SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
-----------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission File Number 1-7416
------
VISHAY INTERTECHNOLOGY, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-1686453
-------- ----------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2120
--------------------------------
(Address of principal executive offices)
(610) 644-1300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
As of August 10, 2001 registrant had 122,432,672 shares of its Common Stock and
15,506,634 shares of its Class B Common Stock outstanding.
VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
June 30, 2001
CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Balance Sheets -
June 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Operations -
Three Months Ended June 30, 2001 and 2000 5
Consolidated Condensed Statements of Operations -
Six Months Ended June 30, 2001 and 2000 6
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 2001 and 2000 7
Notes to Consolidated Condensed Financial 8
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION 19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Unaudited - In thousands)
June 30, December 31,
ASSETS 2001 2000
--------- ------------
CURRENT ASSETS
Cash and cash equivalents $451,728 $337,213
Accounts receivable 388,766 452,579
Inventories:
Finished goods 236,436 179,286
Work in process 130,428 130,682
Raw materials 236,572 215,894
Deferred income taxes 31,203 32,051
Prepaid expenses and other current assets 146,269 127,169
------------- -----------
TOTAL CURRENT ASSETS 1,621,402 1,474,874
PROPERTY AND EQUIPMENT - AT COST
Land 40,178 47,625
Buildings and improvements 260,226 265,311
Machinery and equipment 1,230,583 1,168,241
Construction in progress 61,223 83,768
Allowance for depreciation (627,724) (591,391)
------------- -----------
964,486 973,554
GOODWILL 304,952 295,759
OTHER ASSETS 40,928 39,471
------------- -----------
$2,931,768 $2,783,658
============= ===========
3
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
----------- ------------
CURRENT LIABILITIES
Notes payable to banks $4,402 $8,250
Trade accounts payable 77,155 120,070
Payroll and related expenses 63,499 111,132
Other accrued expenses 169,134 146,157
Income taxes 24,032 31,915
Current portion of long-term debt 125 150
---------- ----------
TOTAL CURRENT LIABILITIES 338,347 417,674
LONG-TERM DEBT 304,406 140,467
DEFERRED INCOME TAXES 73,756 79,109
DEFERRED INCOME 54,499 55,162
MINORITY INTEREST 66,488 63,480
OTHER LIABILITIES 94,012 93,157
ACCRUED PENSION COSTS 93,845 100,754
STOCKHOLDERS' EQUITY
Common Stock 12,243 12,241
Class B Common Stock 1,551 1,552
Capital in excess of par value 1,319,185 1,319,426
Retained earnings 708,707 615,455
Accumulated other comprehensive loss (134,223) (113,571)
Unearned compensation (1,048) (1,248)
----------- ----------
1,906,415 1,833,855
----------- ----------
$2,931,768 $2,783,658
=========== ==========
See Notes to Consolidated Condensed Financial Statements.
4
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Three Months Ended
June 30,
2001 2000
-------------- -------------
Net sales $383,437 $612,771
Costs of products sold 282,386 358,675
-------------- -------------
GROSS PROFIT 101,051 254,096
Selling, general, and administrative expenses 64,180 74,400
Restructuring expense 29,305 -
Amortization of goodwill 2,752 2,911
-------------- -------------
OPERATING INCOME 4,814 176,785
Other income (expense):
Interest expense (4,011) (7,905)
Gain on termination of interest rate swap agreements - 6,375
Other 7,827 2,714
-------------- -------------
3,816 1,184
-------------- -------------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 8,630 177,969
Income taxes 4,164 39,385
Minority interest 1,340 6,731
-------------- -------------
NET EARNINGS $3,126 $131,853
============== =============
Basic earnings per share $0.02 $0.97
Diluted earnings per share $0.02 $0.96
Weighted average shares outstanding - basic 137,707 135,574
Weighted average shares outstanding - diluted 139,159 137,919
See Notes to Consolidated Condensed Financial Statements.
5
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(Unaudited - In thousands except earnings per share)
Six Months Ended
June 30,
2001 2000
-------------- -------------
Net sales $941,902 $1,151,665
Costs of products sold 641,997 709,853
------------- ------------
GROSS PROFIT 299,905 441,812
Selling, general, and administrative expenses 136,409 142,344
Restructuring expense 35,276 -
Amortization of goodwill 5,667 6,047
------------- ------------
OPERATING INCOME 122,553 293,421
Other income (expense):
Interest expense (6,949) (20,420)
Gain on termination of interest rate swap agreements - 6,375
Other 12,564 2,540
------------- ------------
5,615 (11,505)
------------- ------------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 128,168 281,916
Income taxes 31,085 62,839
Minority interest 3,831 12,953
------------- ------------
NET EARNINGS $93,252 $206,124
============= ============
Basic earnings per share $0.68 $1.55
Diluted earnings per share $0.67 $1.52
Weighted average shares outstanding - basic 137,700 132,796
Weighted average shares outstanding - diluted 140,433 135,328
See Notes to Consolidated Condensed Financial Statements.
