Vishay Intertechnology
Annual Report 1997

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VISHAY 1 9 9 7 A N N U A L R E P O R T VISHAY INTERTECHNOLOGY -- Global Leader in Designing, Manufacturing and Marketing Passive and Discrete Semiconductor Electronic Components Vishay Intertechnology, Inc. is the largest U.S. and European manufacturer of passive electronic components and a leading producer of discrete semiconductor (active) components. Through internal research and development and an aggressive acquisition strategy, Vishay has established a unique position as the global manufacturer of the broadest line of discrete electronic components available. The Company was founded in 1962 by Dr. Felix Zandman, Chairman and Chief Executive Officer and the late Mr. Alfred P. Slaner, Honorary Chairman. Vishay employs approximately 20,000 people in Table of Contents 70 plants in the U.S., Mexico, Germany, Austria, the United Kingdom, France, Portugal, the Czech Republic, Israel, Japan, Taiwan (R.O.C.), China and the Philippines. Vishay is a Fortune 1000 company with 1997 sales of $1.1 billion. In March 1998 Vishay acquired TEMIC Semiconductors discrete components business, which had 1997 sales of $550 million. Vishay’s passive products include resistors, resis- tive sensors, capacitors and inductors. Its discrete semicon- ductor (active) components include diodes and transistors of all types and optoelectronic products. All of these components Corporate Profile ........................................ Inside Front Cover Financial Highlights .................................................................. 1 Letter to Stockholders, Employees, Customers and Vendors ..... 2 From Niche Manufacturer to Global Manufacturer of the Broadest Line of Passive and Discrete Semiconductor Electronic Components ............................... 4 Consolidated Balance Sheets .................................................. 14 Consolidated Statements of Operations ................................ 16 Consolidated Statements of Cash Flows ................................ 17 Consolidated Statements of Stockholders’ Equity ................ 18 Notes to Consolidated Financial Statements ......................... 19 Report of Independent Auditors ............................................ 25 Management’s Discussion and Analysis of Financial Condition and Results of Operations ................ 26 Financial Summary ................................................................. 30 Corporate Information ........................................................... 32 are vital to the operation of electronic circuits and can be found in computers, telephones, TVs, automobiles, household appliances, medical equipment, satellites and military and aerospace equipment. Vishay’s list of customers includes such major manufactur- ers as AT&T, Alcatel, Bosch, Delco, Ford, IBM, Intel, Motorola, Qualcomm, Samsung, Siemens and Sony. They are served by the Company’s worldwide network of manufac- turing facilities, inside sales and technical support offices as well as distributorships and manufac- turers’ representatives located in all industrial countries. The Company’s widespread opera- tions enable Vishay’s customers to do business with a single global manufacturer for essen- tially all of their discrete elec- tronic component needs. About the Cover The front and back cover photo displays both sides of a printed circuit board of a handheld telephone. The large packages are integrated circuits (ICs). The hundreds of smaller components are passive and discrete semiconductor components. Financial Highlights Vishay Intertechnology, Inc. As Of and For the Year Ended December 31 As Of and For the Year Ended December 31 As Of and For the Year Ended December 31 As Of and For the Year Ended December 31 As Of and For the Year Ended December 31 1997 1997 1997 1997 1997 1996 1996 1996 1996 1996 1995 1995 1995 1995 1995 (In thousands, except per share amounts) $1,125,219 $1,125,219 $1,125,219 Net sales .......................................................... $1,125,219 $1,125,219 $1,097,979 $1,224,416 Operating profit ............................................. 108,602 108,602 108,602 108,602 108,602 Net earnings ................................................... Depreciation and amortization .................. 53,302* 53,302* 53,302* 53,302* 53,302* 81,874 81,874 81,874 81,874 81,874 85,824 52,616* 77,247 152,416 92,667 69,547 Basic and diluted earnings per share ........ $ 0.83* $ 0.83* $ 0.83* $ 0.83* $ 0.83* $ 0.82* $ 1.55 Weighted average shares outstanding - diluted 64,459 64,459 64,459 64,459 64,459 64,364 59,897 $ 175,913 $ 175,913 $ 175,913 Cash flows from operations ......................... $ 175,913 $ 175,913 $ 122,186 $ 115,511 Working capital.............................................. Property and equipment (cid:209) net ................... Long-term debt ............................................. Stockholders(cid:213) equity ..................................... 455,134 455,134 455,134 455,134 455,134 709,142 709,142 709,142 709,142 709,142 347,463 347,463 347,463 347,463 347,463 959,648 959,648 959,648 959,648 959,648 434,199 710,662 229,885 945,230 411,286 669,228 228,610 907,853 $ 14.90 $ 14.90 Book value per share .................................... $ 14.90 $ 14.90 $ 14.90 $ 14.69 $ 14.11 Net Sales $ In Millions $1,224.4 $1,125.2 $1,098.0 $987.8 $856.3 $664.2 $1400 $1200 $1000 $800 $600 $400 $200 $0 Net Earnings $ In Millions $92.7 $81.0** $79.0** $58.9 $53.3* $52.6* $44.1† $30.4 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 '92 '93 '94 '95 '96 '97 '92 '93 '94 '95 '96 '97 Diluted Earnings Per Share $1.80 $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.55 $1.26** $1.23** $1.09 $0.85† $0.82* $0.83* $0.70 '92 '93 '94 '95 '96 '97 † Includes $1.4 million for cumulative effect of accounting change for income taxes. † Includes $0.03 for cumulative effect of accounting change for income taxes. *Includes restructuring expenses and unusual charges of $27,692,000 ($0.43 per share) and $38,030,000 ($0.41 per share) for the years ended December 31, 1997 and 1996 respectively. ** Excludes restructuring expenses and unusual charges of $27,692,000 ($0.43 per share) and $38,030,000 ($0.41 per share) in 1997 and 1996, respectively. Vishay Intertechnology, Inc. 1 To Our Stockholders, Employees, Customers and Vendors: New Acquisitions Create Opportunities for Growth During the last twelve months, Vishay entered the $14 billion discrete semiconductor (active) components market with two significant acquisitions. Discrete semiconductor (active) components complement our worldwide position in our tradi- tional business, the passive components market. Vishay began its penetration of the semiconductor components business with its July 1997 acquisition of 65 percent of Lite-On Power Semiconductor Corporation (LPSC) of Taiwan, for a purchase price of $130,000,000 and stock appreciation rights. LPSC is a joint venture between Vishay (65%) and Lite-On Group of Taiwan (35%). LPSC manufactures diodes and transistors, which are discrete semiconductor (active) compo- nents. They convert electrical currents from AC to DC, switch and amplify currents and are used in many electronic circuits. LPSC’s manufacturing plants are located in Taipei, Taiwan; Shanghai, China; and Lee’s Summit, Missouri, USA. LPSC also owns a 40 percent interest in Diodes, Inc. (AMEX: DIO) a supplier of discrete semiconductor (active) devices located in Westlake, California. Sales of LPSC for the year ended December 31, 1997 were $76,040,000, a 41 percent increase over 1996. The operations of LPSC were consolidated into Vishay’s 1997 operations effective July 1, 1997. In March 1998, Vishay solidified its position in the discrete semiconductor (active) area with its acquisition of the semiconductor business unit of TEMIC TELEFUNKEN microelectronics GmbH of Heilbronn, Germany, and 80.4 percent of Siliconix (NASDAQ: SILI), a TEMIC subsidiary located in Santa Clara, California. Vishay paid approxi- mately $500 million to TEMIC’s parent company Daimler-Benz (NYSE: DAI) for the integrated circuits (IC) business and the discrete components business. Sales of the semiconductor business unit of TEMIC Semicon- ductor for calendar 1997 were approximately $850,000,000. Following the closing of that transaction, Vishay sold most of the IC business, which had annual sales of approximately $300,000,000, to Atmel Corporation (NASDAQ: ATML) and others for $140,000,000. The net cost to Vishay for the discrete semiconductor (active) division, whose sales are approxi- mately $550,000,000, was therefore $360,000,000. The discrete active products consist of many types of diodes, transistors and optoelec- tronic devices. In addition to the discrete active division, Vishay retained two integrated circuit product lines, the infrared commu- nication devices (IRDC) and the Power ICs. Applications for these products include the computer, multimedia and telecommunica- tions markets, as well as the automobile, home entertainment and industrial electronics markets. We are especially excited about the Power MOS products of Siliconix and the IRDC products of Telefunken. These products hold the leading position in the market. Siliconix’ Trench Power MOS is the product of choice for portable telephones and laptop computers, while the IRDC module enables data to be exchanged without cable connection between computers, Vishay Intertechnology, Inc. 2 printers, plotters and portable telephones, using infrared light. With these acquisitions Vishay has strategically extended its market position to become the manufacturer of the broadest line of discrete electronic components worldwide. We can now provide our customers with a single manufacturing source for essen- tially all passive and discrete semiconductor (active) components as well as some products in the IC area. We believe these acquisitions create a great opportunity for the financial and technological growth of Vishay. Financial Highlights Sales for the year ended December 31, 1997 were $1,125,219,000 compared to $1,097,979,000 in the previous year. Sales for the year ended December 31, 1997 were affected negatively by $55,424,000 due to the continued strength of the U.S. dollar against foreign currencies. Net earnings for the year ended December 31, 1997 were $53,302,000 or $0.83 per share (after special charges of $27,692,000 or $0.43 per share). Net earnings before special charges were $80,994,000 or $1.26 per share. Net earnings for the previous year were $52,616,000 or $0.82 per share (after a restructuring charge of $38,030,000 or $0.41 per share). Pretax earnings exclusive of special charges were $112,843,000 compared to $108,387,000 for the previous year. We have accelerated the restruc- To further strengthen our operations we announced in March 1998 the promotion of Dr. Gerald Paul to the position of president of Vishay. Dr. Paul will add the role of president to his current duties as chief operating officer and will continue to report to me. The markets and customers for passive and discrete semicon- ductor (active) components are virtually identical, which means that the sales networks are already in place to reach the electronics original equipment manufacturers with one source for their discrete components. That fits right in with today’s purchasing patterns, as manufacturers and distributors strive to narrow their supplier base. Vishay is looking ahead with confidence to expansion through new products, acquisitions and market penetration worldwide. As always, we are extremely grateful to our employees world- wide for their loyalty, skill