | | | | - | | | | 25,029 | |
Purchase commitments | | | 59,448 | | | | 38,945 | | | | 18,943 | | | | 1,560 | | | | - | | | | 89,287 | | | | 67,105 | | | | 22,182 | | | | - | | | | - | | | | - | | | | - | |
Other long-term liabilities | | | 62,553 | | | | - | | | | - | | | | - | | | | 62,553 | | | | 70,832 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 70,832 | |
Total contractual cash obligations | | $ | 1,453,948 | | | $ | 201,300 | | | $ | 158,253 | | | $ | 164,513 | | | $ | 929,882 | | | $ | 1,349,496 | | | $ | 288,807 | | | $ | 124,623 | | | $ | 89,192 | | | $ | 561,700 | | | $ | 38,778 | | | $ | 246,396 | |
Commitments for long-term debt are based on the amount required to settle the obligation. Accordingly, the discounts and capitalized deferred financing costs associated with our convertible debt instrumentsnotes are excluded from the calculation of long-term debt commitments in the table above.
Commitments for interest payments on long-term debt are cash commitments based on the stated maturity dates of each agreement and include fees under our revolving credit facility, which expires on June 4, 2024. Commitments for interest payments on long-term debt exclude non-cash interest expense related to the amortization of the discount associated with our convertible debt instruments.deferred financing costs.
Various factors could have a material effect on the amount of future principal and interest payments. Among other things, we have $617.2 million of outstanding debt instruments that are convertible into common stock. Although we intend to net share settle our convertible debt instruments, we have the option to settle these instruments in shares of common stock pursuant to the indentures governing these instruments. Principal and interest commitments associated with our convertible debt instrumentsnotes are based on the amounts outstanding as of December 31, 2019 and do not consider any future repurchases.2021. Additionally, interest commitments for our revolving credit facility are based on the rate prevailing at December 31, 2019,2021, but actual rates are variable and are certain to change over time.
The TCJA imposesimposed a one-time transition tax on deferred foreign earnings, of 15.5% for liquid assets and 8% for illiquid assets, payable in defined increments over eight years. As a result of this requirement, we expect to pay $184.5 million, net of estimated applicable foreign tax credits, and after utilization of net operating loss and R&D and FTC Credit carryforwards. As of December 31, 2019, $29.52021, $59.0 million has been paid.
Estimated costs to complete construction in progress excludes costs to complete projects that have just begun and we are not contractually required to complete, including the significant Itzehoe, Germany 12-inch wafer fab construction project.
Our consolidated balance sheet at December 31, 20192021 includes liabilities associated with uncertain tax positions in multiple taxing jurisdictions where we conduct business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, we cannot make reliable estimates of the timing of the remaining cash outflows relating to these liabilities. Accordingly, we have classified the amount recorded as a current liability as payable within one year, and the remaining uncertain tax positions are classified as payments due after five years,thereafter, although actual timing of payments may be sooner.
There are certain guarantees and indemnifications extended among Vishay and VPG in accordance with the terms of the Master Separation and Distribution Agreement and the Tax Matters Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the Tax Matters Agreement. See Note 19 to our consolidated financial statements for further discussion of the Tax Matters Agreement. These obligations are included in the uncertain tax positions disclosed above, but were not material to us as of December 31, 2019.
Expected pension and postretirement plan funding is based on a projected schedule of benefit payments under the plans.
We maintain long-term foundry arrangements with subcontractors to ensure access to external front-end capacity for our semiconductor products. The purchase commitments in the table above represent the estimated minimum commitments for silicon wafers under these arrangements. Our actual purchases in future periods are expected to be greater than these minimum commitments.
Other long-term liabilities in the table above include obligations that are reflected on our consolidated balance sheets as of December 31, 2019.2021. We include the current portion of the long-term liabilities in the table above. Other long-term liabilities for which we are unable to reasonably estimate the timing of the settlement are classified as payments due after five yearsthereafter in the table above, although actual timing of payments may be sooner.
For a further discussion of our long-term debt, pensions and other postretirement benefits, leases, uncertain tax positions, and purchase commitments, see Notes 3, 5, 6, 11, and 13 to our consolidated financial statements.
We do not participate in, nor have we created, any off-balance sheet variable interest entities or other off-balance sheet financing.
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 and other market conditions, to reflect cost increases caused by inflation.
See also “Commodity Price Risk” included in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” for additional related information.
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements for information about recent accounting pronouncements.
Item 7A. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosure
We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates, interest rates, and commodity prices.
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.
Interest Rate Risk
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. On a selective basis, we have in the past entered into interest rate swap or cap agreements to reduce the potential negative impact that increases in interest rates could have on our outstanding variable rate debt. As of December 31, 2019, 2018,2021, 2020, and 20172019 we did not have any outstanding interest rate swap or cap agreements.
The interest paid on our credit facility is based on a LIBOR spread. At December 31, 2019,2021, we had no amounts outstanding under the revolving credit facility. Future borrowings under the revolving credit commitment will bear interest at LIBOR plus 1.50%.
Our convertible debt instruments bear interest at a fixed rate, and accordingly are not subject to interest rate fluctuation risks.
At December 31, 2019,2021, we had $694.1$774.1 million of cash and cash equivalents and $108.8$146.7 million of short-term investments, which earn interest at various variable rates.
Based on the debt and cash positions at December 31, 2019,2021, we would expect a 50 basis point increase or decrease in interest rates to increase or decrease our annualized net earnings by approximately $2.9$3.6 million.
See Note 6 to our consolidated financial statements for additional information about our long-term debt. Also see “Economic Outlook and Impact on Operations and Future Financial Results” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion of market risks.
Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries. We have in the past useduse forward exchange contracts to economically hedge a portion of these exposures. AsWe entered into forward contracts with highly-rated financial institutions to mitigate the foreign currency risk associated with intercompany loans denominated in a currency other than the legal entity's functional currency. The notional amount of the forward contracts was $100 million as of December 31, 2019 we did2021. The forward contracts are short-term in nature and are expected to be renewed at our discretion until the intercompany loans are repaid. We have not have any outstandingdesignated the forward exchange contracts.contracts as hedges for accounting purposes, and as such the change in the fair value of contracts is recognized in our consolidated statements of operations as a component of other income (expense). We do not utilize derivatives or other financial instruments for trading or other speculative purposes.
Our significant foreign subsidiaries are located in Germany, Israel, and Asia. We finance our operations in Europe and certain locations in Asia in local currencies. Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the revenues earned in a particular currency offset one another. Our exposure to foreign currency risk is more pronounced in Israel, the Czech Republic, and China because the percentage of expenses denominated in Israeli shekels, Czech koruna, and Chinese renminbi to total expenses is much greater than the percentage of sales denominated in Israeli shekels, Czech koruna, and Chinese renminbi to total sales. Therefore, if the Israeli shekel, Czech koruna, and Chinese renminbi strengthen against all or most of our other major currencies, our operating profit is reduced. Where possible, we maintain local currency denominated cash balances in these countries approximately equal to the local currency liabilities to naturally hedge our exposures. We also have a slightly higher percentage of euro-denominated sales than expenses. Therefore, when the euro strengthens against all or most of our other major currencies, our operating profit is slightly increased. Accordingly, we monitor several important cross-rates.
We have performed sensitivity analyses of our consolidated foreign exchange risk as of December 31, 2019 and 2018,2021, using a model that measures the change in the values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at December 31, 2019 and 2018.2021. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would impact our net earnings by approximately $3.1 million and $14.5$15.2 million at December 31, 2019 and December 31, 2018, respectively,2021, although individual line items in our consolidated statement of operations would be materially affected. For example, a 10% weakening in all foreign currencies would decrease the U.S. dollar equivalent of operating income generated in foreign currencies, which would be offset by foreign exchange gains of our foreign subsidiaries that have significant transactions in U.S. dollars or have the U.S. dollar as their functional currency.
A change in the mix of the currencies in which we transact our business could have a material effect on the estimated impact of the hypothetical 10% movement in the value of the U.S. dollar. Furthermore, the timing of cash receipts and disbursements could result in materially different actual results versus the hypothetical 10% movement in the value of the U.S. dollar, particularly if there are significant changes in exchange rates in a short period of time.
Commodity Price Risk
Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers or are subject to significant price volatility. Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price changes for these raw materials. The determination that any of the raw materials used in our products are conflict minerals originating from the Democratic Republic of the Congo and adjoining countries could increase the probability that we will encounter the challenges noted above, incur additional expenses to comply with government regulations, and face public scrutiny. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.
Silicon wafers are the most important raw material for the manufacturing of our semiconductor products. Silicon wafers are manufactured from high-purity silicon, a metalloid. There have at times been industry-wide shortages of high-purity silicon resulting primarily from growing demand of the electronic component and solar power industries, and limited growth in high-purity silicon manufacturing capacities. Shifts in demand for high-purity silicon and in turn, silicon wafers, have resulted in significant fluctuation in prices of silicon wafers.
We are a major consumer of the world’s annual production of tantalum, a metal used in the manufacturing of tantalum capacitors. There are few suppliers that process tantalum ore into capacitor grade tantalum powder.
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South Africa and Russia. Palladium is a commodity metal that is subject to price volatility. We periodically enter into short-term commitments to purchase palladium.
Certain metals used in the manufacture of our products, such as copper, are traded on active markets, and can be subject to significant price volatility. Our policy is to enter into short-term commitments to purchase defined portions of annual consumption of these metals if market prices decline below budget.
We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk would decrease or increase our net earnings by $6.4$12.7 million, assuming that such changes in our costs have no impact on the selling prices of our products and that we have no pending commitments to purchase metals at fixed prices.
Item 8. | | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are filed herewith, commencing on page F-1 of this report.
Item 9. | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. | | CONTROLS AND PROCEDURES |
Item 9A.CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Certifications
The certifications of our CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20192021 based on the 2013 framework set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2019.2021.
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting. Their report is set forth below.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Vishay Intertechnology, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Vishay Intertechnology, Inc.’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Vishay Intertechnology, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20192021 and 2018,2020, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019,2021, and the related notes and our report dated February 14, 202023, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect material misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 14, 202023, 2022
Item 9B. | | OTHER INFORMATION |
Item 9B.OTHER INFORMATION
None.
Item 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
Item 10. | | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Item10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
We have a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller, and financial managers. The text of this code has been posted on our website. To view the code, go to our website at ir.vishay.com and click on Corporate Governance. You can obtain a printed copy of this code, free of charge, by contacting us at the following address:
Corporate Investor Relations
Vishay Intertechnology, Inc.
63 Lancaster Avenue
Malvern, PA 19355-2143
It is our intention to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or any waiver from, a provision of this code by posting such information on our website, at the aforementioned address and location.
Certain information required under this Item with respect to our Executive Officers is set forth in Part I hereof under the caption “Executive Officers of the Registrant.”
Other information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2019,2021, our most recent fiscal year end, and is incorporated herein by reference.
Item 11. | | EXECUTIVE COMPENSATION |
Item 11.EXECUTIVE COMPENSATION
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2019,2021, our most recent fiscal year end, and is incorporated herein by reference.
Item 12. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2019,2021, our most recent fiscal year end, and is incorporated herein by reference.
Item 13. | | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2019,2021, our most recent fiscal year end, and is incorporated herein by reference.
Item 14. | | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Item 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2019,2021, our most recent fiscal year end, and is incorporated herein by reference.
Item 15. | | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents Filed as Part of Form 10-K
The Consolidated Financial Statements for the year ended December 31, 20192021 are filed herewith. See Index to the Consolidated Financial Statements on page F-1 of this report.
2. | Financial Statement Schedules |
All financial statement schedules have been omitted because they are not applicable, not material, or the required information is shown in the consolidated financial statements or the notes thereto.
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| | Employment Agreement, dated February 15, 2018, between Vishay Americas, Inc. (a wholly owned subsidiary of Vishay Intertechnology, Inc.), Vishay Intertechnology, Inc., and David Valletta. Incorporated by reference to Exhibit 10.3 to our current report on Form 8-K, filed on February 16, 2018. |
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| | Employment Agreement, dated February 15, 2018, between Vishay Americas, Inc. (a wholly owned subsidiary of Vishay Intertechnology, Inc.), Vishay Intertechnology, Inc., and Joel Smejkal. Incorporated by reference to Exhibit 10.5 to our current report on Form 8-K, filed on February 16, 2018. |
| | Amendment to Employment Agreement dated February 15, 2018, between Vishay Electronic GmbH (an indirectDale Electronics, LLC (a wholly owned subsidiary of Vishay Intertechnology, Inc.), Vishay Intertechnology, Inc., and Werner Gebhardt.Joel Smejkal dated May 20, 2020. Incorporated by reference to Exhibit 10.610.1 to our currentquarterly report on Form 8-K, filed on February 16, 2018.10-Q for the fiscal quarter ended July 4, 2020. |
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| | Credit Agreement, dated as of December 1, 2010, as amended and restated as of August 8, 2013, as further amended and restated December 10, 2015, among Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., as administrative agent and the lenders and other parties thereto. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed December 10, 2015. |
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| 101** | Interactive Data File (Annual Report on Form 10-K, for the year ended December 31, 2019,2021, furnished in iXBRL (Inline eXtensible Business Reporting Language)). |
| 104** | Cover Page Interactive Data File (formatted as Inline eXtensible Business Reporting Language and contained in Exhibit 101) |
__________________
* Confidential treatment has been requested by, and accorded to, VPG with respect to certain portions of this Exhibit. Omitted portions have been filed separately by VPG with the Securities and Exchange Commission.
** Filed herewith.
† Denotes a management contract or compensatory plan, contract, or arrangement.
Item 16. | | Form 10-K Summary |
Item 16.FORM 10-K SUMMARY
Not applicable.
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.
By: | /s/ Gerald Paul | |
| Dr. Gerald Paul | |
| President and Chief Executive Officer | |
| February 14, 202023, 2022 | |
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.
Signature | Title | Date |
Principal Executive Officer: | | |
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/s/ Gerald Paul | President, Chief Executive Officer, | February 14, 202023, 2022 |
Dr. Gerald Paul | and Director | |
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Principal Financial and Accounting Officer: | | |
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/s/ Lori Lipcaman | Executive Vice President and Chief | February 14, 202023, 2022 |
Lori Lipcaman | Financial Officer | |
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Board of Directors: | | |
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/s/ Marc Zandman | Executive Chairman of | February 14, 202023, 2022 |
Marc Zandman | the Board of Directors | |
| | |
/s/ Renee B. Booth | Director | February 23, 2022 |
Dr. Renee B. Booth | | |
| | |
/s/ Michael Cody | Director | February 14, 202023, 2022 |
Michael Cody | | |
| | |
/s/ Michiko Kurahashi | Director | February 23, 2022 |
Dr. Michiko Kurahashi | | |
| | |
/s/ Abraham Ludomirski | Director | February 14, 202023, 2022 |
Dr. Abraham Ludomirski | | |
| | |
/s/ Ronald M. Ruzic | Director | February 14, 2020 |
Ronald M. Ruzic | | |
| | |
/s/ Ziv Shoshani | Director | February 14, 202023, 2022 |
Ziv Shoshani | | |
| | |
/s/ Timothy V. Talbert | Director | February 14, 202023, 2022 |
Timothy V. Talbert | | |
| | |
/s/ Jeffrey H. Vanneste | Director | February 14, 202023, 2022 |
Jeffrey H. Vanneste | | |
| | |
/s/ Thomas C. Wertheimer | Director | February 14, 202023, 2022 |
Thomas C. Wertheimer | | |
| | |
/s/ Ruta Zandman | Director | February 14, 202023, 2022 |
Ruta Zandman | | |
| | |
/s/ Raanan Zilberman | Director | February 14, 202023, 2022 |
Raanan Zilberman | | |
Vishay Intertechnology, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) | F-2 |
| |
Audited Consolidated Financial Statements | |
| |
Consolidated Balance Sheets | F-4 |
Consolidated Statements of Operations | F-6 |
Consolidated Statements of Comprehensive Income | F-7 |
Consolidated Statements of Cash Flows | F-8 |
Consolidated Statements of Stockholders’ Equity | F-9 |
Notes to the Consolidated Financial Statements | F-10 |
Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors of Vishay Intertechnology, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vishay Intertechnology, Inc. (the Company) as of December 31, 20192021 and 2018,2020, and the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019,2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 14, 202023, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Sales Returns and Allowances Accruals |
Description of the Matter | | At December 31, 2019,2021, the Company’s liability for sales returns and allowances was $40.5$39.8 million. As discussed in Note 1 of the consolidated financial statements, the Company recognizes the estimated variable consideration to be received as revenue from contracts with customers and recognizes a related accrued liability for estimated future credits that will be issued to its customers, primarily distributors, for product returns, scrap allowance, “stock, ship and debit” and price protection programs with those customers. Auditing management’s sales returns and allowances accruals involved a high degree of subjectivity due to the significant judgment required in evaluating management’s estimates of future credits that will be issued to customers for sales that were recognized during the period. In particular, the estimates were sensitive to significant assumptions such as projected market trends and conditions that drive expected demand and pricing of the Company’s products to be sold from distributor inventories in the future, inventory levels at customer locations subject to future credits, and the amount of future credits that are expected to be provided to the customers. |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s sales returns and allowances review process. For example, we tested controls over management’s review of the significant assumptions described above. To test the estimated sales returns and allowances accruals, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the completeness and accuracy of the underlying data used by the Company in its analyses. We inspected contracts with customers in evaluating whether the assumptions used by management agreed with the terms and conditions of the contracts. In addition, we compared the significant assumptions used by management to current industry and economic trends that affect demand for the Company’s products, pricing trends and actual historical credit experience. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the sales returns and allowances accruals that would result from changes in the significant assumptions. |
/s/ Ernst & Young LLP
We have served as the Company‘sCompany's auditor since 19681968.
