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 September 30, 1997 OR [ ] 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 of (I.R.S. Employer incorporation or organization) Identification No.) 63 LINCOLN HIGHWAY MALVERN, PENNSYLVANIA 19355 - --------------------------------------- -------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (610) 644-1300 -------------- 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 November 12, 1997 registrant had 56,457,094 shares of its Common Stock and 7,926,898 shares of its Class B Common Stock outstanding.
VISHAY INTERTECHNOLOGY, INC. FORM 10-Q SEPTEMBER 30, 1997 CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Condensed Balance Sheets - 3-4 September 30, 1997 and December 31, 1996 Consolidated Condensed Statements of 5 Operations - Three Months Ended September 30, 1997 and 1996 Consolidated Condensed Statements of 6 Operations - Nine Months Ended September 30, 1997 and 1996 Consolidated Condensed Statements of 7 Cash Flows - Nine Months Ended September 30, 1997 and 1996 Notes to Consolidated Condensed 8-9 Financial Statements Item 2. Management's Discussion and Analysis 10-14 of Financial Condition and Results of Operations PART II. OTHER INFORMATION 15 -2-
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets (Unaudited - In thousands) <TABLE> <CAPTION> September 30 December 31 ASSETS 1997 1996 ------------ ------------ <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $43,466 $20,945 Accounts receivable 188,706 163,164 Inventories: Finished goods 163,048 182,722 Work in process 86,839 73,606 Raw materials 94,022 100,418 Prepaid expenses and other current assets 90,658 82,310 ------------ ------------ TOTAL CURRENT ASSETS 666,739 623,165 PROPERTY AND EQUIPMENT - AT COST Land 41,958 43,705 Buildings and improvements 226,895 222,743 Machinery and equipment 753,214 695,084 Construction in progress 56,732 57,891 Allowance for depreciation (358,693) (308,761) ------------ ------------ 720,106 710,662 GOODWILL 296,455 201,574 OTHER ASSETS 44,949 20,646 ------------ ------------ $1,728,249 $1,556,047 ============ ============ </TABLE> -3-
<TABLE> <CAPTION> September 30 December 31 LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 ------------- ------------ <S> <C> <C> CURRENT LIABILITIES Notes payable to banks $42,803 $31,212 Trade accounts payable 44,684 33,930 Payroll and related expenses 48,183 35,973 Other accrued expenses 39,463 55,381 Income taxes 22,962 7,076 Current portion of long-term debt 9,242 25,394 ------------- ------------ TOTAL CURRENT LIABILITIES 207,337 188,966 LONG-TERM DEBT 342,707 229,885 DEFERRED INCOME TAXES 33,027 33,113 DEFERRED INCOME 62,638 58,570 OTHER LIABILITIES 45,634 30,534 ACCRUED RETIREMENT COSTS 63,364 69,749 STOCKHOLDERS' EQUITY Common stock 5,645 5,373 Class B common stock 793 756 Capital in excess of par value 920,052 825,949 Retained earnings 82,586 107,762 Foreign currency translation adjustment (31,924) 9,106 Unearned compensation (686) (370) Pension adjustment (2,924) (3,346) ------------- ------------ 973,542 945,230 ------------- ------------ $1,728,249 $1,556,047 ============= ============ </TABLE> 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) <TABLE> <CAPTION> Three Months Ended September 30, 1997 1996 ------------ ---------- <S> <C> <C> Net sales $285,352 $259,889 Costs of products sold 214,960 198,712 ------------ ---------- GROSS PROFIT 70,392 61,177 Selling, general, and administrative expenses 35,324 35,834 Amortization of goodwill 2,117 1,639 ------------ ---------- OPERATING INCOME 32,951 23,704 Other income (expense): Interest expense (5,566) (4,455) Other 700 115 ------------ ---------- (4,866) (4,340) ------------ ---------- EARNINGS BEFORE INCOME TAXES 28,085 19,364 Income taxes 7,390 4,880 ------------ ---------- NET EARNINGS $20,695 $14,484 ============ ========== Net earnings per share $0.32 $0.23 ============ ========== Weighted average shares outstanding 64,636 64,356 </TABLE> 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) <TABLE> <CAPTION> Nine Months Ended September 30, 1997 1996 ------------ --------- <S> <C> <C> Net sales $831,275 $844,051 Costs of products sold 629,649 625,929 ------------ --------- GROSS PROFIT 201,626 218,122 Selling, general, and administrative expenses 102,941 114,675 Restructuring expenses 0 24,280 Amortization of goodwill 5,133 4,899 ------------ --------- OPERATING INCOME 93,552 74,268 Other income (expense): Interest expense (12,831) (13,317) Other 2,084 978 ------------ --------- (10,747) (12,339) ------------ --------- EARNINGS BEFORE INCOME TAXES 82,805 61,929 Income taxes 22,504 15,621 ------------ --------- NET EARNINGS $60,301 $46,308 ============ ========= Net earnings per share $0.94 $0.72 ============ ========= Weighted average shares outstanding 64,466 64,357 </TABLE> See notes to consolidated condensed financial statements. -6-
