Vishay Intertechnology, Inc. (“Vishay” or the “Company”) is an international manufacturer and supplier of semiconductors and passive electronic components, including power MOSFETs, power conversion and motor control integrated circuits, transistors, diodes, optoelectronic components, resistors, capacitors, inductors, strain gages, load cells, force measurement sensors, displacement sensors, and photoelastic sensors. Electronic components manufactured by the Company are used in virtually all types of electronic products, including those in the industrial, computer, automotive, consumer electronics products, telecommunications, military/aerospace, and medical industries.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
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 minority 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.
The Company recognizes revenue on product sales during the period when the sales process is complete. This generally occurs when products are shipped to the customer in accordance with terms of an agreement of sale, title and risk of loss have been transferred, collectibility is reasonably assured, and pricing is fixed or determinable. For a small percentage of sales where title and risk of loss passes at point of delivery, the Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met. The Company historically has had agreements with distributors that provided limited rights of product return. The Company has modified these arrangements to 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 records a reduction of revenue during each period, and records a related accrued expense for the period, 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.
Note 1 – Summary of Significant Accounting Policies (continued)
Royalty revenues, included in net revenues on the consolidated statements of operations, were $7,841,000, $7,595,000, and $4,916,000 for the years ended December 31, 2007, 2006, and 2005, respectively. The Company records royalty revenue in accordance with agreed upon terms when performance obligations are satisfied, the amount is fixed or determinable, and collectibility is reasonably assured. Vishay earns royalties at the point of sale of products which incorporate licensed intellectual property. Accordingly, the amount of royalties recognized is determined based on periodic reporting to Vishay by its licensees, and based on judgments and estimates by Vishay management, which management considers reasonable.
Shipping and Handling Costs
Shipping and handling costs are included in costs of products sold.
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 $60,970,000, $52,077,000, and $48,634,000 for the years ended December 31, 2007, 2006, and 2005, respectively. The Company spends additional amounts for the development of machinery and equipment for new processes and for cost reduction measures.
Grants
Government grants received by certain subsidiaries, primarily in Israel, are recognized as income in accordance with the purpose of the specific contract and in the period in which the related expense is incurred. Grants recognized as a reduction of costs of products sold were $4,837,000, $6,041,000, and $6,914,000 for the years ended December 31, 2007, 2006, and 2005, respectively. Grants receivable of $1,846,000 and $1,652,000 are included in other current assets at December 31, 2007 and 2006, respectively. Deferred grant income was $1,044,000 and $5,732,000 at December 31, 2007 and 2006, respectively. The grants are subject to certain conditions, including maintaining specified levels of employment for periods up to ten years. Noncompliance with such conditions could result in the repayment of grants. However, management expects that the Company will comply with all terms and conditions of the grants.
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 the “more likely than not” criteria established by Statement of Financial Accounting Standards (“SFAS”) No. 109,Accounting for Income Taxes. 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.
As described in Note 5, the Company adopted FIN 48,Accounting for Uncertainty in Income Taxes, effective January 1, 2007.
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 maturities greater than three months are classified as short-term investments. There were no investments classified as short-term investments at December 31, 2007 or 2006.
F-11
Note 1 – Summary of Significant Accounting Policies (continued)
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The 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. The Company evaluates the past-due status of its trade receivables based on contractual terms of sale. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Bad debt expense (income realized upon subsequent collection) was $(1,007,000), $1,550,000, and $1,929,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. 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 to ten years. Buildings and building improvements are being depreciated over useful lives of twenty to forty 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, 2007 was approximately $23.3 million. Depreciation of capital lease assets is included in total depreciation expense. Depreciation expense was $196,564,000, $181,552,000, and $174,439,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
Goodwill and Other Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but rather are tested for impairment at least annually. These tests are performed more frequently if there are triggering events. The Company has assigned an indefinite useful life to most of its tradenames.
Definite-lived intangible assets are amortized over their estimated useful lives. Patents and acquired technology are being amortized over useful lives of seven to twenty-five years. Capitalized software is being amortized over periods of three to ten years, primarily included in costs of products sold on the consolidated statements of operations. Customer relationships are being amortized over useful lives of five to fifteen years. Noncompete agreements are being amortized over periods of ten years. The Company continually evaluates the reasonableness of the useful lives of these assets.
SFAS No. 142,Goodwill and Other Intangible Assets, prescribes a two-step method for determining goodwill impairment. In the first step, the Company determines the fair value of the reporting unit using a comparable companies market multiple approach. If the net book value of the reporting unit were to exceed the fair value, the Company would then perform the second step of the impairment test, which requires allocation of the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill. An impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than its carrying amount.
The Company’s required annual impairment test is completed as of the first day of the fourth fiscal quarter of each year. It was determined that no impairment existed based on the annual impairment tests for 2007, 2006, and 2005.
The fair value of the tradenames is measured as the discounted cash flow savings realized from owning such tradenames and not having to pay a royalty for their use. The annual impairment test of tradenames is completed as of the first day of the fourth fiscal quarter of each year. It was determined that no impairment existed based on the annual impairment tests for 2007, 2006, and 2005.
F-12
Note 1 – Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The Company evaluates impairment of its long-lived assets, other than goodwill and indefinite-lived intangible assets, in accordance with SFAS No. 144,Accounting for the Impairment or Disposal 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. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from such asset 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. Fair market value is determined primarily using the projected cash flows from the asset discounted at a rate commensurate with the risk involved. 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 disposal costs.
Available-for-Sale Securities
Other assets include investments in marketable securities which are classified as available-for-sale. These assets are held in trust related to the Company’s non-qualified pension and deferred compensation plans. See Note 11. 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, net of their related tax consequences, as a component of accumulated other comprehensive income in stockholders’ equity until sold. At the time of sale, 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. At December 31, 2007 and 2006, outstanding derivative instruments were not material.
The Company reports derivative instruments on the consolidated balance sheet at their fair values. The accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it is designated and qualifies for hedge accounting. For instruments designated as hedges, the effective portion of gains or losses is reported in other comprehensive income (loss) and the ineffective portion, if any, is reported in net earnings (loss). Changes in the fair values of derivative instruments that are not designated as hedges are recorded in current period earnings.
The Company has in the past used interest rate swap agreements to modify variable rate obligations to fixed rate obligations, thereby reducing exposure to market rate fluctuations. The Company has also in the past used financial instruments such as forward exchange contracts to hedge a portion, but not all, of its firm commitments denominated in foreign currencies. The purpose of the Company’s foreign currency management is to minimize the effect of exchange rate changes on actual cash flows from foreign currency denominated transactions.
Other financial instruments include cash and cash equivalents, accounts receivable, and notes payable. The carrying amounts of these financial instruments reported in the consolidated balance sheets approximate their fair values due to the short-term nature of these assets and liabilities.
F-13
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 in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in the results of operations.
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.
Stock-Based Compensation
Effective January 1, 2006, the Company adopted SFAS No. 123-R,Share-Based Payment.SFAS No. 123-R requires compensation costs related to share-based payment transactions to be recognized in the consolidated financial statements (with limited exceptions). The application of SFAS No. 123-R did not have a material impact on the Company’s net earnings, basic and diluted earnings per share, financial position, or cash flows for the years ended December 31, 2007 and 2006, and would not have had a material impact on the Company’s pretax earnings, net earnings, basic and diluted earnings per share, financial position, or cash flows had the Company applied the provisions of SFAS No. 123-R to the year ended December 31, 2005.
Pursuant to SFAS No. 123-R, 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 employee provides service in exchange for the award. For options 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.
Vishay is applying the modified prospective transition method to account for its employee stock options granted prior to the date the Company adopted SFAS No. 123-R. Under the modified prospective transition method, the fair value of previously granted but unvested equity awards is recognized as compensation expense in the statement of operations from the date of adoption of SFAS No. 123-R, and prior period results are not restated.
During the years ended December 31, 2007 and 2006, the Company recorded pretax compensation expense (within selling, general, and administrative expenses) associated with employee stock options of $1,429,000 and $383,000, respectively. The adoption of SFAS No. 123-R did not affect the stock-based compensation associated with the Company’s phantom stock units, which were already based on the market price of the stock at the date of grant. During the years ended December 31, 2007 and 2006, the Company recorded pretax compensation expense of $344,000 and $348,000, respectively, equal to the fair value of phantom stock units on the date of grant. The adoption of SFAS No. 123-R also did not affect the stock-based compensation associated with the Company’s restricted stock grants, which were already based on the market price of the stock at the date of grant and recognized over the service period. The Company recorded pretax compensation expense of $46,000 and $75,000 during 2007 and 2006, respectively related to amortization of restricted stock. The adoption of SFAS No. 123-R did, however, impact the balance sheet presentation of restricted stock grants. The unearned compensation presented in equity at December 31, 2005 was reclassified to paid-in capital in excess of par value concurrent with the adoption of SFAS No. 123-R.
F-14
Note 1 – Summary of Significant Accounting Policies (continued)
SFAS No. 123-R replaces SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25, which the Company previously applied. Under the intrinsic value method described by APB No. 25, no stock-based compensation expense for employee stock options had been recognized in the Company’s consolidated statements of operations because the exercise price of the Company’s stock options granted to employees equaled the fair market value of the underlying stock at the date of grant. Had the Company accounted for stock-based compensation plans using the fair value based accounting method described by SFAS No. 123-R for the year ended December 31, 2005, the Company’s pro forma net earnings and net earnings per share would have approximated the following(in thousands, except per share amounts):
| | Year ended |
| | December 31, |
| | 2005 |
| Net earnings, as reported | | $ | 62,274 | |
| Add: Total stock-based employee compensation expense | | | | |
| included in reported net income, net of related tax effects | | | 323 | |
| | | | | |
| Deduct: Total stock-based employee compensation | | | | |
| expense determined under fair value-based method for all | | | | |
| awards, net of related tax effects | | | (788 | ) |
| Pro forma net earnings | | $ | 61,809 | |
| |
| Earnings per share: | | | | |
| Basic, as reported | | $ | 0.35 | |
| Basic, pro forma | | $ | 0.35 | |
| |
| Diluted, as reported | | $ | 0.34 | |
| Diluted, pro forma | | $ | 0.34 | |
See also Note 12.
F-15
Note 1 – Summary of Significant Accounting Policies (continued)
Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation costs, arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. The costs for a specific environmental 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, 2007 and 2006 do not include claims against third parties.
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, 2007, the captive insurance entity provides only property insurance, although it is licensed to provide general liability, casualty, and directors and officers’ insurance. At December 31, 2007, the captive insurance entity has accrued $244,000, included in other accrued expenses on the consolidated balance sheet, for outstanding claims.
Cash and investments held by the captive insurance entity are restricted primarily for the purpose of potential insurance claims. Restricted cash of $6,700,000 is included in other noncurrent assets at December 31, 2007, representing the initial capitalization of the captive insurance entity.
New Accounting Pronouncements
Recently Adopted Pronouncements
As described in Note 11, Vishay adopted SFAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, effective December 31, 2006.
As described in Note 5, Vishay adopted FIN 48,Accounting for Uncertainty in Income Taxes, effective January 1, 2007.
Pronouncements Yet to be Adopted
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157,Fair Value Measurements. This statement defines fair value, provides guidance for measuring fair value, and requires additional disclosures. This statement does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 is effective for fiscal years beginning after December 15, 2007, and Vishay will adopt SFAS No. 157 on January 1, 2008. The adoption of this standard is not expected to have a material effect on the Company’s financial position, results of operations, or liquidity.
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, and Vishay will adopt SFAS No. 159 on January 1, 2008. The adoption of this standard is not expected to have a material effect on the Company’s financial position, results of operations, or liquidity.
F-16
Note 1 – Summary of Significant Accounting Policies (continued)
In December 2007, the FASB issued SFAS No. 141-R,Business Combinations. While retaining the fundamental requirements of SFAS No. 141, this new statement makes various modifications to the requirements of SFAS No. 141 in regards to the accounting for contingent consideration, preacquisition contingencies, purchased in-process research and development, acquisition-related transaction costs, acquisition-related restructuring costs, and changes in tax valuation allowances and tax uncertainty accruals. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current financial statement presentation.
F-17
Note 2 - Acquisition and Divestiture Activities
As part of its growth strategy, the Company seeks to expand through the acquisition of other manufacturers of electronic components that have established positions in major markets, reputations for product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise.
In pricing an acquisition, the Company focuses primarily on the target’s revenues and customer base, the strategic fit of the target’s product line with the Company’s existing product offerings, opportunities for cost cutting and integration with the Company’s existing operations and production, and other post-acquisition synergies, rather than on the target’s assets, such as its property, equipment, and inventory. As a result, the fair value of the acquired assets may correspond to a relatively smaller portion of the acquisition price, with the Company recording a substantial amount of goodwill related to the acquisition.
Also as part of its growth strategy, the Company seeks to explore opportunities with privately held developers of electronic components, whether through acquisition, investment in noncontrolling interests, or strategic alliances.
Year ended December 31, 2007
As further described below, the Company acquired the Power Control Systems (“PCS”) business of International Rectifier Corporation and PM Group PLC in April 2007. Concurrent with the acquisition of PM Group PLC, Vishay sold PM Group’s electrical contracting business. Vishay intends to sell the automotive module and subsystems business acquired as part of the PCS business.
During the first quarter of 2007, the Company sold two non-core product lines and recognized a gain of $1.8 million in operating income.
Acquisition of Power Control Systems Business
On April 1, 2007, Vishay completed its acquisition of the PCS business of International Rectifier Corporation for approximately $285.6 million, net of cash acquired. The transaction was funded using cash on-hand. The final purchase price is pending the resolution of a net working capital adjustment as of the date of acquisition. Resolution of the net working capital adjustment has been deferred until International Rectifier can complete an internal investigation of its accounting practices.
The PCS business product lines includeplanar high-voltage MOSFETs, Schottky diodes, diode rectifiers, fast-recovery diodes, high-power diodes and thyristors, power modules (a combination of power diodes, thyristors, MOSFETs, and IGBTs), and automotive modules and subsystems. As further described below, Vishay intends to sell the automotive modules and subsystems business.
Vishay acquired all of the outstanding stock of six International Rectifier subsidiaries engaged in the conduct of the PCS business. Vishay also acquired certain assets of International Rectifier used in connection with the PCS business, principally intellectual property, inventory, and equipment.
The agreement provides that, for a period of seven years after the closing, International Rectifier and its affiliates will not engage in the PCS business anywhere in the world, subject to certain specified product exceptions.
At the closing of the transaction, Vishay and International Rectifier entered into four license agreements. Pursuant to these agreements, International Rectifier will license to Vishay certain of its patents and technology related to the PCS business on a non-exclusive, perpetual, and royalty-free basis; International Rectifier will license to Vishay certain of its trademarks for specified periods of up to two years after closing; and Vishay will license back to International Rectifier patents and technology relating to the PCS business purchased by Vishay in the transaction, on a non-exclusive, perpetual, and royalty-free basis. International Rectifier’s use of the license back is subject to the non-competition arrangements described above.
F-18
Note 2 – Acquisition and Divestiture Activities (continued)
Vishay and International Rectifier also entered into transition services and supply agreements, including a transition products services agreement relating to the provision by International Rectifier to Vishay of certain wafer and packaging services; an IGBT auto die supply agreement relating to the provision of certain die and other products by International Rectifier to Vishay; and a transition buyback agreement relating to the provision of certain die products by Vishay to International Rectifier.
The results of operations of the PCS business are included in the results of the Semiconductors segment from April 1, 2007, excluding the automotive modules and subsystems business unit, which is reported as discontinued operations as described below.
The acquisition has been accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles. Accordingly, the purchase price has been preliminarily allocated as follows, to the assets acquired and liabilities assumed based on their fair values, with the excess being allocated to goodwill(in thousands):
| Working capital | | $ | 4,272 | |
| Property and equipment | | | 55,858 | |
| Completed technology | | | 12,800 | |
| Customer relationships | | | 11,700 | |
| Tradenames | | | 2,100 | |
| Other intangible assets | | | 2,000 | |
| Net assets held for sale | | | 4,900 | |
| Deferred taxes | | | (6,500 | ) |
| Total identified assets and liabilities | | $ | 87,130 | |
| |
| Purchase price, net of cash acquired | | $ | 282,652 | |
| Direct costs of acquisition | | | 2,950 | |
| Total purchase price | | $ | 285,602 | |
| |
| Goodwill | | $ | 198,472 | |
The completed technology, customer relationships, tradenames, and other intangible assets will be amortized over weighted average useful lives of 10 years, 10 years, 3 years, and 1.5 years, respectively.
The goodwill associated with the transaction has been allocated to the Semiconductors reporting unit. The Company will test the goodwill for impairment at least annually in accordance with U.S. generally accepted accounting principles. The goodwill associated with this acquisition is not deductible for income tax purposes.