Philadelphia, Pennsylvania
February 14, 202023, 2022
VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
| | December 31, 2019 | | | December 31, 2018 | | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | | | | | | | |
Assets | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 694,133 | | | $ | 686,032 | | | $ | 774,108 | | | $ | 619,874 | |
| | | | | | | | | | | | | | | | |
Short-term investments | | | 108,822 | | | | 78,286 | | | | 146,743 | | | | 158,476 | |
| | | | | | | | | | | | | | | | |
Accounts receivable, net of allowances for doubtful accounts of $1,095 and $4,269, respectively | | | 328,187 | | | | 397,020 | | |
Accounts receivable, net of allowances for credit losses of $1,895 and $1,697, respectively | | | | 396,458 | | | | 338,632 | |
| | | | | | | | | | | | | | | | |
Inventories: | | | | | | | | | | | | | | | | |
Finished goods | | | 122,466 | | | | 138,112 | | | | 147,293 | | | | 120,792 | |
Work in process | | | 187,354 | | | | 190,982 | | | | 226,496 | | | | 201,259 | |
Raw materials | | | 121,860 | | | | 150,566 | | | | 162,711 | | | | 126,200 | |
Total inventories | | | 431,680 | | | | 479,660 | | | | 536,500 | | | | 448,251 | |
| | | | | | | | | | | | | | | | |
Prepaid expenses and other current assets | | | 141,294 | | | | 142,888 | | | | 156,689 | | | | 132,103 | |
Total current assets | | | 1,704,116 | | | | 1,783,886 | | | | 2,010,498 | | | | 1,697,336 | |
| | | | | | | | | | | | | | | | |
Property and equipment, at cost: | | | | | | | | | | | | | | | | |
Land | | | 75,011 | | | | 87,622 | | | | 74,646 | | | | 76,231 | |
Buildings and improvements | | | 585,064 | | | | 619,445 | | | | 639,879 | | | | 641,041 | |
Machinery and equipment | | | 2,606,355 | | | | 2,510,001 | | | | 2,758,262 | | | | 2,732,771 | |
Construction in progress | | | 110,722 | | | | 125,109 | | | | 145,828 | | | | 86,520 | |
Allowance for depreciation | | | (2,425,627 | ) | | | (2,373,176 | ) | | | (2,639,136 | ) | | | (2,593,398 | ) |
Property and equipment, net | | | 951,525 | | | | 969,001 | | | | 979,479 | | | | 943,165 | |
| | | | | | | | | | | | | | | | |
Right of use assets | | | 93,162 | | | | - | | | | 117,635 | | | | 102,440 | |
| | | | | | | | | | | | | | | | |
Deferred income taxes | | | | 95,037 | | | | 88,530 | |
| | | | | | | | | |
Goodwill | | | 150,642 | | | | 147,480 | | | | 165,269 | | | | 158,183 | |
| | | | | | | | | | | | | | | | |
Other intangible assets, net | | | 60,659 | | | | 65,688 | | | | 67,714 | | | | 66,795 | |
| | | | | | | | | | | | | | | | |
Other assets | | | 160,671 | | | | 140,143 | | | | 107,625 | | | | 98,024 | |
Total assets | | $ | 3,120,775 | | | $ | 3,106,198 | | | $ | 3,543,257 | | | $ | 3,154,473 | |
Continues on following page.
VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets (continued)
(In thousands, except share amounts)
| | December 31, 2019 | | | December 31, 2018 | | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | | | | | | | |
Liabilities, temporary equity, and equity | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | |
Notes payable to banks | | $ | 2 | | | $ | 18 | | |
Trade accounts payable | | | 173,915 | | | | 218,322 | | | $ | 254,049 | | | $ | 196,203 | |
Payroll and related expenses | | | 122,100 | | | | 141,670 | | | | 162,694 | | | | 141,034 | |
Lease liabilities | | | 20,217 | | | | - | | | | 23,392 | | | | 22,074 | |
Other accrued expenses | | | 186,463 | | | | 229,660 | | | | 218,089 | | | | 182,642 | |
Income taxes | | | 17,731 | | | | 54,436 | | | | 35,443 | | | | 20,470 | |
Total current liabilities | | | 520,428 | | | | 644,106 | | | | 693,667 | | | | 562,423 | |
| | | | | | | | | | | | | | | | |
Long-term debt, less current portion | | | 499,147 | | | | 494,509 | | | | 455,666 | | | | 394,886 | |
U.S. transition tax payable | | | 140,196 | | | | 154,953 | | | | 110,681 | | | | 125,438 | |
Deferred income taxes | | | 22,021 | | | | 85,471 | | | | 69,003 | | | | 1,852 | |
Long-term lease liabilities | | | 78,511 | | | | - | | | | 99,987 | | | | 86,220 | |
Other liabilities | | | 100,207 | | | | 79,489 | | | | 95,861 | | | | 104,356 | |
Accrued pension and other postretirement costs | | | 272,402 | | | | 260,984 | | | | 271,672 | | | | 300,113 | |
Total liabilities | | | 1,632,912 | | | | 1,719,512 | | | | 1,796,537 | | | | 1,575,288 | |
| | | | | | | | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | |
Redeemable convertible debentures | | | 174 | | | | 2,016 | | | | 0 | | | | 170 | |
| | | | | | | | | | | | | | | | |
Stockholders' equity: | | | | | | | | | | | | | | | | |
Preferred stock, par value $1.00 per share: authorized - 1,000,000 shares; NaN issued | | | - | | | | - | | |
Common stock, par value $0.10 per share: authorized - 300,000,000 shares; 132,348,357 and 132,117,715 shares outstanding | | | 13,235 | | | | 13,212 | | |
Class B convertible common stock, par value $0.10 per share: authorized - 40,000,000 shares; 12,097,409 and 12,097,427 shares outstanding | | | 1,210 | | | | 1,210 | | |
Preferred stock, par value $1.00 per share: authorized - 1,000,000 shares; NaN issued | | | | 0 | | | | 0 | |
Common stock, par value $0.10 per share: authorized - 300,000,000 shares; 132,710,732 and 132,561,010 shares outstanding | | | | 13,271 | | | | 13,256 | |
Class B convertible common stock, par value $0.10 per share: authorized - 40,000,000 shares; 12,097,148 shares outstanding | | | | 1,210 | | | | 1,210 | |
Capital in excess of par value | | | 1,425,170 | | | | 1,436,011 | | | | 1,347,830 | | | | 1,409,200 | |
Retained earnings (accumulated deficit) | | | 72,180 | | | | (61,258 | ) | |
Retained earnings | | | | 401,694 | | | | 138,990 | |
Accumulated other comprehensive income (loss) | | | (26,646 | ) | | | (6,791 | ) | | | (20,252 | ) | | | 13,559 | |
Total Vishay stockholders' equity | | | 1,485,149 | | | | 1,382,384 | | | | 1,743,753 | | | | 1,576,215 | |
Noncontrolling interests | | | 2,540 | | | | 2,286 | | | | 2,967 | | | | 2,800 | |
Total equity | | | 1,487,689 | | | | 1,384,670 | | | | 1,746,720 | | | | 1,579,015 | |
Total liabilities, temporary equity, and equity | | $ | 3,120,775 | | | $ | 3,106,198 | | | $ | 3,543,257 | | | $ | 3,154,473 | |
See accompanying notes.
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Net revenues | | $ | 2,668,305 | | | $ | 3,034,689 | | | $ | 2,599,368 | | | $ | 3,240,487 | | | $ | 2,501,898 | | | $ | 2,668,305 | |
Costs of products sold | | | 1,997,105 | | | | 2,146,165 | | | | 1,896,259 | | | | 2,352,574 | | | | 1,919,995 | | | | 1,997,105 | |
Gross profit | | | 671,200 | | | | 888,524 | | | | 703,109 | | | | 887,913 | | | | 581,903 | | | | 671,200 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Selling, general, and administrative expenses | | | 384,631 | | | | 403,404 | | | | 367,831 | | | | 420,111 | | | | 371,450 | | | | 384,631 | |
Restructuring and severance costs | | | 24,139 | | | | - | | | | 11,273 | | | | 0 | | | | 743 | | | | 24,139 | |
Operating income | | | 262,430 | | | | 485,120 | | | | 324,005 | | | | 467,802 | | | | 209,710 | | | | 262,430 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (33,683 | ) | | | (36,680 | ) | | | (27,850 | ) | | | (17,538 | ) | | | (31,555 | ) | | | (33,683 | ) |
Other components of net periodic pension cost | | | (13,959 | ) | | | (13,118 | ) | | | (12,417 | ) | |
Other | | | 13,540 | | | | 8,037 | | | | 1,738 | | | | (15,654 | ) | | | (11,754 | ) | | | (419 | ) |
Loss on early extinguishment of debt | | | (2,030 | ) | | | (26,583 | ) | | | - | | | | 0 | | | | (8,073 | ) | | | (2,030 | ) |
Loss on disposal of equity affiliate | | | - | | | | - | | | | (6,112 | ) | |
Total other income (expense) | | | (36,132 | ) | | | (68,344 | ) | | | (44,641 | ) | | | (33,192 | ) | | | (51,382 | ) | | | (36,132 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income before taxes | | | 226,298 | | | | 416,776 | | | | 279,364 | | | | 434,610 | | | | 158,328 | | | | 226,298 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Income tax expense | | | 61,508 | | | | 70,239 | | | | 298,924 | | | | 135,673 | | | | 34,545 | | | | 61,508 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | | 164,790 | | | | 346,537 | | | | (19,560 | ) | |
Net earnings | | | | 298,937 | | | | 123,783 | | | | 164,790 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Less: net earnings attributable to noncontrolling interests | | | 854 | | | | 779 | | | | 784 | | | | 967 | | | | 860 | | | | 854 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net earnings (loss) attributable to Vishay stockholders | | $ | 163,936 | | | $ | 345,758 | | | $ | (20,344 | ) | |
Net earnings attributable to Vishay stockholders | | | $ | 297,970 | | | $ | 122,923 | | | $ | 163,936 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Basic earnings (loss) per share attributable to Vishay stockholders: | | $ | 1.13 | | | $ | 2.39 | | | $ | (0.14 | ) | |
Basic earnings per share attributable to Vishay stockholders: | | | $ | 2.05 | | | $ | 0.85 | | | $ | 1.13 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings (loss) per share attributable to Vishay stockholders: | | $ | 1.13 | | | $ | 2.24 | | | $ | (0.14 | ) | |
Diluted earnings per share attributable to Vishay stockholders: | | | $ | 2.05 | | | $ | 0.85 | | | $ | 1.13 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding - basic | | | 144,608 | | | | 144,370 | | | | 145,633 | | | | 145,005 | | | | 144,836 | | | | 144,608 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding - diluted | | | 145,136 | | | | 154,622 | | | | 145,633 | | | | 145,495 | | | | 145,228 | | | | 145,136 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash dividends per share | | $ | 0.3700 | | | $ | 0.3225 | | | $ | 0.2550 | | | $ | 0.385 | | | $ | 0.380 | | | $ | 0.370 | |
See accompanying notes.
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | $ | 164,790 | | | $ | 346,537 | | | $ | (19,560 | ) | |
Net earnings | | | $ | 298,937 | | | $ | 123,783 | | | $ | 164,790 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Pension and other post-retirement actuarial items | | | (9,729 | ) | | | 10,750 | | | | (4,545 | ) | | | 18,167 | | | | (9,055 | ) | | | (9,729 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | (10,126 | ) | | | (41,454 | ) | | | 124,220 | | | | (51,978 | ) | | | 49,260 | | | | (10,126 | ) |
| | | | | | | | | | | | | |
Unrealized gain (loss) on available-for-sale securities | | | - | | | | - | | | | 691 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss) | | | (19,855 | ) | | | (30,704 | ) | | | 120,366 | | | | (33,811 | ) | | | 40,205 | | | | (19,855 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | 144,935 | | | | 315,833 | | | | 100,806 | | | | 265,126 | | | | 163,988 | | | | 144,935 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Less: comprehensive income attributable to noncontrolling interests | | | 854 | | | | 779 | | | | 784 | | | | 967 | | | | 860 | | | | 854 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive income attributable to Vishay stockholders | | $ | 144,081 | | | $ | 315,054 | | | $ | 100,022 | | | $ | 264,159 | | | $ | 163,128 | | | $ | 144,081 | |
See accompanying notes.