VISHAY INTERTECHNOLOGY, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) <TABLE> <CAPTION> Nine Months Ended September 30 1997 1996 ------------ --------- OPERATING ACTIVITIES <S> <C> <C> Net earnings $60,301 $46,308 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 62,441 59,130 Other 983 21,709 Changes in operating assets and liabilities 3,461 (31,777) ------------ --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 127,186 95,370 INVESTING ACTIVITIES Purchases of property and equipment-net (55,218) (110,093) Purchase of businesses, net of cash acquired (122,377) - ------------ --------- NET CASH USED IN INVESTING ACTIVITIES (177,595) (110,093) FINANCING ACTIVITIES Net proceeds on revolving credit lines 159,194 80,050 Proceeds from long-term borrowings 5,485 3,378 Payments on long-term borrowings (78,018) (66,360) Net (payments) proceeds on short-term borrowings (9,945) 12,488 ------------ --------- NET CASH PROVIDED BY FINANCING ACTIVITIES 76,716 29,556 Effect of exchange rate changes on cash (3,786) (537) ------------ --------- INCREASE IN CASH AND CASH EQUIVALENTS 22,521 14,296 Cash and cash equivalents at beginning of period 20,945 19,584 ------------ --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $43,466 $33,880 ============ ========= </TABLE> See notes to consolidated condensed financial statements. -7-
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1997 Note 1: Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for presentation of financial position, results of operations, and cash flows required by generally accepted accounting principles for complete financial statements. The information furnished reflects all adjustments (consisting 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 periods presented. The financial statements should be read in conjunction with the financial statements and notes thereto filed with Form 10-K for the year ended December 31, 1996. Note 2: Earnings Per Share Earnings per share amounts for all periods reflect a 5% stock dividend paid on June 9, 1997. Note 3: Acquisitions On July 17, 1997, the Company consummated its acquisition of 65% of Lite-On Power Semiconductor Corporation, a Republic of China (Taiwan) company ("LPSC"), and a member of Taiwan's Lite-On Group of companies, for a net cash purchase price of approximately US$130 million. LPSC produces diodes, primarily in the Far East, with manufacturing facilities in Taipei, Taiwan; Shanghai, China; and Lee's Summit, Missouri. LPSC also owns approximately 40.2% of Diodes, Inc. (AMEX: DIO), located in Westlake, California. Diodes is a U.S. public company traded on the American Stock Exchange. Diodes are discrete semiconductor components used to convert electrical currents from AC to DC and are used in all electronic equipment that requires such conversion. Pursuant to the Stock Purchase Agreement, dated April 25, 1997, among LPSC, Silitek Corporation ("Silitek"), Lite-On Technology Corporation, Dyna Investment Co., Ltd., Lite-On Inc. and other shareholders' as Sellers, and the Company, as Purchaser (the "Stock Purchase Agreement"), the Company, through two Singapore entities, acquired approximately 100% of the issued and outstanding shares of capital stock of LPSC for cash consideration of US$200 million. The purchase was made by a Singapore company (the "Joint Venture Company"), whose capital stock at the time of the acquisition was 50% owned directly by the Company, and 50% owned by another Singapore company ( the "Holding Company"), which at the time was a wholly-owned subsidiary of the Company. Concurrently with the consummation of the acquisition, pursuant to the terms of the Joint Venture Agreement, dated April 25, 1997, -8-
between the Company and a company formed by Silitek and certain other shareholders of LPSC, Lite-On JV Corporation, ("JV"), which agreement was amended as of July 17, 1997 (as amended, the "Joint Venture Agreement"), JV purchased from the Company 35% of its interest in the Holding Company and 17.5% in the Joint Venture Company for cash consideration of $70 million. In connection therewith, JV received stock appreciation rights("SARs") in the Company, which represent the right to receive in stock the increase in value on the equivalent of 1,625,000 shares of the Company's stock above $23 per share. Subject to certain annual and other adjustments, the Company may redeem the SARs if the Company's stock trades above $43 per share. At that price, the SAR's would entitle JV to 755,813 shares of the Company's common stock. The Joint Venture Agreement also defines the terms of the management of LPSC and its subsidiaries and the agreement between the Company and JV to market the Company's products in Asia and LPSC's products throughout the world. The results of operations