In evaluating the acquisition of the PCS business, the Company focused primarily on the business’s revenues and customer base, the strategic fit of the business’s product line with the Company’s existing product offerings, and opportunities for cost reductions and other synergies, rather than on the business’s tangible assets, such as its property, equipment, and inventory. As a result, the fair value of the acquired assets corresponds to a relatively smaller portion of the acquisition price, with the Company recording a substantial amount of goodwill associated with the acquisition.
This preliminary purchase price allocation is pending finalization of appraisals for property and equipment and intangible assets, the resolution of the net working capital adjustment with the seller, the outcome of the intended sale of the automotive modules and subsystems business, the adjustment of liabilities recorded subsequent to the finalization of an exit plan that management began to formulate prior to the acquisition date, and the related deferred tax effects of any adjustments. The Company received a revised appraisal of the value of the automotive modules and subsystems business during the fourth quarter and recorded adjustments which increased goodwill. There can be no assurance that the estimated amounts will represent the final purchase price allocation.
F-19
Note 2 – Acquisition and Divestiture Activities (continued)
Intended Sale of Automotive Modules and Subsystems Business
Vishay intends to sell the automotive modules and subsystems business unit (“ASBU”) acquired as part of the PCS acquisition, because the business would not satisfactorily complement Vishay’s operations.
As a result of the intended sale, the Company has reported the results of operations of the ASBU as discontinued operations. The assets and liabilities of the ASBU have been separately reported in the consolidated balance sheet as “assets held for sale” and “liabilities related to assets held for sale.” Long-lived assets held for sale have not been depreciated or amortized. The Company has allocated no goodwill to the ASBU.
An active program to locate a buyer has been initiated. Vishay expects to complete a sale by April 1, 2008, but cannot assure that it will be able to successfully divest this business.
Financial results of discontinued operations for the year-to-date period of ownership ended December 31, 2007 are as follows(in thousands):
| | Year-to-date |
| | period ended |
| | Dec. 31, 2007 |
| Net revenues | | $ | 41,760 | |
| |
| Loss before income taxes | | $ | (9,097 | ) |
| Tax expense | | | 490 | |
| Loss from discontinued operations, net of tax | | $ | (9,587 | ) |
Assets held for sale and liabilities related to assets held for sale at December 31, 2007 (with comparative disclosures as of the date of acquisition) are as follows(in thousands):
| | | | | Date of |
| | | | | Acquisition |
| | Dec. 31, 2007 | | (April 1, 2007) |
| Cash and cash equivalents | | $ | - | | $ | - |
| Accounts receivable | | | 52 | | | 438 |
| Inventories | | | 11,214 | | | 13,998 |
| Prepaid expenses and other current assets | | | 5,030 | | | 15,573 |
| Fixed assets | | | 12,315 | | | 9,448 |
| Assets held for sale | | | 28,611 | | | 39,457 |
| |
| Trade accounts payable | | | 770 | | | 5,738 |
| Other accrued expenses | | | 9,125 | | | 27,450 |
| Other liabilities | | | 74 | | | 131 |
| Accrued pension costs | | | 1,284 | | | 1,238 |
| Liabilities related to assets held for sale | | | 11,253 | | | 34,557 |
| Net assets held for sale | | $ | 17,358 | | $ | 4,900 |
F-20
Note 2 – Acquisition and Divestiture Activities (continued)
Acquisition of PM Group PLC and Sale of its Electrical Contracting Business
On April 19, 2007, the Company declared its cash tender offer for all shares of PM Group PLC wholly unconditional, and assumed ownership of PM Group. PM Group is an advanced designer and manufacturer of systems used in the weighing and process control industries located in the United Kingdom. The aggregate cash paid for all shares of PM Group was approximately $45.7 million. The transaction was funded using cash on-hand.
Concurrent with the completion of the transaction, Vishay sold PM Group’s electrical contracting business for approximately $16.1 million. No gain or loss was recognized on the sale of the electrical contracting business.
The results of operations of PM Group are included in the results of the Passive Components segment from April 19, 2007. After allocating the purchase price to the assets acquired and the liabilities assumed based on a preliminary evaluation of their fair values, the Company recorded goodwill of $18.6 million related to this acquisition. The goodwill associated with this acquisition is not deductible for income tax purposes. The Company will perform an impairment test for the goodwill, which has been allocated to the Measurements Group reporting unit, at least annually in accordance with U.S. generally accepted accounting principles. The preliminary purchase price allocation is pending finalization of appraisals for property and equipment and intangible assets; adjustment of liabilities recorded subsequent to the finalization of an exit plan that management began to formulate prior to the acquisition date; and the related deferred tax effects of any adjustments. There can be no assurance that the estimated amounts will represent the final purchase price allocation.
Year ended December 31, 2006
Effective July 31, 2006, the Company acquired all of the outstanding capital stock of Phoenix do Brasil Ltda., a manufacturer of resistors, and its related sales affiliates, for approximately $17.5 million. For financial reporting purposes, the results of operations for this business have been included in the Passive Components segment from July 31, 2006. After allocating the purchase price to the assets acquired and liabilities assumed based on an evaluation of their fair values, the Company recorded goodwill of $5.9 million related to this acquisition. A portion of the goodwill associated with this transaction is deductible for income tax purposes. The Company will test the goodwill for impairment at least annually in accordance with U.S. generally accepted accounting principles.
Had this acquisition 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.
Year ended December 31, 2005
SI Technologies, Inc.
On April 28, 2005, the Company completed its acquisition of all of the outstanding capital stock of SI Technologies, Inc., a designer, manufacturer, and marketer of high-performance industrial sensors and controls, weighing and automotive systems, and related products. The purchase price was $17,660,000 in cash, plus the assumption of $10,693,000 of SI Technologies debt, of which Vishay caused $8,665,000 to be repaid subsequent to closing. The remaining outstanding amounts on the short-term revolving credit facility of SI Technologies’ European subsidiary were repaid during the third quarter of 2005.
On October 11, 2005, Vishay sold AeroGo, Inc., SI Technologies’ subsidiary engaged in the design, manufacture, and marketing of industrial automation products, for $4,888,000. The purchase price consisted of $1,000,000 of cash and promissory notes. No gain or loss was recognized on the sale of AeroGo.
F-21
Note 2 – Acquisition and Divestiture Activities (continued)
The results of operations of SI Technologies are included in the results of the Passive Components segment from April 28, 2005. After allocating the purchase price to the assets acquired and the liabilities assumed based on an evaluation of their fair values, the Company recorded goodwill of $11,811,000 related to this acquisition. The goodwill associated with this acquisition is not deductible for income tax purposes. The Company will perform an impairment test for the goodwill, which has been allocated to the Measurements Group reporting unit, at least annually in accordance with U.S. generally accepted accounting principles.
Acquisition of Minority Interest in Siliconix
Background
On May 12, 2005, Vishay completed an exchange offer for shares of Siliconix incorporated (“Siliconix”) common stock that Vishay did not already own. Each Siliconix share tendered was exchanged for 3.075 shares of Vishay common stock, with cash paid in lieu of fractional shares of Vishay. Prior to the exchange offer, Vishay owned approximately 80.4% of the common stock of Siliconix. Following the completion of the exchange offer, Vishay’s ownership increased to approximately 95.5% of the common stock of Siliconix, which was above the threshold necessary to effect a merger without a vote of stockholders.
On May 16, 2005, Vishay effected a merger of a subsidiary of Vishay with and into Siliconix, as a result of which Siliconix became a wholly owned subsidiary of Vishay. In the merger, each share of Siliconix stock, other than those owned by Vishay and its subsidiaries, was converted into the right to receive 3.075 shares of Vishay common stock, subject to the right of Siliconix’s remaining stockholders to seek appraisal under Delaware law. The exercise period for filing a petition asserting appraisal rights under Delaware law expired on September 14, 2005. Although several holders notified the Company of their desire to exercise their appraisal rights, these holders either subsequently withdrew or otherwise did not validly assert those rights before the expiration date.
As a controlled majority-owned subsidiary, the results of operations of Siliconix were included in the consolidated financial statements of Vishay prior to the acquisition of the minority interest, and the outside stockholders’ interests were shown as “minority interest” on the consolidated statements of operations and consolidated balance sheets. The results of operations of Siliconix will continue to be reported in the results of the Semiconductors segment.
Related Litigation
Following the announcement of Vishay’s intention to make the tender offer for the remaining shares of Siliconix that Vishay did not already own, several purported class-action complaints were filed in the Delaware Court of Chancery against Vishay, Siliconix, and the Siliconix directors, alleging, among other things, that the intended offer was unfair and a breach of fiduciary duty, and seeking, among other things, to enjoin the transaction. These actions were consolidated into a single class action, and the plaintiffs filed an amended complaint on April 18, 2005 further alleging that defendants failed to disclose or misrepresented material information relating to the tender offer. On April 28, 2005, the parties to the Delaware consolidated action executed a memorandum of understanding providing for the settlement of all claims relating to the tender offer. The settlement agreement reached with the plaintiffs was approved by the court on October 25, 2005.
A single stockholder class action also was filed in California state court challenging the tender offer. On April 26, 2005, the California Superior Court granted Vishay’s motion to stay the purported class action filed in California challenging the offer. The California action was formally dismissed in April 2006.
F-22
Note 2 – Acquisition and Divestiture Activities (continued)
Siliconix Transaction-Related Expenses
Both Vishay and Siliconix incurred expenses associated with the defense of the stockholder litigation described above and the settlement of the Delaware action. Additionally, Siliconix incurred expenses related to the exchange offer, including costs of the special committee of independent Siliconix directors appointed to evaluate the offer and the costs of the special committee’s financial and legal advisors. These costs do not represent Vishay’s direct costs of the acquisition, and accordingly are not included in the purchase price. These costs, aggregating to $3,751,000, are included in a separate line item in the accompanying consolidated statement of operations for the year ended December 31, 2005.
Allocation of Purchase Price
The total purchase price for the acquisition of the minority interest in Siliconix was $199,224,000, including direct acquisition costs incurred by Vishay. Vishay valued the common stock issued in the transaction at $11.04 per share, the average closing price of its common stock for the period beginning three days immediately prior to the date the 3.075 exchange ratio was announced (April 21, 2005) and ending the three trading days immediately thereafter. The aggregate fair value was determined by multiplying the total number of shares of Vishay common stock issued in the exchange offer and subsequent merger (17,985,476 shares) by $11.04 per share. Cash was paid in lieu of fractional shares of Vishay.
The acquisition of the Siliconix minority interest has been accounted for under the purchase method of accounting in accordance with U.S. generally accepted accounting principles. Accordingly, the cost to acquire the Siliconix minority interest in excess of its carrying value has been allocated on a pro rata basis, as follows, to the assets acquired and liabilities assumed based on their fair values, with the excess being allocated to goodwill(in thousands):
| Property and equipment | | $ | 1,502 | |
| Completed technology | | | 14,290 | |
| Tradenames | | | 20,359 | |
| Customer relationships | | | 16,052 | |
| Other intangible assets | | | 1,762 | |
| Purchased in-process research and development | | | 9,201 | |
| Deferred taxes | | | (4,077 | ) |
| Pro rata allocation of fair value | | | | |
| in excess of carrying value | | $ | 59,089 | |
| |
| Total purchase price | | $ | 199,224 | |
| Less minority interest recorded at May 12, 2005 | | | 97,012 | |
| Net purchase price | | $ | 102,212 | |
| |
| Goodwill | | $ | 43,123 | |
The tradenames will not be subject to amortization, but will be tested at least annually for impairment. The completed technology will be amortized over a weighted average useful life of 15 years. The customer relationships will be amortized over a ten year useful life. The other intangible assets were amortized over one year.
Purchased in-process research and development represents the value assigned in a business combination to research and development projects of the acquired business that were commenced, but not completed, at the date of acquisition, for which technological feasibility has not been established, and which have no alternative future use in research and development activities or otherwise. Amounts assigned to purchased in-process research and development meeting the above criteria must be charged to expense at the date of consummation of the business combination. A charge of $9,201,000 was recorded in the second quarter of 2005, equal to approximately 19.6% of the value of Siliconix in-process research and development at the time of the acquisition of the minority interest.
F-23
Note 2 – Acquisition and Divestiture Activities (continued)
The goodwill associated with this transaction is not deductible for income tax purposes. The Company will perform an impairment test for the goodwill, which has been allocated to the Semiconductors reporting unit, at least annually in accordance with U.S. generally accepted accounting principles. Factors that contributed to a purchase price resulting in the recognition of a significant amount of goodwill included the value perceived by Vishay of full control over the Siliconix business and the desire to quickly resolve legal challenges to the tender offer.
Other niche acquisitions
In the fourth quarter of 2005, the Company completed two niche acquisitions. On October 24, 2005, the Company acquired the assets of CyOptics Israel, Ltd. These assets were integrated into a wholly-owned subsidiary of Vishay in Israel and are intended to be used primarily for research and development purposes. On November 30, 2005, the Company acquired Alpha Electronics K.K., a Japanese manufacturer of foil resistors. The results of operations of Alpha Electronics K.K. are included in the results of the Passive Components segment from November 30, 2005. The purchase price for these two acquisitions was approximately $11 million, plus assumption of debt of approximately $8 million. After allocating the purchase price to the assets acquired and the liabilities assumed based on an evaluation of their fair values, the Company recorded goodwill of $2.6 million. The goodwill associated with these transactions is not deductible for income tax purposes. The Company will test the goodwill for impairment at least annually in accordance with U.S. generally accepted accounting principles. The inclusion of these entities did not have a material impact on consolidated results for the year ended December 31, 2005.
A charge of $493,000 was recorded in the fourth quarter of 2005 related to the value of the acquired in-process research and development.
Concurrent with the acquisition of Alpha Electronics K.K., the Company entered into noncompete agreements with several directors, employees, and former employees of Alpha Electronics K.K. These noncompete agreements have terms of ten years. The noncompete agreements are valued at approximately $5.5 million and are being amortized over the ten year term of the agreements.
F-24
Note 2 – Acquisition and Divestiture Activities (continued)
Pro Forma Results
The unaudited pro forma results would have been as follows, assuming the acquisitions had occurred at the beginning of each period presented(in thousands, except per share amounts):
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| Pro forma net revenues | | $ | 2,905,151 | | | $ | 2,862,319 | | | $ | 2,577,749 | |
| Pro forma income from continuing | | | | | | | | | | | | |
| operations | | $ | 147,290 | | | $ | 173,142 | | | $ | 106,229 | |
| Pro forma loss from discontinued | | | | | | | | | | | | |
| operations | | | (10,434 | ) | | | (5,699 | ) | | | (8,008 | ) |
| Pro forma net earnings | | $ | 136,856 | | | $ | 167,443 | | | $ | 98,221 | |
| Pro forma per share - basic: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.79 | | | $ | 0.94 | | | $ | 0.58 | |
| Loss from discontinued operations | | $ | (0.06 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) |
| Net earnings | | $ | 0.74 | | | $ | 0.91 | | | $ | 0.54 | |
| Pro forma per share - diluted: | | | | | | | | | | | | |
| Income from continuing operations | | $ | 0.78 | | | $ | 0.89 | | | $ | 0.56 | |
| Loss from discontinued operations | | $ | (0.05 | ) | | $ | (0.03 | ) | | $ | (0.04 | ) |
| Net earnings | | $ | 0.72 | | | $ | 0.86 | | | $ | 0.52 | |
The pro forma information reflects adjustments to depreciation based on the fair value of property and equipment acquired, adjustments to amortization based on the fair value of intangible assets, elimination of the minority interest in net earnings related to Siliconix, and tax related effects.
The unaudited pro forma results are not necessarily indicative of the results that would have been attained had the acquisitions occurred at the beginning of the periods presented.
Pending Acquisition
The Company has signed a non-binding memorandum of understanding to acquire its partner’s interest in a joint venture in India for approximately $10 million. Vishay presently owns 49% of this entity, which is engaged in the manufacture and distribution of transducers. The transaction is subject to the execution of a definitive purchase agreement and other conditions that are customary for transactions of this type. While the Company expects this transaction to close in the second quarter of 2008, there can be no assurance that the transaction will be completed, or that it will be completed pursuant to the terms contemplated in the non-binding memorandum of understanding.