6
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)
Six Months Ended
June 30,
2001 2000
----------- ----------
OPERATING ACTIVITIES
Net earnings $93,252 $206,124
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 81,525 71,396
Loss on disposal of property and equipment 456 1,565
Amortization of imputed interest 657 -
Writedown of inventory, machinery and equipment 37,853 -
Minority interest in net earnings of consolidated subsidiaries 3,832 12,953
Other 13,696 (2,756)
Changes in operating assets and liabilities (160,856) (90,182)
------------ ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 70,415 199,100
INVESTING ACTIVITIES
Purchase of property and equipment (95,903) (89,616)
Proceeds from sale of property and equipment 6,319 3,868
Deconsolidation of LPSC - (7,574)
Purchase of businesses, net of cash acquired (18,251) -
------------ ----------
NET CASH USED IN INVESTING ACTIVITIES (107,835) (93,322)
FINANCING ACTIVITIES
Principal payments on long-term debt (58) (97)
Net payments on revolving credit lines (139,755) (471,155)
Issuance of convertible subordinated debentures 303,193 -
Net changes in short-term borrowings (3,337) (1,147)
Common stock repurchase (851) -
Proceeds from sale of common stock - 395,747
Proceeds from stock options exercised 435 39,617
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 159,627 (37,035)
Effect of exchange rate changes on cash (7,692) (1,908)
------------ -----------
INCREASE IN CASH AND
CASH EQUIVALENTS 114,515 66,835
Cash and cash equivalents at beginning of period 337,213 105,193
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $451,728 $172,028
============ ===========
See Notes to Consolidated Condensed Financial Statements.
7
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Note 1: Basis of Presentation
---------------------
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all information and footnotes necessary for the
presentation of financial position, results of operations, and cash flows
required by generally accepted accounting principles for complete financial
statements. The information furnished reflects all adjustments (consisting of
normal recurring adjustments) which are, in the opinion of management, necessary
for a fair summary of the financial position, results of operations, and cash
flows for the interim period presented. The financial statements should be read
in conjunction with the financial statements and notes thereto filed with the
Company's Form 10-K for the year ended December 31, 2000. The results of
operations for the three months and six months ended June 30, 2001 are not
necessarily indicative of the results to be expected for the full year.
Note 2: Change in Accounting Principle
------------------------------
On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and two related statements. The Company recorded a $51,435
derivative asset upon adoption, reflecting the cumulative effect of this change
in accounting principle relating to the fair value of an interest-rate swap
agreement.
Note 3: Earnings Per Share
------------------
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except earnings per share):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---------------- -------------- ------------- -------------
Numerator:
Net income $ 3,126 $131,853 $93,252 $206,124
Add: Interest expense on
convertible debentures, net of tax - - 454 -
---------------- -------------- ------------- -------------
$ 3,126 $131,853 $93,706 $206,124
Denominator:
Denominator for basic earnings per share -
weighted average shares 137,707 135,574 137,700 132,796
Effect of dilutive securities:
Stock appreciation rights - - - 290
Employee stock options 1,283 2,141 1,174 2,042
Convertible subordinated debentures - - 1,396 -
Other 169 204 163 200
---------------- -------------- ------------- -------------
Dilutive potential common shares 1,452 2,345 2,733 2,532
Denominator for diluted earnings per
share - adjusted weighted average shares 139,159 137,919 140,433 135,328
Basic earnings per share $0.02 $0.97 $0.68 $1.55
================ ============= ============= =============
Diluted earnings per share $0.02 $0.96 $0.67 $1.52
================ ============= ============= =============
8
Note 4: Business Segment Information
----------------------------
The Company designs, manufactures, and markets electronic components
that cover a wide range of products and technologies. The Company has two
reportable segments: Passive Electronic Components (Passives) and Active
Electronic Components (Actives). The Company evaluates performance and allocates
resources based on several factors, of which the primary financial measure is
business segment operating income excluding amortization of intangibles. The
corporate component of operating income represents corporate selling, general,
and administrative expenses.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