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(In thousands)
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Operating activities | | | | | | | | | | | | | | | | | | |
Net earnings (loss) | | $ | 164,790 | | | $ | 346,537 | | | $ | (19,560 | ) | |
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | | | | | | | | | | | | | |
Net earnings | | | $ | 298,937 | | | $ | 123,783 | | | $ | 164,790 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | | | | | | | | | |
Depreciation and amortization | | | 164,461 | | | | 161,863 | | | | 163,146 | | | | 167,037 | | | | 166,230 | | | | 164,461 | |
(Gain) loss on disposal of property and equipment | | | (157 | ) | | | (2,216 | ) | | | (265 | ) | | | (303 | ) | | | 157 | | | | (157 | ) |
Accretion of interest on convertible debt instruments | | | 14,146 | | | | 10,769 | | | | 4,984 | | | | 0 | | | | 13,161 | | | | 14,146 | |
Inventory write-offs for obsolescence | | | 26,494 | | | | 23,872 | | | | 17,771 | | | | 20,657 | | | | 22,730 | | | | 26,494 | |
Pensions and other postretirement benefits, net of contributions | | | (552 | ) | | | (1,549 | ) | | | (2,425 | ) | | | 2,106 | | | | 2,864 | | | | (552 | ) |
Loss on disposal of equity affiliate | | | - | | | | - | | | | 6,112 | | |
Loss on early extinguishment of debt | | | 2,030 | | | | 26,583 | | | | - | | | | 0 | | | | 8,073 | | | | 2,030 | |
Deferred income taxes | | | (23,009 | ) | | | (55,206 | ) | | | 52,377 | | | | 50,613 | | | | (12,141 | ) | | | (23,009 | ) |
Other | | | 13,341 | | | | 21,194 | | | | 13,044 | | | | 16,226 | | | | 3,304 | | | | 13,341 | |
Change in U.S. transition tax liability | | | (14,757 | ) | | | (14,757 | ) | | | 180,000 | | | | (14,757 | ) | | | (14,757 | ) | | | (14,757 | ) |
Change in repatriation tax liability | | | (38,814 | ) | | | (156,767 | ) | | | - | | | | 0 | | | | (16,258 | ) | | | (38,814 | ) |
Net change in operating assets and liabilities, net of effects of businesses acquired | | | (11,529 | ) | | | (101,817 | ) | | | (46,407 | ) | | | (83,412 | ) | | | 17,792 | | | | (11,529 | ) |
Net cash provided by operating activities | | | 296,444 | | | | 258,506 | | | | 368,777 | | | | 457,104 | | | | 314,938 | | | | 296,444 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (156,641 | ) | | | (229,899 | ) | | | (170,432 | ) | | | (218,372 | ) | | | (123,599 | ) | | | (156,641 | ) |
Proceeds from sale of property and equipment | | | 577 | | | | 55,561 | | | | 1,685 | | | | 1,317 | | | | 403 | | | | 577 | |
Purchase of businesses, net of cash acquired | | | (11,862 | ) | | | (14,880 | ) | | | - | | | | (20,847 | ) | | | (25,852 | ) | | | (11,862 | ) |
Purchase of short-term investments | | | (111,631 | ) | | | (175,403 | ) | | | (749,600 | ) | | | (140,603 | ) | | | (293,087 | ) | | | (111,631 | ) |
Maturity of short-term investments | | | 81,012 | | | | 636,108 | | | | 887,729 | | | | 147,893 | | | | 250,580 | | | | 81,012 | |
Other investing activities | | | 3,587 | | | | (2,058 | ) | | | (4,189 | ) | | | 129 | | | | (529 | ) | | | 3,587 | |
Net cash provided by (used in) investing activities | | | (194,958 | ) | | | 269,429 | | | | (34,807 | ) | |
Net cash used in investing activities | | | | (230,483 | ) | | | (192,084 | ) | | | (194,958 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Financing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from long-term borrowings | | | - | | | | 600,000 | | | | - | | |
Issuance costs | | | (5,394 | ) | | | (15,621 | ) | | | - | | | | 0 | | | | 0 | | | | (5,394 | ) |
Repurchase of convertible debentures | | | (27,863 | ) | | | (960,995 | ) | | | - | | |
Net proceeds (payments) on revolving credit lines | | | - | | | | (150,000 | ) | | | 7,000 | | |
Common stock repurchases | | | - | | | | - | | | | (39,944 | ) | |
Repurchase of convertible debt instruments | | | | (300 | ) | | | (151,683 | ) | | | (27,863 | ) |
Dividends paid to common stockholders | | | (48,968 | ) | | | (42,608 | ) | | | (33,956 | ) | | | (51,094 | ) | | | (50,372 | ) | | | (48,968 | ) |
Dividends paid to Class B common stockholders | | | (4,476 | ) | | | (3,901 | ) | | | (3,093 | ) | | | (4,657 | ) | | | (4,597 | ) | | | (4,476 | ) |
Net changes in short-term borrowings | | | (16 | ) | | | 15 | | | | 1 | | | | 0 | | | | (114 | ) | | | (16 | ) |
Distributions to noncontrolling interests | | | (600 | ) | | | (525 | ) | | | (1,140 | ) | | | (800 | ) | | | (600 | ) | | | (600 | ) |
Acquisition of noncontrolling interests | | | - | | | | - | | | | (4,100 | ) | |
Proceeds from stock options exercised | | | - | | | | - | | | | 1,260 | | |
Cash withholding taxes paid when shares withheld for vested equity awards | | | (2,708 | ) | | | (2,297 | ) | | | (1,971 | ) | | | (1,963 | ) | | | (2,016 | ) | | | (2,708 | ) |
Other financing activities | | | - | | | | - | | | | (1,255 | ) | |
Net cash used in financing activities | | | (90,025 | ) | | | (575,932 | ) | | | (77,198 | ) | | | (58,814 | ) | | | (209,382 | ) | | | (90,025 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | (3,360 | ) | | | (14,003 | ) | | | 19,479 | | | | (13,573 | ) | | | 12,269 | | | | (3,360 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 8,101 | | | | (62,000 | ) | | | 276,251 | | | | 154,234 | | | | (74,259 | ) | | | 8,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents at beginning of year | | | 686,032 | | | | 748,032 | | | | 471,781 | | | | 619,874 | | | | 694,133 | | | | 686,032 | |
Cash and cash equivalents at end of year | | $ | 694,133 | | | $ | 686,032 | | | $ | 748,032 | | | $ | 774,108 | | | $ | 619,874 | | | $ | 694,133 | |
See accompanying notes
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
| | Common Stock | | | Class B Convertible Common Stock | | | Capital in Excess of Par Value | | | Retained Earnings (Accumulated Deficit) | | | Accumulated Other Comprehensive Income (Loss) | | | Total Vishay Stockholders' Equity | | | Noncontrolling Interests | | | Total Equity | | | Common Stock | | | Class B Convertible Common Stock | | | Capital in Excess of Par Value | | | Retained Earnings (Accumulated Deficit) | | | Accumulated Other Comprehensive Income (Loss) | | | Total Vishay Stockholders' Equity | | | Noncontrolling Interests | | | Total Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2016 | | $ | 13,385 | | | $ | 1,213 | | | $ | 1,952,988 | | | $ | (305,207 | ) | | $ | (94,652 | ) | | $ | 1,567,727 | | | $ | 5,441 | | | $ | 1,573,168 | | |
Cumulative effect of accounting change for adoption of ASU 2016-09 | | | - | | | | - | | | | - | | | | 386 | | | | - | | | | 386 | | | | - | | | | 386 | | |
Net earnings (loss) | | | - | | | | - | | | | - | | | | (20,344 | ) | | | - | | | | (20,344 | ) | | | 784 | | | | (19,560 | ) | |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | 120,366 | | | | 120,366 | | | | - | | | | 120,366 | | |
Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,140 | ) | | | (1,140 | ) | |
Acquisition of noncontrolling interests | | | - | | | | - | | | | (1,047 | ) | | | - | | | | - | | | | (1,047 | ) | | | (3,053 | ) | | | (4,100 | ) | |
Common stock repurchase (2,250,236 shares) | | | (225 | ) | | | - | | | | (39,719 | ) | | | - | | | | - | | | | (39,944 | ) | | | - | | | | (39,944 | ) | |
Temporary equity reclassifications | | | - | | | | - | | | | (163,411 | ) | | | - | | | | - | | | | (163,411 | ) | | | - | | | | (163,411 | ) | |
Issuance of stock and related tax withholdings for vested restricted stock units (200,688 shares) | | | 20 | | | | - | | | | (1,991 | ) | | | - | | | | - | | | | (1,971 | ) | | | - | | | | (1,971 | ) | |
Dividends declared ($0.2550 per share) | | | - | | | | - | | | | 40 | | | | (37,089 | ) | | | - | | | | (37,049 | ) | | | - | | | | (37,049 | ) | |
Stock compensation expense | | | - | | | | - | | | | 4,394 | | | | - | | | | - | | | | 4,394 | | | | - | | | | 4,394 | | |
Stock options exercised (77,334 shares) | | | 8 | | | | - | | | | 1,252 | | | | - | | | | - | | | | 1,260 | | | | - | | | | 1,260 | | |
Balance at December 31, 2017 | | $ | 13,188 | | | $ | 1,213 | | | $ | 1,752,506 | | | $ | (362,254 | ) | | $ | 25,714 | | | $ | 1,430,367 | | | $ | 2,032 | | | $ | 1,432,399 | | |
Cumulative effect of accounting change for adoption of ASU 2016-01 | | | - | | | | - | | | | - | | | | 1,801 | | | | (1,801 | ) | | | - | | | | - | | | | - | | |
Balance at December 31, 2018 | | | $ | 13,212 | | | $ | 1,210 | | | $ | 1,436,011 | | | $ | (61,258 | ) | | $ | (6,791 | ) | | $ | 1,382,384 | | | $ | 2,286 | | | $ | 1,384,670 | |
Cumulative effect of accounting change for adoption of ASU 2016-02 | | | | 0 | | | | 0 | | | | 0 | | | | 23,013 | | | | 0 | | | | 23,013 | | | | 0 | | | | 23,013 | |
Net earnings | | | - | | | | - | | | | - | | | | 345,758 | | | | - | | | | 345,758 | | | | 779 | | | | 346,537 | | | | 0 | | | | 0 | | | | 0 | | | | 163,936 | | | | 0 | | | | 163,936 | | | | 854 | | | | 164,790 | |
Other comprehensive income (loss) | | | - | | | | - | | | | - | | | | - | | | | (30,704 | ) | | | (30,704 | ) | | | - | | | | (30,704 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (19,855 | ) | | | (19,855 | ) | | | 0 | | | | (19,855 | ) |
Conversion of Class B shares (31,800 shares) | | | 3 | | | | (3 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | |
Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (525 | ) | | | (525 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (600 | ) | | | (600 | ) |
Temporary equity reclassification | | | - | | | | - | | | | 2,330 | | | | - | | | | - | | | | 2,330 | | | | - | | | | 2,330 | | |
Issuance of stock and related tax withholdings for vested restricted stock units (211,328 shares) | | | 21 | | | | - | | | | (2,318 | ) | | | - | | | | - | | | | (2,297 | ) | | | - | | | | (2,297 | ) | |
Dividends declared ($0.3225 per share) | | | - | | | | - | | | | 54 | | | | (46,563 | ) | | | - | | | | (46,509 | ) | | | - | | | | (46,509 | ) | |
Conversion of Class B shares (18 shares) | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Temporary equity reclassifications | | | | 0 | | | | 0 | | | | 35 | | | | 0 | | | | 0 | | | | 35 | | | | 0 | | | | 35 | |
Issuance of stock and related tax withholdings for vested restricted stock units (230,624 shares) | | | | 23 | | | | 0 | | | | (2,731 | ) | | | 0 | | | | 0 | | | | (2,708 | ) | | | 0 | | | | (2,708 | ) |
Dividends declared ($0.370 per share) | | | | 0 | | | | 0 | | | | 67 | | | | (53,511 | ) | | | 0 | | | | (53,444 | ) | | | 0 | | | | (53,444 | ) |
Stock compensation expense | | | - | | | | - | | | | 4,817 | | | | - | | | | - | | | | 4,817 | | | | - | | | | 4,817 | | | | 0 | | | | 0 | | | | 6,108 | | | | 0 | | | | 0 | | | | 6,108 | | | | 0 | | | | 6,108 | |
Issuance of convertible notes due 2025 | | | - | | | | - | | | | 85,262 | | | | - | | | | - | | | | 85,262 | | | | - | | | | 85,262 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Repurchase of convertible debentures | | | - | | | | - | | | | (406,640 | ) | | | - | | | | - | | | | (406,640 | ) | | | - | | | | (406,640 | ) | | | 0 | | | | 0 | | | | (14,320 | ) | | | 0 | | | | 0 | | | | (14,320 | ) | | | 0 | | | | (14,320 | ) |
Balance at December 31, 2018 | | $ | 13,212 | | | $ | 1,210 | | | $ | 1,436,011 | | | $ | (61,258 | ) | | $ | (6,791 | ) | | $ | 1,382,384 | | | $ | 2,286 | | | $ | 1,384,670 | | |
Cumulative effect of accounting change for adoption of ASU 2016-02 (see Note 1) | | | - | | | | - | | | | - | | | | 23,013 | | | | - | | | | 23,013 | | | | - | | | | 23,013 | | |
Balance at December 31, 2019 | | | $ | 13,235 | | | $ | 1,210 | | | $ | 1,425,170 | | | $ | 72,180 | | | $ | (26,646 | ) | | $ | 1,485,149 | | | $ | 2,540 | | | $ | 1,487,689 | |
Cumulative effect of accounting change for adoption of ASU 2016-13 | | | | 0 | | | | 0 | | | | 0 | | | | (1,070 | ) | | | 0 | | | | (1,070 | ) | | | 0 | | | | (1,070 | ) |
Net earnings | | | - | | | | - | | | | - | | | | 163,936 | | | | - | | | | 163,936 | | | | 854 | | | | 164,790 | | | | 0 | | | | 0 | | | | 0 | | | | 122,923 | | | | 0 | | | | 122,923 | | | | 860 | | | | 123,783 | |
Other comprehensive income | | | - | | | | - | | | | - | | | | - | | | | (19,855 | ) | | | (19,855 | ) | | | - | | | | (19,855 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 40,205 | | | | 40,205 | | | | 0 | | | | 40,205 | |
Conversion of Class B shares (18 shares) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | |
Conversion of Class B shares (261 shares) | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
Distributions to noncontrolling interests | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (600 | ) | | | (600 | ) | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (600 | ) | | | (600 | ) |
Temporary equity reclassification | | | - | | | | - | | | | 35 | | | | - | | | | - | | | | 35 | | | | - | | | | 35 | | | | 0 | | | | 0 | | | | 4 | | | | 0 | | | | 0 | | | | 4 | | | | 0 | | | | 4 | |
Issuance of stock and related tax withholdings for vested restricted stock units (230,624 shares) | | | 23 | | | | - | | | | (2,731 | ) | | | - | | | | - | | | | (2,708 | ) | | | - | | | | (2,708 | ) | |
Dividends declared (0.3700 per share) | | | - | | | | - | | | | 67 | | | | (53,511 | ) | | | - | | | | (53,444 | ) | | | - | | | | (53,444 | ) | |
Issuance of stock and related tax withholdings for vested restricted stock units (212,392 shares) | | | | 21 | | | | 0 | | | | (2,037 | ) | | | 0 | | | | 0 | | | | (2,016 | ) | | | 0 | | | | (2,016 | ) |
Dividends declared ($0.380 per share) | | | | 0 | | | | 0 | | | | 74 | | | | (55,043 | ) | | | 0 | | | | (54,969 | ) | | | 0 | | | | (54,969 | ) |
Stock compensation expense | | | - | | | | - | | | | 6,108 | | | | - | | | | - | | | | 6,108 | | | | - | | | | 6,108 | | | | 0 | | | | 0 | | | | 5,276 | | | | 0 | | | | 0 | | | | 5,276 | | | | 0 | | | | 5,276 | |
Repurchase of convertible debentures | | | - | | | | - | | | | (14,320 | ) | | | - | | | | - | | | | (14,320 | ) | | | - | | | | (14,320 | ) | |
Balance at December 31, 2019 | | $ | 13,235 | | | $ | 1,210 | | | $ | 1,425,170 | | | $ | 72,180 | | | $ | (26,646 | ) | | $ | 1,485,149 | | | $ | 2,540 | | | $ | 1,487,689 | | |
Repurchase of convertible debt instruments | | | | 0 | | | | 0 | | | | (19,287 | ) | | | 0 | | | | 0 | | | | (19,287 | ) | | | 0 | | | | (19,287 | ) |
Balance at December 31, 2020 | | | $ | 13,256 | | | $ | 1,210 | | | $ | 1,409,200 | | | $ | 138,990 | | | $ | 13,559 | | | $ | 1,576,215 | | | $ | 2,800 | | | $ | 1,579,015 | |
Cumulative effect of accounting change for adoption of ASU 2020-06 (see Note 1) | | | | 0 | | | | 0 | | | | (66,078 | ) | | | 20,566 | | | | 0 | | | | (45,512 | ) | | | 0 | | | | (45,512 | ) |
Net earnings | | | | 0 | | | | 0 | | | | 0 | | | | 297,970 | | | | 0 | | | | 297,970 | | | | 967 | | | | 298,937 | |
Other comprehensive income | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (33,811 | ) | | | (33,811 | ) | | | 0 | | | | (33,811 | ) |
Distributions to noncontrolling interests | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | (800 | ) | | | (800 | ) |
Issuance of stock and related tax withholdings for vested restricted stock units (149,722 shares) | | | | 15 | | | | 0 | | | | (1,978 | ) | | | 0 | | | | 0 | | | | (1,963 | ) | | | 0 | | | | (1,963 | ) |
Dividends declared ($0.385 per share) | | | | 0 | | | | 0 | | | | 81 | | | | (55,832 | ) | | | 0 | | | | (55,751 | ) | | | 0 | | | | (55,751 | ) |
Stock compensation expense | | | | 0 | | | | 0 | | | | 6,605 | | | | 0 | | | | 0 | | | | 6,605 | | | | 0 | | | | 6,605 | |
Balance at December 31, 2021 | | | $ | 13,271 | | | $ | 1,210 | | | $ | 1,347,830 | | | $ | 401,694 | | | $ | (20,252 | ) | | $ | 1,743,753 | | | $ | 2,967 | | | $ | 1,746,720 | |
See accompanying notes.
Vishay Intertechnology, Inc. (“Vishay” or the “Company”) is a global manufacturer and suppliermanufactures one of the world’s largest portfolios of discrete semiconductors and passive electronic components including powerthat are essential to innovative designs in the automotive, industrial, computing, consumer, telecommunications, military, aerospace, and medical markets. Semiconductors include MOSFETs, power integrated circuits, transistors, diodes, and optoelectronic components. Passive components include resistors, inductors, and capacitors. Semiconductors and electronic components manufactured by the Company are used in virtually all types of electronic products, including those in the industrial, computing, automotive, consumer electronics products, telecommunications, power supplies, military/aerospace, and medical industries.