F-25
Note 3 – Goodwill and Other Intangible Assets
The changes in the carrying amounts of goodwill by segment for the years ended December 31, 2007 and 2006 were as follows (in thousands):
| | | | | | Passive | | | | |
| | Semiconductors | | Components | | Total |
| Balance at December 31, 2005 | | $ | 864,569 | | | $ | 570,332 | | | $ | 1,434,901 | |
| Goodwill acquired during the year | | | - | | | | 5,506 | | | | 5,506 | |
| Purchase price allocation adjustments | | | - | | | | 1,074 | | | | 1,074 | |
| Currency translation adjustments | | | 6,019 | | | | 16,492 | | | | 22,511 | |
| Balance at December 31, 2006 | | | 870,588 | | | | 593,404 | | | | 1,463,992 | |
| Goodwill acquired during the year | | | 198,472 | | | | 18,600 | | | | 217,072 | |
| Purchase price allocation adjustments | | | (23,567 | ) | | | (4,153 | ) | | | (27,720 | ) |
| Currency translation adjustments | | | 12,417 | | | | 10,736 | | | | 23,153 | |
| Balance at December 31, 2007 | | $ | 1,057,910 | | | $ | 618,587 | | | $ | 1,676,497 | |
Passive Components segment goodwill is allocated to the Other Passives and Measurements Group reporting units for SFAS No. 142 evaluation purposes. Goodwill allocated to the Other Passives reporting unit at December 31, 2007 and 2006 was $549,669,000 and $543,762,000, respectively. Goodwill allocated to the Measurements Group reporting unit at December 31, 2007 and 2006 was $68,918,000 and $49,642,000, respectively.
Purchase price allocation adjustments recorded in 2007 are attributable to the finalization of the purchase accounting for 2006 acquisitions and to reversals of deferred tax related items and accruals for certain tax contingencies established in purchase accounting. Purchase price allocation adjustments recorded in 2006 are attributable to the finalization of the purchase accounting for 2005 acquisitions and to reversals of deferred tax related items and accruals for certain tax contingencies established in purchase accounting.
F-26
Note 3 – Goodwill and Other Intangible Assets (continued)
Other intangible assets were as follows(in thousands):
| | December 31, |
| | 2007 | | 2006 |
| Intangible Assets Subject to Amortization | | | | | | | | |
| (Definite Lived): | | | | | | | | |
| Patents and acquired technology | | $ | 115,171 | | | $ | 94,687 | |
| Capitalized software | | | 47,375 | | | | 40,269 | |
| Customer relationships | | | 37,169 | | | | 23,146 | |
| Other | | | 12,536 | | | | 7,617 | |
| | | 212,251 | | | | 165,719 | |
| Accumulated amortization: | | | | | | | | |
| Patents and acquired technology | | | (55,952 | ) | | | (42,781 | ) |
| Capitalized software | | | (35,714 | ) | | | (30,201 | ) |
| Customer relationships | | | (6,876 | ) | | | (3,377 | ) |
| Other | | | (3,397 | ) | | | (947 | ) |
| | | (101,939 | ) | | | (77,306 | ) |
| Net Intangible Assets Subject to Amortization | | | 110,312 | | | | 88,413 | |
| |
| Intangible Assets Not Subject to Amortization | | | | | | | | |
| (Indefinite Lived): | | | | | | | | |
| Tradenames | | | 82,279 | | | | 79,850 | |
| | $ | 192,591 | | | $ | 168,263 | |
Other definite lived intangible assets are comprised of noncompete agreements, acquired backlog, and certain tradenames. Amortization expense (excluding capitalized software) was $16,566,000, $12,920,000, and $11,954,000, for the years ended December 31, 2007, 2006, and 2005, respectively.
Estimated annual amortization expense for each of the next five years is as follows(in thousands):
| 2008 | | $ | 17,547 |
| 2009 | | | 15,404 |
| 2010 | | | 14,866 |
| 2011 | | | 10,887 |
| 2012 | | | 7,630 |
F-27
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs
Restructuring and severance costs reflect the cost reduction programs currently being implemented by the Company. These include the closing of facilities and the termination of employees. Restructuring and severance costs include onetime exit costs recognized pursuant to SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities, severance benefits pursuant to an on-going benefit arrangement recognized pursuant to SFAS No. 112,Employers’ Accounting for Postemployment Benefits,and related pension curtailment and settlement charges recognized pursuant to SFAS No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits.Severance costs also include executive severance and charges for the fair value of stock options of certain former employees which were modified such that they did not expire at termination. Restructuring costs are expensed during the period in which the Company determines it will incur those costs and all requirements of accrual are met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the Company could be required either to record additional expenses in future periods or to reverse part of the previously recorded charges. Asset write-downs are principally related to buildings and equipment that will not be used subsequent to the completion of restructuring plans presently being implemented, and cannot be sold for amounts in excess of carrying value.
Year ended December 31, 2007
The Company recorded restructuring and severance costs during the year ended December 31, 2007 as follows(in thousands):
| | Severance | | Other | | | | |
| | Costs | | Exit Costs | | Total |
| Programs initiated in 2007 | | $ | 15,432 | | | $ | 2,572 | | $ | 18,004 | |
| Changes in estimate | | | | | | | | | | | |
| from prior year programs | | | (3,323 | ) | | | - | | | (3,323 | ) |
| Net restructuring and severance costs | | $ | 12,109 | | | $ | 2,572 | | $ | 14,681 | |
Employee termination costs covered technical, production, administrative and support employees located in Belgium, China, France, Germany, Hungary, and the United States. Other exit costs were principally to consolidate warehouse facilities in the United States. The restructuring and severance costs were incurred as part of the continuing cost reduction programs currently being implemented by the Company. The Company also recorded asset write-downs of $3,869,000 to reduce the carrying value of buildings. The buildings had been vacated as part of restructuring activities. Certain of these buildings are held-for-sale and classified as “other assets” at December 31, 2007. Others are being leased to third-parties and were reduced to their fair value based on the present value of future lease receipts.
Also during the year ended December 31, 2007, the Company sold a building that had been vacated as part of its restructuring programs and recognized a gain of $3,118,000, which is recorded within selling, general, and administrative expenses.
The following table summarizes activity to date related to restructuring programs initiated in 2007 (in thousands, except for number of employees):
| | | | | | | | | | | | | | Employees |
| | Severance | | Other | | | | to be |
| | Costs | | Exit Costs | | Total | | Terminated |
| Restructuring and severance costs | | $ | 15,432 | | | $ | 2,572 | | | $ | 18,004 | | | 326 | |
| Utilized | | | (2,553 | ) | | | (2,557 | ) | | | (5,110 | ) | | (209 | ) |
| Foreign currency translation | | | 356 | | | | - | | | | 356 | | | - | |
| Balance at December 31, 2007 | | $ | 13,235 | | | $ | 15 | | | $ | 13,250 | | | 117 | |
F-28
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs (continued)
Most of the remaining accrued restructuring liability, currently shown in other accrued expenses, is expected to be paid by December 31, 2008. The payment terms related to these restructuring programs varies, usually based on local customs and laws. Most severance amounts are paid in a lump sum at termination, while some payments are structured to be paid in installments.
Year ended December 31, 2006
The Company recorded restructuring and severance costs of $40,220,000 during the year ended December 31, 2006. Restructuring of European and Asian operations included $34,136,000 of employee termination costs related to technical, production, administrative, and support employees located in Germany, Belgium, the Netherlands, France, the United Kingdom, Portugal, Hungary, the Philippines, the Republic of China (Taiwan), Japan, India, Malaysia, and the People’s Republic of China. Another $927,000 of severance costs relates to termination costs of technical, production, administrative, and support employees in the United States. Included in employee termination costs is a pension settlement charge of $562,000 related to employees in the Republic of China (Taiwan). The Company also incurred $5,157,000 of other exit costs during the year ended December 31, 2006, principally to consolidate operations in Germany, Brazil, Japan, the United States, and Hungary. The restructuring and severance costs were incurred as part of the continuing cost reduction programs currently being implemented by the Company. The Company also recorded asset write-downs and write-offs of $6,685,000 related to these restructuring programs during the year ended December 31, 2006. These asset write-downs and write-offs are principally for equipment that will not be utilized due to restructuring programs. Asset write-downs also included amounts to reduce the carrying value of certain buildings which had been vacated as part of restructuring activities, based on expected future selling prices.
The following table summarizes activity to date related to restructuring programs initiated in 2006 (in thousands, except for number of employees):
| | | | | | | | | | | | | | Employees |
| | Severance | | Other | | | | | | to be |
| | Costs | | Exit Costs | | Total | | Terminated |
| Restructuring and severance costs | | $ | 35,063 | | | $ | 5,157 | | | $ | 40,220 | | | 911 | |
| Utilized | | | (11,230 | ) | | | (1,858 | ) | | | (13,088 | ) | | (488 | ) |
| Foreign currency translation | | | 707 | | | | 121 | | | | 828 | | | - | |
| Balance at December 31, 2006 | | $ | 24,540 | | | $ | 3,420 | | | $ | 27,960 | | | 423 | |
| Utilized | | | (20,156 | ) | | | (3,425 | ) | | | (23,581 | ) | | (413 | ) |
| Changes in estimates | | | (3,323 | ) | | | - | | | | (3,323 | ) | | (10 | ) |
| Foreign currency translation | | | 892 | | | | 5 | | | | 897 | | | - | |
| Balance at December 31, 2007 | | $ | 1,953 | | | $ | - | | | $ | 1,953 | | | - | |
Most of the remaining accrued restructuring liability for plans initiated in 2006, currently shown in other accrued expenses, is expected to be paid by June 30, 2008. The payment terms related to these restructuring programs varies, usually based on local customs and laws. Most severance amounts are paid in a lump sum at termination, while some payments are structured to be paid in installments.
F-29
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs (continued)
Year ended December 31, 2005
The Company recorded restructuring and severance costs of $29,772,000 during the year ended December 31, 2005. Restructuring of European and Asian operations included $24,825,000 of employee termination costs covering technical, production, administrative, and support employees located in the Republic of China (Taiwan), Germany, France, the Netherlands, the United Kingdom, Spain, Portugal, Austria, the Czech Republic, the People’s Republic of China, Sweden, Norway, Finland, and Hungary. Included in employee termination costs is a pension settlement charge of $3,255,000 related to employees in the Republic of China (Taiwan). The remaining $3,910,000 of severance costs relates to termination costs of technical, production, administrative, and support employees and three executives in the United States. The Company also incurred $1,037,000 of other exit costs. These costs were incurred as part of the continuing cost reduction programs currently being implemented by the Company.
The Company also recorded asset write-downs of $11,416,000 related to these restructuring programs. Asset write-downs included amounts to reduce the carrying value of certain buildings which had been vacated as part of restructuring activities, based on expected future selling prices. Additionally, these charges included the write-down to salvage value of certain equipment which the Company has determined will not be used at other Vishay locations subsequent to the execution of its restructuring plans.
At December 31, 2005, approximately $10.5 million of costs were accrued related to these programs, most of which was paid in 2006. At December 31, 2006, approximately $1.8 million of these costs remain accrued related to these programs, substantially all of which was paid as of December 31, 2007.
F-30
Note 5 – Income Taxes
Income (loss) from continuing operations before taxes and minority interest consists of the following components (in thousands):
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| Domestic | | $ | (13,104 | ) | | $ | (782 | ) | | $ | (26,505 | ) |
| Foreign | | | 218,768 | | | | 192,332 | | | | 104,277 | |
| | $ | 205,664 | | | $ | 191,550 | | | $ | 77,772 | |
| |
| Significant components of income taxes are as follows(in thousands): |
| |
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| Current: | | | | | | | | | | | | |
| Federal | | $ | 704 | | $ | 1,304 | | $ | 1,089 | |
| State and local | | | 1,100 | | | 971 | | | 578 | |
| Foreign | | | 45,127 | | | 39,312 | | | 12,243 | |
| | | 46,931 | | | 41,587 | | | 13,910 | |
| Deferred: | | | | | | | | | | | | |
| Federal | | | 4,301 | | | 1,517 | | | (6,415 | ) |
| State and local | | | 57 | | | 811 | | | (2,833 | ) |
| Foreign | | | 12,844 | | | 6,921 | | | 7,075 | |
| | | 17,202 | | | 9,249 | | | (2,173 | ) |
| Total income tax expense | | $ | 64,133 | | $ | 50,836 | | $ | 11,737 | |
F-31
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 (in thousands):
| | December 31, | | | | |
| | 2007 | | 2006 | | | | |
| Deferred tax assets: | | | | | | | | | | | | |
| Pension and other retiree obligations | | $ | 39,923 | | | $ | 67,003 | | | | | |
| Inventories | | | 18,918 | | | | 14,842 | | | | | |
| Net operating loss carryforwards | | | 225,890 | | | | 179,612 | | | | | |
| Tax credit carryforwards | | | 21,297 | | | | 21,956 | | | | | |
| Other accruals and reserves | | | 51,299 | | | | 55,946 | | | | | |
| Total gross deferred tax assets | | | 357,327 | | | | 339,359 | | | | | |
| Less valuation allowance | | | (220,019 | ) | | | (173,224 | ) | | | | |
| | | 137,308 | | | | 166,135 | | | | | |
| |
| Deferred tax liabilities: | | | | | | | | | | | | |
| Tax over book depreciation | | | 42,227 | | | | 41,684 | | | | | |
| Tax deductible goodwill | | | 28,964 | | | | 26,502 | | | | | |
| Intangible assets other than goodwill | | | 23,253 | | | | 24,713 | | | | | |
| Other - net | | | 13,917 | | | | 13,528 | | | | | |
| Total gross deferred tax liabilities | | | 108,361 | | | | 106,427 | | | | | |
| |
| Net deferred tax assets | | $ | 28,947 | | | $ | 59,708 | | | | | |
| |
| The Company makes significant judgments regarding the realizability of its deferred tax assets (principally net operating losses). In accordance with SFAS No. 109, the carrying value of the net deferred tax asset 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. |
| |
| A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax provision is as follows(in thousands): |
| |
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| Tax at statutory rate | | $ | 71,982 | | | $ | 67,042 | | | $ | 27,220 | |
| State income taxes, net of U.S. federal | | | | | | | | | | | | |
| tax benefit | | | 748 | | | | 1,125 | | | | (1,466 | ) |
| Effect of foreign operations | | | (20,853 | ) | | | (19,139 | ) | | | (15,940 | ) |
| Settlement of tax audits | | | - | | | | 1,756 | | | | (39,211 | ) |
| FIN 48 accruals | | | 4,674 | | | | - | | | | - | |
| Increase valuation allowance on U.S. deferred tax asset | | | 8,999 | | | | 1,558 | | | | - | |
| Dividend repatriation | | | - | | | | - | | | | 37,338 | |
| Purchased research and development | | | - | | | | - | | | | 2,024 | |
| Other | | | (1,417 | ) | | | (1,506 | ) | | | 1,772 | |
| Total income tax expense | | $ | 64,133 | | | $ | 50,836 | | | $ | 11,737 | |
F-32
Note 5 – Income Taxes (continued)
At December 31, 2007, the Company had the following significant net operating loss carryforwards for tax purposes (in thousands):
| | | | Expires |
| Austria | $ | 14,151 | | No expiration |
| Belgium | | 202,852 | | No expiration |
| France | | 40,878 | | No expiration |
| Germany | | 58,630 | | No expiration |
| Israel | | 200,945 | | No expiration |
| Italy | | 13,244 | | 2008 – 2012 |
| Netherlands | | 112,300 | | No expiration |
| United States | | 122,388 | | 2023 – 2024 |
Approximately $190,790,000 of the carryforwards in Austria, Belgium, Germany, and the Netherlands resulted from the Company’s acquisition of BCcomponents in 2002. Approximately $8,577,000 of the carryforward in Italy resulted from the Company’s acquisition of International Rectifier Corporation Italiana S.p.A. in 2007. Valuation allowances of $53,295,000 and $49,899,000, as of December 31, 2007 and 2006, respectively, have been recorded through goodwill for these acquired net operating losses. If tax benefits are recognized in 2008 through the utilization of these acquired net operating losses, the benefits of such loss utilization will be recorded as a reduction to goodwill. After the adoption of SFAS No. 141-R on January 1, 2009 (see Note 1), the benefits of such losses will be recorded as a reduction of tax expense. In 2007 and 2006, tax benefits recognized through reductions of the valuation allowance recorded through goodwill were $4,513,000 and $249,000, respectively.
Approximately $8,081,000 of the U.S. net operating loss relates to the exercise of stock options in 2007. Upon utilization of the loss in the future, the tax benefit of the stock option deductions will be recorded as an increase to equity and not as a reduction of income tax expense.
At December 31, 2007, the Company had the following significant tax credit carryforwards available (in thousands):
| | | | Expires |
| Federal Alternative Minimum Tax | $ | 14,649 | | No expiration |
| California Investment Credit | | 2,965 | | 2008 – 2011 |
| California Research Credit | | 4,210 | | No expiration |
F-33
Note 5 – Income Taxes (continued)
At December 31, 2007, no provision has been made for U.S. federal and state income taxes on approximately $1,360,253,000 of foreign earnings, which the Company continues to expect to be reinvested outside of the United States indefinitely. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, incremental foreign income taxes, and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation.
In October 2004, the American Jobs Creation Act of 2004 (“AJCA”) created a temporary incentive for U.S. multinational corporations to repatriate accumulated income abroad by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations. Due to the availability of net operating loss carryforwards in the U.S., the Company did not take advantage of the provisions of the AJCA for any repatriation of accumulated income. While it has been the Company’s historical practice to permanently reinvest all foreign earnings outside the United States, in 2005 the Company repatriated approximately $130 million from our foreign subsidiaries. Repatriation of these earnings resulted in an increase in deferred tax expense but did not result in the payment of any taxes.