and energy, which have contributed significantly to our growth. We value the relationships we have with our employees, stockholders, customers and vendors. We salute you and look forward to a prosper- ous 1998. Sincerely, Dr. Felix Zandman Chairman of the Board and Chief Executive Officer April 1998 Selling, general and administrative expenses decreased by $4.9 million to 12.2 percent of sales versus 12.9 percent of sales last year. This decrease reflects the savings resulting from the cost-reduction programs instituted in 1996. The Company is generating substantial cash and its financial condition is strong, with a current ratio of 3.38 to 1.0. The Company’s debt- to-equity ratio at Decem- DR. FELIX ZANDMAN Chairman of the Board, Scientific Director and Chief Executive Officer turing of our passive components business, resulting in plans for further transfer of certain opera- tions to low-cost countries at an estimated cost of approximately $12,000,000. Once these restructur- ing plans are fully implemented, we expect annual savings of $10,000,000 going forward as a result of these transfers. Other charges included inventory write- offs of $5,576,000 and the record- ing of a $10,000,000 tax expense for various tax uncertainties. In addition, the Company recorded a charge of $5,295,000 for an unrealized noncash loss on a forward-exchange contract related to the TEMIC acquisitions. None of these charges have a cash effect on the ongoing operations of Vishay. Gross profits for the year ended December 31, 1997 were 23.7 percent of sales as compared to 24.8 percent in the prior year. The gross profits were negatively affected by a difficult pricing environment and the fourth quarter 1997 restructuring program, which included $5,576,000 in inventory write-offs. Exclusive of those write-offs, the gross profit, as a percentage of sales, would have been 24.2 percent for the year ended December 31, 1997. ber 31, 1997 was 0.36 compared to 0.24 at December 31, 1996. For the year ended December 31, 1997, the Company’s cash flows from operations were $175,913,000 compared to $122,186,000, a 44 percent increase over the prior year. The increase in cash flows from operations is primarily due to a decrease in inventories in 1997 compared to an increase in invento- ries in 1996. Purchases of property and equipment for the year ended December 31, 1997 were $75,870,000 as compared to $123,984,000 in the prior year. Looking Ahead During the past year, we have taken significant steps to strengthen the Company and grow it to become a worldwide leader in passive and discrete semiconductor (active) components with annual sales which will approach $2 billion in the future. We believe Vishay will benefit from the synergies created by the combina- tion of the manufacturing, selling and administration of the newly acquired entities. Additionally, Vishay will be able to leverage its purchasing power for materials used in the manufacturing process. Vishay Intertechnology, Inc. 3 From Niche Manufacturer to Global Manufacturer Passive Passive Passive and of the Broadest Line of Passive Passive Discrete Semiconductor Electronic Components strain gages (Vishay Measurements Group) provide the best tempera- ture coeffi-cient of resistance (TCR) available to date. The Bulk Metal foil resistors and Thin Film resistors (developed at a later date) are used in the most sophisticated electronic circuits and Vishay strain gages are used for stress measure- ment and as weight sensors in scales. Strategic Acquisitions Increase Product Offerings, Market Potential and Revenues Even as the Company achieved technical and market leadership in its core product lines, Vishay’s management began an aggressive acquisition strategy to increase its product offer-ings, market broadening and rev- Vishay’s Earliest Products Became Industry Standards The foundation of Vishay Intertechnology, Inc. rests on the inventions of Dr. Felix Zandman, Vishay Founder, Chairman and CEO. A physicist, Dr. Zandman’s first pat-ents issued in the 1950s were the result of his research on stresses in structures under live load conditions. His PhotoStress® coatings and in-struments, which were technological breakthroughs, are used to visualize and measure the distribution of stresses in automobiles, airplanes and other structures. Vishay’s next innovation was the development and successful application of resistive material that could be used in the manufacture of resis- tors and resistive sensors (strain gages) to eliminate the temperature effects on the performance of those components. As a result, Vishay’s Bulk Metal® foil resistors and A sampling of the many products manufac- tured by Vishay Measurements Group (strain gages), Vishay Foil Resistors and Vishay Thin Film. 1985 VISHAY 1987 VISHAY 1988 VISHAY The largest manufacturer of fixed resistors in the U.S. and a producer of inductors, specialty connectors and plasma displays. The largest manufacturer of fixed resistors in Germany and a producer of specialty ceramic capacitors. The largest manufacturer in France of fixed resistors, variable resistors (potentiometers), and printed circuit boards. enues. Each of the acquired companies met strict acquisition guidelines for technical strength, brand recognition, manufacturing capabilities, excellent market and geographic penetration and management depth. As a result, Vishay’s acquisitions have included some of the finest brand names in the electronic components industry. They are Dale, Sprague and Vitramon in the U.S.; Draloric, Roederstein and Sfernice in Europe; Lite-On Power Semicon- ductor in Southeast Asia; and TEMIC Semiconductors (Telefunken and Siliconix) in the U.S., Europe and Asia. Beginning in the mid 1980s, Vishay’s acquisition strategy produced dramatic sales growth. Within just three-and-a-half years, total annual sales increased from $59 million to over $400 million, making Vishay the largest fixed resistor manufacturer in the U.S. and Europe. The Sfernice acquisi- tion also provided Vishay with a foothold in the variable resistor market. In addition to fixed and variable resistors, each acquisition introduced Vishay into niche markets for complementary passive electronic components. Dale, Draloric and Sfernice possess superior expertise in a wide range of these products including inductors, specialty capacitors, plasma displays, specialty connec- tors, printed circuit boards, transformers, thermistors and oscillators. In 1991, Vishay decided to extend even further its range of product offerings, enlarge its worldwide penetration of passive electronic components and become a major producer of capacitors. Consequently, in 1992, Vishay acquired the assets of Sprague, a leading U.S. and European tanta- lum capacitor manufacturer. These capacitors are the smallest and most stable in their category and are used extensively in computers, telecommunications and in the automotive industry. The acquisi- tion of Sprague brought Vishay’s annual sales to $664 million. Sprague developed and holds the original patents for tantalum capacitors. Then in 1993, Vishay acquired Roederstein, a leading European and U.S. manufacturer of film capacitors. Roederstein also produces other passive electronic components such as metal film fixed resistors, thick film chip resistors, ceramic disc and alumi- num capacitors and hybrid circuit assemblies. Next came Vitramon in 1994, a leading producer of multilayer ceramic chip (MLCC) capacitors. Vitramon’s MLCC capacitor has a worldwide reputation for reliability. Vitramon brought Vishay’s sales in 1994 to approximately $1 billion. Other Vishay operating units include Vishay Thin Film, Vishay Foil Resistors and Vishay Measure- ments Group (strain gages and PhotoStress), the original Vishay products. Vishay Thin Film is a leading U.S. and European manu- facturer of thin film resistor networks and thin film resistor chips. Vishay Foil Resistors is the largest worldwide manufacturer of foil resistors and foil potentiom- eters and holds the original patents for these technologies. Vishay Measurements Group is the largest worldwide manufacturer of resistive stress sensors (strain gages) and PhotoStress instruments for which it holds the original patents. 1992 VISHAY 1993 VISHAY 1994 VISHAY A leading manufacturer of tantalum capacitors in the U.S. and Europe. Sprague holds the original patents for tantalum capacitors and was first to offer surface mount tantalum chip capacitors. A leading European and U.S. manufacturer of film capacitors, aluminum and ceramic disc capacitors, thick film chip resistors, and hybrid circuits. A leading U.S. and European manufacturer of multilayer ceramic chip (MLCC) capacitors. Vishay Intertechnology, Inc. 5 From Niche Manufacturer to Global Manufacturer of the Broadest Line of Passive and Discrete Semiconductor Electronic Components Vishay Acquires New Technologies Aimed at Fast-Growing Markets In 1997, Vishay entered the $14 billion discrete semiconductor market with the addition of 65 percent of Lite-On Power Semicon- ductor Corporation (LPSC) to its family of world-class brands. Just nine months later, Vishay added the semiconductor business unit of TEMIC (Telefunken and Siliconix), a leading manufacturer of power and analog semiconductor devices. With these moves, Vishay has positioned itself in the discrete semiconductor components arena and created the potential to reach the $2 billion revenue mark five years ahead of its projections. Vishay Siliconix and Vishay Telefunken (formerly known as TEMIC Semiconductors) and Vishay LPSC are leading manufac- turers of a comprehensive range of diodes, transistors and optoelec- tronic devices. These products are used to amplify and switch elec- tronic signals to convert AC to DC currents and are found in many electronic circuits. The optoelec- tronic devices are used in optical displays, remote controls, switch- ing and infrared communications. Diodes and transistors are sold to the same markets as Vishay’s passive components, and like those components, are used extensively in one of the fastest growing markets worldwide — the portable electronics market; digital phones, laptop computers, pagers and other wireless applications. In addition, Vishay Siliconix’ power and analog semiconductor products are used in the computer, data storage, communications and automotive markets. The Company’s analog switches, analog multiplexers and low-power transistors are used to sense, amplify, switch and route analog signals in instrumentation, video and multimedia systems and test equipment. Furthermore, Vishay Siliconix uses its technology and applications expertise to develop value-added products including integrated circuits for power conversion, power interface and motor control. Recognizing the importance of the portable electron- ics market early on, Vishay Siliconix created a family of products whose technology is one of the most efficient in extending battery life. With the proliferation of notebook computers, handheld cellular phones, pagers and the like, the market for Vishay Siliconix’ products is constantly expanding. As prices decline, allowing more and more consumers 1997 VISHAY TM POWER SEMICONDUCTOR 1998 VISHAY TELEFUNKEN 1998 VISHAY SILICONIX Vishay Lite-On Power Semiconductor is a leading Asian producer of discrete semiconductor products such as diodes, transistors and transient voltage suppressors. Vishay Telefunken is a leading German manufacturer of transistors, diodes and optoelectronic components. Vishay Siliconix is a leading U.S. manufacturer of discrete semiconductors and ICs for power management and motion control, as well as products used for signal