--------------- --------------- --------------- ----------------
Business Segment Information
(in thousands)
Net Sales:
Passives $ 251,593 $ 394,297 $ 645,078 $ 719,807
Actives 131,844 218,474 296,824 431,858
--------- --------- --------- ----------
$ 383,437 $ 612,771 $ 941,902 $1,151,665
--------- --------- --------- ----------
Operating Income:
Passives $ 1,137 $ 135,103 $ 101,157 $213,077
Actives 11,094 55,944 36,795 104,610
Corporate (4,665) (11,351) (9,732) (18,219)
Amortization of goodwill (2,752) (2,911) (5,667) (6,047)
--------- --------- --------- --------
$ 4,814 $ 176,785 $ 122,553 $293,421
--------- --------- --------- --------
9
Note 5: Comprehensive Income
--------------------
Comprehensive income includes the following components (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------ ----------- ----------- ------------
Net Income $3,126 $131,853 $93,252 $206,124
Cumulative effect of change
in accounting principle - - 51 -
Other comprehensive income (loss):
Foreign currency translation adjustment (346) (4,226) (19,080) (18,233)
Unrealized gain (loss) on interest rate swap 80 - (2,107) -
Pension liability adjustment, net of tax 208 46 535 277
------- -------- -------- --------
Total other comprehensive loss (58) (4,180) (20,652) (17,956)
------- -------- -------- --------
Comprehensive income $3,068 $127,673 $72,651 $188,168
====== ======== ======== ========
Note 6: Restructuring Expense
---------------------
The Company incurred restructuring expense of $29,305,000 for the
quarter ended June 30, 2001. Restructuring of European and Israeli operations
included $8,505,000 of employee termination costs covering 1,709 technical,
production, administrative, and support employees located in France, Hungary,
Portugal, Austria, the Phillipines, Germany, and Israel. The European operations
also recorded $2,546,000 of non-cash costs associated with the writedown of
buildings and equipment that is no longer in use. In the United States,
$4,050,000 of restructuring expense relates to employee termination costs
covering 758 technical, production, administrative and support employees. The
remaining $14,204,000 of restructuring expense relates to the non-cash writedown
of buildings and equipment that is no longer in use.
Restructuring expense was $35,276,000 for the six months ended June 30,
2001. Restructuring of European operations included $13,073,000 of employee
termination costs covering approximately 1,785 technical, production,
administrative and support employees located in France, Hungary, Portugal,
Austria, the Phillipines, Germany, and Israel. The European operations also
recorded $2,546,000 of non-cash costs associated with the writedown of buildings
and equipment that is no longer in use. In the United States, $5,453,000 of
restructuring expense relates to termination costs for approximately 1,101
technical, production, administrative and support employees. The remaining
$14,204,000 of restructuring expense relates to the non-cash writedown of
buildings and equipment that is no longer in use.
The restructuring expense reflects a portion of the cost reduction
programs currently being implemented by the Company. The Company expects to take
additional restructuring charges of approximately $35 million during 2001. As of
June 30, 2001, $14,253,000 of severance costs have been paid. The remaining
$4,272,000 of severance costs, currently shown in other accrued expenses, should
be paid by December 31, 2001.
10
Note 7: Acquisition
-----------
In January 2001, the Company purchased Tansitor, a leading manufacturer
of wet tantalum electrolytic capacitors and miniature conformal coated solid
tantalum capacitors, for $18.2 million. The results of operations of Tansitor
are included in the Company's results from January 1, 2001. Goodwill of
$11,090,000 is being amortized over twenty years. The pro forma effect of this
acquisition is not material.
Note 8: Proposed Purchase of Siliconix Shares
-------------------------------------
In May 2001, the Company commenced a tender offer to exchange 1.5
shares of its common stock for each share of common stock of Siliconix that it
did not already own, or 5,849,040 shares. The offer was conditioned on there
being validly tendered and not withdrawn a majority of such shares (2,924,521
shares). The offer remained open for approximately six weeks but expired on July
5, 2001, with only 2,347,200 shares having been tendered. Accordingly, the
Company did not purchase any Siliconix shares pursuant to the tender offer.
Note 9: Pending Accounting Pronouncements
---------------------------------
In June 2001, the Financial Accounting Standards Board (FASB) approved
the issuance of Statements of Financial Accounting Standards No. 141, "Business
Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). These Statements change the accounting for business
combinations, goodwill, and intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives.