of LPSC have been included in the Company's results from July 1, 1997. Excess of cost over the fair value of assets ($108,355,000) is being amortized on a straight-line method over an estimated useful life not to exceed forty years. The Company financed the cash portion ($130 million) of the LPSC acquisition from current availability under the Company's credit facilities. During the period, the Company further amended its credit facilities in connection with, among other things, adjusting certain financial covenants and extending the maturity dates of the credit facilities. The summary of the amendment to the Company's credit facilities is qualified in its entirety by reference to the text of such amendment, which is filed as an exhibit hereto and which is incorporated herein by reference. -9-
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 Nine Months Ended September 30 September 30 1997 1996 1997 1996 ---- ---- ---- ---- Costs of products sold 75.3% 76.5% 75.7% 74.2% Gross profit 24.7 23.5 24.3 25.8 Selling, general and administrative expenses 12.4 13.8 12.4 13.6 Operating income 11.5 9.1 11.3 8.8 Earnings before income taxes 9.8 7.5 10.0 7.3 Effective tax rate 26.3 25.2 27.2 25.2 Net earnings 7.3 5.6 7.3 5.5 Net sales for the quarter ended September 30, 1997 increased $25,463,000 or 9.8% from the comparable period of the prior year. The increase in net sales relates primarily to the acquisition of LPSC. Net sales of LPSC for the quarter ended September 30, 1997 were $19,634,000. Exclusive of LPSC, net sales would have increased by $5,829,000 or 2.2%. The strengthening of the U.S. dollar against foreign currencies for the quarter ended September 30, 1997 in comparison to the prior year's quarter, resulted in a decrease in reported sales of $17,196,000. Net sales for the nine months ended September 30, 1997 decreased $12,776,000 or 1.5% from the comparable period of the prior year. The strengthening of the U.S. dollar against foreign currencies for the nine months ended September 30, 1997 in comparison to the prior year's period, resulted in a decrease in reported sales of $41,483,000. Costs of products sold for the quarter and nine months ended September 30, 1997 were 75.3% and 75.7% of net sales, respectively, as compared to 76.5% and 74.2%, respectively, for the comparable prior year periods. Gross profit, as a percentage of net sales, for the quarter ended September 30, 1997 increased from the comparable prior year period mainly due to the restructuring programs taken in 1996 to reduce manufacturing costs. The acquisition of LPSC did not have a material impact on the gross margins of the Company. The gross profits for the nine months ended September 30, 1997 as compared to the prior year period, were negatively affected by a difficult pricing environment. Israeli government grants, recorded as a reduction of costs of products sold, were $2,970,000 and $8,395,000 for the quarter and nine months ended September 30, 1997, respectively, as compared to $2,215,000 and $6,416,000 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 the Company's employees in Israel. Deferred income at September 30, 1997 relating to Israeli government grants was $62,638,000 as compared to $58,570,000 at December 31, 1996. -10-
Selling, general, and administrative expenses for the quarter and nine months ended September 30, 1997 were 12.4% of net sales, as compared to 13.8% and 13.6%, respectively, for the comparable prior year periods. LPSC's selling, general and administrative expenses did not have a material impact to the Company. Exclusive of LPSC's selling, general, and administrative expenses, the expenses decreased by $2,497,000 and $13,721,000, respectively, as compared to the prior year periods, as a result of the cost reduction program instituted in 1996. The Company recorded a pretax restructuring charge of $24,280,000 ($16,000,000 after tax) in the quarter ended June 30, 1996 in connection with a reduction of approximately 1,300 employees in the Company's worldwide workforce. The Company also closed or downsized several facilities in North America and Europe. Interest costs increased by $1,111,000 for the quarter ended September 30, 1997, from the comparable prior year period, due to the acquisition of LPSC. The Company borrowed $130,000,000 from a group of banks to finance the acquisition of LPSC. Interest costs have decreased by $486,000 for the nine months ended September 30, 1997 as compared to the prior year period. The effective tax rate for the nine months ended September 30, 1997 was 27.2% as compared to 25.2% for the comparable prior year period. The effective tax rate for calendar year 1996 was 25.2%. The lower tax rate for the nine months ended September 30, 1996 was due primarily to the restructuring charges recorded in the higher tax rate countries, where