Income taxes paid, net of amounts refunded, were $45,339,000, $42,175,000, and $13,646,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
The Company and its subsidiaries 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 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 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. During 2005, several matters were favorably resolved as a result of the completion of examinations and the retroactive approval of the Company’s application for tax incentives in certain jurisdictions. During 2006, certain matters were resolved unfavorably, which required the Company to make tax payments.
In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes.FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. For those benefits to be recognized, a tax position must be “more likely than not” to be sustained upon examination by taxing authorities. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all tax positions related to income taxes.
F-34
Note 5 – Income Taxes (continued)
Effective January 1, 2007, the company adopted the provisions of FIN 48. As a result of the implementation of FIN 48, the Company increased its liability for unrecognized tax benefits by approximately $2.1 million, which was accounted for as a decrease to the January 1, 2007 retained earnings balance.
Including the cumulative effect, as of the adoption date of FIN 48, the Company had approximately $48.2 million of total gross unrecognized tax benefits. Of this total, approximately $43.4 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. As of December 31, 2007, the Company had approximately $65.5 million of total gross unrecognized tax benefits. Of this total, approximately $60.6 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of the adoption date, the Company had accrued interest and penalties related to the unrecognized tax benefits of $1.8 million. As of December 31, 2007, the Company had accrued interest and penalties related to the unrecognized tax benefits of $2.5 million. During the year ended December 31, 2007, the Company recognized approximately $0.7 million in interest and penalties.
A reconciliation of the beginning and ending balance for liabilities associated with unrecognized tax benefits is as follows (in thousands):
| Balance as of January 1, 2007 | $ | 48,231 | |
| |
| Additions based on tax positions related to the current year | | 8,931 | |
| Additions based on tax positions related to prior years | | 7,807 | |
| Currency translation adjustments | | 1,255 | |
| Reduction based on tax positions related to prior years | | (399 | ) |
| Reduction for settlements | | (302 | ) |
| |
| Balance as of December 31, 2007 | $ | 65,523 | |
The Company and its subsidiaries file U.S. federal income tax returns, as well as income tax returns in multiple U.S. state and foreign jurisdictions. The U.S. Internal Revenue Service has concluded its examinations of Vishay’s U.S. federal tax returns for all tax years through 2002. Because of net operating losses, the Company’s U.S. federal tax returns for 2003 and 2004 will remain subject to examination until the losses are utilized. The tax returns of significant consolidated subsidiaries are currently under examination, including Germany (2001-2004); Israel (2002 and later years); and Republic of China (Taiwan) (1996 and later years). The Company and its subsidiaries are also subject to income taxes in other taxing jurisdictions in the U.S. and around the world, many of which are still open to tax examinations.
The Company anticipates that the examinations of significant subsidiaries in Germany and the Republic of China (Taiwan) should be completed in the next 12 months. The Company expects settlement of these examinations to result in a decrease in the amount of unrecognized tax benefits of approximately $20.5 million.
F-35
Note 6 – Long-Term Debt
Long-term debt consists of the following (in thousands):
| | December 31, |
| | 2007 | | 2006 |
| Convertible subordinated notes, due 2023 | | $ | 500,000 | | $ | 500,000 |
| Exchangeable unsecured notes, due 2102 | | | 105,000 | | | 105,000 |
| Revolving credit facility | | | - | | | - |
| Other debt | | | 3,583 | | | 7,162 |
| | | 608,583 | | | 612,162 |
| Less current portion | | | 1,346 | | | 3,728 |
| | $ | 607,237 | | $ | 608,434 |
Convertible Subordinated Notes, due 2023
In 2003, the Company sold $500 million aggregate principal amount of 3-5/8% convertible subordinated notes due 2023. The notes pay interest semiannually.
Holders may convert the notes into Vishay common stock prior to the close of business on August 1, 2023 if (1) 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 average last reported sales price of Vishay common stock multiplied by the conversion rate for a specified period; (3) the notes have been called for redemption; (4) the credit ratings assigned to the notes are lowered by two or more levels from their initial ratings; or (5) specified corporate transactions occur. None of these conditions had occurred as of December 31, 2007. The conversion price of $21.28 is equivalent to a conversion rate of 46.9925 shares per $1,000 principal amount of notes (an aggregate of 23,496,250 shares).
The notes are subordinated in right of payment to all of the Company’s existing and future senior indebtedness and are effectively subordinated to all existing and future liabilities of its subsidiaries. The notes may be redeemed at the Company’s option beginning August 1, 2010 at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any. Holders of the notes have the right to require the Company to repurchase all or some of their notes at a purchase price equal to 100% of their principal amount of the notes, plus accrued and unpaid interest, if any, on August 1, 2008, August 1, 2010, August 1, 2013, and August 1, 2018. In addition, holders of the notes will have the right to require the Company to repurchase all or some of their notes upon the occurrence of certain events constituting a fundamental change.
Pursuant to the indenture governing the notes, Vishay has the right to pay the conversion value or purchase price for the notes in cash, Vishay common stock, or a combination of both. In June 2007, the Company’s Board of Directors adopted a resolution pursuant to which the Company intends to waive its rights to settle the principal amount of the notes in shares of Vishay common stock. In accordance with the resolution of its Board, in the future, if notes are tendered for repurchase, Vishay will pay the repurchase price in cash, and if notes are submitted for conversion, Vishay will value the shares issuable upon conversion and will pay in cash an amount equal to the principal amount of the converted notes and will issue shares in respect of the conversion value in excess of the principal amount. See also Note 16.
If these notes are put to the Company in August 2008, the Company intends to utilize its revolving credit facility (described below) or a replacement debt instrument to fund the purchase.
F-36
Note 6 – Long-Term Debt (continued)
Exchangeable Unsecured Notes, due 2102
On December 13, 2002, the Company completed the acquisition of BCcomponents Holdings B.V. In connection with this acquisition, $105,000,000 in principal amount of BCcomponents’ mezzanine indebtedness and certain other securities of BCcomponents were exchanged for $105,000,000 principal amount of floating rate unsecured loan notes of the Company, due 2102. The notes bore interest at LIBOR plus 1.5% through December 31, 2006 and bear interest at LIBOR thereafter. The interest rate could be further reduced to 50% of LIBOR after December 31, 2010 if the price of the Company’s common stock trades above a specified target price, as provided in the notes. The notes are subject to a put and call agreement under which the holders may at any time put the notes to the Company in exchange for 6,176,471 shares of the Company’s common stock in the aggregate, and the Company may call the notes in exchange for cash or for shares of its common stock after 15 years from the date of issuance.
Liquid Yield Option™ Notes, due 2021
On June 4, 2001, the Company completed a private placement of Liquid Yield Option™ Notes (“LYONs”) due 2021. Each LYON had a $1,000 face amount and was offered at a price of $551.26 (55.126% of the principal amount at maturity). The issue price of each LYON represented a yield to maturity of 3.00%, excluding any contingent interest that would have been payable under certain circumstances.
At any time on or before the maturity date, the LYONs were convertible into Vishay common stock at a rate of 17.6686 shares of common stock per $1,000 principal amount at maturity. The holders of the LYONs had the option to require the Company to purchase all or a portion of their LYONs on various dates at their accreted value on those dates. Pursuant to the terms of the notes, the Company could choose to pay the purchase price in cash, Vishay common stock, or a combination of both.
Holders of $169,435,000 principal amount at maturity ($102,130,000 accreted principal amount) exercised their option on June 4, 2004.
The holders of the remaining LYONs had the option to require the Company to repurchase all or a portion of their LYONs on June 4, 2006 at their accreted value of $639.76 per $1,000 principal amount at maturity. All holders of the LYONs exercised their option to require the Company to repurchase their LYONs. The Company paid $137,910,000 to the holders of the LYONs on the June 4, 2006 purchase date.
As a result of the early extinguishment of the LYONs, in 2006, the Company recognized a pretax, non-cash write-off of unamortized debt issuance costs associated with the 2001 issuance of the LYONs totaling $2,854,000.
F-37
Note 6 – Long-Term Debt (continued)
Revolving Credit Facility
On April 20, 2007, the Company entered into its Third Amended and Restated Credit Agreement. This new revolving credit facility replaces the Second Amended and Restated Credit Agreement, as amended, which was scheduled to expire on May 1, 2007.
The new revolving credit facility provides a commitment of up to $250 million through April 20, 2012. Furthermore, the Company is permitted to request an increase of the revolving credit facility by an additional $250 million, resulting in an aggregate commitment up to $500 million, provided that no default or event of default exists.
Interest on the new revolving credit facility is payable at prime or other variable interest rate options. The Company is required to pay facility commitment fees, which are less than the commitment fees that were required under the expired revolving credit facility.
The borrowings under the new revolving credit facility are secured by pledges of stock in certain significant subsidiaries and certain guarantees by significant subsidiaries. The subsidiaries would be required to perform under the guarantees in the event that the Company failed to make principal or interest payments under the new revolving credit facility. Certain of the Company’s subsidiaries are permitted to borrow under the new revolving credit facility. Any borrowings by these subsidiaries under the new revolving credit facility are guaranteed by the Company.
Similar to the expired revolving credit facility, the new revolving credit facility restricts the Company from paying cash dividends and requires the Company to comply with other covenants, including the maintenance of specific financial ratios.
No amounts were outstanding under the revolving credit facility at December 31, 2007 or 2006. Letters of credit totaling $11,411,000 and $6,561,000 were issued under the revolving credit facility at December 31, 2007 and 2006, respectively. At December 31, 2007, $238,589,000 was available under the revolving credit facility.
F-38
Note 6 – Long-Term Debt (continued)
Other Borrowings Information
Aggregate annual maturities of long-term debt, based on the terms stated in the respective agreements, are as follows(in thousands):
| 2008 | $ | 1,346 |
| 2009 | | 664 |
| 2010 | | 256 |
| 2011 | | 70 |
| 2012 | | 70 |
| Thereafter | | 606,177 |
As described above, the convertible subordinated notes, due by their terms in 2023, may be put to the Company in 2008 at an aggregate price of $500 million.
At December 31, 2007, the Company had committed and uncommitted short-term credit lines with various U.S. and foreign banks aggregating approximately $69.3 million, substantially all of which was unused.
At December 31, 2007 and 2006, the Company had letters of credit totaling approximately $1.0 million and $1.3 million, respectively, in addition to letters of credit issued under the revolving credit facility.
Interest paid was $27,499,000, $29,513,000, and $31,950,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
The fair value of the long-term debt at December 31, 2007 is approximately $612,333,000, as compared to its carrying value of $608,583,000. The fair value of long-term debt was estimated based on trading prices and market prices of debt with similar terms and features.
F-39
Note 7 – Stockholders’ Equity
The Company’s Class B common stock carries ten votes per share while the common stock carries one vote per share. Class B shares are transferable only to certain permitted transferees while the common stock is freely transferable. Class B shares are convertible on a one-for-one basis at any time into shares of common stock. 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. The Company’s revolving credit facility currently prohibits the payment of cash dividends (see Note 6). 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.
On August 10, 2000, the Board of Directors of the Company authorized the repurchase of up to 5,000,000 shares of its common stock from time to time in the open market. As of December 31, 2007, the Company had repurchased 248,500 shares. No shares have been repurchased since 2001.
The Company issued 8,823,529 warrants to acquire shares of Vishay common stock as part of the purchase price for the 2002 acquisition of BCcomponents. Of these warrants, 7,000,000 have an exercise price of $20.00 per share, and 1,823,529 have an exercise price of $30.30 per share. These warrants expire in December 2012.
At December 31, 2007, the Company had reserved shares of common stock for future issuance as follows:
| Common stock options outstanding | | 4,691,000 |
| Common stock options available to grant - 1998 Program(a) | | 922,000 |
| Common stock options available to grant - 2007 Program | | 3,000,000 |
| Employee stock plans | | 305,126 |
| Common stock warrants | | 8,823,529 |
| Phantom stock outstanding | | 100,000 |
| Phantom stock available to grant | | 190,000 |
| Exchangeable unsecured notes, due 2102 | | 6,176,471 |
| Convertible subordinated notes, due 2023(b) | | 23,496,250 |
| Conversion of Class B common stock | | 14,352,888 |
| | 62,057,264 |
____________________
(a) - As described in Note 12, the stockholder authorization to grant options pursuant to the 1998 Stock Option Program expires on March 16, 2008 and the Company has no intention to issue these authorized options.
(b) - As described in Note 6, if these notes are submitted for conversion, the Company will value the shares issuable upon conversion and will pay in cash an amount equal to the principal amount of the converted notes and will issue shares in respect of the conversion value in excess of the principal amount.
F-40
Note 8 – Other Income (Expense)
The caption “Other” on the consolidated statements of operations consists of the following(in thousands):
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| Foreign exchange (loss) gain | | $ | (5,164 | ) | | $ | (6,490 | ) | | $ | 731 | |
| Interest income | | | 19,419 | | | | 22,401 | | | | 13,880 | |
| Dividend income | | | 470 | | | | 261 | | | | 342 | |
| Incentive from Chinese government | | | 1,238 | | | | - | | | | 703 | |
| Other | | | (15 | ) | | | 1,247 | | | | (53 | ) |
| | $ | 15,948 | | | $ | 17,419 | | | $ | 15,603 | |
Note 9 – Other Accrued Expenses
Other accrued expenses consist of the following(in thousands):
| | December 31, |
| | 2007 | | 2006 |
| Restructuring | | $ | 18,844 | | $ | 29,960 |
| Sales returns and allowances | | | 42,110 | | | 32,576 |
| Goods received, not yet invoiced | | | 57,498 | | | 37,372 |
| Other | | | 117,276 | | | 104,078 |
| | $ | 235,728 | | $ | 203,986 |
F-41
Note 10 – Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows(in thousands):
| | Beginning | | Before-Tax | | Tax | | Net-of-Tax | | Ending |
| | Balance | | Amount | | Effect | | Amount | | Balance |
| December 31, 2005 | | | | | | | | | | | | | | | | | | | | |
| Minimum pension liability | | | | | | | | | | | | | | | | | | | | |
| adjustment | | $ | (11,758 | ) | | $ | (84,006 | ) | | $ | 8,687 | | | $ | (75,319 | ) | | $ | (87,077 | ) |
| Currency translation adjustment | | | 145,189 | | | | (104,262 | ) | | | - | | | | (104,262 | ) | | | 40,927 | |
| Unrealized gain on | | | | | | | | | | | | | | | | | | | | |
| available-for-sale securities | | | 301 | | | | 384 | | | | (134 | ) | | | 250 | | | | 551 | |
| | $ | 133,732 | | | $ | (187,884 | ) | | $ | 8,553 | | | $ | (179,331 | ) | | $ | (45,599 | ) |
| |
| December 31, 2006 | | | | | | | | | | | | | | | | | | | | |
| Minimum pension liability | | | | | | | | | | | | | | | | | | | | |
| adjustment | | $ | (87,077 | ) | | $ | 8,687 | | | $ | 1,996 | | | $ | 10,683 | | | $ | (76,394 | ) |
| Adjustment to initially apply | | | | | | | | | | | | | | | | | | | | |
| SFAS No. 158, net of tax | | | | | | | | | | | | | | | | | | | (18,993 | ) |
| Currency translation adjustment | | | 40,927 | | | | 89,310 | | | | - | | | | 89,310 | | | | 130,237 | |
| Unrealized gain on | | | | | | | | | | | | | | | | | | | | |
| available-for-sale securities | | | 551 | | | | 141 | | | | (49 | ) | | | 92 | | | | 643 | |
| | $ | (45,599 | ) | | $ | 98,138 | | | $ | 1,947 | | | $ | 100,085 | | | $ | 35,493 | |
| |
| December 31, 2007 | | | | | | | | | | | | | | | | | | | | |
| Pension and other | | | | | | | | | | | | | | | | | | | | |
| post-retirement actuarial items | | $ | (95,387 | ) | | $ | 43,526 | | | $ | (8,850 | ) | | $ | 34,676 | | | $ | (60,711 | ) |
| Reclassification adjustment for | | | | | | | | | | | | | | | | | | | | |
| recognition of actuarial items | | | | | | | 6,146 | | | | (446 | ) | | | 5,700 | | | | 5,700 | |
| Currency translation adjustment | | | 130,237 | | | | 84,697 | | | | - | | | | 84,697 | | | | 214,934 | |
| Unrealized gain on | | | | | | | | | | | | | | | | | | | | |
| available-for-sale securities | | | 643 | | | | (456 | ) | | | 160 | | | | (296 | ) | | | 347 | |
| | $ | 35,493 | | | $ | 133,913 | | | $ | (9,136 | ) | | $ | 124,777 | | | $ | 160,270 | |
Other comprehensive income (loss) includes Vishay’s proportionate share of other comprehensive income (loss) of nonconsolidated subsidiaries accounted for under the equity method.