The Company is required to adopt the new rules effective January 1,
2002, except that the new rules are effective for any business combination that
is completed after June 30, 2001. The Company has not yet determined what the
effect of these statements will be on the earnings and financial position of the
Company.
Note 10: Convertible Subordinated Debentures
-----------------------------------
On June 4, 2001, the Company completed a private placement of
$550,000,000 face amount Liquid Yield Option Notes (LYONs) due 2021. In
connection with the sale of the LYONs, the Company received net proceeds of
$294,096,000 and used the proceeds to pay down existing bank debt. Each LYON has
a $1,000 face amount and was offered at a price of $551.26 (55.126% of the
principle amount at maturity). The Company will not pay interest on the LYONs
prior to maturity unless contingent interest becomes payable. Instead, on June
4, 2021, the maturity date of the LYONs, the holders will receive $1,000 per
LYON. The issue price of each LYON represents a yield to maturity of 3.00%,
excluding any contingent interest. The LYONs are subordinated in right of
payment to all of the Company's existing and future senior indebtedness.
At any time on or before the maturity date, the LYONs are convertible
into Vishay common stock at a rate of 17.6686 shares of common stock per $1,000
principle amount at maturity.
11
The conversion rate may be adjusted under certain circumstances, but it will not
be adjusted for accrued original issue discount.
The Company is required to pay contingent interest to the holders of
the LYONs during the six-month period commencing June 4, 2006 and during any
six-month period thereafter if the average market price of a LYON for a certain
measurement period immediately preceding the applicable six-month period equals
120% or more of the sum of the issue price and accrued original issue discount
for such LYON. The amount of contingent interest payable during any six-month
period will be the sum of any contingent interest payable in the first and
second three-month periods during such six-month period. During any three-month
period in which contingent interest becomes payable, the contingent interest
payable per LYON for such period will be equal to the greater of (1) 0.0625% of
the average market price of a LYON for the measurement period referred to above
or (2) the sum of all regular cash dividends paid by the Company per share on
its common stock during such three-month period multiplied by the number of
shares of common stock issuable upon conversion of a LYON at the then applicable
conversion rate.
The holders of the LYONs may require the Company to repurchase all or a
portion of their LYONs on June 4, 2004, 2006, 2011 and 2016 at various prices
set forth in the Offering Memorandum. The Company may choose to pay the purchase
price in cash, common stock, or a combination of both. The Company may redeem
for cash all or a portion of the LYONs at any time on or after June 4, 2006 at
the prices set forth in the Offering Memorandum.
Note 11: Tantalum
--------
Tantalum, a metal purchased in powder or wire form, is the principal
material used in the manufacture of tantalum capacitors. Due to the strong
demand for its tantalum capacitors and difficulty in obtaining sufficient
quantities of tantalum powder from its suppliers, the Company stockpiled
tantalum ore in 2000 and early 2001. During the six months ended June 30, 2001,
the Company experienced a significant decrease in sales due to declining orders
and the deferral or cancellation of existing orders. The Company's tantalum
capacitor business was particularly impacted by the slowdown in sales. Prices
for tantalum ore and powder decreased during this period. As a result, the
Company has recorded write-downs of $10,000,000 and $20,000,000 on tantalum
during the quarter and six months ended June 30, 2001, respectively. The Company
has entered into long-term take or pay contracts to purchase specified
quantities of tantalum at fixed prices through 2005. Under these contracts, the
annual tantalum purchase commitments are approximately $47,000,000 for 2001 and
$150,000,000 for 2002 through 2005. In addition, the Company makes purchases of
tantalum from its other suppliers under annual contracts at prices that are
subject to periodic adjustment.
12
Note 12: Subsequent Events - Acquisitions
--------------------------------
On July 27, 2001 the Company purchased from Infineon Technologies AG,
Munich the Infineon infrared components business. The total purchase price for
this transaction was approximately $120 million. A partial payment of $78
million was made to Infineon Technologies AG, Munich on July 27, 2001. The
payment was funded with cash on hand. The remaining $42 million is a contingent
purchase price payment, based on certain assumptions, payable within one year.
Under the terms of the agreement, the Company will take over Infineon's
development, marketing, and distribution activities located in the San Jose,
California headquarters and a production facility in Krubong, Malaysia. For the
fiscal year ended September 30, 2000, the Infineon infrared components business
had revenues of approximately $133 million. As a result of the acquisition of
Infineon's infrared components business, the Company will become one of the
largest suppliers outside of Japan of optocouplers, and the largest supplier
worldwide of infrared data components transceivers (IRDC).