Note 1 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Vishay and all of its subsidiaries in which a controlling financial interest is maintained. For those consolidated subsidiaries in which the Company’s ownership is less than 100 percent, the outside stockholders’ interests are shown as noncontrolling interest in the accompanying consolidated balance sheets. Investments in affiliates over which the Company has significant influence but not a controlling interest are carried on the equity basis. Investments in affiliates over which the Company does not have significant influence are accounted for by the cost method. All intercompany transactions, accounts, and profits are eliminated.
Revenue Recognition
The Company recognizes revenue from contracts with customers when it satisfies the performance obligations within the contract. The Company has framework agreements with many of its customers that contain the terms and conditions of future sales, but do not create enforceable rights or obligations. For revenue recognition purposes, the Company considers the combined purchase orders and the terms and conditions contained within such framework agreements to be contracts.
Payment terms for the Company's sales are generally less than sixty days. Substantially all of the Company's receivables historically have been and are expected to continue to be collected within twelve months of the transfer of products to the customer and the Company expects this to continue going forward. Accordingly, the Company does not recognize a financing component of the transaction price.
Revenue is measured based on the consideration specified in contracts with customers, and excludes any sales incentives and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies its performance obligations. The Company analyzes its contracts to determine whether the promise in the contract to construct and transfer goods to the customer is a performance obligation that will be satisfied over time or at a point in time. When the Company's performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date, the Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time. The Company has a limited number of contracts for custom products that meet the criteria to recognize revenue over time.
The Company's contracts contain 2 performance obligations: delivery of products and warranty protection. The Company does not sell separate, enhanced, or extended warranty coverage, but through its customary business practices, the Company has created implied service-type warranties, which are accounted for as separate performance obligations. Revenue is allocated between these two performance obligations and recognized as the obligations are satisfied. The allocation of revenue to warranty protection is based on an estimate of expected cost plus margin. The delivery of products performance obligation is satisfied and product sales revenue is recognized when the customer takes control of the products. Warranty revenue is deferred and the warranty protection performance obligation is satisfied and revenue is recognized over the warranty period, which is typically less than twenty four months from sale to end customer. The warranty deferred revenue liability is recorded within Other Accrued Expenses and Other Liabilities on the accompanying consolidated balance sheets. The deferred revenue balance associated with the service-type warranty performance obligations and the components that comprise the change in the deferred revenue balance are not significant.
The Company has a broad line of products that it sells to original equipment manufacturers ("OEMs"), electronic manufacturing services ("EMS") companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large inventories of electronic components for resale to OEMs and EMS companies.
Note 1 – Summary of Significant Accounting Policies (continued)
The Company recognizes revenue on sales to distributors when the distributor takes control of the products ("sold-to" model). The Company has agreements with distributors that allow distributors a limited credit for unsaleable products, which it terms a "scrap allowance." Consistent with industry practice, the Company also has a "stock, ship and debit" program whereby it considers requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. In addition, the Company has contractual arrangements whereby it provides distributors with protection against price reductions initiated by the Company after product is sold by the Company to the distributor and prior to resale by the distributor.
The Company recognizes the estimated variable consideration to be received as revenue and records a related accrued expense for the consideration not expected to be received, based upon its estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period. The Company makes these estimates based upon sales levels to its distributors during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. While the Company utilizes a number of different methodologies to estimate the accruals, all of the methodologies take into account sales levels to distributors during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. These procedures require the exercise of significant judgments. The Company believes that it has a reasonable basis to estimate future credits under the programs. See sales returns and allowances accrual activity in Note 9.
The Company pays commissions to external sales representatives on a per-sale basis. Accordingly, these commissions are expensed as incurred because the future amortization period of the asset that the Company otherwise would have recognized is one year or less. Internal staff are not paid commissions.
The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the product even if the shipping and handling activities are performed after the customer obtains control. The Company does not evaluate whether shipping and handling activities are promised services to its customers. If control transfers and revenue is recognized for the related products before the shipping and handling activities occur, the related costs of those shipping and handling activities is accrued. The Company applies this accounting policy election consistently to similar types of transactions.
See disaggregated revenue information in Note 15.15.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to expense for research and development (exclusive of purchased in-process research and development) aggregated $69,827, $72,885,$77,377, $70,861, and $67,153,$69,827, for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively. The Company spends additional amounts for the development of machinery and equipment for new processes and for cost reduction measures.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances have been established for deferred tax assets which the Company believes do not meet GAAP criteria of “more likely than not” to be realized. This criterion requires a level of judgment regarding future taxable income, which may be revised due to changes in market conditions, tax laws, or other factors. If the Company’s assumptions and estimates change in the future, valuation allowances established may be increased, resulting in increased tax expense. Conversely, if the Company is ultimately able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then the related portion of the valuation allowance can be released, resulting in decreased tax expense.
The Company and its subsidiaries are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite the Company’s belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
These accruals for tax-related uncertainties are based on management’s best estimate of potential tax exposures. When particular matters arise, a number of years may elapse before such matters are audited by tax authorities and finally resolved. Favorable resolution of such matters could be recognized as a reduction to the Company’s effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution. The amount included in current liabilities on the accompanying consolidated balance sheets reflect only amounts expected to be settled in cash within one year.
See Note 5.
Note 1 – Summary of Significant Accounting Policies (continued)
Cash, Cash Equivalents, and Short-Term Investments
Cash and cash equivalents includes demand deposits and highly liquid investments with maturities of three months or less when purchased. Highly liquid investments with original maturities greater than three months, but less than one year are classified as short-term investments. At December 31, 20192021 and 2018,2020, the Company’s short-term investments were comprised of time deposits with financial institutions whose original maturity exceeds three months, but less than one year.
Allowance for Doubtful AccountsCredit Losses
Effective January 1, 2020, the Company estimates its credit losses on financial instruments using a current expected credit loss model. Prior to January 1, 2020, the Company estimated its credit losses using an incurred loss impairment methodology, which was not materially different than the methodology adopted on January 1, 2020. The Company maintains an allowance for doubtful accounts for estimatedreceivable credit losses resulting from the inability of its customers to make required payments. Payment terms for the Company's sales are generally less than ninety days. Substantially all of the Company's trade receivables are collected within twelve months of the transfer of products to the customer and the Company expects this to continue going forward. The credit loss allowance is determined through an analysis of the aging of accounts receivable and assessments of risk that are based on historical trends and an evaluation of the impact of current and projected economic conditions. Receivables from customers with deteriorating financial condition and those over 180 days past due are removed from the pool and evaluated separately. Net credit loss expense (benefit) for accounts receivable was $384, $475, and $(592) for the years ended December 31, 2021, 2020, and 2019, respectively.
The Company’s cash equivalents, short-term investments, and restricted investments are accounted for as held-to-maturity debt instruments, at amortized cost. Interest income on these instruments is recorded as Other income on the consolidated statements of operations and interest receivable is recognized as a separate asset and recorded in Prepaid expenses and other current assets on the consolidated balance sheets. The Company evaluateshas not experienced a credit loss on the past-due statusprincipal or interest receivable of its trade receivablescash equivalents, short-term investments, or restricted investments. The Company pools its cash equivalents, short-term investments, and restricted investments by credit rating of the issuing financial institution and estimates an allowance for credit losses based on contractual terms of sale. If the financial conditioncorporate bond default ratios, evaluation of the Company’s customers were to deteriorate, resulting in an impairmentimpact of their ability to make payments, additional allowances may be required. Bad debtcurrent and projected economic conditions, and probability of credit loss. Net credit loss expense (income realized upon subsequent collection)for cash equivalents, short-term investments, and restricted investments was $(592), $2,570, and $301immaterial for the years ended December 31, 2019, 2018,2021 and 2017, respectively.2020. The Company does not measure an allowance for credit losses on interest receivable. Any uncollectible interest receivable is recognized by reversing interest income within the fiscal quarter that the interest becomes uncollectible.
The Company has an immaterial amount of other short-term held-to-maturity debt instruments recorded within Prepaid expenses and other current assets on the consolidated balance sheets. The Company analyzes these assets on a separate asset basis and estimates an allowance for credit losses based on historical credit loss rates and an evaluation of the impact of current and projected economic conditions. Net credit loss expense for these other short-term held-to-maturity debt instruments was immaterial for the years ended December 31, 2021 and 2020.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. Inventories are adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments, and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the straight-line method based upon the estimated useful lives of the assets. Machinery and equipment are being depreciated over useful lives of seven years to ten years.years. Buildings and building improvements are being depreciated over useful lives of twenty years to forty years.years. Construction in progress is not depreciated until the assets are placed in service. The estimated cost to complete construction in progress at December 31, 20192021 was approximately $92,000. $160,000. Excluded from the estimated cost to complete construction in progress are costs for projects that have recently begun for which there are no contractual commitments to complete the project, including the significant Itzehoe, Germany 12-inch wafer fab construction project. Depreciation expense was $155,985, $150,056,$159,247, $158,117, and $148,883$155,985 for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively. Gains and losses on the disposal of assets which do not qualify for presentation as discontinued operations are included in the determination of operating margin (within selling, general, and administrative expenses). Individually material gains and losses on disposal are separately disclosed in the notes to the consolidated financial statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of a business acquired over the fair value of the related net assets at the date of acquisition. Certain intangible assets may be assigned indefinite useful lives. Goodwill and indefinite-lived intangible assets are not amortized but rather are tested for impairment at least annually. These tests are performed more frequently whenever events or changes in circumstances indicate that the assets might be impaired. The Company's business segments (see Note 15) represent its reporting units for goodwill impairment testing purposes. At December 31, 2019 and 2018, respectively, the Company has 0 recorded indefinite-lived intangible assets.
Definite-lived intangible assets are amortized over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven years to twenty-five years. Capitalized software is amortized over periods of three years to ten years, primarily included in costs of products sold on the consolidated statements of operations. Customer relationships are amortized over useful lives of five years to twenty years. Noncompete agreements are amortized over periods of three years to ten years. The Company continually evaluates the reasonableness of the useful lives of these assets.
GAAP prescribes a quantitative method for determining goodwill impairment. The Company has the option of performing a qualitative assessment before performing the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of the reporting unit is not more likely than not less than the carrying amount, the quantitative impairment test is not required. If it is determined that the fair value of the reporting unit is more likely than not less than the carrying amount, the quantitative impairment test is required.
The Company determines the fair value of the reporting unit and compares that fair value to the net book value of the reporting unit. The fair value of the reporting unit is determined using various valuation techniques, including a comparable companies market multiple approach and a discounted cash flow analysis (an income approach). If the net book value of the reporting unit were to exceed the fair value, the Company would recognize an impairment charge.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 1 – Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable or the useful life has changed. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived intangible assets, are determined in a similar manner, except that fair market values are reduced for anticipated disposal costs.
Available-for-Sale Securities
Short-term investments and other assets reported on the accompanying consolidated balance sheets include time deposits with financial institutions whose original maturity exceeds three months, but less than one year that are classified as held-to-maturity instruments, and investments in marketable securities that are classified as available-for-sale instruments. The available-for-sale instruments include assets that are held in trust related to the Company’s non-qualified pension and deferred compensation plans (see Note 11) and assets that are intended to fund a portion of the Company’s other postretirement benefit obligations outside of the U.S. These assets are reported at fair value, based on quoted market prices as of the end of the reporting period. Beginning in 2018, unrealized gains and losses are reported, net of their related tax consequences, as Other Income (Expense) on the consolidated statements of operations. At the time of sale, the assets that are held in trust related to the Company’s non-qualified pension and deferred compensation plans, any gains (losses) calculated by the specific identification method are recognized as a reduction (increase) to benefits expense, within selling, general, and administrative expenses.
Financial Instruments
The Company uses financial instruments in the normal course of its business, including from time to time, derivative financial instruments. Additionally, from time to time, the Company enters into contracts that are not considered derivative financial instruments in their entirety, but that include embedded derivative features. The convertible senior debentures due 2040 and due 2041 contain embedded derivatives that are recorded at fair value on a recurring basis. At December 31, 2019 and 2018, outstanding derivative instruments were not material.
Other financial instruments include cash and cash equivalents, held-to-maturity short-term investments, accounts receivable, and notes payable. The carrying amounts of these financial instruments reported on the accompanying consolidated balance sheets approximate their fair values due to the short-term nature of these assets and liabilities.
Stock-Based Compensation
Compensation costs related to stock-based payment transactions are recognized in the consolidated financial statements. The amount of compensation cost is measured based on the grant-date fair value of the equity (or liability) instruments issued. Compensation cost is recognized over the period that an officer, employee, or non-employee director is required to provide service in exchange for the award. For awards subject to graded vesting, the Company recognizes expense over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The Company recognizes compensation cost for restricted stock units (“RSUs”) that are expected to vest and records cumulative adjustments in the period that the expectation changes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 1 – Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
The Company has significant operations outside of the United States. The Company finances its operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. The Company’s operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency.
For those subsidiaries where the local currency is the functional currency, assets and liabilities on the accompanying consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the consolidated results of operations and are reported as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.
For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the consolidated results of operations.
Commitments and Contingencies
The Company has commitments for the purchase of assets to complete its construction in progress as disclosed above. The commitment period for substantially all of these purchase commitments is less than one year. The Company expects to have noncancellable purchase commitments with commitment periods in excess of one year associated with its significant facility expansion programs as the programs progress. As of December 31, 2021, there are no material noncancellable commitments associated with these programs.
Note 1 – Summary of Significant Accounting Policies (continued)
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 remediation 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 based upon information derived from the remediation plan for that site. Accrued liabilities for environmental matters recorded at December 31, 20192021 and 20182020 do not include claims against third parties.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of a business acquired over the fair value of the related net assets at the date of acquisition. Certain intangible assets may be assigned indefinite useful lives. Goodwill and indefinite-lived intangible assets are not amortized but rather are tested for impairment at least annually. These tests are performed more frequently whenever events or changes in circumstances indicate that the assets might be impaired. The Company's business segments (see Note 15) represent its reporting units for goodwill impairment testing purposes. At December 31, 2021 and 2020, respectively, the Company has 0 recorded indefinite-lived intangible assets.
Definite-lived intangible assets are amortized over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven years to twenty-five years. Capitalized software is amortized over periods of three years to ten years, primarily included in costs of products sold on the consolidated statements of operations. Customer relationships are amortized over useful lives of five years to twenty years. Noncompete agreements are amortized over periods of three years to ten years. The Company continually evaluates the reasonableness of the useful lives of these assets.
GAAP prescribes a quantitative method for determining goodwill impairment. The Company has the option of performing a qualitative assessment before performing the quantitative impairment test. If it is determined, on the basis of qualitative factors, that the fair value of the reporting unit is not more likely than not less than the carrying amount, the quantitative impairment test is not required. If it is determined that the fair value of the reporting unit is more likely than not less than the carrying amount, the quantitative impairment test is required.
The Company determines the fair value of the reporting unit and compares that fair value to the net book value of the reporting unit. The fair value of the reporting unit is determined using various valuation techniques, including a comparable companies market multiple approach and a discounted cash flow analysis (an income approach). If the net book value of the reporting unit were to exceed the fair value, the Company would recognize an impairment charge.
Impairment of Long-Lived Assets
The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value may not be recoverable or the useful life has changed. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset group. Fair market value is determined primarily using present value techniques based on projected cash flows from the asset group. Losses on long-lived assets held-for-sale, other than goodwill and indefinite-lived intangible assets, are determined in a similar manner, except that fair market values are reduced for anticipated disposal costs.
Available-for-Sale Securities
Short-term investments and other assets reported on the accompanying consolidated balance sheets include time deposits with financial institutions whose original maturity exceeds three months, but less than one year that are classified as held-to-maturity instruments, and investments in marketable securities that are classified as available-for-sale instruments. The available-for-sale instruments include assets that are held in trust related to the Company’s non-qualified pension and deferred compensation plans (see Note 11) and assets that are intended to fund a portion of the Company’s other postretirement benefit obligations outside of the U.S. These assets are reported at fair value, based on quoted market prices as of the end of the reporting period. Unrealized gains and losses are reported as Other Income (Expense) on the consolidated statements of operations. At the time of sale, the assets that are held in trust related to the Company’s non-qualified pension and deferred compensation plans, any gains (losses) calculated by the specific identification method are recognized as a reduction (increase) to benefits expense, within selling, general, and administrative expenses.
Financial Instruments
The Company uses financial instruments in the normal course of its business, including from time to time, derivative financial instruments. Additionally, from time to time, the Company enters into contracts that are not considered derivative financial instruments in their entirety, but that include embedded derivative features.