the Company conducts its business. The continuing effect of low tax rates in Israel (as compared to the statutory rate in the United States) has been to increase net earnings by $4,939,000 and $1,747,000 for the quarters ended September 30, 1997 and 1996, respectively, and $9,389,000 and $10,285,000 for the nine month periods ended September 30, 1997 and 1996, respectively. The more favorable Israeli tax rates are applied to specific approved projects and normally continue to be available for a period of ten years. Financial Condition Cash flows from operations were $127,186,000 for the nine months ended September 30, 1997 compared to $95,370,000 for the prior year's period. The increase in cash flows from operations is primarily due to increased earnings and a decrease in inventory for the nine months ended September 30, 1997 as compared to an increase in inventory for the nine months ended September 30, 1996. Net purchases of property and equipment for nine months ended September 30, 1997 were $55,218,000 compared to $110,093,000 in the prior year's period. This decrease reflects the fact that the Company has substantially completed its current restructuring/expansion program. Net cash provided by financing activities of $76,716,000 for the nine months ended September 30, 1997 includes $130,000,000 used to finance the acquisition of LPSC. The Company incurred a pretax restructuring charge of $38,030,000 for the year ended December 31, 1996. Approximately $28,953,000 of these charges relate to employee termination costs covering approximately 2,600 technical, production, administrative and support employees located in the United States, Canada, France and Germany. As of September 30, 1997, approximately 2,290 employees have been terminated and $21,888,000 of the termination costs have -11-
been paid. The restructuring plan is expected to be completed by the end of 1997. The Company's financial condition at September 30, 1997 is strong, with a current ratio of 3.22 to 1. The Company's ratio of long-term debt (less current portion) to stockholders' equity was .35 to 1 at September 30, 1997 and .24 to 1 at December 31, 1996. Management believes that available sources of credit, together with cash expected to be generated from operations, will be sufficient to satisfy the Company's anticipated financing needs for working capital and capital expenditures during the next twelve months. Inflation - --------- Normally, inflation does not have a significant impact on the Company's operations. The Company's products are not generally sold on long-term contracts. Consequently, selling prices, to the extent permitted by competition, can be adjusted to reflect cost increases caused by inflation. Safe Harbor Statement - --------------------- 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 Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements involve a number of risks and uncertainties. The Company's actual results could differ materially from those discussed in the forward-looking statements. The cautionary statements set forth below identify important factors that could cause actual results to differ materially from those in any forward-looking statements made by or on behalf of the Company. o The Company offers a broad variety of products and services to its customers. Changes in demand for, or in the mix of, products and services comprising revenues could cause actual operating results to vary from those expected. o The Company's future operating results are dependent, in part, on its ability to develop, produce and market new and innovative products, to convert existing products to surface mount devices and to customize certain products to meet customer requirements. There are numerous risks inherent in this complex process, including the need for the Company to timely bring to market new products and applications to meet customers' changing needs. o The Company operates in a highly competitive environment, which includes significant competitive pricing pressures and intense competition for entry into new markets. o A slowdown in demand for passive electronic components or recessionary trends in the global economy in general or in specific countries or regions where the Company sells the bulk of its products, such as the U.S., Germany, France or the Pacific Rim, could adversely -12-