On August 1, 2001 the Company and General Semiconductor, Inc. (General
Semiconductor) announced that they have entered into a definitive merger
agreement under which the Company will acquire General Semiconductor, a leading
manufacturer of power management devices, in a tax-free, all stock transaction
currently valued at $538.9 million plus $229.4 million of assumed debt.
Shareholders of General Semiconductor will receive 0.563 shares of Vishay for
each General Semiconductor share, valuing the transaction at $13.54 per General
Semiconductor share based on Vishay's closing price of $24.00 on July 31, 2001.
The transaction is subject to regulatory and shareholder approvals and other
customary closing conditions. It is expected to close in the fourth quarter of
2001.
13
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Income statement captions as a percentage of sales, and the effective
tax rates, were as follows:
Three Months ended Six Months ended
June 30, June 30,
2001 2000 2001 2000
------------- ----------- ---------- ----------
Costs of products sold 73.6 % 58.5 % 68.2 % 61.6 %
Gross profit 26.4 41.5 31.8 38.4
Selling, general and administrative
expenses 16.7 12.1 14.5 12.4
Operating income 1.3 28.9 13.0 25.5
Earnings before income taxes and
minority interest 2.3 29.0 13.6 24.5
Net earnings 0.8 21.5 9.9 17.9
Effective tax rate 48.3 22.1 24.3 22.3
Net Sales
Net sales for the quarter and six months ended June 30, 2001 decreased
$229,334,000, or 37.4%, and $209,763,000, or 18.2%, from the comparable periods
in 2000. Both the passive and active components businesses contributed to this
decrease. The net sales of the passive components business were $251,593,000 for
the second quarter of 2001 as compared to $394,297,000 for the second quarter of
2000, a 36.2% decrease. For the six months ended June 30, 2001, passive net
sales were $645,078,000 as compared to $719,807,000 for the comparable prior
year period, a 10.4% decrease. The decrease in quarterly and year to date sales
was primarily due to declining orders, reflecting the current downturn in
demand. The net sales of the active components business for the quarter and six
months ended June 30, 2001 decreased $86,630,000, or 39.7%, and $135,034,000, or
31.3%, from the comparable prior year periods. The decrease in the active sales
was primarily due to the decrease in net sales of Siliconix, of which Vishay
owns 80.4%. Siliconix's net sales for the quarter ended June 30, 2001 were
$73,234,000 as compared to $120,337,000 for the second quarter of 2000, a 39.1%
decrease. Siliconix's net sales for the six months ended June 30, 2001 were
$160,994,000 as compared to $234,802,000 for the comparable period in 2000, a
31.4% decrease. The Company continues to experience a slowdown in orders, as
well as orders being pushed out from several end markets that the Company
serves. The strengthening of the U.S. dollar against foreign currencies had the
effect of decreasing reported net sales by $9,014,000 and $21,495,000 for the
quarter and six months ended June 30, 2001, respectively, as compared to the
comparable prior year periods.
14
Costs of Products Sold
Costs of products sold for the quarter and six months ended June 30,
2001 were 73.6% and 68.2% of net sales, respectively, as compared to 58.5% and
61.6% for the comparable prior year periods. Gross profit as a percentage of net
sales for the quarter and six months ended June 30, 2001 was 26.4% and 31.8%,
respectively, as compared to 41.5% and 38.4% for the comparable prior year
periods.
The active components business gross profit margins for the quarter
and six months ended June 30, 2001 were 26.5% and 29.0%, respectively, as
compared to 39.6% and 38.3% for the comparable prior year periods. The Siliconix
operation was primarily responsible for this decrease. The gross profit margin
for Siliconix for the quarter and six months ended June 30, 2001 was 26.7% and
30.2%, respectively, as compared to 46.6% and 47.3% for the comparable prior
year periods. The decrease in gross margins resulted primarily from
manufacturing overhead costs in excess of those required to support the reduced
demand in the quarter, as well as pricing pressures caused by excess industry
capacity.
The passive components business gross profit margins for the quarter
and six months ended June 30, 2001 were 26.3% and 33.2%, respectively, as
compared to 42.5% and 38.4% for the comparable prior year periods. A low level
of orders across all product lines, increased palladium prices and higher costs
for tantalum powder have contributed to the decline in profitability.
Additionally, write-downs of $10,000,000 and $20,000,000 on tantalum were taken
during the quarter and six months ended June 30, 2001, respectively, negatively
impacting profitability.