Other financial instruments include cash and cash equivalents, held-to-maturity short-term investments, accounts receivable, and notes payable. The carrying amounts of these financial instruments reported on the accompanying consolidated balance sheets approximate their fair values due to the short-term nature of these assets and liabilities.
Note 1 – Summary of Significant Accounting Policies (continued)
The fair value measurement accounting guidance establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that reflect the Company’s own assumptions.
An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Stock-Based Compensation
Compensation costs related to stock-based payment transactions are recognized in the consolidated financial statements. The amount of compensation cost is measured based on the grant-date fair value of the equity (or liability) instruments issued. The Company determines compensation cost for restricted stock units ("RSUs") and phantom stock units based on the grant-date fair value of the underlying common stock adjusted for expected dividends paid over the required vesting period for non-participating awards. Compensation cost is recognized over the period that an officer, employee, or non-employee director is required to provide service in exchange for the award. For awards subject to graded vesting, the Company recognizes expense over the service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards. The Company recognizes compensation cost for RSUs that are expected to vest and records cumulative adjustments in the period that the expectation changes.
Foreign Currency Translation
The Company has significant operations outside of the United States. The Company finances its operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. The Company’s operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency.
For those subsidiaries where the local currency is the functional currency, assets and liabilities on the accompanying consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the consolidated results of operations and are reported as a separate component of stockholders’ equity. Revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.
For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the consolidated results of operations.
Restructuring and Severance Costs
Restructuring and severance costs reflect charges resulting from cost reduction programs implemented by the Company. Restructuring and severance costs include exit costs, severance benefits pursuant to an on-going arrangement, voluntary termination compensation under a defined program, and any related pension curtailment and settlement charges.
The Company recognizes expense for one-time benefits only after management has committed to a plan, the plan is sufficiently detailed to provide the number, classification, and location of employees to be terminated as well as the expected completion date, the plan has been sufficiently communicated to employees such that they are able to determine the type and amount of benefits they will receive if terminated, and it is unlikely that the plan will be significantly changed or withdrawn. If an employee is not required to render service beyond a minimum retention period, the Company recognizes expense once the aforementioned criteria have been met. If an employee is required to render service beyond a minimum retention period, the Company recognizes expense over the period that the employee is required to render future service.
The Company recognizes expense for on-going benefit arrangements when the liability is reasonably estimable and considered probable.
The Company recognizes expense for voluntary separation / early retirement when the employee delivers an irrevocable voluntary termination notice pursuant to a defined Company program.
The Company recognizes other exit costs as incurred.
Note 1 – Summary of Significant Accounting Policies (continued)
Self-Insurance Programs
The Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’ compensation, general liability, property damage, director and officers’ liability, and vehicle liability.
As part of its self-insurance program for certain risks, the Company created a wholly-owned captive insurance entity in 2007. At December 31, 2019,2021, the captive insurance entity provides only property and general liability insurance, although it is licensed to also provide casualty and directors’ and officers’ insurance. The captive insurance entity had 0 amounts accrued for outstanding claims at December 31, 20192021 and 2018.2020.
Certain investments held by the captive insurance entity are restricted primarily for the purpose of potential insurance claims. Such amounts are recorded in other noncurrent assets, and total $10,259$9,153 and $11,046$9,281 at December 31, 20192021 and 2018,2020, respectively, representing required statutory reserves of the captive insurance entity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 1 – Summary of Significant Accounting Policies (continued)
Convertible Debt Instruments
The Company separately accounts for the liability and equity components of convertible debt instruments that may be settled in cash in a manner that reflects the Company’s nonconvertible debt borrowing rate. The liability component at issuance is recognized at fair value, based on the fair value of a similar instrument that does not have a conversion feature. A discount is recorded if debt instruments are issued at a coupon rate which is below the rate of a similar instrument that did not have a conversion feature at issuance. The equity component is based on the excess of the principal amount of the debt instruments over the fair value of the liability component, after adjusting for an allocation of debt issuance costs and the deferred tax impact, and is recorded as capital in excess of par. Debt discounts are amortized as additional non-cash interest expense over the expected life of the debt.
Leases
As of January 1, 2019, the Company accounts for its leases in accordance with Accounting Standards Codification ("ASC") Topic 842, Leases. See Note 3.
Recent Accounting Pronouncements
Recent Accounting Guidance Not Yet Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The ASU is effective for the Company for interim and annual periods beginning on or after January 1, 2020. The Company will adopt the ASU effective January 1, 2020. Based on work performed to date, the Company expects to record the effect of transitioning from an incurred loss model to a current expected credit loss model for certain financial instruments as a cumulative-effect adjustment to January 1, 2020 retained earnings of approximately $1,070.
Recent Accounting Guidance Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU is the result of a project between the FASB and the International Accounting Standards Board to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The guidance in ASU No. 2016-02 and all related ASUs is codified in ASC Topic 842. The Company adopted ASC Topic 842 effective January 1, 2019. Upon adoption on January 1, 2019, the Company recognized right of use assets of $91,462 and lease liabilities of $95,784 on the consolidated balance sheet. The difference between the initial right of use asset and lease liability balances recognized upon adoption of ASC Topic 842 is primarily due to accrued lease incentive balances at December 31, 2018.
On December 20, 2018, the Company received sale proceeds of $45,500 from a third party buyer and concurrently leased-back its former manufacturing site in Santa Clara, California, under a short-term arrangement, to raze the buildings. Upon adoption of ASC Topic 842, the Company was required to reassess the accounting for these transactions. The transactions did not qualify as a completed sale and leaseback under previous GAAP. However, pursuant to ASC Topic 842’s sale and leaseback guidance, the transaction qualifies as a completed sale. The Company recognized a cumulative-effect adjustment to retained earnings (accumulated deficit) of $23,013, to recognize the sale as of the date of adoption, and derecognized the land, building, and related deferred proceeds, which had been recorded in other accrued expenses.
The adoption of the ASU did not have a material impact on the Company's results of operations or cash flows. See Note 3.
Reclassifications
Certain prior year amounts have been reclassified. Such reclassifications had no effect on reported net earnings (loss) attributable to Vishay stockholders, total assets, stockholders' equity, or the statements of cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 2 - Acquisition and Divestiture Activities
As part of its growth strategy, the Company seeks to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets, reputations for product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise.
Year ended December 31, 2019
On January 3, 2019, the Company acquired substantially all of the assets of Bi-Metallix, Inc. ("Bi-Metallix"), a U.S.-based, privately-held provider of electron beam continuous strip welding services for $11,862. The Company was a major customer of Bi-Metallix, and the acquired business has been vertically integrated into the Company's Resistors segment. Based on an estimate of their fair values, the Company allocated $2,900 of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $3,324 related to this acquisition. The results and operations of this acquisition have been included in the Resistors segment since January 3, 2019. The inclusion of this acquisition did not have a material impact on the Company's consolidated results for the year ended December 31, 2019. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
Year ended December 31, 2018
On February 8, 2018, the Company acquired substantially all of the assets and liabilities of UltraSource, Inc. ("UltraSource"), a U.S.-based, privately-held thin film circuit and thin film interconnect manufacturer, for $13,596. Based on an estimate of their fair values, the Company allocated $6,500 of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $4,227 related to this acquisition. The results and operations of this acquisition have been included in the Resistors segment since February 8, 2018. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
On June 11, 2018, the Company acquired EuroPower Holdings Ltd. ("EuroPower") for $2,939, net of cash acquired. EuroPower is a distributor of electronic components in the United Kingdom. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $1,068 related to this acquisition. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
Had these acquisitions occurred as of the beginning of the periods presented in these consolidated financial statements, the pro forma statements of operations would not be materially different than the consolidated statements of operations presented.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The Company leases buildings and machinery and equipment used for manufacturing and/or sales and administrative purposes. The Company is also party to various service, warehousing, and other agreements that it evaluates for potential embedded leases. Substantially all of the Company’s leases are structured and classified as operating leases. As of January 1, 2019, the Company accounts for its leases in accordance with ASC Topic 842.
The Company leases assets in each region in which it operates. The Company’s leases are generally denominated in the currency of the leased assets' location, which may not be the functional currency of the subsidiary lessee. Accordingly, the Company remeasures its lease liability and recognizes a transactional gain/loss for leases denominated in currencies other than the functional currency of the subsidiary lessee.
The Company recognizes right of use assets and lease liabilities for leases greater than twelve months in duration based on the contract consideration for lease components through the term of the lease and the applicable discount rate. Leases with a duration less than or equal to twelve months are considered short-term leases. The Company does not recognize right of use assets or lease liabilities for short-term leases and classifies the expense as short-term lease expense. Variable lease payments based on an index or rate are included in the right of use assets and lease liabilities based on the effective rates at lease commencement. Changes in the rates or indices do not impact the right of use asset or lease liability and are recognized as a component of lease expense in the statementconsolidated statements of operations. Variable lease payments not based on an index or rate are not included in the initial right of use asset and lease liability and are recognized when incurred as a component of lease expense in the statementconsolidated statements of operations.
The Company has elected to not separate contract consideration for lease and non-lease components for its building leases. In addition to the noncancellable period of a lease, the Company includes periods covered by extension options it is reasonably certain to exercise, termination options that it is reasonably certain not to exercise, and extension and termination options controlled by the lessor in its determination of the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. When the implicit rate is not used, the Company employs a portfolio approach based on the duration of the lease. The portfolio lease rates are calculated monthly.
No individual lease is considered significant and there are no leases that have not yet commenced that are considered significant.
See Note 3.
Recent Accounting Pronouncements
Recent Accounting Guidance Adopted
In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplified the accounting for certain financial instruments with characteristics of liability and equity, including convertible debt instruments. The ASU reduced the number of accounting models available for convertible debt instruments, required the use of the if-converted method for the calculation of diluted earnings per share for convertible debt instruments, and increased disclosure requirements. The Company adopted the ASU effective January 1, 2021 using a modified retrospective approach. Upon adoption, the Company recorded a $66,078 decrease in additional paid in capital from the derecognition of the bifurcated equity component of the convertible debt instruments, a $59,246 increase in debt from the derecognition of the discount associated with the bifurcated equity component of the convertible debt instruments and a $20,566 increase to the opening balance of retained earnings, representing the cumulative interest expense, net right of use assets and lease liabilitiestax effects, recognized related to the amortization of the bifurcated conversion option. The adoption of the ASU did not have a significant impact on the consolidated condensed balance sheet fordiluted sharecount due to Vishay exercising existing rights to legally amend the Company's operating leases asindenture governing the convertible senior notes due 2025. See Note 6.
Reclassifications
Certain prior year amounts have been reclassified to conform with current year presentation. Such reclassifications had no effect on reported net earnings attributable to Vishay stockholders, total assets, stockholders' equity, or the statements of December 31, 2019 and the net right of use assets and lease liabilities recognized upon the adoption of ASC Topic 842 on January 1, 2019 are presented below:cash flows.
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Note 2 - Acquisition and Divestiture Activities
As part of its growth strategy, the Company seeks to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets, reputations for product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise.
Year ended December 31, 2021
On December 31, 2021, the Company acquired substantially all of the assets of Barry Industries, a Massachusetts-based, privately-held manufacturer of resistive components for $20,847. Based on its estimate of their fair values pending finalization of the net working capital adjustment, the Company allocated $9,600 of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on a preliminary estimation of their fair values at the date of acquisition, the Company recorded goodwill of $7,813 related to this acquisition. The inclusion of this acquisition did not have an impact on the Company's consolidated results for the year ended December 31, 2021. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
Year ended December 31, 2020
On October 1, 2020, the Company acquired the worldwide business and substantially all of the U.S. assets of Applied Thin-Film Products, a California-based, privately-held manufacturer of custom, build-to-print thin film substrates for the microwave, fiber optic, and life science industries. Concurrently, a Chinese subsidiary of Applied Thin-Film Products entered into an agreement to sell certain inventory and equipment to a subsidiary of Vishay, which was completed on June 30, 2021. The total acquisition price was $25,852. Based on its estimate of their fair values, the Company allocated $10,800 of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $6,548 related to this acquisition. The results and operations of this acquisition have been included in the Resistors segment since October 1, 2020. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
Year ended December 31, 2019
On January 3, 2019, the Company acquired substantially all of the assets of Bi-Metallix, Inc. ("Bi-Metallix"), a U.S.-based, privately-held provider of electron beam continuous strip welding services for $11,862. The Company was a major customer of Bi-Metallix, and the acquired business has been vertically integrated into the Company's Resistors segment. Based on an estimate of their fair values, the Company allocated $2,900 of the purchase price to definite-lived intangible assets. After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $3,324 related to this acquisition. The results and operations of this acquisition have been included in the Resistors segment since January 3, 2019. The goodwill related to this acquisition is included in the Resistors reporting unit for goodwill impairment testing.
Had these acquisitions occurred as of the beginning of the periods presented in these consolidated financial statements, the pro forma statements of operations would not be materially different than the consolidated statements of operations presented.
Note 3 – Leases (continued)
The net right of use assets and lease liabilities recognized on the consolidated balance sheets for the Company's operating leases as of December 31, 2021 and 2020 are presented below:
| | | | | | |
| | | | | | |
| | | | | | |
Buildings and improvements | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Current lease liabilities | | | | | | | | |
| | | | | | | | |
Buildings and improvements | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Long-term lease liabilities | | | | | | | | |
| | | | | | | | |
Buildings and improvements | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Lease expense is classified in the statements of operations based on asset use. Total lease cost recognized on the consolidated statements of operations is as follows:
The Company paid $23,899, $23,814, and $21,552 for its operating leases during the yearyears ended December 31, 2021, 2020, and 2019, respectively, which are included in operating cash flows on the consolidated statementstatements of cash flows. The weighted-average remaining lease term for the Company's operating leases is 8.9 years and the weighted-average discount rate is 6.1%5.4% as of December 31, 2019.2021.
The undiscounted future lease payments for the Company's operating lease liabilities are as follows:
The undiscounted future lease payments presented in the table above include payments through the term of the lease, which may include periods beyond the noncancellable term. The difference between the total payments above and the lease liability balance is due to the discount rate used to calculate lease liabilities.
The Company elected to use the package of practical expedients available in ASC Topic 842; and accordingly, did not reassess existing contracts for leases, the classification of existing leases, or initial direct costs for any existing leases. The Company also elected to use the practical expedient available in ASC Topic 842 for land easements.
The Company did not elect the practical expedient available in ASC Topic 842 to use hindsight in determining the lease term. Accordingly, the remaining lease term as of January 1, 2019 was used to calculate the initial right of use asset and lease liability.
Note 4 – Restructuring and Related Activities
The Company places a strong emphasis on controlling its costs and combats general price inflation by continuously improving its efficiency and operating performance. When the ongoing cost containment activities are not adequate, the Company takes actions to maintain its cost competitiveness.
The Company incurred significant restructuring costs in its past to reduce its cost structure. Historically, the Company's primary cost reduction technique was through the transfer of production from high-labor-cost countries to lower-labor-cost countries. Since 2013, the Company's cost reduction programs have primarily focused on reducing fixed costs, including selling, general, and administrative expenses.
In the third fiscal quarter of 2019, the Company announced global cost reduction and management rejuvenation programs as part of its continuous efforts to improve efficiency and operating performance.
The Company also implemented restructuring programs during 2013 - 2017 ("Prior Year Programs"). These programs were substantially completed as of December 31, 2017, though certain amounts were settled in cash during 2018 and 2019.
The following table summarizes restructuring and related expenses which were recognized and reported on a separate line in the accompanying consolidated statements of operations:
| Years ended December 31, | |
| 2019 | | | 2017 | |
2019 Global Cost Reduction & Management Rejuvenation Program | | $ | 24,139 | | | $ | - | |
Prior Year Programs | | | - | | | | 11,273 | |
Total | | $ | 24,139 | | | $ | 11,273 | |
2019 Global Cost Reduction and Management Rejuvenation Programs
The 2019 Global Cost Reduction and Management Rejuvenation Programs are primarily designed to reduce manufacturing fixed costs and selling, general, and administrative costs company-wide, and provide management rejuvenation. These programs are fully implemented. The Company expects to incurincurred charges of approximately $25,000,$24,882, primarily related to cash severance costs, to implement these programs.