As described in Note 11, the Company adopted SFAS No. 158 as of December 31, 2006. The adjustment to initially apply SFAS No. 158 is recorded as an adjustment to the ending balance of accumulated other comprehensive loss and is not included in other comprehensive income for the year ended December 31, 2006. The year ended December 31, 2007 includes reclassification adjustments for the amortization of actuarial items recognized in net earnings. The amortization of these items was not reflected in other comprehensive income in periods prior to the adoption of SFAS No. 158.
At December 31, 2007 and 2006, the Company had valuation allowances of $17,411,000 and $25,140,000, respectively, against the deferred tax effect of equity adjustments related to pension and other postretirement benefits.
F-42
Note 11 – Pensions and Other Postretirement Benefits
The Company maintains various retirement benefit plans. In September 2006, the FASB issued Statement No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (“SFAS No. 158”). SFAS No. 158 amends SFAS No. 87,Employers’ Accounting for Pensions, SFAS No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,SFAS No. 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions,SFAS No. 132-R,Employers’ Disclosures about Pensions and Other Postretirement Benefits,and other related accounting literature. SFAS No. 158 requires employers to recognize the funded status of a benefit plan, measured as the difference between plan assets at fair value and the benefit obligation, in its balance sheet. The recognition of the funded status on the balance sheet requires employers to recognize actuarial items (such as actuarial gains and losses, prior service costs, and transition obligations) as a component of other comprehensive income, net of tax. Vishay has adopted SFAS No. 158 effective December 31, 2006.
The following table summarizes amounts recorded on the consolidated balance sheets associated with these various retirement benefit plans(in thousands):
| | December 31, |
| | 2007 | | 2006 |
| Included in "Other Assets": | | | | | | | | |
| U.S. pension plans | | $ | 5,264 | | | $ | 749 | |
| Foreign pension plans | | | 1,026 | | | | 785 | |
| Total included in other assets | | $ | 6,290 | | | $ | 1,534 | |
| Accrued pension and other postretirement costs: | | | | | | | | |
| U.S. pension plans | | $ | (26,483 | ) | | $ | (35,231 | ) |
| Non-U.S. pension plans | | | (215,846 | ) | | | (210,186 | ) |
| U.S. other postretirement plans | | | (17,586 | ) | | | (19,915 | ) |
| Non-U.S. other postretirement plans | | | (8,107 | ) | | | (8,806 | ) |
| Other retirement obligations | | | (12,691 | ) | | | (11,685 | ) |
| Total accrued pension and other postretirement costs | | $ | (280,713 | ) | | $ | (285,823 | ) |
| Accumulated other comprehensive loss: | | | | | | | | |
| U.S. pension plans | | $ | 47,590 | | | $ | 61,499 | |
| Non-U.S. pension plans | | | 18,924 | | | | 51,547 | |
| U.S. other postretirement plans | | | (2,619 | ) | | | (345 | ) |
| Total accumulated other comprehensive loss* | | $ | 63,895 | | | $ | 112,701 | |
____________________
* - Amounts included in accumulated other comprehensive loss are presented in this table pretax.
Defined Benefit Pension Plans
The Company maintains several defined benefit pension plans which cover substantially all full-time U.S. employees. The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries consistent with local practices. Pension benefits earned are generally based on years of service and compensation during active employment. Certain non-U.S. subsidiaries of the Company have defined benefit pension plans.
The Company also maintains pension plans which provide supplemental defined benefits primarily to U.S. employees whose benefits under the qualified pension plan are limited by the Employee Retirement Security Act of 1974 and the Internal Revenue Code. These non-qualified plans include both contributory and non-contributory plans, and are considered to be unfunded. The Company maintains a non-qualified trust, referred to as a “rabbi” trust, to fund benefit payments under one of these plans. Rabbi trust assets are subject to creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent assets. Assets held in trust related to the non-qualified pension plan at December 31, 2007 and 2006 were approximately $15 million and $12 million, respectively.
F-43
Note 11 – Pensions and Other Postretirement Benefits (continued)
In 2004, the Company entered into an employment agreement with Dr. Felix Zandman, its Executive Chairman and then-Chief Executive Officer. Pursuant to this agreement, the Company will provide an annual retirement benefit equal to 50% of his average base pay and bonus for the five years preceding his retirement (but not to exceed $1 million annually). These pension benefits are unfunded and fully vested.
The following table sets forth a reconciliation of the benefit obligation, plan assets, and funded status related to U.S. and non-U.S. pension plans(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 283,309 | | | $ | 271,087 | | | $ | 287,656 | | | $ | 256,249 | |
| Service cost (adjusted for actual | | | | | | | | | | | | | | | | |
| employee contributions) | | | 4,652 | | | | 4,799 | | | | 4,856 | | | | 5,102 | |
| Interest cost | | | 15,871 | | | | 11,153 | | | | 15,433 | | | | 10,270 | |
| Plan amendments and initiations | | | - | | | | (1,809 | ) | | | - | | | | - | |
| Acquisitions | | | - | | | | 211 | | | | - | | | | - | |
| Contributions by participants | | | 1,679 | | | | 126 | | | | 1,810 | | | | - | |
| Actuarial (gains) losses | | | (16,315 | ) | | | (28,174 | ) | | | (10,759 | ) | | | (11,534 | ) |
| Curtailments and settlements | | | - | | | | (161 | ) | | | - | | | | (2,049 | ) |
| Benefits paid | | | (15,116 | ) | | | (11,518 | ) | | | (15,687 | ) | | | (9,875 | ) |
| Currency translation | | | - | | | | 17,566 | | | | - | | | | 22,924 | |
| Benefit obligation at end of year | | $ | 274,080 | | | $ | 263,280 | | | $ | 283,309 | | | $ | 271,087 | |
| |
| Change in plan assets: | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning | | | | | | | | | | | | | | | | |
| of year | | $ | 248,827 | | | $ | 61,685 | | | $ | 232,747 | | | $ | 51,557 | |
| Actual return on plan assets | | | 14,466 | | | | 2,790 | | | | 29,277 | | | | 2,834 | |
| Acquisitions | | | - | | | | 226 | | | | - | | | | - | |
| Company contributions | | | 3,005 | | | | (7,319 | ) | | | 680 | | | | 13,612 | |
| Plan participants’ contributions | | | 1,679 | | | | 126 | | | | 1,810 | | | | - | |
| Benefits paid | | | (15,116 | ) | | | (11,518 | ) | | | (15,687 | ) | | | (9,875 | ) |
| Settlements | | | - | | | | - | | | | - | | | | (1,062 | ) |
| Currency translation | | | - | | | | 2,470 | | | | - | | | | 4,619 | |
| Fair value of plan assets at end of year | | $ | 252,861 | | | $ | 48,460 | | | $ | 248,827 | | | $ | 61,685 | |
| Funded status at end of year | | $ | (21,219 | ) | | $ | (214,820 | ) | | $ | (34,482 | ) | | $ | (209,402 | ) |
Company contributions for non-U.S. plans for 2007 are net of $22,136,000 of cash refunded. To achieve tax benefits and to streamline pension administration, the legal form of one of the Company’s German pension funds was changed. As a result of the change, past contributions could be refunded to the Company. Prior to the change in legal form for this plan, the pension fund could loan cash to the Company. At December 31, 2006, other accrued expenses included $19,694,000 of short-term loans from this pension plan.
F-44
Note 11 – Pensions and Other Postretirement Benefits (continued)
Amounts recognized in the consolidated balance sheet consist of the following(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Other assets | | $ | 5,264 | | | $ | 1,026 | | | $ | 749 | | | $ | 785 | |
| Accrued benefit liability | | | (26,483 | ) | | | (215,846 | ) | | | (35,231 | ) | | | (210,186 | ) |
| Accumulated other comprehensive loss | | | 47,590 | | | | 18,924 | | | | 61,499 | | | | 51,547 | |
| | $ | 26,371 | | | $ | (195,896 | ) | | $ | 27,017 | | | $ | (157,854 | ) |
Actuarial items consist of the following(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Unrecognized net actuarial loss | | $ | 48,951 | | | $ | 18,924 | | $ | 62,537 | | | $ | 51,547 |
| Unamortized prior service cost | | | (1,361 | ) | | | - | | | (1,038 | ) | | | - |
| | $ | 47,590 | | | $ | 18,924 | | $ | 61,499 | | | $ | 51,547 |
The following table sets forth additional information regarding the projected and accumulated benefit obligations(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Accumulated benefit obligation, all plans | | $ | 261,493 | | $ | 243,270 | | $ | 263,991 | | $ | 254,160 |
| |
| Plans for which the accumulated benefit | | | | | | | | | | | | |
| obligation exceeds plan assets: | | | | | | | | | | | | |
| Projected benefit obligation | | $ | 18,416 | | $ | 256,347 | | $ | 277,383 | | $ | 264,939 |
| Accumulated benefit obligation | | | 16,903 | | | 240,906 | | | 258,066 | | | 251,620 |
| Fair value of plan assets | | | - | | | 39,351 | | | 242,152 | | | 54,930 |
F-45
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth the components of net periodic pension cost(in thousands):
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans | | Plans | | Plans |
| Annual service cost | | $ | 6,331 | | | $ | 4,925 | | | $ | 6,666 | | | $ | 5,102 | | | $ | 6,069 | | | $ | 5,078 | |
| Less employee | | | | | | | | | | | | | | | | | | | | | | | | |
| contributions | | | 1,679 | | | | 126 | | | | 1,810 | | | | - | | | | 1,807 | | | | - | |
| Net service cost | | | 4,652 | | | | 4,799 | | | | 4,856 | | | | 5,102 | | | | 4,262 | | | | 5,078 | |
| Interest cost | | | 15,871 | | | | 11,153 | | | | 15,433 | | | | 10,270 | | | | 15,041 | | | | 10,104 | |
| Expected return on | | | | | | | | | | | | | | | | | | | | | | | | |
| plan assets | | | (20,553 | ) | | | (3,012 | ) | | | (19,206 | ) | | | (2,467 | ) | | | (19,086 | ) | | | (1,438 | ) |
| Amortization of actuarial | | | | | | | | | | | | | | | | | | | | | | | | |
| losses | | | 3,325 | | | | 5,146 | | | | 6,990 | | | | 2,314 | | | | 3,365 | | | | 1,417 | |
| Amortization of | | | | | | | | | | | | | | | | | | | | | | | | |
| prior service cost | | | 324 | | | | (2,662 | ) | | | 1,305 | | | | 571 | | | | 1,305 | | | | - | |
| Curtailment and settlement | | | | | | | | | | | | | | | | | | | | | | | | |
| losses (gains) | | | - | | | | (57 | ) | | | - | | | | 532 | | | | - | | | | 3,783 | |
| Net periodic benefit cost | | $ | 3,619 | | | $ | 15,367 | | | $ | 9,378 | | | $ | 16,322 | | | $ | 4,887 | | | $ | 18,944 | |
See Note 10 for the pretax, tax effect and after tax amounts included in other comprehensive income during the years ended December 31, 2007, 2006, and 2005. The estimated actuarial items for the defined benefit pensions plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2008 is $5 million.
The settlement losses for 2006 and 2005 are primarily related to the Company’s restructuring plans in the Republic of China (Taiwan). See Note 4.
The following weighted average assumptions were used to determine benefit obligations at December 31 of the respective years:
| | 2007 | | 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Discount rate | | 6.25% | | 4.91% | | 5.75% | | 4.04% |
| Rate of compensation increase | | 4.00% | | 2.53% | | 4.00% | | 2.77% |
The following weighted average assumptions were used to determine the net periodic pension costs for the years ended December 31, 2007 and 2006:
| | Years ended December 31, |
| | 2007 | | 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Discount rate | | 5.75% | | 4.04% | | 5.50% | | 3.76% |
| Rate of compensation increase | | 4.00% | | 2.77% | | 4.00% | | 2.33% |
| Expected return on plan assets | | 8.50% | | 5.37% | | 8.50% | | 3.53% |
F-46
Note 11 – Pensions and Other Postretirement Benefits (continued)
The plans’ expected return on assets is based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers 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 investment mix between equity securities and fixed income securities is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. The Company’s U.S. defined benefit plans are invested in diversified portfolios of public-market equity and fixed income securities. Investment allocations are made across a range of markets, industry sectors, capitalization sizes, and, in the case of fixed income securities, maturities and credit quality. The target allocation has historically been approximately 60% invested in equity securities and 40% invested in debt securities, although the investments are more heavily allocated to equity securities at December 31, 2007 subsequent to favorable market returns. The Company’s non-U.S. defined benefit plans are largely invested in cash, with a small percentage invested in equity and fixed income securities, based on local laws and customs. The plans do not invest in securities of Vishay or its subsidiaries.
Plan assets are comprised of:
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Equity securities | | 68 | % | | 29 | % | | 77 | % | | 16 | % |
| Fixed income securities | | 31 | % | | 25 | % | | 23 | % | | 30 | % |
| Cash and cash equivalents | | 1 | % | | 46 | % | | 0 | % | | 54 | % |
| Total | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
Estimated future benefit payments are as follows(in thousands):
| | U.S. | | Non-U.S. |
| | Plans | | Plans |
| 2008 | | $ | 15,789 | | $ | 12,181 |
| 2009 | | | 16,198 | | | 14,941 |
| 2010 | | | 16,552 | | | 14,741 |
| 2011 | | | 17,818 | | | 15,550 |
| 2012 | | | 18,497 | | | 17,332 |
| 2013-2017 | | | 99,348 | | | 89,115 |
The Company anticipates making contributions to U.S. plans of between $12 million and $16 million in 2008. The Company’s anticipated 2008 contributions for non-U.S. plans will approximate the expected benefit payments disclosed above.
Other Postretirement Benefits
In the U.S., the Company maintains two unfunded non-pension postretirement plans funded as costs are incurred. One plan is contributory, with employee contributions adjusted for general inflation or inflation in costs under the plan. The plan was amended in 1993 to cap employer contributions at 1993 levels. The second plan covers all full-time U.S. General Semiconductor employees not covered by a collective bargaining agreement who meet defined age and service requirements. This plan is the primary provider of medical benefits for retirees up to age 65, after which Medicare becomes the primary provider. The Company also maintains two unfunded non-pension postretirement plans at two European subsidiaries.
F-47
Note 11 – Pensions and Other Postretirement Benefits (continued)
In 2004, the Company entered into formal employment agreements with six of its executives. These employment agreements provide medical benefits for these executives and their surviving spouses for life, up to a $15,000 annual premium value per person. These benefits are fully vested, and accordingly, the obligations represent prior service costs which will be amortized over the average remaining expected services period for these six executives.
The following table sets forth a reconciliation of the benefit obligation, plan assets, and accrued benefit cost related to U.S. and non-U.S. non-pension defined benefit postretirement plans(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 19,915 | | | $ | 8,806 | | | $ | 21,640 | | | $ | 8,009 | |
| Service cost | | | 216 | | | | 435 | | | | 223 | | | | 406 | |
| Interest cost | | | 981 | | | | 350 | | | | 1,082 | | | | 322 | |
| Actuarial (gains) losses | | | (2,261 | ) | | | (541 | ) | | | (1,830 | ) | | | 439 | |
| Benefits paid | | | (1,265 | ) | | | (1,731 | ) | | | (1,200 | ) | | | (1,235 | ) |
| Currency translation | | | - | | | | 788 | | | | - | | | | 865 | |
| Benefit obligation at end of year | | $ | 17,586 | | | $ | 8,107 | | | $ | 19,915 | | | $ | 8,806 | |
| |
| Fair value of plan assets at end of year | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| |
| Funded status at end of year | | $ | (17,586 | ) | | $ | (8,107 | ) | | $ | (19,915 | ) | | $ | (8,806 | ) |
Amounts recognized in the consolidated balance sheet consist of the following(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Accrued benefit liability | | $ | (17,586 | ) | | $ | (8,107 | ) | | $ | (19,915 | ) | | $ | (8,806 | ) |
| Accumulated other comprehensive income | | | (2,619 | ) | | | - | | | | (345 | ) | | | - | |
| | $ | (20,205 | ) | | $ | (8,107 | ) | | $ | (20,260 | ) | | $ | (8,806 | ) |
Actuarial items consist of the following(in thousands):
| | December 31, 2007 | | December 31, 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Unrecognized net actuarial gain | | $ | (3,776 | ) | | $ | - | | $ | (1,771 | ) | | $ | - |
| Unamortized prior service cost | | | 195 | | | | - | | | 271 | | | | - |
| Unrecognized net transition obligation | | | 962 | | | | - | | | 1,155 | | | | - |
| | $ | (2,619 | ) | | $ | - | | $ | (345 | ) | | $ | - |
F-48
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth the components of net periodic benefit cost(in thousands):
| | Years ended December 31, |
| | 2007 | | 2006 | | 2005 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans | | Plans | | Plans |
| Service cost | | $ | 216 | | | $ | 435 | | $ | 223 | | | $ | 406 | | $ | 280 | | | $ | 415 |
| Interest cost | | | 981 | | | | 350 | | | 1,082 | | | | 322 | | | 1,196 | | | | 410 |
| Amortization of actuarial | | | | | | | | | | | | | | | | | | | | | |
| gains | | | (257 | ) | | | - | | | (34 | ) | | | - | | | (12 | ) | | | - |
| Amortization of | | | | | | | | | | | | | | | | | | | | | |
| prior service cost | | | 193 | | | | - | | | 86 | | | | - | | | 86 | | | | - |
| Amortization of | | | | | | | | | | | | | | | | | | | | | |
| transition obligation | | | 77 | | | | - | | | 193 | | | | - | | | 193 | | | | - |
| Net periodic benefit cost | | $ | 1,210 | | | $ | 785 | | $ | 1,550 | | | $ | 728 | | $ | 1,743 | | | $ | 825 |
No amounts were recognized in other comprehensive income during 2006 or 2005 related to other postretirement benefits. An adjustment to the ending balance of accumulated other comprehensive income was recorded at December 31, 2006 to reflect the initial adoption of SFAS No. 158. The estimated net loss, prior service cost, and transition obligation for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2008 are not material and approximate the amounts amortized in 2007.