Israeli government grants, recorded as a reduction of costs of products
sold, for the quarter and six months ended June 30, 2001 were $4,836,000 and
$9,447,000, respectively, as compared to $3,833,000 and $7,510,000 for the
comparable prior year periods. Future grants and other incentive programs
offered to the Company by the Israeli government will likely depend on the
Company's continuing to increase capital investment and the number of Company
employees in Israel. Deferred income at June 30, 2001 relating to Israeli
government grants was $54,499,000 as compared to $55,162,000 at December 31,
2000.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses for the quarter and six
months ended June 30, 2001 were 16.7% and 14.5% of net sales, respectively, as
compared to 12.1% and 12.4% of net sales for the comparable prior year periods.
The higher percentages were due to reduced sales levels. Selling, general and
administrative expenses decreased by $10,220,000 and $5,935,000 for the quarter
and six months ended June 30, 2001 as compared to the prior year periods. The
Company continues to implement cost reduction initiatives company-wide, with
particular emphasis on reducing headcount in high labor cost countries.
Restructuring Expense
The Company incurred restructuring expense of $29,305,000 for the
quarter ended June 30, 2001. Restructuring of European and Israeli operations
included $8,505,000 of employee termination costs covering 1,709 technical,
production, administrative, and support employees located in France, Hungary,
Portugal, Austria, the Phillipines, Germany, and Israel. The European operations
also
15
recorded $2,546,000 of non-cash costs associated with the writedown of buildings
and equipment that is no longer in use. In the United States, $4,050,000 of
restructuring expense relates to employee termination costs covering 758
technical, production, administrative and support employees. The remaining
$14,204,000 of restructuring expense relates to the non-cash writedown of
buildings and equipment that is no longer in use.
Restructuring expense was $35,276,000 for the six months ended June 30,
2001. Restructuring of European operations included $13,073,000 of employee
termination costs covering approximately 1,785 technical, production,
administrative and support employees located in France, Hungary, Portugal,
Austria, the Phillipines, Germany, and Israel. The European operations also
recorded $2,546,000 of non-cash costs associated with the writedown of buildings
and equipment that is no longer in use. In the United States, $5,453,000 of
restructuring expense relates to termination costs for approximately 1,101
technical, production, administrative and support employees. The remaining
$14,204,000 of restructuring expense relates to the non-cash writedown of
buildings and equipment that is no longer in use.
The restructuring expense reflects a portion of the cost reduction
programs currently being implemented by the Company. The Company expects to take
additional restructuring charges of approximately $35 million during 2001. As of
June 30, 2001, $14,253,000 of severance costs have been paid. The remaining
$4,272,000 of severance costs, currently shown in other accrued expenses, should
be paid by December 31, 2001.
Interest Expense
Interest expense for the quarter and six months ended June 30, 2001
decreased by $3,894,000 and $13,471,000, respectively, as compared to the
comparable prior year periods. This decrease was a result of lower outstanding
bank borrowings in 2001 as compared to the prior year. During the second quarter
of 2001, the Company paid down the debt under its revolving credit agreement
with the proceeds received from the issuance of convertible subordinated
debentures (see Note 10).
Other Income
Other income for the quarter and six months ended June 30, 2001 was
$7,827,000 and $12,564,000, respectively, as compared to $2,714,000 and
$2,540,000 for the comparable prior year periods. These increases were primarily
due to increases in interest income and foreign exchange gains.
Gain on Termination of Interest Rate Swap Agreements
During the second quarter of 2000, proceeds received from the Company's
May 2000 Common Stock offering were used to pay down a portion of the debt
outstanding under the Company's long-term revolving credit agreement. In
connection with this repayment of debt, the Company terminated $125,000,000
notional amount of interest rate swap agreements and recognized a pretax gain of
$6,375,000.
Minority Interest
Minority interest for the quarter and six months ended June 30, 2001
decreased by $5,391,000 and $9,122,000, respectively, as compared to the
comparable prior year periods, primarily due to the decrease in net earnings of
Siliconix.
16
Income Taxes
The effective tax rate for the six months ended June 30, 2001 was 24.3%
as compared to 22.3% for the comparable prior year period. The unusually high
tax rate of 48.3% for the three months ended June 30, 2001 was primarily due to
a change in anticipated in earnings among tax jurisdictions. The Company is
currently earning more profits in high tax rate jurisdictions than in low tax
rate jurisdictions. Also, some of the restructuring expenses incurred during the
three months ended June 30, 2001 were non-tax deductible, which contributed to a
higher tax rate. The continuing low tax rates in Israel applicable to the
Company, as compared to the statutory rate in the United States, resulted in
increases in net earnings of $2,326,000 and $23,077,000 for the quarters ended
June 30, 2001 and 2000, respectively, and $14,326,000 and $37,009,000 for the
six months ended June 30, 2001 and 2000, respectively. The more favorable
Israeli tax rates are applied to specific approved projects and are normally
available for a period of ten or fifteen years.