The Company expects these cost reductionsfollowing table summarizes the activity to be fully achieved by December 2020.date related to this program:
Expense recorded in 2019 | | $ | 24,139 | |
Cash paid | | | (1,330 | ) |
Foreign currency translation | | | 35 | |
Balance at December 31, 2019 | | $ | 22,844 | |
Expense recorded in 2020 | | | 743 | |
Cash paid | | | (10,813 | ) |
Foreign currency translation | | | 683 | |
Balance at December 31, 2020 | | $ | 13,457 | |
Cash paid | | | (11,474 | ) |
Foreign currency translation | | | (133 | ) |
Balance at December 31, 2021 | | $ | 1,850 | |
The Company incurred $24,139 of restructuring expenses, primarily severance costs, during the year ended December 31, 2019. Cash paid for these programs was $1,330 during the year ended December 31, 2019. Severance benefitspayment terms vary by country, but generally are generally paid in a lump sum at cessation of employment. Some payments are made over an extended period. The current portion of the liability is $18,8411,127 and is included in other accrued expenses in the accompanying consolidated balance sheet. The non-current portion of the liability is $4,003723 and is included in other liabilities in the accompanying consolidated balance sheet.
The Company incurred $73,398 of restructuring expense, primarily severance, associated with the Prior Year Programs during the period 2013 - 2017, of which $11,273 was incurred in 2017. amounts were incurred during the years ended December 31, 2018 or 2019. These programs were substantially implemented as of December 31, 2017. As of December 31, 2019, the remaining amounts to be paid for the Prior Year Programs is immaterial.
Note 5 – Income Taxes
U.S.Changes in Tax Reform: Tax CutsLaws and Jobs ActRegulations
Israel
Effective November 15, 2021, Israel enacted changes in its tax laws.
The Company has historically benefited from tax incentive programs offered by the Israeli government, including the generation of income not subject to current income tax. Any tax-exempt earnings generated under these programs would incur an additional “claw-back” tax at approximately 11.1% if they were distributed or invested outside of Israel, in addition to normal withholding taxes on earnings distributed from Israel. Otherwise, taxes on such earnings were indefinitely deferred.
The change in tax law enacted on November 15, 2021 provided companies with an election to currently pay a reduced claw-back rate of as low as 6% upon meeting certain conditions, with the ability to distribute or invest those amounts outside of Israel at any time in the future. The Company will elect to pay taxes on all previously untaxed earnings at the reduced 6% claw-back rate.
As a direct result of this change in tax law, the Company made the determination during the fourth fiscal quarter of 2021 that substantially all unremitted foreign earnings in Israel are no longer permanently reinvested. The Company recorded additional tax expense of $53,316 during the fourth fiscal quarter of 2021 to accrue the claw-back tax on applicable earnings and withholding taxes necessary to distribute these approximately $385,000 of accumulated earnings to the United States.
United States
On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted in the United States. The TCJA represents sweeping changes in U.S. tax law. Among the numerous changes in tax law, the TCJA permanently reduced the U.S. corporate income tax rate to 21% beginning in 2018; imposed a one-time transition tax on deferred foreign earnings; established a partial territorial tax system by allowing a 100% dividends received deduction on qualifying dividends paid by foreign subsidiaries; limited deductions for net interest expense; expanded the U.S. taxation of foreign earned income to include "global intangible low-taxed income" ("GILTI") of foreign subsidiaries; and imposed a base erosion anti-abuse minimum tax ("BEAT").
As permitted by SAB No. 118, the tax expense recorded in the fourth fiscal quarter of 2017 due to the enactment of the TCJA was considered "provisional," based on reasonable estimates. As further described below, after additional analysis was completed in 2018, the Company identified additional amounts available to be repatriated to the U.S. and additional information regarding the foreign taxes payable and recorded additional provisional tax expense to accrue the incremental foreign income taxes and withholding taxes payable to foreign jurisdiction. The Company collected and analyzed detailed information about the earnings and profits of its non-U.S. subsidiaries, the related taxes paid, the amounts which could be repatriated, the foreign taxes which may be incurred on repatriation, and the associated impact of these items under the TCJA, including under regulatory guidance issued in 2018, throughout the measurement period. The measurement period ended as of December 31, 2018.
The amount of net tax expense recorded provisionally by the Company in the fourth fiscal quarter of 2017 and adjustments recorded during the measurement period in 2018 that are directly and indirectly related to the enactment of the TCJA are summarized as follows:
| | | | | Years ended December 31, | |
| | Total | | | 2018 | | | 2017 | |
Remeasurement of net deferred tax liabilities | | $ | (76,027 | ) | | $ | (1,211 | ) | | $ | (74,816 | ) |
Transition tax on unremitted foreign earnings | | | 222,983 | | | | 7,425 | | | | 215,558 | |
Incremental foreign taxes on assumed repatriation | | | 232,282 | | | | 19,282 | | | | 213,000 | |
Reversal of deferred taxes due to cancellation of 2015 repatriation plan | | | (118,887 | ) | | | - | | | | (118,887 | ) |
Total tax expense related to the enactment of the TCJA | | $ | 260,351 | | | $ | 25,496 | | | $ | 234,855 | |
As a result of the TCJA, the Company recognized a tax benefit of $76,027 to remeasure its net deferred tax liabilities at the lower, 21% rate.
The TCJA transitioned the U.S. from a worldwide tax system to a territorial tax system. Under previous law, companies could indefinitely defer U.S. income taxation on unremitted foreign earnings. The TCJA imposed a one-time transition tax on deferred foreign earnings, of 15.5% for liquid assets and 8% for illiquid assets, payable in defined increments over eight years. As a result of this requirement, the Company recognized provisional tax expense of $215,558 in 2017, and provisionally expected to pay $180,000, net of estimated applicable foreign tax credits, and after utilization of net operating loss and R&D and FTC Credit carryforwards. As a result of additional analysis completed during the measurement period, the Company accrued additional tax expense of $7,425 in 2018 and now expects to pay $184,467. The first installmentsInstallments of $14,757 were paid in each of 2021, 2020, 2019, and 2018. These previously
The Company expects future installment payments as follows:
2022 | | $ | 14,757 | |
2023 | | | 27,669 | |
2024 | | | 36,893 | |
2025 | | | 46,119 | |
The U.S. Internal Revenue Service continues to issue regulations to address the provisions of the TCJA. During 2021, the Company amended tax returns for 2018 and 2019 and recognized tax benefits of $8,276 as a result of changes in tax regulations, by making an election regarding Global Intangible Low-Taxed Income (“GILTI”). The Company has elected to account for GILTI tax in the period in which it is incurred and, therefore, does not provide any deferred foreign earnings may now be repatriated to the United States without additional U.S. federal taxation. However, any such repatriation could incur withholding and other foreign taxes in the source and intervening foreign jurisdictions, and certain U.S. state taxes.
Due to the changes in taxation of dividends received from foreign subsidiaries, and also because of the need to finance the payment of the transition tax, the Company made the determination during the fourth fiscal quarter of 2017 that certain unremitted foreign earnings in Israel, Germany, Austria, and France are no longer permanently reinvested, and recorded provisional tax expense of $213,000 to accrue the incremental foreign income taxes and withholding taxes payable to foreign jurisdictions assuming the repatriation to the United States of these approximately $1,100,000 of available foreign earnings. As a result of additional analysis completed during the measurement period, the Company adjusted the amount of foreign unremitted earnings available from Israel, Germany, Austria, and France to approximately $1,200,000, identified additional information regarding foreign taxes payable, and accrued additional tax expense of $19,282.consolidated financial statements at December 31, 2021, 2020, or 2019.
The Company repatriated $188,742$104,091 and $724,000$188,742 to the United States in 2020 and paid withholding and foreign taxes of $38,814 and $156,7672019, pursuant to a repatriation program initiated in 2019 and 2018, respectively. Substantially allresponse to the enactment of the amounts repatriatedTCJA. Tax expense for these repatriation transactions was substantially recorded in 2019 were used to repay certain intercompany indebtedness, to pay the U.S. transition tax, and to fund capital expansion projects. Substantially all2017 upon enactment of the amounts repatriated in 2018 were used to reduce the outstanding balance of the credit facility (see Note 6), to repay certain intercompany indebtedness, and to fund the repurchase of convertible senior debentures (see Note 6).TCJA.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 5 – Income Taxes (continued)
After completing these phases of cash repatriation, there is approximately $100,000 of unremitted foreign earnings that the Company has deemed not permanently reinvested and thus has accrued foreign withholding and other taxes. The Company continues to evaluate the timing of the reparation of these remaining amounts, and may decide to ultimately not repatriate some of these amounts
There are additional amounts of unremitted foreign earnings in countries other countries,than Israel, which continue to be reinvested indefinitely, and the Company has made no provision for incremental foreign income taxes and withholding taxes payable to foreign jurisdictions related to these amounts. Determination of the amount of the unrecognized deferred foreign tax liability for these amounts is not practicable because of the complexities associated with its hypothetical calculation.
During the fourth fiscal quarter of 2015, the Company recognized income tax, including U.S. federal and state income taxes, incremental foreign income taxes, and withholding taxes payable to foreign jurisdictions, on $300,000 of foreign earnings. This tax expense was recognized in 2015 following an evaluation of the Company’s anticipated domestic cash needs over several years and the Company’s most efficient use of liquidity, and with consideration of the amount of cash that could be repatriated to the U.S. efficiently with lesser withholding taxes in foreign jurisdictions. The Company repatriated $38,000 and $46,000 pursuant to this program in 2017 and 2016, respectively. Prior to the enactment of the TCJA, the related deferred tax liability for the 2015 repatriation plan was $118,887. The Company terminated the 2015 cash repatriation plan and recorded a provisional income tax benefit to reverse this deferred tax liability, which was replaced by the liability for the transition tax and foreign income and withholding taxes described above.
The deferred tax liability related to these unremitted foreign earnings is based on the available sources of cash, applicable tax rates, foreign currency exchange rates, and other factors and circumstances, as of each balance sheet date. Changes in these underlying facts and circumstances result in changes in the deferred tax liability balance, which are recorded as tax benefit or expense. Deferred taxes are also reevaluated and adjusted for the impact of certain corporate legal entity reorganization activities that impact repatriation.
Certain provisions of the TCJA had a significant impact on the Company's effective tax rate for the years ended December 31, 2019 and 2018, and are expected to have a significant impact in future periods. Because the various provisions of the TCJA are interrelated, and because of changes in the Company’s operations and changes in the capital structure in response to the TCJA, the impact of any specific provision of the TCJA cannot be isolated. The Company recognized a significant amount of GILTI income in 2019 and 2018, but was able to utilize related foreign tax credits to reduce the impact on the effective tax rate. The Company has elected to account for GILTI tax in the period in which it is incurred and, therefore, does not provide any deferred taxes in the consolidated financial statements at December 31, 2019 or 2018. The inclusion of significant GILTI income was a contributing factor in allowing the Company to avoid a limitation on the deductibility of its U.S. interest expense in 2019 and 2018. The Company was subject to the BEAT minimum tax of $2,900 and $0 in 2019 and 2018, respectively. BEAT could increase the Company’s future tax by disallowing certain otherwise deductible payments from the U.S. to non-U.S. subsidiaries and imposing a minimum tax if greater than the regular tax.
The Company's repurchase of outstanding convertible debentures in 2019 and 2018 (see Note 6) reduced the Company's tax rate.
Note 5 – Income Taxes (continued)
Income (loss) from continuing operations before taxes and noncontrolling interests consists of the following components:
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Domestic | | $ | (10,992 | ) | | $ | (39,861 | ) | | $ | (40,171 | ) | | $ | 62,921 | | | $ | (25,884 | ) | | $ | (10,992 | ) |
Foreign | | | 237,290 | | | | 456,637 | | | | 319,535 | | | | 371,689 | | | | 184,212 | | | | 237,290 | |
| | $ | 226,298 | | | $ | 416,776 | | | $ | 279,364 | | | $ | 434,610 | | | $ | 158,328 | | | $ | 226,298 | |
Significant components of income taxes are as follows:
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Current: | | | | | | | | | | | | | | | | | | |
Federal | | $ | 9,137 | | | $ | 18,756 | | | $ | 180,873 | | | $ | 2,336 | | | $ | 7,327 | | | $ | 9,137 | |
State and local | | | 415 | | | | 209 | | | | 108 | | | | 466 | | | | 218 | | | | 415 | |
Foreign | | | 113,779 | | | | 263,247 | | | | 65,566 | | | | 82,258 | | | | 55,399 | | | | 113,779 | |
| | | 123,331 | | | | 282,212 | | | | 246,547 | | | | 85,060 | | | | 62,944 | | | | 123,331 | |
Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | | (13,731 | ) | | | (58,386 | ) | | | (101,896 | ) | | | 554 | | | | (6,068 | ) | | | (13,731 | ) |
State and local | | | (802 | ) | | | (3,117 | ) | | | 1,538 | | | | 383 | | | | (538 | ) | | | (802 | ) |
Foreign | | | (47,290 | ) | | | (150,470 | ) | | | 152,735 | | | | 49,676 | | | | (21,793 | ) | | | (47,290 | ) |
| | | (61,823 | ) | | | (211,973 | ) | | | 52,377 | | | | 50,613 | | | | (28,399 | ) | | | (61,823 | ) |
Total income tax expense | | $ | 61,508 | | | $ | 70,239 | | | $ | 298,924 | | | $ | 135,673 | | | $ | 34,545 | | | $ | 61,508 | |
Note 5 – Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
| | December 31, | | | December 31, | |
| | 2019 | | | 2018 | | | 2021 | | | 2020 | |
| | | | | | | | | | | | |
Deferred tax assets: | | | | | | | | | | | | |
Pension and other retiree obligations | | $ | 48,434 | | | $ | 43,238 | | | $ | 50,069 | | | $ | 53,585 | |
Inventories | | | 19,318 | | | | 9,795 | | | | 17,168 | | | | 19,539 | |
Property and equipment | | | - | | | | 5,888 | | |
Net operating loss carryforwards | | | 119,420 | | | | 128,177 | | | | 115,200 | | | | 124,251 | |
Tax credit carryforwards | | | 76,140 | | | | 72,708 | | | | 76,213 | | | | 85,651 | |
Other accruals and reserves | | | 29,273 | | | | 19,645 | | | | 29,332 | | | | 31,347 | |
Total gross deferred tax assets | | | 292,585 | | | | 279,451 | | | | 287,982 | | | | 314,373 | |
Less valuation allowance | | | (194,797 | ) | | | (200,809 | ) | | | (186,204 | ) | | | (206,950 | ) |
| | | 97,788 | | | | 78,642 | | | | 101,778 | | | | 107,423 | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Property and equipment | | | (2,391 | ) | | | - | | | | (1,514 | ) | | | (1,604 | ) |
Tax deductible goodwill | | | | (5,412 | ) | | | (4,708 | ) |
Earnings not permanently reinvested | | | (16,448 | ) | | | (65,537 | ) | | | (67,172 | ) | | | 0 | |
Convertible debentures | | | (25,219 | ) | | | (32,488 | ) | | | 0 | | | | (12,777 | ) |
Other - net | | | (6,499 | ) | | | (7,370 | ) | | | (1,646 | ) | | | (1,656 | ) |
Total gross deferred tax liabilities | | | (50,557 | ) | | | (105,395 | ) | | | (75,744 | ) | | | (20,745 | ) |
| | | | | | | | | | | | | | | | |
Net deferred tax assets (liabilities) | | $ | 47,231 | | | $ | (26,753 | ) | | $ | 26,034 | | | $ | 86,678 | |
The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses and tax credits). The carrying value of deferred tax assets is based on the Company’s assessment that it is more likely than not that the Company will realize these assets after consideration of all available positive and negative evidence. As of December 31, 2019,2021, the Company has generated an excess U.S. foreign tax credit of $60,237.$58,673. Because the Company does not anticipate sufficient U.S. foreign source income during the carryforward period, the Company has not recognized the benefit of the carryforward as of December 31, 2019.2021.