processing, routing and switching. Vishay Intertechnology, Inc. 6 to take advantage of the latest technology, the demand for Vishay Siliconix’ products should continue to increase. Vishay Telefunken developed infrared communications systems (IRDCs) for wireless communica- tions between portable telephones, laptop computers and printers. This is a new and fast-developing business where Vishay Telefunken is in the leading worldwide position. Other products of both Vishay Telefunken and Vishay LPSC — diodes and transistors Worldwide Discrete Semiconductor Market by Technology $Millions $14 Billion Total Diodes: $5.74 B Transistors: $8.26 B 2500 2000 1500 1000 500 0 SS SS TVS Rec- 35A SS SS Fet Pwr Blp Pwr Fet IBGT Diode Zener Source: World Semiconductor Trade Statistics 1997 essentially of all types — play a key role in many electronic circuits. In fact, Vishay masters all but one (IBGT) semiconductor technology. (See chart above.) The acquisitions of Vishay Siliconix, Vishay Telefunken and Vishay LPSC add new products, increase revenues, enhance access to high-growth markets and low- cost manufacturing facilities. These discrete semiconductor acquisitions are also significant in light of the trend toward integrated passive components (IPCs) on silicon. An IPC is a combination of passive The photo above shows typical applications for passive and discrete semiconductor components. component products on one substrate (ceramic or silicon). These are resistor networks; resistor/capacitor networks; RCDs or resistor/capacitor/diodes and similar combinations. IPCs may become important because they take up less space and reduce the cost per component. As discrete products are integrated into smaller, denser, more powerful solutions, the addition of important silicon technology expertise should enable Vishay to be ideally positioned in the emerging IPC market. Vishay Intertechnology, Inc. 7 Vishay At-A-Glance TECHNOLOGIES M A R K E T S T R E N D S RESISTORS and RESISTOR-BASED DEVICES Adjust and regulate v o l t a g e a n d c u r r e n t . CAPACITORS Store energy and filter frequencies. Metal/Thin Film Wirewound Thick Film Foil Variable Film Tantalum Multilayer Ceramic Disk Ceramic Aluminum INDUCTORS Control the phase of alternating currents. Inductors Transformers Aerospace • Lower Prices Automotive • Surface Mount Packages Commercial • Smaller Chips Computers Scales • Increased Reliability • Just-In-Time Delivery • Lower Voltages Entertainment • Offshore Production DIODES Convert AC to DC current. Optoelectronics. TRANSISTORS Amplify currents. Switch electronic signals. Schottky Diodes Zener Diodes Rectifiers TVS LEDs IRDCs Small Signal Transistors Power MOS Low Power Devices Signal Processing Units General Industrial • Zero Defect Quality • Continuously Medical Improved Performance Military • Integrated Passive Components Telecommunications • Higher Frequencies E V I S S A P E V I T C A Vishay’s entrance into the discrete semiconductor components market should enable the Company to accomplish several important goals. Provide State-Of-The-Art Service. Maintain its Position as Technology Leader Distributors and original equipment manufactur- ers (OEMs) continue to reduce the number of suppliers they deal with in order to reduce costs and time-to- market. Vishay is in an excellent position to provide buyers with the convenience they seek. Vishay has distribution sites available to supply key customers with almost all of their discrete component needs. This is a big step toward improving service. Through internal R&D and acquisitions, Vishay continues to supply its customers with advanced design solutions. Three examples of advanced design solutions are Vishay Sprague’s 1000m F & 1500m F (with the lowest available ESR) in a coated tantalum capacitor’s smallest available package; Vishay Siliconix’ latest Littlefoot® MosFET using its proprietary trench technology to reduce resistance; and Vishay Dale’s WSL low TCR and low inductance power chip resistor. S O M E M A J O R C U S T O M E R S S O M E M A J O R D I S T R I B U T O R S End Markets AT&T Acer Alcatel Bosch Compaq/DEC Delco Ericsson Ford GM/Hughes Hewlett-Packard Honeywell IBM Intel Iomega Lockheed Martin Lucent Technologies Matsushita Motorola Northern Telecom Qualcomm Raytheon Rockwell SCI Samsung Seagate Siemens Solectron Sony Sun Microsystems Texas Instruments Western Digital Advacom, Inc. Allied Electronics, Inc. Anthem Arrow Electronics Avnet Bell Industries, Inc Capstone Electronics Corp. Dynamar EBV Future Electronics Hamilton Hallmark Jaco Electronics, Inc. Kent Electronics Koenig Mouser Electronics, Inc. National Electronics Corp. Newark Electronics New Yorker Electronics Pioneer Standard Electronics Projections Unlimited, Inc. Reptron Electronics, Inc. Richey Electronics Time Electronics Tomen T.T.I., Inc. Penetrate New Markets and Decrease Selling Costs Vishay intends to reach new customers more effectively through integrated sales channels in the U.S., Europe and Asia. Consolidating sales forces and distribution sales channels should allow Vishay to realize economic efficiencies. Vishay Siliconix’ and Vishay Telefunken’s positions in the Japanese market provide previously unavailable opportunities for Vishay in Japan. Passives Military Industrial & Consumer 7 % Computers 3 2 % 1 7 % 1 8 % 2 6 % Automotive Telecom Discrete Semiconductors Industrial & Consumer 4 7 % Computers 1 8 % 1 2 % 2 3 % Telecom Automotive Vishay Total 4% Military Industrial & Consumer 3 9 % Computer 1 7 % 1 5 % 2 5 % Automotive Telecom Vishay: A Single Source For Essentially All Discrete Electronic Components Vishay Is the Only Worldwide Manufacturer Producing Essentially a Full Line of Passive and Discrete Semiconductor (Active) Components CAPACITORS RESISTORS INDUCTORS Film Tantalum Multi-Layer Ceramic Disk Ceramic Aluminum Metal/ Thin Film Wirewound Thick Film Foil Variable Inductor Transformer P A S S I V E VISHAY Major Competitive Position Minor Competitive Position Vishay is a global manufac- turer of the broadest line of passive and discrete semiconductor elec- tronic components. These compo- nents are used in all electronic and electrical applications, from your toaster, TV, telephone, PC, automo- bile ignition system and the sophisticated local area network in your office building, to the latest design for a lunar space module. As electronic products such as computers, telephones, pagers and printers become more and more sophisticated, they require more and more discrete compo- nents. For example, Intel’s 486 microprocessor (old technology) is surrounded by A A technician inspects a transistor silicon wafer. (Photo A) The Company’s global workforce includes hundreds of highly skilled research and applications engineers, technicians and many PhDs in its research, development and engineering programs. (Photo B, following page) Vishay Intertechnology, Inc. 10 B A C T I V E DIODES TRANSISTORS Schottky Zener LED Rectifier TVS Small Signal Power MOS LOPD SPU 124 discrete components. The next generation microproces- sor, Pentium, more than doubles that amount to 252 total discrete components. Intel’s superfast Pentium II microprocessor is surrounded by 345 discrete components. Discrete Components Unlike integrated circuits (ICs) which combine the functions of many electronic components in one chip, discrete components perform one specific function per device. Discrete components can be passive devices or active (semiconductors) devices. Passive components (resistors, capacitors and inductors) adjust and regulate current or store energy and filter frequencies. Semiconductor components (diodes and transistors) convert AC currents to DC, amplify currents or switch electronic and optical signals. Pictured above are the front and back sides of a printed circuit board of a handheld telephone. The large packages are the integrated circuits (ICs) and the small components are passive and discrete semiconductor components. Vishay Intertechnology, Inc. 11 Global Manufacturer Percent of Sales by Region Passives U.S. 48% Asia 10% Europe 42% Discrete Semiconductors Asia 36% U.S. 27% Europe 37% Vishay Total U.S. 41% Asia 18% Europe 41% Vishay Intertechnology, Inc. 12 Each of Vishay’s strategic acquisitions has resulted in new technologies, increased revenues and new offshore manufacturing locations. Today, with approximately 20,000 employees, in 70 manufacturing locations close to customers and a vast worldwide sales network, Vishay can service its customers in an efficient manner. With the addition of Vishay Lite-On Power Semiconductor, Vishay Siliconix and Vishay Telefunken, the Company now owns five locations in China, two in Taiwan (R.O.C.) and two in the Philippines…important for penetrating Far East Asian markets and becoming the lowest-cost producer. Each map symbol represents one or more Vishay manufacturing facilities. CONSOLIDATED BALANCE SHEETS (In thousands, except per share and share amounts) December 31 1997 1996 ASSETS CURRENT ASSETS Cash and cash equivalents ..................................................... Accounts receivable, less allowances of $ 55,263 $ 20,945 $4,143 and $5,093 ............................................................... 186,687 165,632 Inventories: Finished goods ..................................................................... Work in process ................................................................... Raw materials ...................................................................... Prepaid expenses and other current assets .......................... 158,933 84,245 96,193 64,650 182,722 73,606 100,418 82,310 TOTAL CURRENT ASSETS ...................................................... 645,971 625,633 PROPERTY AND EQUIPMENT — at cost Land .......................................................................................... Buildings and improvements ................................................... Machinery and equipment ....................................................... Construction in progress ......................................................... 41,378 230,772 744,983 50,400 43,705 222,743 695,084 57,891 Less allowances for depreciation ........................................... 1,067,533 (358,391) 1,019,423 (308,761) 709,142 710,662 GOODWILL ............................................................................................... 286,923 201,574 OTHER ASSETS ...................................................................................... 77,612 20,646 $ 1,719,648 $ 1,558,515 Vishay Intertechnology, Inc. December 31 1997 1996 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Notes payable to banks ........................................................... Trade accounts payable .......................................................... Payroll and related expenses ................................................. Other accrued expenses ......................................................... Income taxes ............................................................................ Current portion of long-term debt ........................................... $ 29,926 47,925 44,039 52,485 12,003 4,459 $ 31,212 33,930 35,973 57,849 7,076 25,394 TOTAL CURRENT LIABILITIES ..................................... 190,837 191,434 LONG-TERM DEBT — less current portion ............................... DEFERRED INCOME TAXES .................................................... DEFERRED INCOME .................................................................. OTHER LIABILITIES ................................................................... ACCRUED PENSION COSTS .................................................... 