impact the Company's results of operations. o Much of the orders in the Company's backlog may be canceled by its customers without penalty. Customers may on occasion double and triple order components from multiple sources to insure timely delivery when backlog is particularly long. The Company's results of operations may be adversely impacted if customers were to cancel a material portion of such orders. o Approximately 50% of the Company's revenues are derived from operations and sales outside the United States. As a result, currency exchange rate fluctuations, inflation, changes in monetary policy and tariffs, potential changes in laws and regulations affecting the Company's business in foreign jurisdictions, trade restrictions or prohibitions, intergovernmental disputes, increased labor costs and reduction or cancellation of government grants, tax benefits or other incentives could impact the Company's results of operations. o Specifically, as a result of the increased production by the Company's operations in Israel over the past several years, the low tax rates in Israel (as compared to the statutory rates in the U.S.) have had the effect of increasing the Company's net earnings. In addition, the Company takes advantage of certain incentive programs in Israel in the form of grants designed to increase employment in Israel. Any significant increase in the Israeli tax rates or reduction or elimination of any of the Israeli grant programs could have an adverse impact on the Company's results of operations. o The Company may experience underutilization of certain plants and factories in high labor cost regions and capacity constraints in plants and factories located in low labor cost regions, resulting initially in production inefficiencies and higher costs. Such costs include those associated with work force reductions and plant closings in the higher labor cost regions and start-up expenses, manufacturing and construction delays, and increased depreciation costs in connection with the start of production in new plants and expansions in lower labor cost regions. Moreover, capacity constraints may limit the Company's ability to continue to meet demand for any of the Company's products. o When the Company restructures its operations in response to changing economic conditions, particularly in Europe, labor unrest or strikes may occur, which could have an adverse effect on the Company. o The Company's results of operations may be adversely impacted by (i) difficulties in obtaining raw materials, supplies, power, natural resources and any other items needed for the production of the Company's products; (ii) the effects of quality deviations in raw materials, particularly tantalum powder, palladium and ceramic dielectric materials; and (iii) the effects of -13-
significant price increases for tantalum or palladium, or an inability to obtain adequate supplies of tantalum or palladium from the limited number of suppliers. o The Company's historic growth in revenues and net earnings have resulted in large part from its strategy to expand through acquisitions. However, there is no assurance that the Company will find or consummate transactions with suitable acquisition candidates in the future. o The Company's strategy also focuses on the reduction of selling, general and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies and achievement of significant production cost savings through the transfer and expansion of manufacturing operations to lower cost regions such as Israel, Mexico, Portugal and the Czech Republic. The Company's inability to achieve any of these goals could have an adverse effect on the Company's results of operations. o The Company may be adversely affected by the costs and other effects associated with (i) legal and administrative cases and proceedings (whether civil, such as environmental and product-related, or criminal); (ii) settlements, investigations, claims, and changes in those items; (iii) developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses; and (iv) adoption of new, or changes in, accounting policies and practices and the application of such policies and practices. o The Company's results of operations may also be affected by (i) changes within the Company's organization, particularly at the executive officer level, or in compensation and benefit plans; and (ii) the amount, type and cost of the financing which the Company maintains, and any changes to the financing. o The inherent risk of environmental liability and remediation costs associated with the Company's manufacturing operations may result in large and unforseen liabilities. o The Company's operations may be adversely impacted by (i) the effects of war or severe weather or other acts of God on the Company's operations, including disruptions at manufacturing facilities; (ii) the effects of a disruption in the Company's computerized ordering systems; and (iii) the effects of a disruption in the Company's communications systems. -14-
VISHAY INTERTECHNOLOGY, INC. PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 - Fourth Amendment to Vishay Loan Agreement, dated as of September 29, 1997. 27 - Financial Data Schedule. (b) Reports on Form 8-K Not applicable -15-
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: November 12, 1997 -16-