A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax provision is as follows:
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Tax at statutory rate | | $ | 47,523 | | | $ | 87,523 | | | $ | 97,777 | | | $ | 91,268 | | | $ | 33,249 | | | $ | 47,523 | |
State income taxes, net of U.S. federal tax benefit | | | (301 | ) | | | (2,298 | ) | | | 1,070 | | | | 671 | | | | (252 | ) | | | (301 | ) |
Effect of foreign operations | | | 9,242 | | | | 5,736 | | | | (54,807 | ) | | | 5,521 | | | | (9,896 | ) | | | 9,242 | |
Tax on earnings not permanently reinvested | | | 6,256 | | | | 9,304 | | | | 88,311 | | | | 54,648 | | | | 4,227 | | | | 6,256 | |
Unrecognized tax benefits | | | 5,584 | | | | 2,669 | | | | 5,887 | | | | 1,318 | | | | 4,351 | | | | 5,584 | |
Repurchase of senior convertible debentures | | | (1,461 | ) | | | (52,312 | ) | | | - | | |
TCJA - remeasurement of net deferred tax liabilities | | | - | | | | (1,211 | ) | | | (74,816 | ) | |
TCJA - transition tax on unremitted foreign earnings | | | - | | | | 7,425 | | | | 215,558 | | |
Change in valuation allowance on non-U.S. deferred tax assets | | | | (5,714 | ) | | | 0 | | | | 0 | |
Foreign income taxable in the U.S. | | | 6,090 | | | | 15,055 | | | | 20,436 | | | | 9,532 | | | | 7,675 | | | | 10,691 | |
Foreign tax credit | | | | (9,477 | ) | | | (3,520 | ) | | | (4,601 | ) |
Foreign tax credit carryforward utilized | | | | (9,207 | ) | | | 0 | | | | 0 | |
U.S. Base Erosion Anti-Abuse Tax | | | | 9,134 | | | | 750 | | | | 2,851 | |
Change in U.S. tax regulations | | | | (8,276 | ) | | | 0 | | | | 0 | |
Deferred tax rate impact of corporate reorganization | | | (12,121 | ) | | | - | | | | - | | | | 0 | | | | 0 | | | | (12,121 | ) |
Other | | | 696 | | | | (1,652 | ) | | | (492 | ) | | | (3,745 | ) | | | (2,039 | ) | | | (3,616 | ) |
Total income tax expense | | $ | 61,508 | | | $ | 70,239 | | | $ | 298,924 | | | $ | 135,673 | | | $ | 34,545 | | | $ | 61,508 | |
Note 5 – Income Taxes (continued)
Vishay operates in a global environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of Vishay's historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where it can take advantage of lower labor costs and available tax and other government-sponsored incentives. With the reduction in the U.S. statutory rate to 21% beginning January 1, 2018, Vishay expects that its effective tax rate will be higher than the U.S. statutory rate, excluding unusual transactions. Historically, the effective tax rates were generally less than the U.S. statutory rate of 35% primarily because of earnings in foreign jurisdictions.
Income tax expense for the years ended December 31, 2019, 2018,2021, 2020, and 20172019 includes certain discrete tax items for changes in uncertain tax positions, valuation allowances, tax rates, and other related items. These items total $39,326, $1,998, and $799 (tax benefit), $39,428 in 2021, 2020, and 2019, respectively.
For the year ended December 31, 2021, the discrete items include $53,316 of tax expense recognized to accrue the claw-back and withholding taxes to repatriate unremitted foreign earnings from Israel, a $5,714tax benefit recognized upon the release of a valuation allowance and $8,276 of tax benefits recognized due to changes in tax regulations.
For the year ended December 31, 2020, the discrete items include a tax benefit of $1,563 resulting from the early extinguishment of convertible senior debentures, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures and $190 (tax benefit), of adjustments to remeasure deferred taxes related to the cash repatriation program described above, and $230,618$3,751 of tax expense for changes in 2019, 2018, and 2017, respectively.uncertain tax positions.
For the year ended December 31, 2019, the discrete items include $7,554 of tax expense related to a tax-basis foreign exchange gain on the settlement of an intercompany loan, which previously had been accounted for at the historical foreign exchange rate (akin to an equity contribution) because the debtor entity did not have the intent or ability to repay such intercompany loan. Currency translation adjustments were recorded in accumulated other comprehensive income, and were not included in U.S. GAAP pre-tax income. The Company’s cash repatriation activity resulted in the ability to repay such intercompany loan. Upon settlement of this intercompany loan, the foreign entity realized a taxable gain. Discrete tax items also include a tax benefit of $1,601 resulting from the early extinguishment of convertible senior debentures, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures, $9,583 (tax benefit) of adjustments to remeasure of deferred taxes related to the cash repatriation program described above, and $2,831 of tax expense for changes in uncertain tax positions.
For the year ended December 31, 2018, the discrete items include $25,496 related to the enactment of the TCJA, as previously described, a tax benefit of $54,877 resulting from the early extinguishment of convertible senior debentures, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures, and $10,047 (tax benefit) of adjustments to remeasure the deferred taxes related to the cash repatriation program described above.
For the year ended December 31, 2017, the discrete items include $234,855 related to the enactment of the TCJA, as previously described; $5,802 (tax benefit) for the periodic remeasurement of the deferred tax liability related to the 2015 cash repatriation program described above, and $1,565 of net tax expense for changes in uncertain tax positions.
At December 31, 2019,2021, the Company had the following significant net operating loss carryforwards for tax purposes:
| | | | | Expires | | |
| | | | | | | | | | | Expires | |
Austria | | $ | 17,485 | | | No expiration | | | $ | 13,211 | | | No expiration | |
Belgium | | | 158,847 | | | No expiration | | | | 159,563 | | | No expiration | |
Israel | | | 10,707 | | | No expiration | | | | 10,368 | | | No expiration | |
Italy | | | 7,325 | | | No expiration | | | | 12,638 | | | No expiration | |
Japan | | | 7,675 | | | | 2020 - 2029 | | | | 7,476 | | | | 2023 - 2030 | |
Netherlands | | | 12,159 | | | | 2021 - 2026 | | | | 10,552 | | | No expiration | |
The Republic of China (Taiwan) | | | 19,130 | | | | 2024- 2028 | | | | 16,750 | | | | 2026 - 2028 | |
| | | | | | | | | | | | | | | | |
California | | | | 19,650 | | | | 2028 - 2036 | |
Pennsylvania | | | 655,869 | | | | 2020 - 2039 | | | | 601,818 | | | | 2022 - 2041 | |
At December 31, 2019,2021, the Company had the following significant tax credit carryforwards available:
| | | | | Expires | | |
| | | | | | | | | | | Expires | |
U.S. Foreign Tax Credit | | $ | 60,237 | | | | 2028 - 2029 | | | $ | 58,673 | | | | 2028 - 2031 | |
California Research Credit | | | 15,642 | | | No expiration | | | | 17,484 | | | No expiration | |
Note 5 – Income Taxes (continued)
Net income taxes paid were $185,654, $248,958,$79,106, $69,706, and $76,900$185,654 for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively. Net income taxes paid for the years ended December 31, 2020 and 2019 include $16,258 and 2018 include $38,814, and $156,767, respectively, for TCJA repatriation activity and $14,757 in each period for the TCJA transition tax.
See Note 19 for a discussion of the tax-related uncertainties for the pre-spin-off period of Vishay Precision Group, Inc. (“VPG”), which was spun off on July 6, 2010.
The following table summarizes changes in the liabilities associated with unrecognized tax benefits:
| | Years ended December 31, | | | Years ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
Balance at beginning of year | | $ | 21,241 | | | $ | 17,056 | | | $ | 16,805 | | | $ | 40,652 | | | $ | 36,868 | | | $ | 21,241 | |
Addition based on tax positions related to the current year | | | 2,383 | | | | 4,332 | | | | 3,911 | | | | 141 | | | | 663 | | | | 2,383 | |
Addition based on tax positions related to prior years | | | 16,190 | | | | 2,066 | | | | 1,837 | | | | 1,037 | | | | 8,358 | | | | 16,190 | |
Currency translation adjustments | | | 1,211 | | | | (984 | ) | | | 915 | | | | (523 | ) | | | 1,361 | | | | 1,211 | |
Reduction based on tax positions related to prior years | | | - | | | | - | | | | (1,473 | ) | | | (13,154 | ) | | | (3,152 | ) | | | 0 | |
Reduction for settlements | | | (3,121 | ) | | | (1,229 | ) | | | (4,077 | ) | | | (982 | ) | | | (3,446 | ) | | | (3,121 | ) |
Reduction for lapses of statute of limitation | | | (1,036 | ) | | | - | | | | (862 | ) | | | (452 | ) | | | 0 | | | | (1,036 | ) |
Balance at end of year | | $ | 36,868 | | | $ | 21,241 | | | $ | 17,056 | | | $ | 26,719 | | | $ | 40,652 | | | $ | 36,868 | |
All of the unrecognized tax benefits of $36,868$26,719 and $21,241,$40,652, as of December 31, 20192021 and 2018,2020, respectively, would reduce the effective tax rate if recognized.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. At December 31, 20192021 and 2018,2020, the Company had accrued interest and penalties related to the unrecognized tax benefits of $3,561$3,747 and $2,887,$3,239, respectively. During the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, the Company recognized $1,201, $1,470,$591, $128, and $2,479,$1,201, respectively, in interest and penalties.
The Company and its subsidiaries file U.S. federal income tax returns, as well as tax returns in multiple states and foreign jurisdictions. The Company's U.S. federal income tax returns are generally subject to auditunder examination for the years ending on or afterended December 31, 2016.2017 through 2019. The IRS may, however, ask for supporting documentation for net operating losses for the years ended December 31, 2013 - 2015,2016, which were utilized in the year ended December 31, 2017. During the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, certain tax examinations were concluded and certain statutes of limitations lapsed. The tax provision for those years includes adjustments related to the resolution of these matters, as reflected in the table above. The tax returns of significant non-U.S. subsidiaries which are currently under examination include India (2004 through 2016), Italy (2017),are located in the following jurisdictions: Germany (2013 through 2016), India (2004 through 2017), Israel (2018 and Israel (20162019), Singapore (2015 through 2019), and 2017)the Republic of China (Taiwan) (2019). The Company and its subsidiaries also file income tax returns in other taxing jurisdictions in the U.S. and around the world, many of which are still open to examination.
The timing of the resolution of income tax examinations is highly uncertain, as are the amounts and timing of tax payments that result from such examinations. These events could cause large fluctuations in the balance sheet classification of current and non-current unrecognized tax benefits. The Company believes that in the next 12 months it is reasonably possible that certain income tax examinations will conclude or the statutes of limitation on certain income tax periods open to examination will expire, or both. Given the uncertainties described above, the Company can only determine an estimate of potential decreases in unrecognized tax benefits ranging from $322$3,783 to $4,085.$16,449.
Note 6 – Long-Term Debt
Long-term debt consists of the following:
| | December 31, 2019 | | | December 31, 2018 | | | December 31, 2021 | | | December 31, 2020 | |
| | | | | | | | | | | | |
Credit facility | | $ | - | | | $ | - | | | $ | 0 | | | $ | 0 | |
Convertible senior notes, due 2025 | | | 509,128 | | | | 495,203 | | | | 465,344 | | | | 406,268 | |
Convertible senior debentures, due 2040 | | | 126 | | | | 539 | | | | 0 | | | | 130 | |
Convertible senior debentures, due 2041 | | | 6,677 | | | | 12,812 | | |
Convertible senior debentures, due 2042 | | | - | | | | 923 | | |
Deferred financing costs | | | (16,784 | ) | | | (14,968 | ) | | | (9,678 | ) | | | (11,512 | ) |
| | | 499,147 | | | | 494,509 | | | | 455,666 | | | | 394,886 | |
Less current portion | | | - | | | | - | | | | 0 | | | | 0 | |
| | $ | 499,147 | | | $ | 494,509 | | | $ | 455,666 | | | $ | 394,886 | |
Credit Facility
On June 5, 2019, theThe Company entered intomaintains a new credit agreement with a consortium of banks led by JPMorgan Chase Bank, N.A., as administrative agent, and the lenders (the "New Credit"Credit Facility"), which provides an aggregate commitment of $750,000 of revolving loans available until June 5, 2024. The New Credit Facility replaces Vishay’s previous credit agreement that provided for an aggregate commitment of $640,000, and that was scheduled to mature on December 10, 2020. The New Credit Facility also provides for the ability of Vishay to request up to $300,000 of incremental facilities, subject to the satisfaction of certain conditions, which could take the form of additional revolving commitments, incremental “term loan A” or “term loan B” facilities, or incremental equivalent debt.
Borrowings under the New Credit Facility bear interest at LIBOR plus an interest margin. The applicable interest margin is based on the Company's leverage ratio. Based on the Company's current leverage ratio, borrowings bear interest at LIBOR plus 1.50%, the same as pursuant to the previous credit agreement.. The Company also pays a commitment fee, also based on its leverage ratio, on undrawn amounts. The undrawn commitment fee, based on the Company's current leverage ratio, is 0.25% per annum, an improvement of 5 basis points over the previous credit agreement.annum.
The New Credit Facility allows an unlimited amount of defined “Investments,” which include certain intercompany transactions and acquisitions, provided the Company's pro forma leverage ratio is equal to or less than 2.75 to 1.00. If the Company's pro forma leverage ratio is greater than 2.75 to 1.00, such Investments are subject to certain limitations.
The New Credit Facility also allows an unlimited amount of defined "Restricted Payments," which include cash dividends and share repurchases, provided the Company's pro forma leverage ratio is equal to or less than 2.50 to 1.00. If the Company's pro forma leverage ratio is greater than 2.50 to 1.00, the New Credit Facility allows such payments up to $100,000 per annum (subject to a cap of $300,000 for the term of the facility, with up to $25,000 of any unused amount of the $100,000 per annum base available for use in the next succeeding calendar year).
Similar to the previous credit agreement, the borrowingsBorrowings under the New Credit Facility are secured by a lien on substantially all assets, including accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate, intellectual property registered or licensed solely for use in, or arising solely under the laws of, any country other than the United States, assets located solely outside of the United States and deposit and securities accounts), of the Company and certain significant subsidiaries located in the United States, and pledges of stock in certain significant domestic and foreign subsidiaries; and are guaranteed by certain significant subsidiaries.
The New Credit Facility continues to limitlimits or restrictrestricts the Company and its subsidiaries, from, among other things, incurring indebtedness, incurring liens on its respective assets, making investments and acquisitions (assuming the Company’s pro forma leverage ratio is greater than 2.75 to 1.00), making asset sales, and paying cash dividends and making other restricted payments (assuming the Company's pro forma leverage ratio is greater than 2.50 to 1.00), and requires the Company to comply with other covenants, including the maintenance of specific financial ratios.
Similar to the previous credit agreement, the NewThe Credit Facility also contains customary events of default, including, but not limited to, failure to pay principal or interest, failure to pay or default under other material debt, material misrepresentation or breach of warranty, violation of certain covenants, a change of control, the commencement of bankruptcy proceedings, the insolvency of the Company or certain of its significant subsidiaries, and the rendering of a judgment in excess of $50,000 against the Company or its subsidiaries. Upon the occurrence of an event of default under the New Credit Facility, the Company's obligations under the credit facility may be accelerated and the lending commitments under the credit facility may be terminated.
At December 31, 20192021 and 2018,2020, there was $747,912$748,931 and $636,211,$748,690, respectively, available under the Credit Facility. Letters of credit totaling $2,088$1,069 and $3,789$1,310 were outstanding at December 31, 20192021 and 2018,2020, respectively.
Note 6 – Long-Term Debt (continued)
Convertible Debt Instruments
In June 2018, the Company issued $600,000 aggregate principal amount of 2.25% convertible senior notes due 2025 to qualified institutional investors.
The following table summarizes some key facts and terms regarding the outstanding convertible debt instrumentssenior notes due 2025 as of December 31, 2019:2021:
| | Due 2025 | | | Due 2040 | | | Due 2041 | |
| | | | | | | | | |
Issuance date | | June 12, 2018 | | | November 9, 2010 | | | May 13, 2011 | |
Maturity date | | June 15, 2025 | | | November 15, 2040 | | | May 15, 2041 | |
Principal amount | | $ | 600,000 | | | $ | 300 | | | $ | 16,890 | |
Cash coupon rate (per annum) | | | 2.25 | % | | | 2.25 | % | | | 2.25 | % |
Nonconvertible debt borrowing rate at issuance (per annum) | | | 5.50 | % | | | 8.00 | % | | | 8.375 | % |
Conversion rate effective December 12, 2019 (per $1 principal amount) | | | 31.8083 | | | | 80.0018 | | | | 58.3812 | |
Effective conversion price effective December 12, 2019 (per share) | | $ | 31.44 | | | $ | 12.50 | | | $ | 17.13 | |
130% of the conversion price (per share) | | $ | 40.87 | | | $ | 16.25 | | | $ | 22.27 | |
Call date | | | n/a | | | November 20, 2020 | | | May 20, 2021 | |
The terms of the convertible senior debentures due 2040 and due 2041 are generally congruent. The terms of the fully retired convertible senior debentures due 2042 were also generally congruent to the convertible senior debentures due 2040 and due 2041.