The following weighted average assumptions were used to determine benefit obligations at December 31 of the respective years:
| | 2007 | | 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Discount rate | | 6.25% | | 5.15% | | 5.75% | | 4.00% |
| Rate of compensation increase | | 4.00% | | 3.20% | | 4.00% | | 3.00% |
The following weighted average assumptions were used to determine the net periodic benefit costs for the years ended December 31, 2007 and 2006:
| | Years ended December 31, |
| | 2007 | | 2006 |
| | U.S. | | Non-U.S. | | U.S. | | Non-U.S. |
| | Plans | | Plans | | Plans | | Plans |
| Discount rate | | 5.75% | | 4.00% | | 5.50% | | 4.00% |
| Rate of compensation increase | | 4.00% | | 3.00% | | 4.00% | | 3.00% |
The impact of a one-percentage-point change in assumed health care cost trend rates on the net periodic benefit cost and postretirement benefit obligation is not material.
F-49
Note 11 – Pensions and Other Postretirement Benefits (continued)
Estimated future benefit payments are as follows(in thousands):
| | U.S. | | Non-U.S. |
| | Plans | | Plans |
| 2008 | $ | 1,207 | | $ | 781 |
| 2009 | | 1,181 | | | 351 |
| 2010 | | 1,108 | | | 343 |
| 2011 | | 1,082 | | | 639 |
| 2012 | | 1,019 | | | 748 |
| 2013-2017 | | 4,417 | | | 4,331 |
As the plans are unfunded, the Company’s anticipated contributions for 2008 are equal to its estimated benefits payments.
Other Retirement Obligations
The Company participates in various other defined contribution and government-mandated retirement plans based on local law or custom. The Company periodically makes required contributions for certain of these plans, whereas other plans are unfunded retirement bonus plans which will be paid at the employee's retirement date. At December 31, 2007 and 2006, the consolidated balance sheets include $12,691,000 and $11,685,000 within accrued pension and other postretirement costs related to these plans.
Many of the Company’s U.S. employees are eligible to participate in 401(k) savings plans, some of which provide for Company matching under various formulas. The Company’s matching expense for the plans was $3,322,000, $3,455,000, and $3,265,000 for the years ended December 31, 2007, 2006, and 2005, respectively. No material amounts are included in the consolidated balance sheets at December 31, 2007 and 2006 related to unfunded 401(k) contributions.
In 2005, as a result of a new law in the Republic of China (Taiwan), the Company’s employees could elect to participate in a new government-sponsored defined contribution retirement plan, or remain in the existing defined benefit pension plan. Company contributions to this new plan totaled $290,000, $224,000, and $314,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
Certain key employees participate in a deferred compensation plan. During the years ended December 31, 2007, 2006, and 2005, these employees could defer a portion of their compensation until retirement, or elect shorter deferral periods. The Company maintains a liability within other noncurrent liabilities on its consolidated balance sheets related to these deferrals. The Company maintains a non-qualified trust, referred to as a “rabbi” trust, to fund payments under this plan. Rabbi trust assets are subject to creditor claims under certain conditions and are not the property of employees. Therefore, they are accounted for as other noncurrent assets. Assets held in trust related to the deferred compensation plan at December 31, 2007 and 2006 were approximately $13 million and $11 million, respectively. Assets held in trust are intended to approximate the Company’s liability under this plan.
The Company is obligated to pay post-employment benefits to certain terminated employees related to acquisitions. The liabilities recorded for these obligations total $15,784,000 and $13,135,000 as of December 31, 2007 and 2006, respectively. Of these amounts, $3,784,000 and $2,633,000 is included in accrued liabilities as of December 31, 2007 and 2006, respectively, with the remaining amounts included in other noncurrent liabilities.
F-50
Note 12 – Stock-Based Compensation
Stock Options
Under the 1997 Stock Option Program, certain executive officers, key employees, and consultants of the Company were granted options on May 21, 1998 to purchase 2,687,000 shares of the Company’s common stock. The options were fully vested on the date of grant and expire June 1, 2008, with one-third exercisable at $10.89, one-third exercisable at $12.53, and one-third exercisable at $13.61. As of December 31, 2007, substantially all options under this plan have been exercised or cancelled.
Under the 1998 Stock Option Program, certain executive officers and key employees were granted options, as summarized in the following table:
| | Number of | | Exercise | | | | |
| Date of Grant | | Options* | | Price | | Vesting | | Expiration |
| October 6, 1998 | | 1,598,000 | | | $ | 5.60 | | | Fully vested | | October 6, 2008 |
| October 8, 1999 | | 1,334,000 | | | | 15.33 | | | Fully vested | | October 8, 2009 |
| August 4, 2000 | | 50,000 | | | | 30.00 | | | Evenly over 5 years, | | August 4, 2010 |
| | | | | | | | | beginning August 4, 2003 | | |
| October 12, 2000 | | 1,114,000 | | | | 25.13 | | | Fully vested | | October 12, 2010 |
| February 27, 2007 | | 75,000 | | | | 14.25 | | | Evenly over 6 years, | | February 27, 2017 |
| | | | | | | | | from date of grant | | |
| May 22, 2007 | | 420,000 | | | | 18.00 | | | Evenly over 6 years, | | May 22, 2017 |
| | | | | | | | | from date of grant | | |
| Miscellaneous other grants | | 100,500 | | | | 11.24 | – | | Evenly over 6 years, | | October 1, 2011 through |
| | | | | | 25.07 | | | from date of grant | | July 16, 2017 |
____________________
* - On date of grant. Some of these options were subsequently forfeited by the holders due to termination of employment.
The Company also issued 120,000 stock options from the 1998 Stock Option Program allocation as part of acquisitions during 2004.
On May 18, 2000, the stockholders of the Company approved an increase in the number of shares available for grant under Vishay’s 1998 Stock Option Program. As a result, the number of shares available for grant under this program increased from 2,953,500 to 4,453,500. Options which are forfeited by the holder may be regranted to others.
On May 22, 2007, the stockholders of the Company approved an amendment to the 1998 Stock Option Program to approve a special stock option grant in amounts that exceeded the otherwise applicable grant limitation under the plan.
As of December 31, 2007, options to purchase 1,252,000 shares had been exercised under this plan. Options are available for grant under the 1998 Stock Option Program until March 16, 2008, when the stockholder approval for the program will expire. The Company does not intend to issue the 922,000 options that are still available for grant under the 1998 Stock Option Program.
On November 2, 2001, Vishay acquired General Semiconductor, which became a wholly owned subsidiary of the Company. As a result of the acquisition, each outstanding option to acquire General Semiconductor common stock became exercisable for shares of Vishay common stock. Based on the conversion ratio in the acquisition of 0.563 of a Vishay share for each General Semiconductor share, the former General Semiconductor options become exercisable in the aggregate for 4,282,000 shares of Vishay common stock. All such options were immediately vested and exercisable as a result of the merger but the terms of the options otherwise remained unchanged. As of December 31, 2007, options to purchase 1,010,000 shares had been exercised under this plan. No additional options may be granted from this plan.
F-51
Note 12 – Stock-Based Compensation (continued)
On May 22, 2007, the stockholders of the Company approved the 2007 Stock Option Program. Under the 2007 Stock Option Program, up to 3,000,000 shares of common stock may be granted to executives and key employees who are responsible for or contribute to the management, growth, and profitability of the business of Vishay. Options are available for grant until May 22, 2017. No options were granted pursuant to this plan as of December 31, 2007.
The following table summarizes the Company’s stock option activity(number of options in thousands):
| | | | | | | | | Years ended December 31, | | | | | | |
| | 2007 | | 2006 | | 2005 |
| | | | Weighted | | | | | Weighted | | | | | Weighted |
| | Number | | Average | | Number | | Average | | Number | | Average |
| | of | | Exercise | | of | | Exercise | | of | | Exercise |
| | Options | | Price | | Options | | Price | | Options | | Price |
| Outstanding: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | 6,706 | | | $ | 16.47 | | | 7,928 | | | $ | 15.87 | | | 8,100 | | | $ | 15.95 |
| Granted | | 526 | | | | 17.33 | | | 20 | | | | 15.83 | | | 16 | | | | 12.09 |
| Exercised | | (1,879 | ) | | | 11.01 | | | (303 | ) | | | 9.43 | | | (49 | ) | | | 5.68 |
| Cancelled | | (662 | ) | | | 21.18 | | | (939 | ) | | | 13.67 | | | (139 | ) | | | 23.41 |
| End of year | | 4,691 | | | $ | 18.09 | | | 6,706 | | | $ | 16.47 | | | 7,928 | | | $ | 15.87 |
| |
| Vested and | | | | | | | | | | | | | | | | | | | | |
| expected to vest | | 4,691 | | | | | | | 6,706 | | | | | | | 7,928 | | | | |
| |
| Exercisable: | | | | | | | | | | | | | | | | | | | | |
| End of year | | 4,117 | | | | | | | 6,634 | | | | | | | 7,618 | | | | |
| |
| Available for | | | | | | | | | | | | | | | | | | | | |
| future grants | | 3,922 | | | | | | | 1,378 | | | | | | | 1,164 | | | | |
The following table summarizes information concerning stock options outstanding and exercisable at December 31, 2007(number of options in thousands):
| | Options Outstanding | | Options Exercisable |
| | | | | Weighted | | | | | | | | | |
| | | | | Average | | Weighted | | | | | Weighted |
| | | | | Remaining | | Average | | | | | Average |
| Ranges of | | Number of | | Contractual | | Exercise | | Number of | | Exercise |
| Exercise Prices | | Options | | Life | | Price | | Options | | Price |
| $5.60 | | 166 | | | 0.76 | | | $ | 5.60 | | | 166 | | | $ | 5.60 | |
| $11.24-$14.65 | | 333 | | | 3.46 | | | | 13.00 | | | 230 | | | | 12.63 | |
| $15.33 | | 760 | | | 1.77 | | | | 15.33 | | | 760 | | | | 15.33 | |
| $15.43-$17.54 | | 1,801 | | | 3.02 | | | | 16.58 | | | 1,750 | | | | 16.60 | |
| $18.00 | | 420 | | | 9.39 | | | | 18.00 | | | - | | | | - | |
| $18.10-$23.53 | | 240 | | | 0.36 | | | | 21.78 | | | 240 | | | | 21.78 | |
| $25.13 | | 759 | | | 2.78 | | | | 25.13 | | | 759 | | | | 25.13 | |
| $25.75-$34.52 | | 212 | | | 2.44 | | | | 29.34 | | | 212 | | | | 29.34 | |
| Total | | 4,691 | | | 3.14 | | | $ | 18.09 | | | 4,117 | | | $ | 18.23 | |
The weighted-average remaining contractual life of all exercisable options is 2.29 years.
F-52
Note 12 – Stock-Based Compensation (continued)
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, incorporating the following weighted-average assumptions:
| | | 2007 | | 2006 | | 2005 |
| | | Grants | | Grants | | Grants |
| Expected dividend yield | | 0.0 | % | | 0.0 | % | | 0.0 | % |
| Risk-free interest rate | | 4.8 | % | | 5.1 | % | | 4.2 | % |
| Expected volatility | | 59.8 | % | | 54.3 | % | | 56.1 | % |
| Expected life (in years) | | 7.2 | | | 4.5 | | | 4.5 | |
The pretax aggregate intrinsic value (the difference between the closing stock price on the last trading day of 2007 of $11.41 per share and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2007 would be approximately $1.0 million. This amount changes based on changes in the fair market value of the Company’s common stock. The total intrinsic value of options exercised during the years ended December 31, 2007 and 2006 was approximately $10.8 million and $1.8 million, respectively.
The following table summarizes information concerning unvested stock options(number of options in thousands):
| | | | | | | | | | Years ended December 31, | | | | | | |
| | | 2007 | | 2006 | | 2005 |
| | | | | Weighted | | | | | Weighted | | | | | Weighted |
| | | Number | | Average | | Number | | Average | | Number | | Average |
| | | of | | Grant-date | | of | | Grant-date | | of | | Grant-date |
| | | Options | | Fair Value | | Options | | Fair Value | | Options | | Fair Value |
| Unvested: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | 72 | | | $ | 9.24 | | | 310 | | | $ | 11.22 | | | 625 | | | $ | 10.99 |
| Granted | | 526 | | | | 9.95 | | | 20 | | | | 6.74 | | | 16 | | | | 5.30 |
| Vested | | (23 | ) | | | 12.58 | | | (156 | ) | | | 13.99 | | | (327 | ) | | | 10.49 |
| Forfeited | | (1 | ) | | | 7.50 | | | (102 | ) | | | 7.50 | | | (4 | ) | | | 11.64 |
| End of year | | 574 | | | $ | 9.76 | | | 72 | | | $ | 9.24 | | | 310 | | | $ | 11.22 |
There was approximately $4.1 million, $0.2 million, and $0.5 million of unrecognized compensation cost related to unvested stock options at December 31, 2007, December 31, 2006, and January 1, 2006 (date of adoption of SFAS No. 123-R), respectively. The weighted average remaining amortization period at December 31, 2007 is approximately 4.0 years.
Phantom Stock Plan
The Company maintains a phantom stock plan for senior executives. The Phantom Stock Plan authorizes the grant of up to 300,000 phantom stock units to the extent provided for in employment agreements with the Company. During the years ended December 31, 2007 and 2006, the Company had such employment arrangements with five of its executives. During the year ended December 31, 2005, the Company had such employment arrangements with six of its executives. The arrangements provide for an annual grant of 5,000 shares of phantom stock to each of these executives. If the Company later enters into other employment arrangements with other individuals that provide for the granting of phantom stock, those individuals also will be eligible for grants under the Phantom Stock Plan. No grants may be made under the Phantom Stock Plan other than under the terms of employment arrangements with the Company. Each phantom stock unit entitles the recipient to receive a share of common stock at the individual’s termination of employment or any other future date specified in the employment agreement. The phantom stock units are fully vested at all times.
F-53
Note 12 – Stock-Based Compensation (continued)
If the Company declares dividends on its common stock, the dividend amounts with respect to the phantom stock units will be deemed reinvested in additional units of phantom stock.
The Board of Directors of the Company can amend or terminate the Phantom Stock Plan at any time, except that phantom stock units already granted to any individual cannot be adversely affected without the individual’s consent. Furthermore, stockholder approval of an amendment is required if the amendment increases the number of units subject to the Phantom Stock Plan or otherwise materially amends the Phantom Stock Plan or if stockholder approval is otherwise required by applicable law or stock exchange rules. If the Board of Directors does not terminate the Phantom Stock Plan, it will terminate when all phantom stock units have been awarded with respect to all 300,000 shares of common stock reserved for the Phantom Stock Plan.