Financial Condition and Liquidity
Cash flows from operations were $70,415,000 for the six months ended
June 30, 2001 as compared to $199,100,000 for the comparable prior year period.
The decrease in cash generated from operations was primarily due to a decrease
in net earnings as compared to the prior year period. Net purchases of property
were $95,903,000 for the six months ended June 30, 2001 as compared to
$89,616,000 in the comparable prior year period. On June 4, 2001 the Company
completed a private placement of a series of zero-coupon convertible
subordinated notes, due 2021, known as LYONs. The net proceeds of $294,096,000
were used to pay down existing bank debt. Cash and cash equivalents at June 30,
2001 increased by $114,515,000 as compared to December 31, 2000. The Company's
financial condition at June 30, 2001 was strong, with a current ratio of 4.78 to
1. The Company's ratio of long-term debt, less current portion, to stockholders'
equity was .16 to 1 at June 30, 2001 as compared to .08 to 1 at December 31,
2000.
The issuance of the LYONs enabled the Company to pay down all of the
debt under its revolving credit facility, providing the Company flexibility with
its revolving credit facility (with a current availability of approximately $660
million) and its cash on hand to fund future acquisitions. In addition, at a May
24, 2001 meeting, the Board of Directors unanimously approved, subject to
shareholder approval, an increase in the number of shares authorized by the
Company. This would give the Company another vehicle to fund future
acquisitions.
Pending Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) approved
the issuance of Statements of Financial Accounting Standards No. 141, "Business
Combinations" (Statement 141), and No. 142, "Goodwill and Other Intangible
Assets" (Statement 142). These Statements change the accounting for business
combinations, goodwill, and intangible assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests. Other intangible assets will
continue to be amortized over their useful lives.
The Company is required to adopt the new rules effective January 1,
2002, except that the new rules are effective for any business combination that
is completed after June 30, 2001.
17
The Company has not yet determined what the effect of these statements will be
on the earnings and financial position of the Company.
Inflation
Normally, inflation does not have a significant impact on the Company's
operations. The Company's products are not generally sold on long-term
contracts. Consequently, selling prices, to the extent permitted by competition,
can be adjusted to reflect cost increases caused by inflation.
Safe Harbor Statement
From time to time, information provided by the Company, including but
not limited to statements in this report, or other statements made by or on
behalf of the Company, may contain "forward-looking" information within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
involve a number of risks, uncertainties and contingencies, many of which are
beyond the Company's control, which may cause actual results, performance or
achievements to differ materially from those anticipated. The Company's 2000
Annual Report on Form 10-K identifies important factors that could cause the
Company's actual results, performance or achievements to differ materially from
those in any forward-looking statements made by or on behalf of the Company.
Market Risk Disclosure
The Company's cash flows and earnings are subject to fluctuations
resulting from changes in foreign currency exchange rates and interest rates.
The Company manages its exposure to these market risks through internally
established policies and procedures and, when deemed appropriate, through the
use of derivative financial instruments. The Company's policy does not allow
speculation in derivative instruments for profit or execution of derivative
instrument contracts for which there are no underlying exposures. The Company
does not use financial instruments for trading purposes and is not a party to
any leveraged derivatives. The Company monitors its underlying market risk
exposures on an ongoing basis and believes that it can modify or adapt its
hedging strategies as needed.
The Company is exposed to changes in U.S. dollar LIBOR interest rates
on borrowings under its floating rate revolving credit facility. At June 30,
2001, there was no outstanding balance under this facility. On a selective
basis, the Company from time to time enters into interest rate swap or cap
agreements to reduce the potential negative impact that increases in interest
rates could have on its outstanding variable rate debt. As of June 30, 2001, a
fixed rate swap agreement was in place on a notional amount of $100,000,000. The
Company anticipates that it will be borrowing on its revolving credit facility
to fund restructuring costs and pay down long-term debt associated with its
pending acquisitions (see Note 12). The impact of interest rate instruments on
the Company's results of operations was not significant.