Prior to three months before the maturity date, the holders may convert their convertible senior debentures due 2040 and due 2041 only under the following circumstances: (1) during any fiscal quarter after the first full quarter subsequent to issuance, if the sale price of Vishay common stock reaches 130% of the conversion price for a specified period; (2) the trading price of the debentures falls below 98% of the product of the sale price of Vishay's common stock and the conversion rate for a specified period; (3) Vishay calls any or all of the debentures for redemption, at any time prior to the close of business on the third scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. The convertible senior debentures due 2040 are currently convertible. The convertible senior debentures due 2041 are not currently convertible.
| | Due 2025 | |
Issuance date | | June 12, 2018 | |
Maturity date | | June 15, 2025 | |
Principal amount | | $ | 465,344 | |
Cash coupon rate (per annum) | | | 2.25 | % |
Nonconvertible debt borrowing rate at issuance (per annum) | | | 5.50 | % |
Conversion rate effective December 16, 2021 (per $1 principal amount) | | | 31.9492 | |
Effective conversion price effective December 16, 2021 (per share) | | $ | 31.30 | |
130% of the conversion price (per share) | | $ | 40.69 | |
Prior to December 15, 2024, the holders of the convertible senior notes due 2025 may convert their notes only under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ending September 29, 2018, if the sale price of Vishay common stock reaches 130% of the conversion price for a specified period; (2) the trading price of the notes falls below 98% of the product of the sale price of Vishay's common stock and the conversion rate for a specified period; or (3) upon the occurrence of specified corporate transactions. The convertible senior notes due 2025 are not currently convertible.
AtPursuant to the Supplemental Indenture governing the convertible senior notes due 2025, at the direction of its Board of Directors, Vishay has fixed the Company intends, upon future conversion of any of the convertible debt instruments, to repay the principal amounts of the convertible debt instruments in cash and settle any additional amounts in shares of Vishay common stock.
Vishay must provide additional shares upon conversion if there is a “fundamental change” in the business as“Specified Dollar Amount” (as defined in the indenture governing the debentures.
Vishay may not redeem the convertible senior debentures priorIndenture) that shall apply to the respective call dates. On or after the call date and prior to the maturity date, Vishay may redeem forall future conversions of notes at $1 cash all or partper $1 principal amount. The fixing of the debentures at a redemption price equalSpecified Dollar Amount requires Vishay to 100% of the principal amount of the debenturessatisfy its conversion obligations by paying cash with respect to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, if the last reported sale price of Vishay’s common stock has been at least 150% of the conversion price then in effect for at least 20 trading days during any 30 consecutive trading day period prior to the date on which Vishay provides notice of redemption.such Specified Dollar Amount.
The quarterly cash dividend program of the Company results in adjustments to the conversion rate and effective conversion price for the convertible debt instrumentssenior notes due 2025 effective as of the ex-dividend date of each cash dividend. The conversion rate and effective conversion price for the convertible senior notes due 2025 is adjusted for quarterly cash dividends to the extent such dividends exceed $0.085 per share of common stock.Vishay must provide additional shares upon conversion if there is a “fundamental change” in the business as defined in the indenture governing the convertible senior notes due 2025.
GAAP requires an issuer to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods. The resulting discount on the debt is amortized as non-cash interest expense in future periods.
Note 6 -– Long-Term Debt (continued)
Effective January 1, 2021, Vishay adopted ASU No. 2020-06. Prior to the adoption of ASU No. 2020-06, the Company separately accounted for the liability and equity components of convertible debt instruments that may be settled in cash in a manner that reflects the Company’s nonconvertible debt borrowing rate. The liability component at issuance was recognized at fair value, based on the fair value of a similar instrument that did not have a conversion feature. A discount was recorded if debt instruments are issued at a coupon rate which is below the rate of a similar instrument that did not have a conversion feature at issuance. The equity component was based on the excess of the principal amount of the debt instruments over the fair value of the liability component, after adjusting for an allocation of debt issuance costs and the deferred tax impact, and was recorded as capital in excess of par. Debt discounts were amortized as additional non-cash interest expense over the expected life of the debt.
Upon adoption of ASU No. 2020-06, Vishay derecognized the bifurcated equity component, debt discount, and deferred taxes and remeasured the deferred financing costs associated with its convertible debt instruments. See Note 1. The carrying value of Vishay's convertible debt instruments is now equal to the outstanding principal amount and interest expense is now equal to the cash interest paid. The remeasured deferred financing costs continue to be recognized as non-cash interest expense.
The carrying valuesvalue of the convertible senior notes due 2025 was $465,344 as of December 31, 2021. The carrying value of the liability and equity components of the convertible debenturesdebt instruments prior to the adoption of ASU No. 2020-06 are reflected in the Company’s accompanying consolidated balance sheetssheet as follows:
| | Principal amount of the convertible debt | | | Unamortized discount | | | Embedded derivative | | | Carrying value of liability component | | | Equity component (including temporary equity) - net carrying value | |
| | | | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | $ | 600,000 | | | | (90,872 | ) | | | - | | | $ | 509,128 | | | $ | 85,262 | |
Convertible senior debentures | | $ | 17,190 | | | | (10,387 | ) | | | - | | | $ | 6,803 | | | $ | 7,129 | |
Total | | $ | 617,190 | | | $ | (101,259 | ) | | $ | - | | | $ | 515,931 | | | $ | 92,391 | |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2018 | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | $ | 600,000 | | | | (104,797 | ) | | | - | | | $ | 495,203 | | | $ | 85,262 | |
Convertible senior debentures | | $ | 36,556 | | | | (22,352 | ) | | | 70 | | | $ | 14,274 | | | $ | 15,092 | |
Total | | $ | 636,556 | | | $ | (127,149 | ) | | $ | 70 | | | $ | 509,477 | | | $ | 100,354 | |
Interest is payable on the convertible debt instruments semi-annually at the cash coupon rate; however, the remaining debt discount is being amortized as additional non-cash interest expense using an effective annual interest rate equal to the Company’s estimated nonconvertible debt borrowing rate at the time of issuance. In addition to ordinary interest, contingent interest will accrue in certain circumstances relating to the trading price of the convertible senior debentures due 2040 and due 2041 and under certain other circumstances, beginning ten years subsequent to their respective issuance. The convertible senior notes due 2025 do not possess contingent interest features.
| | Principal amount of the convertible debt | | | Unamortized discount | | | Carrying value of liability component | | | Equity component (including temporary equity) - net carrying value | |
| | | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | | |
Convertible senior notes due 2025 | | $ | 465,344 | | | | (59,076 | ) | | $ | 406,268 | | | $ | 66,127 | |
Convertible senior debentures due 2040 | | $ | 300 | | | | (170 | ) | | $ | 130 | | | $ | 121 | |
Total | | $ | 465,644 | | | $ | (59,246 | ) | | $ | 406,398 | | | $ | 66,248 | |
Interest expense related to the debenturesconvertible debt instruments is reflected on the accompanying consolidated statements of operations for the years ended December 31:
| | Contractual coupon interest | | | Non-cash amortization of debt discount | | | Non-cash amortization of deferred financing costs | | | Non-cash change in value of derivative liability | | | Total interest expense related to the debentures | | | Contractual coupon interest | | | Non-cash amortization of debt discount | | | Other non-cash interest expense | | | Total interest expense related to the debentures | |
| | | | | | | | | | | | | |
2021 | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | | $ | 10,470 | | | | 0 | | | | 1,733 | | | $ | 12,203 | |
| | | | | | | | | | | | | | | | | |
2020 | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | | $ | 12,097 | | | | 13,118 | | | | 1,623 | | | $ | 26,838 | |
Convertible senior debentures | | | $ | 88 | | | | 43 | | | | 0 | | | $ | 131 | |
Total | | | $ | 12,185 | | | $ | 13,161 | | | $ | 1,623 | | | $ | 26,969 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | $ | 13,500 | | | | 13,925 | | | | 1,816 | | | | - | | | $ | 29,241 | | | $ | 13,500 | | | | 13,925 | | | | 1,816 | | | $ | 29,241 | |
Convertible senior debentures | | $ | 498 | | | | 221 | | | | 7 | | | | (42 | ) | | $ | 684 | | | | 498 | | | | 221 | | | | (35 | ) | | | 684 | |
Total | | $ | 13,998 | | | $ | 14,146 | | | $ | 1,823 | | | $ | (42 | ) | | $ | 29,925 | | | $ | 13,998 | | | $ | 14,146 | | | $ | 1,781 | | | $ | 29,925 | |
| | | | | | | | | | | | | | | | | | | | | |
2018 | | | | | | | | | | | | | | | | | | | | | |
Convertible senior notes due 2025 | | $ | 7,463 | | | | 7,240 | | | | 1,059 | | | | - | | | $ | 15,762 | | |
Convertible senior debentures | | $ | 8,627 | | | | 3,529 | | | | 126 | | | | 128 | | | $ | 12,410 | | |
Total | | $ | 16,090 | | | $ | 10,769 | | | $ | 1,185 | | | $ | 128 | | | $ | 28,172 | | |
| | | | | | | | | | | | | | | | | | | | | |
2017 | | | | | | | | | | | | | | | | | | | | | |
Convertible senior debentures | | $ | 12,938 | | | | 4,984 | | | | 189 | | | | (316 | ) | | $ | 17,795 | | |
Total | | $ | 12,938 | | | $ | 4,984 | | | $ | 189 | | | $ | (316 | ) | | $ | 17,795 | | |
Note 6 – Long-Term Debt (continued)
The Company used substantially all of the net proceeds of the June 2018 issuance of convertible senior notes due 2025 to repurchase $220,000 and $69,060 principal amounts of convertible senior debentures due 2040 and due 2042, respectively. The net carrying value of the debentures repurchased were $89,276 and $29,037, respectively. In accordance with the authoritative accounting guidance for convertible debentures, the aggregate repurchase payment of $584,991 was allocated between the liability ($133,647) and equity (including temporary equity, $451,344) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchases. As a result, the Company recognized a loss on extinguishment of convertible debentures of $17,309, including the write-off of a portion of unamortized debt issuance costs.
The Company used a substantial portion of the cash repatriated to the United States in 2018 (see Note 5) to repurchase $53,690, $116,922, and $78,772 principal amounts of convertible senior debentures due 2040, due 2041, and due 2042, respectively. The net carrying value of the debentures repurchased were $22,018, $45,157, and $33,466, respectively. In accordance with the authoritative accounting guidance for convertible debentures, the aggregate repurchase payment of $376,004 was allocated between the liability ($108,059) and equity (including temporary equity, $267,945) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchases. As a result, the Company recognized a loss on extinguishment of convertible debentures of $9,274, including the write-off of a portion of unamortized debt issuance costs.
The Company used cash to repurchase $1,010, $16,188 and $2,168 principal amounts of convertible senior debentures due 2040, due 2041, and due 2042, respectively, in 2019. The net carrying value of the debentures repurchased were $417, $6,282, and $924, respectively. In accordance with the then-current authoritative accounting guidance for convertible debentures, the aggregate repurchase payment of $27,863 was allocated between the liability ($9,568) and equity (including temporary equity, $18,295) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchase. As a result, the Company recognized a loss on extinguishment of convertible debentures of $2,030, including the write-off of a portion of unamortized debt issuance costs.
The Company used cash to repurchase $134,656 principal amount of convertible senior notes due 2025 in 2020. The net carrying value of the notes repurchased was $115,978. In accordance with the then-current authoritative accounting guidance for convertible debt, the aggregate repurchase payments of $128,328 were allocated between the liability ($118,587) and equity ($9,741) components of the convertible notes, using the Company's nonconvertible debt borrowing rate at the time of the repurchases. As a result, the Company recognized a loss on extinguishment of convertible notes of $4,600, including the write-off of unamortized debt issuance costs.
The Company used cash to repurchase $16,890 principal amount of convertible senior debentures due 2041 in 2020. The net carrying value of the debentures repurchased was $6,715. In accordance with the then-current authoritative accounting guidance for convertible debt, the aggregate repurchase payment of $23,355 was allocated between the liability ($10,075) and equity ($13,280) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchase. As a result, the Company recognized a loss on extinguishment of convertible debentures of $3,473, including the write-off of unamortized debt issuance costs.
Vishay redeemed the remaining $300 principal amount of convertible senior debentures due 2040 on February 4, 2021. The redemption price was paid in cash and was equal to 100% of the principal amount plus accrued but unpaid interest to, but excluding February 4, 2021. The convertible senior debentures due 2040 were convertible as of December 31, 2020 and remained convertible until they were redeemed. The convertible senior debentures due 2040, due 2041, and due 2042 have been fully repurchased, and the trustee has confirmed that the Company has satisfied and discharged its obligations under the indenture governing the convertible senior debentures due 2042.repurchased.
Other Borrowings Information
NoneThe Credit Facility, of the Company's long-term debt matureswhich no amounts were drawn as of December 31, 2021, expires in the next five years.
2024. The convertible senior notes mature in 2025.
At December 31, 20192021 and 2018,2020, the Company had committed and uncommitted short-term credit lines with various U.S. and foreign banks aggregating approximately $6,000$1,000 and $7,000,$6,000, respectively, with substantially no amounts borrowed.
Interest paid was $16,177, $23,859,$14,177, $15,450, and $21,216$16,177 for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively.
See Note 18 for further discussion on the fair value of the Company’s long-term debt.
Note 7 – Stockholders’ Equity
The Company’s Class B common stock carries 10 votes per share while the common stock carries 1 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. Transfers of Class B shares other than to permitted transferees result in the automatic conversion of the Class B shares into common stock.
The Board of Directors may only declare dividends or other distributions with respect to the common stock or the Class B common stock if it grants such dividends or distributions in the same amount per share with respect to the other class of stock. Stock dividends or distributions on any class of stock are payable only in shares of stock of that class. Shares of either common stock or Class B common stock cannot be split, divided, or combined unless the other is also split, divided, or combined equally.
In 2014, the Company's Board of Directors approved the initiation of a quarterly cash dividend program. Cash dividends were paid quarterly in 20192021 and 2018 as follows:2020.
Record date | Payment date | | Amount (per share) | | Record date | Payment date | | Amount (per share) | |
March 14, 2019 | March 28, 2019 | | $ | 0.0850 | | March 14, 2018 | March 29, 2018 | | $ | 0.0675 | |
June 13, 2019 | June 27, 2019 | | $ | 0.0950 | | June 13, 2018 | June 28, 2018 | | $ | 0.0850 | |
September 12, 2019 | September 26, 2019 | | $ | 0.0950 | | September 14, 2018 | September 27, 2018 | | $ | 0.0850 | |
December 12, 2019 | December 23, 2019 | | $ | 0.0950 | | December 6, 2018 | December 20, 2018 | | $ | 0.0850 | |
The New Credit Facility also allows an unlimited amount of defined "Restricted Payments," which include cash dividends and share repurchases, provided the Company's pro forma leverage ratio is equal to or less than 2.50 to 1.00. If the Company's pro forma leverage ratio is greater than 2.50 to 1.00, the New Credit Facility allows such payments up to $100,000 per annum (subject to a cap of $300,000 for the term of the facility, with up to $25,000 of any unused amount of the $100,000 per annum base available for use in the next succeeding calendar year).
At December 31, 2019,2021, the Company had reserved shares of common stock for future issuance as follows:
Restricted stock units outstanding | | | 842,000877,000 | |
Phantom stock units outstanding | | | 183,000212,000 | |
2007 Stock Incentive Program - available to grant | | | 2,580,000 | |
Convertible senior debentures, due 2040* | | | 26,988 | |
Convertible senior debentures, due 2041* | | | 1,108,8031,975,000 | |
Convertible senior notes, due 2025*2025 | | | 24,410,52014,867,369 | |
Conversion of Class B common stock | | | 12,097,40912,097,148 | |
| | | 41,248,72030,028,517 | |
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*At December 31, 2019, the convertible senior debentures due 2040 and due 2041 are convertible into 24,001 and 986,058 shares, respectively, of Vishay common stock. The convertible senior notes due 2025 are convertible into 19,084,980 shares of Vishay common stock. The Company has reserved adequate shares to ensure it could issue the maximum amount of shares to be delivered upon a make-whole fundamental change as defined in the indentures governing the convertible debt instruments.