347,463 41,701 59,300 56,217 64,482 229,885 33,113 58,570 30,534 69,749 STOCKHOLDERS’ EQUITY Preferred Stock, par value $1.00 a share: Authorized — 1,000,000 shares; none issued Common Stock, par value $.10 a share: Authorized — 75,000,000 shares; 56,460,565 and 53,727,874 shares outstanding after deducting 14,127 and 13,248 shares in treasury .............. Class B convertible Common Stock, par value $.10 a share: Authorized — 15,000,000 shares; 7,925,394 and 7,563,720 shares outstanding after deducting 205,649 and 221,809 shares in treasury .......... Capital in excess of par value ................................................. Retained earnings ................................................................... Foreign currency translation adjustment ................................ Unearned compensation ......................................................... Pension adjustment ................................................................. See accompanying notes. 5,646 5,373 793 920,165 75,587 (37,587) (644) (4,312) 756 825,949 107,762 9,106 (370) (3,346) 959,648 945,230 $ 1,719,648 $ 1,558,515 CONSOLIDATED STATEMENTS OF OPERATIONS Vishay Intertechnology, Inc. (In thousands, except per share and share amounts) Year ended December 31 1996 1995 1997 Net sales ...................................................................... Costs of products sold ................................................. $ 1,125,219 858,020 $ 1,097,979 825,866 $ 1,224,416 902,518 GROSS PROFIT ...................................................... 267,199 272,113 321,898 Selling, general, and administrative expenses .......... Amortization of goodwill .............................................. Unusual items .............................................................. Other income (expense): Interest expense ...................................................... Other ......................................................................... Earnings before income taxes .................................... Income taxes ................................................................ 136,876 7,218 14,503 108,602 (18,819) (2,314) (21,133) 87,469 34,167 141,765 6,494 38,030 85,824 (17,408) 1,941 (15,467) 70,357 17,741 158,821 6,461 4,200 152,416 (29,433) (9) (29,442) 122,974 30,307 NET EARNINGS ...................................................... $ 53,302 $ 52,616 $ 92,667 Basic and diluted earnings per share ......................... $ 0.83 $ 0.82 $ 1.55 Weighted average shares outstanding— assuming dilution ..................................................... 64,459,000 64,364,000 59,897,000 See accompanying notes. CONSOLIDATED STATEMENTS OF CASH FLOWS Vishay Intertechnology, Inc. (In thousands) OPERATING ACTIVITIES Net earnings ................................................................................. Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ............................................ Unrealized loss on forward exchange contract ................. Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable ...................................................... Inventories ..................................................................... Prepaid expenses and other current assets ................ Accounts payable .......................................................... Other current liabilities .................................................. Other ..................................................................................... Year ended December 31 1996 1997 1995 $ 53,302 $ 52,616 $ 92,667 81,874 5,295 77,247 — 69,547 — (23,339) 19,501 20,496 6,882 5,897 6,005 10,073 (11,575) 3,438 (31,573) 1,526 20,434 (8,147) (48,123) (14,023) 998 (7,442) 30,034 NET CASH PROVIDED BY OPERATING ACTIVITIES ............ 175,913 122,186 115,511 INVESTING ACTIVITIES Purchases of property and equipment ....................................... Purchases of businesses, net of cash acquired ........................ (75,870) (122,468) (123,984) — (165,699) — NET CASH USED IN INVESTING ACTIVITIES ........................ (198,338) (123,984) (165,699) FINANCING ACTIVITIES Proceeds from long-term borrowings ......................................... Principal payments on long-term debt ....................................... Net proceeds (payments) on revolving credit lines ................... Net changes in short-term borrowings ....................................... Purchases of common stock ....................................................... Proceeds from sale of common stock ........................................ NET CASH PROVIDED BY FINANCING ACTIVITIES ............. Effect of exchange rate changes on cash .................................. 4,100 (82,076) 155,729 (17,152) — — 60,601 (3,858) 3,476 (86,026) 76,502 10,066 — — 4,018 (859) 34,318 245 (118,226) (59,800) (7,188) (3,578) 230,279 41,732 1,183 1,361 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,273) Cash and cash equivalents at beginning of year ...................... 20,945 19,584 26,857 CASH AND CASH EQUIVALENTS AT END OF YEAR ............ $ 55,263 $ 20,945 $ 19,584 See accompanying notes. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Vishay Intertechnology, Inc. (In thousands, except share amounts) Common Stock: Year ended December 31 1997 1996 1995 Beginning balance ............................................................................... $ 5,373 $ 5,114 $ 2,257 Stock issued (28,486; 10,556; and 5,777,300 shares) ....................................................................... Stock dividends (2,687,692; 2,558,069; and 1,091 shares) .............................................................................. Stock split ......................................................................................... Stock repurchased (110,000 shares) ............................................. Conversions from Class B (16,513; 19,423; and 325,509 shares) .......................................................................... 3 269 — — 1 1 256 — — 2 Ending balance .................................................................................... 5,646 5,373 Class B convertible Common Stock: Beginning balance ............................................................................... Stock dividends (378,187 and 361,108 shares) ............................ Stock split ......................................................................................... Conversions to Common (16,513; 19,423; and 325,509 shares) .......................................................................... Ending balance .................................................................................... Capital in excess of par value: Beginning balance ............................................................................... Stock issued ..................................................................................... Stock dividends ............................................................................... Stock split ......................................................................................... Stock repurchased ........................................................................... Stock appreciation rights ................................................................ Tax effects relating to stock plan ................................................... 756 38 — (1) 793 825,949 778 85,170 — — 8,200 68 722 36 — (2) 756 734,316 618 90,932 — — — 83 576 — 2,275 (11) 17 5,114 377 — 362 (17) 722 509,966 230,534 — (2,637) (3,567) — 20 Ending balance .................................................................................... 920,165 825,949 734,316 Retained earnings: Beginning balance ............................................................................... Net earnings ..................................................................................... Stock dividends ............................................................................... 107,762 53,302 (85,477) 146,370 52,616 (91,224) 53,734 92,667 (31) Ending balance .................................................................................... 75,587 107,762 146,370 Foreign currency translation adjustment: Beginning balance ............................................................................... Translation adjustment for the year ............................................... 9,106 (46,693) 28,487 (19,381) Ending balance .................................................................................... (37,587) 9,106 Unearned compensation: Beginning balance ............................................................................... Stock issued under stock plans (28,486; 10,556; and 27,300 shares) .................................................................... Amounts expensed during the year ............................................... Ending balance .................................................................................... Pension adjustment: Beginning balance ............................................................................... Pension adjustment for the year .................................................... Ending balance .................................................................................... (370) (566) 292 (644) (3,346) (966) (4,312) (364) (262) 256 (370) (6,792) 3,446 (3,346) 4,584 23,903 28,487 (20) (519) 175 (364) (5,810) (982) (6,792) TOTAL STOCKHOLDERS’ EQUITY ...................................................... $ 959,648 $ 945,230 $ 907,853 See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 Vishay Intertechnology, Inc. is an international manufacturer and sup- plier of passive electronic components and discrete active electronic compo- nents, particularly resistors, capacitors, inductors, diodes, and transistors. Electronic components manufactured by the Company are used in virtually all types of electronic products, including those in the computer, telecommunica- tions, military/aerospace, instrument, automotive, medical, and consumer electronics industries. 1. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of Vishay Intertechnology, Inc. include the accounts of the Company and its majority-owned subsidiaries, after elimination of all significant intercompany transactions, accounts, and profits. The Company's investments in 20% to 50%-owned companies, in which it has the ability to exercise significant influence over operating and financial policies, are accounted for on the equity method. Investments in other companies are carried at cost. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Examples include allowances for uncollectible accounts receivable, provisions for excess or obsolete inventories, and estimated tax uncertainties (see Note 4). Actual results could differ significantly from those estimates. Inventories Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market. Depreciation Depreciation is computed principally by the straight-line method based upon the estimated useful lives of the assets. Depreciation of capital lease assets is included in total depreciation expense. Depreciation expense was the years ended $73,329,000, $68,688,000, and $60,155,000 December 31, 1997, 1996, and 1995, respectively. for Construction In Progress The estimated cost December 31, 1997 is $22,488,000. to complete construction in progress at Goodwill Goodwill, representing the excess of purchase price over net assets of businesses acquired, is being amortized on a straight-line basis over 40 years. Accumulated amortization amounted to $35,273,000 and $29,726,000 at December 31, 1997 and 1996, respectively. The recoverability of goodwill is evaluated at the operating unit level by an analysis of operating results and consideration of other significant events or changes in the business environ- ment. If an operating unit has current operating losses and based upon projections there is a likelihood that such operating losses will continue, the Company will determine whether impairment exists on the basis of undiscounted expected future cash flows from operations before interest for the remaining amortization period. If impairment exists, goodwill will be reduced by the estimated shortfall of cash flows. Cash Equivalents For purposes of the Statement of Cash Flows, the Company considers demand deposits and all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Research and Development Expenses The amount charged to expense aggregated $7,023,000, $10,429,000, and $10,430,000 for the years ended December 31, 1997, 1996, and 1995, respectively. The Company spends additional amounts for the development of machinery and equipment for new processes and for cost reduction measures. Vishay Intertechnology, Inc. Grants Grants received from governments by certain foreign 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 received from the government of Israel and recognized as a reduction of costs of products sold were $11,352,000, $8,943,000, and $13,243,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Grants receivable of $8,909,000 and $23,163,000 are included in other current assets at December 31, 1997 and 1996, respectively. Deferred grant income is $59,300,000 and $58,570,000 at December 31, 1997 and 1996, respectively. The grants are subject to conditions, including maintaining specified levels of employment for periods up to ten years. Noncompliance with such conditions could result in repayment of grants, however, management expects that the Company will comply with all terms and conditions of grants. Share and Per Share Amounts In 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 requires net earnings per share to be presented under two calculations, basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of common shares outstand- ing during the periods presented. Diluted earnings per share is computed using common and dilutive potential common shares outstanding during the periods presented. The Company's potential common shares consist of stock options granted under the Company's 1995 stock option plan (see Note 6) and stock appreciation rights issued in connection with the LPSC acquisition (see Note 2). The number of shares used in the calculation of basic earnings per common share was 64,318,000 in 1997, 64,321,000 in 1996, and 59,864,000 in 1995. The number of shares used in the calculation of diluted earnings per common share was 64,459,000 in 1997, 64,364,000 in 1996, and 59,897,000 in 1995. Options to purchase 1,160,000 shares of common stock at prices ranging from $24.03 to $43.19 per share were outstanding during 1997, 1996, and 1995, respectively, but were not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of the common shares. Earnings per share amounts for all periods presented reflect the 1995 2-for-1 stock split and 5% stock dividends paid on June 9, 1997, June 7, 1996, and March 31, 1995. Earnings per share reflect the weighted effect of the issuance of 5,750,000 shares of Common Stock in September 1995. Stock Options Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), establishes a fair value method of accounting for stock-based compensation plans but provides the option of measuring compensation expense using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Company has elected to continue to account for stock-based compensation plans in accordance with APB 25. The effect of applying the fair value method of SFAS 123 results in net income and earnings per share amounts that are the same as the reported amounts in 1997 and 1996 and are not materially different from amounts reported for 1995. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued State- ment of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in the financial statements. SFAS 131 requires publicly held companies to report financial and other information about key revenue-producing segments of the entity for which such information is available and is utilized by the chief operating decision-maker. The NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company is evaluating its implementation approach for SFAS 130 and 131, both of which will be adopted in 1998. Reclassifications Certain prior-year amounts have been reclassified to conform with the current presentation. 2. Acquisitions In July 1997, the Company purchased 65% of the common stock of Lite- On Power Semiconductor Corporation (LPSC), a Republic of China (Taiwan) company, for $130,000,000 in cash and stock appreciation rights with a fair value of $8,200,000 (see Note 6). LPSC is a producer of discrete active electronic components with manufacturing facilities in Taiwan, China and the United States. LPSC also owns 40.2% of Diodes, Inc. (AMEX: DIO), a public company traded on the American Stock Exchange. The Company utilized existing credit facilities to finance the cash portion ($130,000,000) of the purchase price. The acquisition was accounted for under the purchase method of accounting. 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 net assets acquired ($110,978,000) is being amortized on a straight-line method over an estimated useful life of forty years. Had the LPSC acquisition been made at the beginning of 1996, the Company's pro forma unaudited results for the years ended December 31, 1997 and 1996 would have been (in thousands, except per share amounts): Year ended December 31 1997 1996 Net sales .................................................................. $ 1,162,969 $ 1,151,924 Net earnings ............................................................. $ 51,349 $ 47,392 Basic and diluted earnings per share .................... $ 0.80 $ 0.74 The unaudited pro forma results are not necessarily indicative of the results that would have been attained had the acquisition occurred at the beginning of 1996 or of future results. 3. Unusual Items Unusual items expense of $14,503,000 in 1997 consists of restructuring expense of $12,605,000 and a settlement with the United States government in the amount of $1,898,000 representing reimbursements for overcharges relating to military products produced prior to 1993 at one of the Company's U.S. subsidiaries. Restructuring expense of $12,605,000 in 1997 results from a downsizing of Approximately the Company's European operations. $10,357,000 of this expense relates to employee termination costs covering approximately 324 technical, production, administrative, and support employ- ees located in Germany and France. Approximately $623,000 of the restruc- turing expense relates to facility closure costs in France. The remaining $1,625,000 relates to additional payments to certain employees laid off in the last half of fiscal 1996 in connection with Vishay's fiscal 1996 restructuring program. The payments were a result of a judgment rendered by a French court against a subsidiary of the Company. The court ruled that these employees were due additional payments under France's mandated social plan. The restructuring plan is expected to be completed by the end of 1998. At December 31, 1997, $11,982,000 of restructuring costs are included in other accrued expenses. Unusual items in 1996 represent restructuring expense of $38,030,000 which resulted from a downsizing of the Company's worldwide operations. Approximately $9,077,000 of restructuring expense relates to facility closure costs in North America and Europe. The remaining $28,953,000 of these expenses relate to employee termination costs covering approximately 2,600 technical, production, administrative, and support employees located in the United States, Canada, France, and Germany. At December 31, 1997, approximately 2,457 employees had been terminated and $24,461,000 of termination costs were paid. The remaining $4,492,000 of termination costs are included in other accrued expenses at December 31, 1997. The remaining accrual is considered adequate to complete the restructuring program and is expected to be paid by March 31,1998. Unusual items in 1995 represents restructuring expense of $4,200,000 which resulted from the downsizing of some of the Company’s European operations and represented employee termination costs covering 276 techni- cal, production, administrative, and support employees located primarily in France and Germany. This downsizing was completed during the year ended December 31, 1996. 4. Income Taxes Earnings before income taxes consists of the following components (in thousands): Year ended December 31 1997 1996 1995 Domestic ................................................. Foreign .................................................... $ 45,832 $ 42,406 $ 34,926 88,048 27,951 41,637 $ 87,469 $ 70,357 $ 122,974 Significant components of income taxes are as follows (in thousands): Year ended December 31 1997 1996 1995 Current: U.S. Federal ................................. Foreign ......................................... State ............................................. $ 20,296 $ 13,836 $ 10,578 10,927 1,082 8,098 1,586 6,494 2,103 Deferred: U.S. Federal ................................. Foreign ......................................... State ............................................. 1,476 3,547 251 1,632 (7,793) 382 2,247 5,082 391 28,893 23,520 22,587 5,274 (5,779) 7,720 $ 34,167 $ 17,741 $ 30,307 Deferred income taxes reflect the net tax effects of temporary differ- ences 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 liabilities and assets are as follows (in thousands): Year ended December 31 1996 1997 Deferred tax liabilities: Tax over book depreciation .......................... Other -- net .................................................... $ 71,122 $ 77,402 7,325 12,031 Total deferred tax liabilities ..................................... Deferred tax assets: Pension and other retiree obligations .......... Net operating loss carryforwards ................. Restructuring reserves .................................. Other accruals and reserves ........................ 83,153 84,727 23,150 82,510 5,283 22,767 25,358 84,574 7,698 16,120 Total deferred tax assets ......................................... Valuation allowance for deferred tax assets 133,710 (40,447) 133,750 (59,021) Net deferred tax assets ............................................ 93,263 74,729 Net deferred tax (assets) liabilities ......................... $ (10,110) $ 9,998 Vishay Intertechnology, Inc. A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax expense is as follows (in thousands): Year ended December 31 1997 1996 1995 Tax at statutory rate ............................... State income taxes, net of U.S. federal tax benefit .... Effect of foreign income tax rates ......... Benefit of net operating loss $ 30,612 $ 24,625 $ 43,041 1,619 (10,325) 1,413 (9,717) 1,094 (13,801) carryforwards ............................... (207) (817) (2,054) Provision for estimated tax uncertainties ................................ ...................................................... Other 10,000 2,468 — 2,237 — 2,027 $ 34,167 $ 17,741 $ 30,307 At December 31, 1997, the Company has net operating loss carryforwards for tax purposes of $133,536,000 in Germany (no expiration date), $22,431,000 in France (expire December 31, 2002), and $4,472,000 in Portugal (expire December 31, 2002). Approximately $67,434,000 of the carryforward in Germany resulted from the Company’s acquisition of Roederstein. Valuation allowances of $40,447,000 and $59,021,000 have been recorded at December 31, 1997 and 1996, respectively, for deferred tax assets related to foreign net operating loss carryforwards. In 1997, tax benefits recognized through reductions of the valuation allowance had the effect of reducing goodwill of acquired companies by $8,837,000. If additional tax benefits are recognized in the future through further reduction of the valuation allowance, $22,016,000 of such benefits will reduce goodwill. During the fourth quarter of 1997, the Company recorded a $10,000,000 income tax charge for various tax uncertainties. Although it is reasonably possible that the ultimate resolution of such uncertainties could result in a loss in excess of the amounts accrued, the Company believes that its estimate for taxes and related interest as of December 31, 1997 is reasonable. At December 31, 1997, no provision has been made for U.S. federal and state income taxes on approximately $327,084,000 of foreign earnings which are expected to be reinvested 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) 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. Income taxes paid were $24,879,000, $22,141,000, and $30,272,000 for the years ended December 31, 1997, 1996, and 1995, respectively. 5. Long-Term Debt Long-term debt consisted of the following (in thousands): As of December 31, 1997, two facilities were available under the Company’s amended and restated Revolving Credit and Term Loan and Deutsche Mark Revolving Credit and Term Loan agreements with a group of banks; a multicurrency revolving credit loan (interest 6.25% on U.S. Dollar borrowings and 3.95% on Deutsche Mark borrowings at December 31, 1997), and a Deutsche Mark revolving credit loan (interest 3.95% at Decem- ber 31, 1997). On March 2, 1998, the Company entered into two revolving credit agreements with a group of banks, which replaced the agreements in effect at December 31, 1997. The Company entered into the new loan agreements with the banks to finance the Siliconix and TEMIC acquisitions (see Note 15). The first agreement provides for an $825,000,000 loan comprising a revolving credit facility and a swing line facility that mature on March 2, 2003, subject to Vishay's right to request year-to-year renewals. Interest is payable at prime or other interest rate options. The Company is required to pay certain facility fees on this facility. The second agreement provides for a $275,000,000 364-day multicurrency revolving credit facility which matures on March 1, 1999. The Company can request an initial three-month extension and, if granted, subse- quent year-to-year renewals. Interest is payable at prime or other interest rate options. The Company is required to pay certain credit facility fees on this facility. As of March 2, 1998, the Company had $750,989,000 and DM 102,000,000 ($56,316,000) outstanding under the five-year revolving credit facility (interest 6.26% on U.S. Dollar borrowings and 4.13% on DM borrowings) and $25,000,000 (interest 6.31%) outstanding under the 364-day multicurrency revolving credit facility. Borrowings under the loan agreements are secured by certain pledges of stock in certain significant subsidiaries and indirect subsidiaries of Vishay and certain guaranties by significant subsidiaries. The Company is restricted from paying cash dividends and must comply with other covenants, including the maintenance of specific financial ratios. Other debt and capital lease obligations include borrowings under short- term credit lines of $12,141,000 and $3,120,000 at December 31, 1997 and 1996, respectively, which are classified as long-term based on the Company's intention and ability to refinance the obligations on a long-term basis. Aggregate annual maturities of long-term debt, including $525,274,000 borrowed on March 2, 1998 under the revolving credit agreements, are as 1998—$4,459,000; 1999—$29,405,000; 2000—$3,496,000; follows: 2001—$3,254,000; 2002—$5,169,000; thereafter—$831,413,000. At December 31, 1997, the Company has committed and uncommitted short-term credit lines with various U.S. and foreign banks aggregating $187,337,000, of which $145,270,000 was unused. The weighted average interest rate on short-term borrowings outstanding as of December 31, 1997 and 1996 was 6.50% and 5.60%, respectively. Interest paid was $18,699,000, $17,736,000, and $29,459,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Year ended December 31 1997 1996 6. Stockholders’ Equity Multicurrency revolving credit loans ............................. $ 284,666 $ 121,039 — 77,500 Term loan ....................................................................... 25,974 Deutsche Mark revolving credit loans .......................... 9,426 Deutsche Mark term loan .............................................. 21,340 Other debt and capital lease obligations ..................... 22,365 — 44,891 Less current portion ...................................................... 351,922 4,459 255,279 25,394 $ 347,463 $ 229,885 On May 19, 1997, the Company's shareholders approved an increase in the number of shares of Common Stock, $.10 par value, which the Company is authorized to issue, from 65,000,000 shares to 75,000,000 shares. The Company’s Class B 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 trans- ferable. Class B shares are convertible on a one-for-one basis at any time to Common Stock. In connection with the acquisition of LPSC (see Note 2), the Company issued stock appreciation rights (SARs) to the former owners of LPSC. The SARs represent the right to receive in stock the increase in value on the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) equivalent of 1,625,000 shares of the Company's stock above $23 per share. The SARs may be exercised at any time prior to July 17, 2007 at the option of the former owners of LPSC. The Company may force redemption of the SARs if the Company's stock trades above the "Strike Price" ($43 per share during the first year). The Strike Price increases by 10% each year. At a market price of $43 per share for the Company's stock, the SARs would entitle the former owners of LPSC to 755,813 shares of the Company's Common Stock. The fair value of the SARs as of July 17, 1997 was determined to be $8,200,000 using the binomial option pricing model. Unearned compensation relating to Common Stock issued under em- ployee stock plans is being amortized over periods ranging from three to five years. At December 31, 1997, 219,776 shares are available for issuance under stock plans. In 1995, certain key executives of the Company were granted options to purchase 1,160,000 shares of the Company's Common Stock, all of which remain outstanding at December 31, 1997. These options expire March 1, 2000, with one-third exercisable at $24.03, one-third exercisable at $30.23, and one-third exercisable at $43.19. 7. Other Income (Expense) Other income (expense) consists of the following (in thousands): Year ended December 31 1997 1996 1995 Foreign exchange gains (losses) .......... Unrealized loss on forward exchange contract ........................................ Investment income ................................. Minority interest in income of subsidiaries .................................. Equity in net income of affiliates ........... Loss on sale of fixed assets .................. ...................................................... Other $ 3,657 $ 371 $ (2,022) (5,295) 2,353 — 1,586 — 1,529 (2,092) 1,090 (1,245) (782) (489) 318 (174) 329 (281) 727 — 38 $ (2,314) $ 1,941 $ (9) In connection with the Company's acquisition of all of the common stock of TEMIC Semiconductor GmbH and 80.4% of the common stock of Siliconix Incorporated (see Note 15), the Company entered into a forward exchange contract in December 1997 to protect against the impact of fluctuations in the exchange rate between the U.S. Dollar and the Deutsche Mark on the amount of U.S. Dollars required for the acquisitions. At December 31, 1997, the Company had an unrealized noncash loss on this contract of $5,295,000 which resulted from marking the contract to market value. 8. Employee Retirement Plans The Company maintains various defined benefit pension plans covering substantially all full-time U.S. employees. The benefits under these plans are based on the employees’ compensation during all years of participation. Participants in these plans, other than U.S. employees of Vitramon, are required to contribute an amount based on annual earnings. The Company's funding policy is to contribute annually amounts that satisfy the funding standard account requirements of ERISA. The assets of these plans are invested primarily in mutual funds and guaranteed investment contracts issued by an insurance company and a bank. Net pension cost for the plans included the following components (in thousands): Year ended December 31 1997 1996 1995 Annual service cost — benefits earned for the period .................................... Less: Employee contributions ................... $ 4,849 $ 5,091 $ 3,613 1,459 1,850 1,842 Net service cost ........................................... Interest cost on projected benefit obligation ........................................... Actual return on plan assets ....................... Net amortization and deferral ..................... 2,999 3,249 2,154 6,266 (12,688) 5,520 6,014 (10,737) 4,213 5,702 (11,892) 7,211 Net pension cost .......................................... $ 2,097 $ 2,739 $ 3,175 The expected long-term rate of return on assets is 8.5% – 9.5%. The following table sets forth the funded status of the plans and amounts recognized in the Company’s financial statements (in thousands): December 31 1997 1996 Accumulated benefit obligation, including vested benefits of $89,347 and $80,046 ................. $ 89,703 $ 80,343 Actuarial present value of projected benefit obligations ...................................................... $ (98,991) $ (87,740) Plan assets at fair value ........................................... 98,388 87,369 Projected benefit obligations in excess of plan assets ............................................................. Unrecognized loss (gain) ......................................... Unrecognized prior service cost .............................. Unrecognized net obligation at transition date, (603) 370 368 (371) (238) 601 being recognized over 15 years ................... 127 246 Accrued pension liability .......................................... $ 262 $ 238 The following assumptions have been used in the actuarial determina- tions of the plans: Discount rate ................................................... Rate of increase in compensation levels ...... 1997 6.75% 4.5% 1996 7.50% 4.5% - 5.0% 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 $2,126,000, $2,250,000, and $2,314,000 for the years ended Decem- ber 31, 1997, 1996, and 1995, respectively. The Company provides pension and similar benefits to employees of certain foreign subsidiaries consistent with local practices. German subsidiaries of the Company have noncontributory defined benefit pension plans covering management and employees. Pension benefits are based on years of service. Net pension cost for the German plans included the following components (in thousands): Year ended December 31 1997 1996 1995 Annual service cost — benefits earned for the period .................................... $ 107 $ 126 $ 164 Interest cost on projected benefit obligation ........................................... Actual return on plan assets ....................... Net amortization and deferral ..................... 