18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 25, 2001, Siliconix filed a patent infringement lawsuit
against General Semiconductor. The suit was filed in the United States District
Court for the Northern District of California and alleged that certain General
Semiconductor products infringe two patents held by Siliconix. On July 2, 2001,
General Semiconductor filed and served its answer to the Siliconix complaint and
asserted counterclaims against Siliconix. On August 3, 2001, Siliconix filed a
motion to dismiss or strike certain affirmative defenses alleged by General
Semiconductor in its answer and to dismiss or strike down all General
Semiconductor counterclaims. This motion is scheduled to be heard on September
14, 2001.
In May 2001, the Delaware Court of Chancery consolidated the several
purported class action complaints described in the Company's previously filed
Form 10-Q for the period ended March 31, 2001. On or about May 31, 2001, lead
plaintiff Fitzgerald served an amended complaint, an application for a
preliminary injunction against proceeding with or taking steps to give effect to
Vishay's proposed tender offer or the contemplated short-form merger, and a
motion to expedite proceedings and additional discovery requests. In addition to
his prior allegations, plaintiff claimed, among other things, that in connection
with the proposed offer and short-form merger, defendants allegedly violated (i)
their duty to deal fairly from a timing and process perspective with the
minority shareholders of Siliconix, (ii) their duties of loyalty and candor, and
(iii) Vishay's obligation to pay a fair price to the Siliconix minority
shareholders. Following expedited discovery and briefing, on June 19, 2001, the
Delaware Court of Chancery issued its order denying Fitzgerald's motion for a
preliminary injunction. The Court found that Fitzgerald had not succeeded in
demonstrating that he has a reasonable probability of success on the merits of
his claims. The Company and Siliconix filed motions to dismiss the verified
amended complaint on June 6, 2001. The Company filed a motion for summary
judgment on June 25, 2001. The motions to dismiss and for summary judgment
remain pending.
On July 3, 2001, the California Superior Court entered an order staying
the California state-court actions that had been filed against the Company and
Siliconix in connection with the Company's earlier proposal.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May 24, 2001.
(b) Proxies for the meeting were solicited pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended. There was no
solicitation in opposition to management's nominees for the directors
as listed in the definitive proxy statement of the Company dated April
20, 2001, and all such nominees were elected.
(c) Briefly described below is each matter voted upon at the Annual
Meeting of Stockholders.
19
(i) Election of the following individuals to hold office as Directors
of the Company until the next Annual Meeting of Stockholders.
Total Class A Common Stock voted was 103,493,832.
Broker
For Against Abstain Non-votes
--------------- --------------- --------------- -----------------
Felix Zandman 92,931,585 10,562,247 0 0
Avi D. Eden 92,942,938 10,550,894 0 0
Robert A. Freece 92,959,959 10,553,873 0 0
Richard N. Grubb 92,942,691 10,551,141 0 0
Eliyahu Hurvitz 101,425,977 2,067,855 0 0
Gerald Paul 92,943,263 10,550,569 0 0
Edward Shils 101,421,638 2,072,194 0 0
Ziv Shoshani 92,923,902 10,569,930 0 0
Luella B. Slaner 101,421,358 2,072,474 0 0
Mark I. Solomon 101,425,977 2,067,855 0 0
Jean-Claude Tine 101,421,358 2,072,474 0 0
Marc Zandman 92,913,472 10,580,360 0 0
Ruta Zandman 92,899,048 10,594,784 0 0
Total Class B Common Stock voted was 15,771,273 in favor, 0
against, 0 abstained and 0 broker non-votes.
(ii) Ratification of the appointment of Ernst & Young LLP, independent
certified public accountants, to audit the books and accounts of
the Company for the calendar year ending December 31, 2001. Total
Class A Common Stock voted was 103,038,061 in favor, 0 against,
455,771 abstained and 0 broker non-votes. Total Class B Common
Stock voted was 15,771,273 in favor, 0 against, 0 abstained and 0
broker non-votes.
Each share of Class A Common Stock is entitled to one vote and each share
of Class B Common Stock is entitled to 10 votes on matters voted upon by
stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) On June 18, 2001, the Company filed a Current Report
on Form 8-K dated June 4, 2001 under Item 5 (Other
Events). The Form 8-K reported the Company's private
offering of a series of zero-coupon convertible
subordinated notes due 2021, known as LYONs. The net
proceeds from the offering were approximately $294.1
million. The Indenture in respect of the LYONs, dated
as of June 4, 2001, between the Company and the Bank
of New York, as trustee, was attached to the report.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
/s/ Richard N. Grubb
-------------------------------
Richard N. Grubb
Executive Vice President,
Treasurer
(Duly Authorized and Chief
Financial Officer)
Date: August 14, 2001