The following table summarizes the Company’s phantom stock units activity(number of phantom stock units in thousands):
| | | | | | | | | | Years ended December 31, | | | | | | |
| | | 2007 | | 2006 | | 2005 |
| | | Number | | Grant | | Number | | Grant | | | | | Grant |
| | | of | | date | | of | | date | | Number | | date |
| | | Phantom | | fair value | | Phantom | | fair value | | of | | fair value |
| | | Stock Units | | per unit | | Stock Units | | per unit | | Options | | per unit |
| Outstanding: | | | | | | | | | | | | | | | | | | | | |
| Beginning of year | | 75 | | | | | | | 60 | | | | | | | 30 | | | | |
| Granted | | 25 | | | $ | 13.75 | | | 25 | | | $ | 13.91 | | | 30 | | | $ | 14.51 |
| Redeemed for | | | | | | | | | | | | | | | | | | | | |
| common stock | | - | | | | | | | (10 | ) | | | | | | - | | | | |
| End of year | | 100 | | | | | | | 75 | | | | | | | 60 | | | | |
| |
| Available for | | | | | | | | | | | | | | | | | | | | |
| future grants | | 190 | | | | | | | 215 | | | | | | | 240 | | | | |
Employee Stock Plans
The Company has employee stock plans which have 305,126 shares of common stock available for issuance at December 31, 2007. Employee stock grants are restricted at the date of grant and vest over periods of three to five years. Restrictions imposed upon the grantee are at the discretion of the Compensation Committee of the Board of Directors. Most grants, and all present restricted shares outstanding under these plans, are only subject to a vesting condition. The Company recognizes stock-based compensation, based on grant date fair value, over the vesting period. Prior to the adoption of SFAS No. 123-R, unearned compensation associated with these restricted stock grants was included as a separate line in stockholders’ equity on the consolidated balance sheet. The unearned compensation presented in equity at December 31, 2005 was reclassified to paid-in capital in excess of par value concurrent with the adoption of SFAS No. 123-R.
There was approximately $28,000, $74,000, and $95,000 of unrecognized compensation cost related to unvested restricted stock at December 31, 2007, December 31, 2006, and January 1, 2006 (date of adoption of SFAS No. 123-R), respectively. There were 9,000, 11,000, and 19,000 unvested shares of restricted stock outstanding at December 31, 2007, December 31, 2006, and January 1, 2006, respectively. Restricted stock grants during the years ended December 31, 2006 and 2005 were 4,000 shares and 5,000 shares, respectively. No restricted stock was granted during the year ended December 31, 2007. No shares of restricted stock were forfeited during the years ended December 31, 2007, 2006, or 2005.
F-54
Note 13 – Commitments and Contingencies
Leases
The Company uses various leased facilities and equipment in its operations. In the normal course of business, operating leases are generally renewed or replaced by other leases. Certain operating leases include escalation clauses.
Total rental expense under operating leases was $35,244,000, $32,626,000, and $31,592,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
Future minimum lease payments for operating leases with initial or remaining noncancelable lease terms in excess of one year are as follows(in thousands):
| 2008 | $ | 26,235 |
| 2009 | | 22,545 |
| 2010 | | 20,247 |
| 2011 | | 17,277 |
| 2012 | | 14,182 |
| Thereafter | | 54,897 |
The Company also has capital lease obligations of $40,000 and $42,000 at December 31, 2007 and 2006, respectively.
Environmental Matters
The Company is subject to various federal, state, local, and foreign laws and regulations governing environmental matters, including the use, discharge, and disposal of hazardous materials. The Company’s manufacturing facilities are believed to be in substantial compliance with current laws and regulations. Complying with current laws and regulations has not had a material adverse effect on the Company’s financial condition.
The Company has engaged environmental consultants and attorneys to assist management in evaluating potential liabilities related to environmental matters. Management assesses the input from these consultants along with other information known to the Company in its effort to continually monitor these potential liabilities. Management assesses its environmental exposure on a site-by-site basis, including those sites where the Company has been named as a “potentially responsible party.” Such assessments include the Company’s share of remediation costs, information known to the Company concerning the size of the hazardous waste sites, their years of operation, and the number of past users and their financial viability.
As part of the acquisitions of General Semiconductor in 2001 and BCcomponents in 2002, the Company assumed responsibility for remediation of environmental matters. During the second quarter of 2006, in response to comments from the New York State Department of Environmental Conservation, the Company revised its workplan for one former General Semiconductor site. Based on this revised workplan, the Company re-evaluated its estimate of the ultimate remediation costs for this site and recorded an additional $3.6 million of expenses within selling, general, and administrative expenses to increase the liability recorded to its best estimate of remediation costs.
The Company has accrued environmental liabilities of $19.3 million as of December 31, 2007 relating to environmental matters related to its General Semiconductor subsidiary. The Company has accrued environmental liabilities of $5.9 million as of December 31, 2007 relating to environmental matters related to its BCcomponents subsidiary. The Company has also accrued approximately $7.7 million at December 31, 2007 for other environmental matters. The liabilities recorded for these matters total $32.9 million, of which $7.9 million is included in other accrued liabilities on the consolidated balance sheet, and $25.0 million is included in other noncurrent liabilities on the consolidated balance sheet.
F-55
Note 13 – Commitments and Contingencies (continued)
While the ultimate outcome of these matters cannot be determined, management does not believe that the final disposition of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows beyond the amounts previously provided for in the consolidated financial statements. The Company’s present and past facilities have been in operation for many years. These facilities have used substances and have generated and disposed of wastes which are or might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in the future, which the Company cannot now predict.
Litigation
The Company is a party to various claims and lawsuits arising in the normal course of business. The Company is of the opinion that these litigations or claims will not have a material negative effect on its consolidated financial position, results of operations, or cash flows.
Semiconductor Foundry Agreements
Our Siliconix subsidiary maintains long-term foundry agreements with subcontractors to ensure access to external front-end capacity.
In 2004, Siliconix signed a definitive long-term foundry agreement for semiconductor manufacturing with Tower Semiconductor, pursuant to which Siliconix would purchase semiconductor wafers from and transfer certain technology to Tower Semiconductor. Pursuant to the agreement, Siliconix was required to place orders valued at approximately $200 million for the purchase of semiconductor wafers to be manufactured in Tower’s Fab 1 facility over a seven to ten year period. The agreement specifies minimum quantities per month and a fixed quantity for the term of the agreement. Siliconix must pay for any short-fall in minimum order quantities specified under the agreement through the payment of penalties equal to unavoidable fixed costs.
The technology transfer from Siliconix to Tower was substantially completed in the third quarter of 2005. The purchase commitments are approximately $8 million for year one of the agreement; approximately $16 million for year two of the agreement; and approximately $29 million per year through the end of the agreement.
Pursuant to the agreement, Siliconix advanced $20 million to Tower in 2004, to be used for the purchase of additional equipment required to satisfy Siliconix’s orders. This advance was considered a prepayment on future wafer purchases, reducing the per wafer cost to Siliconix over the term of the agreement. The consolidated balance sheet as of December 31, 2006 included $1,995,000 in other current assets for prepayments expected to be utilized within one year and $15,926,000 in other assets related to credits to be utilized during the remaining term of the agreement.
During 2007, Siliconix was committed to purchase approximately $22 million of semiconductor wafers, but did not meet its commitments due to changing market demand for products manufactured using wafers supplied by Tower. Siliconix was required to pay penalties of approximately $1.7 million, which were recorded as a component of costs of products sold.
In January 2008, Siliconix reached an agreement in principle to revise the current arrangement with Tower to more accurately reflect market demand. Siliconix is presently negotiating the terms of a new legal contract. Based on the penalties paid in 2007 and the agreement in principle, management has determined that it is unlikely that Siliconix will be able to utilize the remaining prepayment of $16,393,000. Management has also accrued an additional $2,500,000 based on its best estimate of additional contract termination charges related to the original agreement.
Remaining future purchase commitments under the original Tower agreement are approximately $160 million. If Siliconix is unable to finalize a new agreement with Tower, significant additional penalties may be incurred.
F-56
Note 13 – Commitments and Contingencies (continued)
Also in 2004, Siliconix entered into a five-year foundry agreement for semiconductor manufacturing with a subcontractor in Japan. This agreement was a continuation and expansion of a previous technology transfer and business agreement for the manufacture of silicon wafers. The agreement calls for Siliconix to provide a rolling twelvemonth forecast of estimated requirements. The first six months of this forecast are fixed as to quantity, and the subsequent six months are guaranteed not to be less than a quantity stated in the agreement. Thereafter, the monthly quantity may vary based on market demand. Under the agreement, Siliconix must guarantee that its business with this subcontractor represents a minimum percentage of wafer requirements and is required to use its best efforts not to reduce the average monthly demand rate below a specified threshold.
Management believes that its minimum purchase commitments with this subcontractor are as follows(in thousands):
| 2008 | $ | 53,200 |
| 2009 | | 13,400 |
Management believes that actual purchases will be in excess of these minimum commitments. Purchases from this subcontractor in 2007 were approximately $57,300,000.
In 2007 Siliconix entered into a foundry agreement for semiconductor manufacturing with a subcontractor in Asia. The agreement calls for Siliconix to provide a rolling twelve-month forecast of estimated requirements. The first two months of this forecast are fixed as to quantity, and the third month is guaranteed at 50%. Production pursuant to this contract will not begin until May 2008. Accordingly, at December 31, 2007, the Company has no firm commitments under this contract.
These purchase commitments are for the manufacture of proprietary products using Siliconix-owned technology licensed to these subcontractors by Siliconix, and accordingly, management can only estimate the “market price” of the wafers which are the subject of these commitments. Management believes that these commitments are at prices which are not in excess of current market prices.
Other Purchase Commitments
See Note 14 for a discussion of tantalum purchase commitments.
The Company has various other purchase commitments incidental to the ordinary conduct of business. Such commitments are at prices which are not in excess of current market prices.
Product Quality Claims
The Company is a party to various product quality claims in the normal course of business. The Company provides warranties for its products which offer replacement of defective products. Annual warranty expenses are generally not significant. The Company periodically receives claims which arise from consequential damages which result from a customer’s installation of a defective Vishay component into the customer’s product. Although not covered by its stated warranty, Vishay may occasionally reimburse the customer for these consequential damages. During the third quarter of 2006, the Company resolved two such claims, and recorded expense of $2,885,000.
F-57
Note 13 – Commitments and Contingencies (continued)
Executive Employment Agreements
The Company has employment agreements with five of its executives. These employment agreements with provide incremental compensation in the event of termination. The Company does not provide any severance or other benefits specifically upon a change in control.
With the exception of the employment arrangement with Dr. Felix Zandman, Executive Chairman and founder of the Company, the executive employment contacts contain severance provisions providing generally for 3 years of compensation in the case of a termination without cause or a voluntary termination by the executive for “good reason” (as defined in the employment agreement). Specifically, severance items include:
- salary continuation for three years, payable over three years;
- 5,000 shares of common stock annually for three years;
- bonus for the year of termination;
- $1,500,000 lump sum cash payment. This payment replaces the annual deferred compensation credits and the annual bonus for the 3-year severance period; and
- lifetime continuation of executive’s life insurance and medical benefit up to $15,000 annual premium value.
Due to Dr. Zandman’s unique position with Vishay, the Compensation Committee of the Board of Directors decided that any severance package for Dr. Zandman would be negotiated at the time of Dr. Zandman’s termination of employment. Dr. Zandman’s employment agreement provides only that in the event of a termination by Vishay without cause or by Dr. Zandman for “good reason” (as defined in the employment agreement), Dr. Zandman will receive the annual bonus for the year of termination and the activation of a previously negotiated royalty arrangement. Under the royalty agreement, Dr. Zandman would be entitled to a royalty during the ten years following the date of termination equal to 5% of gross sales, less returns and allowances, of Vishay products incorporating any inventions created, discovered, or developed by or under the direction of Dr. Zandman after the date of Dr. Zandman’s original employment agreement of March 1985.
Based on a preliminary analysis, management estimates that products with annual sales in 2007 of approximately $1.7 billion would be subject to the royalty. The actual royalty payments would be based on the annual sales during the royalty period, which could be higher or lower depending on increases or decreases in sales of existing products, and sales of new products, that incorporate Dr. Zandman’s inventions. The Company believes that it is unlikely that these royalty payments would be triggered.
F-58
Note 14 – Current Vulnerability Due to Certain Concentrations
Market Concentrations
While no single customer comprises greater than 10% of net revenues, a material portion of the Company’s revenues are derived from the worldwide communications and computer markets. These markets have historically experienced wide variations in demand for end products. If demand for these end products should decrease, the producers thereof could reduce their purchases of the Company’s products, which could have a material adverse effect on the Company’s results of operations and financial position.
Credit Risk Concentrations
Financial instruments with potential credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with various major financial institutions. Concentrations of credit risk with respect to receivables are generally limited due to the Company’s large number of customers and their dispersion across many countries and industries. At December 31, 2007 and 2006, the Company had no significant concentrations of credit risk.
Sources of Supplies
Many of the Company’s products require the use of raw materials that are produced in only a limited number of regions around the world or are available from only a limited number of suppliers. The Company’s consolidated results of operations may be materially and adversely affected if the Company has difficulty obtaining these raw materials, the quality of available raw materials deteriorates or there are significant price increases for these raw materials. For periods in which the prices of these raw materials are rising, the Company may be unable to pass on the increased cost to the Company’s customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, the Company may be required to write down its inventory carrying cost of these raw materials which, depending on the extent of the difference between market price and its carrying cost, could have a material adverse effect on the Company’s net earnings.
From time to time, there have been short-term market shortages of raw materials utilized by the Company. While these shortages have not historically adversely affected the Company’s ability to increase production of products containing these raw materials, they have historically resulted in higher raw material costs for the Company. The Company cannot assure that any of these market shortages in the future would not adversely affect the Company’s ability to increase production, particularly during periods of growing demand for the Company’s products.
Tantalum
Vishay is a major consumer of the world’s annual production of tantalum. Tantalum, a metal purchased in powder or wire form, is the principal material used in the manufacture of tantalum capacitors. There are currently three major suppliers that process tantalum ore into capacitor grade tantalum powder.
The Company was obligated under two contracts entered into in 2000 with Cabot Corporation to make purchases of tantalum through 2006. The Company’s purchase commitments were entered into at a time when market demand for tantalum capacitors was high and tantalum powder was in short supply. Since that time, the price of tantalum has decreased significantly, and accordingly, the Company wrote down the carrying value of its tantalum inventory on-hand and recognized losses on purchase commitments.
During the year ended December 31, 2006, the Company recorded write-downs and write-offs of tantalum inventories totaling $9,602,000, included in costs of products sold, to reduce the carrying value of its tantalum inventories to market value and to write-off obsolete inventories from discontinued tantalum capacitor product lines.
F-59
Note 14 – Current Vulnerability Due to Certain Concentrations (continued)
During the term of the contracts with Cabot Corporation, the Company regularly reviewed its liability for purchase commitments. The Company’s liability for purchase commitments was estimated based on contractually obligated purchase prices, expected market prices, and the contractually obligated mix of tantalum-grades to be purchased. The mix of tantalum-grades to be purchased is within a range specified in the contracts. Changes in expected market prices and in the Company’s mix of tantalum-grade purchases required the Company to record additional gains or losses on its purchase commitments.
The Company recorded loss (gain) adjustments to its tantalum purchase commitments of $5,687,000 and $(963,000) for the years ended December 31, 2006 and 2005, respectively.
The loss on purchase commitments recorded during 2006 was due to a decline in market prices for tantalum, as well as changes in the mix of tantalum-grade purchases. Of the total amount recorded, approximately $2.8 million was attributable to the decline in market value, while another $2.9 million was attributable to changes in the mix of tantalum-grade purchases.
The net gain on purchase commitments recorded during 2005 was attributable to a conditional price reduction included in one of the Company’s contracts with Cabot, which offset changes in the mix of tantalum-grade purchases. The conditions necessary to receive price reductions in 2006 were met during the fourth quarter of 2005, and accordingly, the Company’s estimates of its liability for these purchase commitments were adjusted to reflect the fact that the Company would receive these conditional price reductions for the remainder of the contract. The amount of this adjustment was approximately $7 million. This adjustment, net of approximately $6 million of costs associated with differences between the actual and anticipated mix of tantalum-grades purchased during 2005, resulted in the net gain of $963,000 included on the consolidated statement of operations for the year ended December 31, 2005.
The Company purchased $63,012,000 and $101,057,000 under these contracts during the years ended December 31, 2006 and 2005, respectively. As of December 31, 2006, the Company has fulfilled all obligations under the Cabot contracts and is no longer required to purchase tantalum from Cabot at these fixed prices.
At December 31, 2007 and 2006, the Company had tantalum with a book value of $79,030,000 and $108,038,000, respectively. Of these amounts, the Company classified $36,189,000 and $64,818,000, respectively, as other assets, representing the value of quantities which would not be used within one year.
Geographic Concentration
The Company has significant manufacturing operations in Israel in order to benefit from that country’s lower wage rates, highly skilled labor force, government-sponsored grants, and various tax abatement programs. Israeli incentive programs have contributed substantially to the growth and profitability of the Company. The Company might be materially and adversely affected if these incentive programs were no longer available to the Company or if events were to occur in the Middle East that materially interfered with the Company’s operations in Israel.
F-60
Note 15 –Segment and Geographic Data
Vishay designs, manufactures, and markets electronic components that cover a wide range of products and technologies. The Company has two reportable segments: Semiconductors consisting principally of diodes, transistors, power MOSFETs, power conversion, motor control integrated circuits, optoelectronic components, and IRDCs, and Passive Components consisting principally of fixed resistors, solid tantalum surface mount chip capacitors, solid tantalum leaded capacitors, wet/foil tantalum capacitors, multi-layer ceramic chip capacitors, film capacitors, inductors, transducers, strain gages, and load cells.