4,261 (1,102) 25 5,082 (1,174) 133 5,267 (854) (220) Net pension cost .......................................... $ 3,291 $ 4,167 $ 4,357 The expected long-term rate of return on assets is 2.0%. Vishay Intertechnology, Inc. The following table sets forth the funded status of the German plans and Future minimum lease payments for operating leases with initial or amounts recognized in the Company’s financial statements (in thousands): 1996 December 31 1997 Accumulated benefit obligation, including remaining noncancelable lease terms in excess of one year are as follows: 1 9 9 8 — $ 6 , 7 1 7 , 0 0 0 ; 1 9 9 9 — $ 5 , 7 7 2 , 0 0 0 ; 2 0 0 0 — $ 4 , 6 4 7 , 0 0 0 ; 2001—$4,073,000; 2002—$3,259,000; thereafter—$8,739,000. vested benefits of $64,029 and $69,477 ..... $ 64,449 $ 70,122 11. Financial Instruments Actuarial present value of projected benefit obligations ...................................................... Plan assets at fair value ........................................... $ (64,785) $ (70,398) 15,508 13,734 Projected benefit obligations in excess of plan assets .............................................................. Unrecognized loss .................................................... Unrecognized prior service cost .............................. Unrecognized net asset at transition (51,051) 4,659 254 (54,890) 4,155 414 date, being recognized over 15 years ......... (22) (29) Additional minimum liability, recognized as a Financial instruments with potential credit risk consist principally of accounts receivable. Concentrations of credit risk with respect to receivables are limited due to the Company’s large number of customers and their dispersion across many countries and industries. At December 31, 1997 and 1996, the Company had no significant concentrations of credit risk. The amounts reported in the balance sheets for cash and cash equivalents and for short-term and long-term debt approximate fair value. See Note 15 regarding a forward exchange contract related to the acquisitions of TEMIC and Siliconix. reduction of stockholders' equity ................. (4,312) (3,346) 12. Current Vulnerability Due to Certain Accrued pension liability .......................................... $ (50,472) $ (53,696) Concentrations The following assumptions have been used in the actuarial determina- Sources of Supply tions of the German plans: 1997 1996 Discount rate ............................................................. Rate of increase in compensation levels ................ 7.0% 2.5% 7.0% 2.5% 9. Postretirement Medical Benefits The Company pays limited health care premiums for certain eligible retired U.S. employees. Net postretirement benefit cost included the following components (in thousands): Year ended December 31 1996 1997 1995 Service cost ................................................. Interest cost ................................................. Net amortization and deferral ..................... $ 252 499 250 $ 236 485 264 $ 215 497 245 Net postretirement benefit cost .................. $ 1,001 $ 985 $ 957 The status of the plan and amounts recognized in the Company’s consolidated balance sheets were as follows (in thousands): December 31 1997 1996 Accumulated postretirement benefit obligation: Retirees .......................................................... Actives eligible to retire ................................ Other actives ................................................. $ (2,837) $ (2,313) (1,519) (3,145) (1,388) (3,571) ........................................................................ Total Unrecognized loss .................................................... Unrecognized transition obligation, being (7,796) 951 (6,977) 925 amortized over 20 years ............................... 3,207 3,421 Accrued postretirement benefit liability ................... $ (3,638) $ (2,631) The discount rates used in the calculations were 6.75% and 7.50% for 1997 and 1996, respectively. 10. Leases Total rental expense under operating leases was $7,073,000, $9,679,000, and $9,984,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Although most materials incorporated in the Company's products are available from a number of sources, certain materials (particularly tantalum and palladium) are available only from a relatively limited number of suppliers. Tantalum, a metal, is the principal material used in the manufacture of tantalum capacitor products. It is purchased in powder form primarily under annual contracts with domestic suppliers at prices that are subject to periodic adjust- ment. The Company is a major consumer of the world's annual tantalum production. There are currently three major suppliers that process tantalum ore into capacitor grade tantalum powder. Although the Company believes that there is currently a surplus of tantalum ore reserves and a sufficient number of tantalum processors relative to foreseeable demand, and that the tantalum required by the Company has generally been available in sufficient quantities to meet requirements, the limited number of tantalum powder suppliers could lead to increases in tantalum prices that the Company may not be able to pass on to its customers. In an attempt to ensure that the Company will have access to a long-term, stable supply of low-cost tantalum, the Company is negotiating joint venture agreements for a tantalum mine, a refinery, and capacitor production facilities in China. Palladium is primarily purchased on the spot and forward markets, depending on market conditions. Palladium is considered a commodity and is subject to price volatility. Although palladium is currently found in South Africa and Russia, the Company believes that there are a sufficient number of domestic and foreign suppliers from which the Company can purchase palladium. However, an inability on the part of the Company to pass on increases in palladium costs to its customers could have an adverse effect on the margins of those products using the metal. Geographic Concentration To address the increasing demand for its products and in order to lower its costs, the Company has expanded, and plans to continue to expand, its manufacturing operations in Israel in order to take advantage of that country's lower wage rates, highly skilled labor force, government-sponsored grants, as well as various tax abatement programs. These incentive programs have contributed substantially to the growth and profitability of the Company. The Company might be materially and adversely affected if these incentive pro- grams were no longer available to the Company or if hostilities were to occur in the Middle East that materially interfere with the Company's operations in Israel. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Segment and Geographic Information Vishay operates in one line of business—the manufacture of electronic components. Information about the Company’s operations in different geographic areas is as follows (in thousands): United States Europe Israel Other Elimination Consolidated Year ended December 31, 1997 Net sales to unaffiliated customers ........................................... Net sales between geographic areas ........................................ $ 624,377* 66,452 $ 448,206 38,755 $ 7,989 242,920 $ 44,647 15,983 $ — $ 1,125,219 — (364,110) Total net sales ............................................................................ $ 690,829 $ 486,961 $ 250,909 $ 60,630 $ (364,110) $ 1,125,219 Operating profit (loss) ................................................................ $ 71,087 $ (1,705) $ 46,485 $ 7,429 $ — $ 123,296 General corporate expenses ........................................ Interest expense ........................................................... Earnings before income taxes ..................................... (17,008) (18,819) $ 87,469 Identifiable assets ....................................................................... $ 620,450 $ 508,565 $ 369,879 $ 220,754 $ — $ 1,719,648 Year ended December 31, 1996 Net sales to unaffiliated customers ........................................... Net sales between geographic areas ........................................ $ 557,935* 67,839 $ 504,397 45,682 $ 8,118 235,219 $ 27,529 11,243 $ — $ 1,097,979 — (359,983) Total net sales .......................................................................... $ 625,774 $ 550,079 $ 243,337 $ 38,772 $ (359,983) $ 1,097,979 Operating profit (loss) ................................................................. $ 60,868 $ (13,755) $ 49,562 $ 3,854 $ — $ 100,529 General corporate expenses ........................................ Interest expense ........................................................... Earnings before income taxes ..................................... (12,764) (17,408) $ 70,357 Identifiable assets ....................................................................... $ 619,952 $ 570,004 $ 347,053 $ 21,506 $ — $ 1,558,515 Year ended December 31, 1995 Net sales to unaffiliated customers ........................................... Net sales between geographic areas ........................................ $ 597,154* 74,283 $ 589,488 53,883 $ 5,684 214,322 $ 32,090 341 $ — $ 1,224,416 — (342,829) Total net sales .......................................................................... $ 671,437 $ 643,371 $ 220,006 $ 32,431 $ (342,829) $ 1,224,416 Operating profit .......................................................................... $ 59,877 $ 31,759 $ 66,640 $ 5,528 $ — $ 163,804 General corporate expenses ........................................ Interest expense ........................................................... Earnings before income taxes ..................................... (11,397) (29,433) $ 122,974 Identifiable assets ....................................................................... $ 610,106 $ 653,395 $ 255,268 $ 24,562 $ — $ 1,543,331 * Includes export sales of $139,511, $112,402, and $123,387 for the years ended December 31, 1997, 1996, and 1995, respectively. Sales between geographic areas are priced to result in operating profit that would be achieved on sales to unaffiliated customers. Operating profit is total revenue less operating expenses. In computing operating profit, general corporate expenses, interest expenses, and income taxes were not deducted. Vishay Intertechnology, Inc. 14. Summary of Quarterly Financial Information (Unaudited) Quarterly financial information for the years ended December 31, 1997 and 1996 is as follows: First Quarter 1997 1996 Second Quarter 1996 1997 Third Quarter 1997 1996 Fourth Quarter 1996 1997 Total Year 1997 1996 (In thousands, except per share amounts) Net sales .............................. $ 273,262 65,604 Gross profit .......................... Net earnings (loss) .............. 19,658 Basic and diluted earnings $ 310,660 85,081 28,041 $ 272,661 65,630 19,948 $ 273,502 71,864 3,783 (2) $ 285,352 70,392 20,695 $ 259,889 61,177 14,484 $ 293,944 65,573 (6,999)(1) $ 253,928 53,991 6,308 (2) $ 1,125,219 267,199 53,302 $ 1,097,979 272,113 52,616 (loss) per share (3) .............. $ .31 $ .44 $ .31 $ .06 (2) $ .32 $ .23 $ ( .11) (1) $ .10 (2) $ .83 $ .82 (1) Charges for restructuring ($12,605,000), various tax uncertainties ($10,000,000), forward exchange contract unrealized loss ($5,295,000), inventory reserves ($5,576,000), and a government settlement ($1,898,000) reduced net earnings by $27,692,000 or $.43 per share in the fourth quarter of 1997. (2) Includes restructuring expense of $24,826,000 ($.25 per share) and $13,204,000 ($.16 per share) in the second and fourth quarters of 1996, respectively. (3) Adjusted to give retroactive effect to 5% stock dividends in June 1997 and 1996. 