The Company evaluates business segment performance on operating income, exclusive of certain items. Management believes that evaluating segment performance excluding items such as restructuring and severance costs, asset write-downs, inventory write-downs, gains or losses on purchase commitments, contract termination charges, charges for in-process research and development, and other items is meaningful because it provides insight with respect to intrinsic operating results of the Company. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies (see Note 1). Business segment assets are the owned or allocated assets used by each business. The following table sets forth business segment information(in thousands):
| Semi- | | Passive | | Corporate/ | | | |
| conductors | | Components | | Other | | Total |
| 2007 | | | | | | | | | | | | |
| Net revenues | $ | 1,489,600 | | $ | 1,343,666 | | $ | - | | | $ | 2,833,266 |
| Segment operating income (loss) | | 164,380 | | | 116,038 | | | (62,050 | ) | | | 218,368 |
| Restructuring and severance costs | | 1,759 | | | 12,922 | | | - | | | | 14,681 |
| Asset write-downs | | 2,665 | | | 1,204 | | | - | | | | 3,869 |
| Depreciation expense | | 102,557 | | | 91,766 | | | 2,241 | | | | 196,564 |
| Interest expense | | 426 | | | 545 | | | 27,681 | | | | 28,652 |
| Capital expenditures | | 124,498 | | | 69,876 | | | 5,653 | | | | 200,027 |
| Total assets | | 2,693,668 | | | 2,209,724 | | | 91,843 | | | | 4,995,235 |
| |
| 2006 | | | | | | | | | | | | |
| Net revenues | $ | 1,291,432 | | $ | 1,290,045 | | $ | - | | | $ | 2,581,477 |
| Segment operating income (loss) | | 181,462 | | | 125,310 | | | (97,572 | ) | | | 209,200 |
| Restructuring and severance costs | | 16,345 | | | 23,875 | | | - | | | | 40,220 |
| Asset write-downs | | 3,748 | | | 2,937 | | | - | | | | 6,685 |
| Depreciation expense | | 90,171 | | | 89,632 | | | 1,749 | | | | 181,552 |
| Interest expense | | 611 | | | 1,468 | | | 30,136 | | | | 32,215 |
| Capital expenditures | | 117,937 | | | 63,082 | | | 2,279 | | | | 183,298 |
| Total assets | | 2,301,520 | | | 2,320,655 | | | 69,721 | | | | 4,691,896 |
| |
| 2005 | | | | | | | | | | | | |
| Net revenues | $ | 1,142,492 | | $ | 1,154,029 | | $ | - | | | $ | 2,296,521 |
| Segment operating income (loss) | | 126,119 | | | 49,766 | | | (80,125 | ) | | | 95,760 |
| Restructuring and severance costs | | 8,861 | | | 20,911 | | | - | | | | 29,772 |
| Asset write-downs | | 543 | | | 10,873 | | | - | | | | 11,416 |
| Depreciation expense | | 87,238 | | | 85,713 | | | 1,488 | | | | 174,439 |
| Interest expense | | 345 | | | 1,862 | | | 31,383 | | | | 33,590 |
| Capital expenditures | | 89,323 | | | 45,367 | | | 2,024 | | | | 136,714 |
| Total assets | | 2,239,569 | | | 2,210,715 | | | 77,307 | | | | 4,527,591 |
F-61
Note 15 –Segment and Geographic Data (continued)
Corporate assets include corporate cash, property and equipment, and certain other assets. The “Corporate/Other” column for segment operating income (loss) includes corporate selling, general, and administrative expenses and certain items which management excludes from segment results when evaluating segment performance, as follows(in thousands):
| Years ended December 31, |
| 2007 | | 2006 | | 2005 |
| Corporate selling, general, and administrative expenses | $ | (27,725 | ) | | $ | (28,893 | ) | | $ | (26,455 | ) |
| (Loss) gain on purchase commitments | | - | | | | (5,687 | ) | | | 963 | |
| Write-downs of tantalum and palladium | | - | | | | (9,602 | ) | | | - | |
| Siliconix transaction-related expenses | | - | | | | - | | | | (3,751 | ) |
| Purchased in-process research and development | | - | | | | - | | | | (9,694 | ) |
| Restructuring and severance costs | | (14,681 | ) | | | (40,220 | ) | | | (29,772 | ) |
| Asset write-downs | | (3,869 | ) | | | (6,685 | ) | | | (11,416 | ) |
| Contract termination charge | | (18,893 | ) | | | - | | | | - | |
| Gain on sale of building | | 3,118 | | | | - | | | | - | |
| Product quality claims | | - | | | | (2,885 | ) | | | - | |
| Environmental | | - | | | | (3,600 | ) | | | - | |
| $ | (62,050 | ) | | $ | (97,572 | ) | | $ | (80,125 | ) |
The following geographic data include net revenues based on revenues generated by subsidiaries located within that geographic area and property and equipment based on physical location(in thousands):
Net Revenues
| Years ended December 31, |
| 2007 | | 2006 | | 2005 |
| United States | $ | 482,395 | | $ | 464,915 | | $ | 421,077 |
| Germany | | 803,233 | | | 655,048 | | | 540,132 |
| Other Europe | | 284,730 | | | 341,845 | | | 382,734 |
| Israel | | 228,258 | | | 205,266 | | | 180,115 |
| Asia | | 1,034,650 | | | 914,403 | | | 772,463 |
| $ | 2,833,266 | | $ | 2,581,477 | | $ | 2,296,521 |
Property and Equipment - Net
| December 31, |
| 2007 | | 2006 |
| United States | $ | 180,743 | | $ | 174,339 |
| Germany | | 163,504 | | | 146,673 |
| Czech Republic | | 75,705 | | | 66,163 |
| Other Europe | | 157,029 | | | 114,678 |
| Israel | | 201,079 | | | 217,079 |
| People's Republic of China | | 204,248 | | | 187,792 |
| Republic of China (Taiwan) | | 154,236 | | | 150,549 |
| Other Asia | | 78,529 | | | 61,481 |
| Other | | 5,925 | | | 5,611 |
| $ | 1,220,998 | | $ | 1,124,365 |
F-62
Note 16 – Earnings Per Share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted earnings per share is computed using the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of stock options (see Note 12), warrants (see Note 7), convertible debt instruments (see Note 6), and other potentially dilutive securities.
The following table sets forth the computation of basic and diluted earnings per share(in thousands, except per share amounts):
| Years ended December 31, |
| 2007 | | 2006 | | 2005 |
| Numerator: | | | | | | | | | |
| Numerator for basic earnings per share: | | | | | | | | | |
| Income from continuing operations | $ | 140,351 | | | $ | 139,736 | | $ | 62,274 |
| Loss from discontinued operations | | (9,587 | ) | | | - | | | - |
| Net earnings | $ | 130,764 | | | $ | 139,736 | | $ | 62,274 |
| |
| Adjustment to the numerator for continuing | | | | | | | | | |
| operations and net earnings: | | | | | | | | | |
| Interest savings assuming conversion of | | | | | | | | | |
| dilutive convertible and exchangeable | | | | | | | | | |
| notes, net of tax | | 6,724 | | | | 13,518 | | | 2,722 |
| |
| Numerator for diluted earnings per share: | | | | | | | | | |
| Income from continuing operations | $ | 147,075 | | | $ | 153,254 | | $ | 64,996 |
| Loss from discontinued operations | | (9,587 | ) | | | - | | | - |
| Net earnings | $ | 137,488 | | | $ | 153,254 | | $ | 64,996 |
| |
| Denominator: | | | | | | | | | |
| Denominator for basic earnings per share: | | | | | | | | | |
| Weighted average shares | | 185,646 | | | | 184,400 | | | 177,606 |
| |
| Effect of dilutive securities | | | | | | | | | |
| Convertible and exchangeable notes | | 12,051 | | | | 25,114 | | | 10,737 |
| Employee stock options | | 423 | | | | 722 | | | 907 |
| Other | | 106 | | | | 80 | | | 71 |
| Dilutive potential common shares | | 12,580 | | | | 25,916 | | | 11,715 |
| |
| Denominator for diluted earnings per share - | | | | | | | | | |
| adjusted weighted average shares | | 198,226 | | | | 210,316 | | | 189,321 |
| |
| Basic earnings (loss) per share:* | | | | | | | | | |
| Continuing operations | $ | 0.76 | | | $ | 0.76 | | $ | 0.35 |
| Discontinued operations | $ | (0.05 | ) | | $ | - | | $ | - |
| Net earnings | $ | 0.70 | | | $ | 0.76 | | $ | 0.35 |
| |
| Diluted earnings (loss) per share:* | | | | | | | | | |
| Continuing operations | $ | 0.74 | | | $ | 0.73 | | $ | 0.34 |
| Discontinued operations | $ | (0.05 | ) | | $ | - | | $ | - |
| Net earnings | $ | 0.69 | | | $ | 0.73 | | $ | 0.34 |
* May not add due to rounding
F-63
Note 16 – Earnings Per Share (continued)
Diluted earnings per share for the years presented do not reflect the following weighted average potential common shares, as the effect would be antidilutive(in thousands):
| 2007 | | 2006 | | 2005 |
| Convertible and exchangeable notes: | | | | | |
| Convertible Subordinated Notes, due 2023 | 17,622 | | - | | 23,496 |
| Exchangeable Unsecured Notes, due 2102 | - | | 6,176 | | 6,176 |
| LYONs, due 2021 | - | | - | | - |
| Weighted average employee stock options | 3,849 | | 4,936 | | 6,300 |
| Weighted average warrants | 8,824 | | 8,824 | | 8,824 |
In periods in which they are dilutive, if the potential common shares related to the convertible and exchangeable notes are included in the computation, the related interest savings, net of tax, assuming conversion/exchange is added to the net earnings used to compute earnings per share.
The convertible subordinated notes, due 2023 are only convertible upon the occurrence of certain events. While none of these events has occurred as of December 31, 2007, certain conditions which could trigger conversion have been deemed to be non-substantive, and accordingly, the Company has always assumed the conversion of these notes in its diluted earnings per share computation during periods in which they are dilutive.
As described in Note 6, in June 2007, the Company’s Board of Directors adopted a resolution pursuant to which the Company intends to waive its rights to settle the principal amount of the convertible subordinated notes, due 2023, in shares of Vishay common stock. Accordingly, the notes will be included in the diluted earnings per share computation using the “treasury stock method” (similar to options and warrants) rather than the “if converted method” otherwise required for convertible debt. Under the “treasury stock method,” Vishay will calculate the number of shares issuable under the terms of the notes based on the average market price of Vishay common stock during the period, and that number will be included in the total diluted shares figure for the period. If the average market price is less than $21.28, no shares will be included in the diluted earnings per share computation. For the year ended December 31, 2007, the computation of diluted earnings per share is weighted for the periods that the notes were considered conventional convertible debt and for the period the notes were considered net share settlement securities.
As described in Note 6, the Company made a cash repurchase of all outstanding LYONs pursuant to the option of the holders to require the Company to repurchase the LYONs on June 4, 2006. In 2004 and 2005, based on its action to settle the holders’ purchase option on the June 4, 2004 purchase date in common stock, the Company assumed for purposes of the earnings per share computation that all future purchase options for the LYONs would be settled in stock based on the settlement formula set forth in the indenture governing the LYONs. Due to the decision to utilize cash to repurchase the notes on the June 4, 2006 purchase date, the earnings per share computation for 2006 is based on the 3,809,000 shares that would have been issued in a normal conversion, weighted for the period they were outstanding.
F-64
Note 17 – Additional Cash Flow Information
Changes in operating assets and liabilities, net of effects of businesses acquired consists of the following(in thousands):
| Years ended December 31, |
| 2007 | | 2006 | | 2005 |
| Accounts receivable | $ | (63,248 | ) | | $ | 18,662 | | | $ | (13,454 | ) |
| Inventories | | 31,907 | | | | (66,922 | ) | | | (28,238 | ) |
| Prepaid expenses and other current assets | | (35,799 | ) | | | (34,955 | ) | | | 41,509 | |
| Accounts payable | | 8,934 | | | | (3,496 | ) | | | 13,072 | |
| Other current liabilities | | (19,120 | ) | | | 37,079 | | | | (57,077 | ) |
| Net change in operating assets and liabilities | $ | (77,326 | ) | | $ | (49,632 | ) | | $ | (44,188 | ) |
F-65
Note 18 – Summary of Quarterly Financial Information (Unaudited)
| | | 2007 | | 2006 |
| | | First | | Second | | Third | | Fourth | | First | | Second | | Third | | Fourth |
| Statement of Operations data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net revenues | | $ | 658,192 | | | $ | 715,861 | | | $ | 729,616 | | | $ | 729,597 | | | $ | 631,086 | | | $ | 660,523 | | | $ | 654,381 | | | $ | 635,487 | |
| Gross profit | | | 175,151 | | | | 177,915 | | | | 174,800 | | | | 166,962 | | | | 156,497 | | | | 179,921 | | | | 167,588 | | | | 155,126 | |
| Operating income | | | 67,657 | | | | 60,756 | | | | 54,294 | | | | 35,661 | | | | 60,805 | | | | 63,951 | | | | 47,534 | | | | 36,910 | |
| Net income from | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| continuing operations | | | 49,964 | | | | 42,045 | | | | 37,099 | | | | 11,243 | | | | 38,160 | | | | 42,842 | | | | 32,482 | | | | 26,252 | |
| Loss from discontinued operations | | | - | | | | (1,298 | ) | | | (1,924 | ) | | | (6,365 | ) | | | - | | | | - | | | | - | | | | - | |
| Net earnings | | | 49,964 | | | | 40,747 | | | | 35,175 | | | | 4,878 | | | | 38,160 | | | | 42,842 | | | | 32,482 | | | | 26,252 | |
| |
| Per Share Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic earnings (loss) per share (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.27 | | | $ | 0.23 | | | $ | 0.20 | | | $ | 0.06 | | | $ | 0.21 | | | $ | 0.23 | | | $ | 0.18 | | | $ | 0.14 | |
| Discontinued operations | | $ | - | | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Net earnings | | $ | 0.27 | | | $ | 0.22 | | | $ | 0.19 | | | $ | 0.03 | | | $ | 0.21 | | | $ | 0.23 | | | $ | 0.18 | | | $ | 0.14 | |
| |
| Diluted earnings (loss) per share (a) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Continuing operations | | $ | 0.25 | | | $ | 0.22 | | | $ | 0.20 | | | $ | 0.06 | | | $ | 0.20 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.14 | |
| Discontinued operations | | $ | - | | | $ | (0.01 | ) | | $ | (0.01 | ) | | $ | (0.03 | ) | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Net earnings | | $ | 0.25 | | | $ | 0.22 | | | $ | 0.19 | | | $ | 0.03 | | | $ | 0.20 | | | $ | 0.22 | | | $ | 0.17 | | | $ | 0.14 | |
| |
| Certain Items Recorded | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| during the Quarters: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross profit: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on purchase commitments | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (3,303 | ) | | $ | (794 | ) | | $ | (741 | ) | | $ | (849 | ) |
| Write-downs of tantalum | | | - | | | | - | | | | - | | | | - | | | | (8,828 | ) | | | - | | | | (1,374 | ) | | | - | |
| Product quality claims | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2,885 | ) | | | - | |
| |
| Operating profit: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Restructuring and severance costs | | $ | (2,026 | ) | | $ | (1,240 | ) | | $ | (9,920 | ) | | | (1,495 | ) | | $ | (698 | ) | | $ | (8,227 | ) | | $ | (19,160 | ) | | $ | (12,135 | ) |
| Asset write-downs | | | - | | | | (2,665 | ) | | | - | | | | (1,204 | ) | | | (80 | ) | | | (3,794 | ) | | | (2,709 | ) | | | (102 | ) |
| Gain on sale of building | | | - | | | | - | | | | - | | | | 3,118 | | | | - | | | | - | | | | - | | | | - | |
| Contract termination charge | | | - | | | | - | | | | - | | | | (18,893 | ) | | | - | | | | - | | | | - | | | | - | |
| Environmental remediation | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3,600 | ) | | | - | | | | - | |
| |
| Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss on early extinguishment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| of debt | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | (2,854 | ) | | $ | - | | | $ | - | |
| |
| One-time tax benefits (expense) | | $ | - | | | $ | (3,394 | ) | | $ | 948 | | | $ | (5,861 | ) | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| |
| Quarter end date(b) | | Mar. 31 | | June 30 | | Sept. 29 | | Dec. 31 | | Apr. 1 | | Jul. 1 | | Sept. 30 | | Dec. 31 |
____________________
(a) May not add due to rounding.
(b) The Company reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first quarter, which always begins on January 1, and the fourth quarter, which always ends on December 31.F-66