15. Subsequent Events On March 2, 1998, the Company completed its purchase of 80.4% of the capital stock of Siliconix Incorporated (NASDQ:SILI) and 100% of the capital stock of TEMIC Semiconductor GmbH for approximately $500,000,000 in cash. TEMIC's and Siliconix' businesses involve the design, manufacture, and sale of integrated circuits (the IC Division) and discrete active components. On March 4, 1998, Vishay sold (subject to satisfaction of certain foreign regulatory approvals) the IC Division for approximately $110,000,000. The discrete active components business is conducted primarily in the United States, Germany, Austria, and Asia. The purchase of TEMIC and Siliconix was funded from the Company's $1.1 billion revolving credit facilities made available to Vishay on March 2, 1998 (see Note 5). In connection with the acquisition of TEMIC and Siliconix, Vishay entered into a forward exchange contract on December 16, 1997 to protect against the impact of fluctuations in the exchange rate between the U.S. Dollar and the Deutsche Mark on the amount of U.S. Dollars required for the purchase of TEMIC and Siliconix. The Company has accounted for the contract by marking it to market and recording the resulting gains or losses in the income statement. At December 31, 1997, the contract had an unrealized loss of $5,295,000 which was reflected in other expense (see Note 7). On March 2, 1998, upon completion of the TEMIC and Siliconix acquisitions, the forward exchange contract was settled and the Company recorded a realized loss of $11,500,000. Report of Independent Auditors Board of Directors and Stockholders Vishay Intertechnology, Inc. We have audited the accompanying consolidated balance sheets of Vishay Intertechnology, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of operations, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, financial position of Vishay Intertechnology, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. financial statements referred in all material respects, to above present the consolidated fairly, the Philadelphia, Pennsylvania February 5, 1998, except for Notes 5 and 15, as to which the date is March 4, 1998 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction and Background The Company’s sales and net income increased significantly through 1995 primarily as a result of its acquisitions. Following each acquisition, the Company implemented programs to take advantage of distribution and oper- ating synergies among its businesses. This implementation was reflected in increases in the Company’s sales and in the decline in selling, general, and administrative expenses as a percentage of the Company’s sales. In 1995, the Company’s growth was fueled, not only by its acquisition of Vitramon, but also by the dramatic expansion in the electronic components industry. This resulted in Vishay’s record net earnings of $92.7 million in 1995. However, beginning with the last quarter of 1995 and continuing into the first quarter of 1997, the Company has experienced a decline in demand for most of its products, resulting in a decrease in revenues, earnings, and backlogs. The Company believes this may be primarily a result of the worldwide slowdown in demand for tantalum and multi-layer ceramic chip capacitors, the economic downturn in Germany, where a significant portion of the Company's products are sold, and the abrupt worldwide decline in demand for passive electronic components by personal computer and telecommunica- tions manufacturers. In order to address the slowdown in demand, the Company imple- mented a restructuring program in 1996 that included the downsizing and closing of manufacturing facilities in North America and Europe. In connection with the restructuring, the Company incurred $38,030,000 of pretax charges for the year ended December 31, 1996 relating to employee termination and facility closure costs. When the restructuring program is fully implemented, the Company believes that by reducing overhead costs and improving manufactur- ing efficiency, it will reduce costs by approximately $38 million per year. In 1997, the Company incurred $12,605,000 of restructuring expenses relating to employee termination and facility closure costs in Europe. When fully imple- mented, this restructuring program is intended to reduce costs by approxi- mately $10 million per year. Depending on future economic conditions, the Company may continue to downsize or close existing facilities in North America, Europe, or elsewhere. The Company’s strategy contemplates transferring some of its manu- facturing operations from countries with high labor costs and tax rates (such as the United States, France, and Germany) to Israel, Mexico, Portugal, the Czech Republic, Taiwan, and the Peoples Republic of China in order to benefit from lower labor costs and, in the case of Israel, to take advantage of various government incentives, including government grants and tax incentives. The Company may further reduce its costs in the face of a decline in demand by accelerating the transfer of production to countries with lower labor costs and more favorable tax environments. The Company realizes approximately 57% of its revenues outside the United States. As a result, fluctuations in currency exchange rates can significantly affect the Company’s reported sales and, to a lesser extent, earnings. Currency fluctuations impact the Company’s net sales and other income statement amounts, as denominated in U.S. Dollars, including other income as it relates to foreign exchange gains or losses. Generally, in order to minimize the effect of currency fluctuations on profits, the Company endeav- ors to (i) borrow money in the local currencies and markets where it conducts business, and (ii) minimize the time for settling intercompany transactions. In connection with its day-to-day operations, the Company does not purchase foreign currency exchange contracts or other derivative instruments to hedge foreign currency exposures. 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 rate in the United States) have had the effect of increasing the Company’s net earnings. The more favorable Israeli tax rates are applied to specific approved projects and normally continue to be available for a period of ten years or, if the investment in the project is over $20 million, for a period of 15 years, which has been the case for most of the Company’s projects in Israel since 1994. New projects are continually being introduced. In addition, the Israeli government offers certain incentive programs in the form of grants designed to increase employment in Israel. However, the Israeli government has recently scaled back or discontinued some of its incentive programs. Accordingly, there can be no assurance that in the future the Israeli govern- ment will continue to offer new incentive programs applicable to the Company or that, if it does, such programs will provide the same level of benefits the Company has historically received or that the Company will continue to be eligible to take advantage of them. Although the Company might be materially adversely affected if these incentive programs were no longer available to the Company for new projects, because a majority of the Company's projects in Israel already benefit from government incentive programs, the Company does not anticipate that any cutbacks in the incentive programs would have an adverse impact on its earnings and operations for at least several years. Israeli government grants, recorded as a reduction of costs of products sold, were $11,352,000 for the year ended December 31, 1997, as compared to $8,943,000 for the prior year. If the Israeli government continues its grant and incentive programs, future benefits offered to the Company by the Israeli government will likely depend on the Company continuing to increase capital investment and the number of the Company's employees in Israel. Results of Operations Income statement captions as a percentage of sales and the effective tax rates were as follows: Year Ended December 31 1997 1996 1995 Costs of products sold Gross profit Selling, general, and administrative expenses Operating income Earnings before income taxes Effective tax rate Net earnings 76.3% 23.7 75.2% 24.8 73.7% 26.3 12.2 9.7 7.8 39.1 4.7 12.9 7.8 6.4 25.2 4.8 13.0 12.4 10.0 24.6 7.6 Year ended December 31, 1997 compared to Year ended December 31, 1996 Net sales for the year ended December 31, 1997 increased $27,240,000 or 2.5% from the prior year. The increase in net sales relates primarily to the acquisition of LPSC, which became effective on July 1, 1997. Net sales of LPSC for the six months ended December 31, 1997 were $38,290,000. Exclusive of LPSC, net sales would have decreased by $11,050,000 or 1.0%. The strengthening of the U.S. Dollar against foreign currencies for the year ended December 31, 1997 in comparison to the prior year, resulted in a decrease in reported sales of $55,424,000. Net sales, exclusive of foreign currency fluctuations and the acquisition of LPSC, would have increased by 4.0% over the prior year. Costs of products sold for the year ended December 31, 1997 were 76.3% of net sales, as compared to 75.2% for the prior year. Gross profit, as a percentage of net sales, for the year ended December 31, 1997 decreased from the prior year mainly due to a difficult pricing environment and also, as part of the Company's fourth quarter 1997 restructuring program, recorded inven tory write offs of $5,576,000. Exclusive of the inventory write-off, the gross profit, as a percentage of net sales, would have been 24.2% for the year ended December 31, 1997. The acquisition of LPSC did not have a significant impact on the gross margin percentage. Israeli government grants, recorded as a reduction of costs of products sold, were $11,352,000 for the year ended December 31, 1997, as compared to $8,943,000 for the prior year. Future grants and other incentive programs offered to the Company by the Israeli government will likely depend on the Company continuing to increase capital investment and the number of the Company's employees in Israel. Deferred income at December 31, 1997 relating to Israeli government grants was $59,300,000. Selling, general, and administrative expenses for the year ended December 31, 1997 were 12.2% of net sales, as compared to 12.9% for the prior year. LPSC's selling, general, and administrative expenses did not have a significant impact on the percentage. Exclusive of LPSC's selling, general, and administrative expenses, the expenses decreased by $8,611,000 as compared to the prior year. This decrease relates to the cost reduction program instituted in 1996. The Company incurred unusual items of $14,503,000 for the year ended December 31, 1997. Approximately $10,357,000 of these expenses relate to employee termination costs covering approximately 324 employees located in Germany and France. The restructuring program will be implemented over the next year. In addition, the Company recorded a charge of $1,625,000 resulting from a judgment rendered by a French court against Sprague France, S.A. The Vishay subsidiary was ordered to make additional payments to certain workers laid off in the last half of 1996 as part of Vishay's restructuring programs. As of December 31, 1997, no payment has been made to the former employees. The Company also incurred an unusual item of $1,898,000 relating to a settlement with the United States government representing reimbursements for overcharges relating to military products produced prior to 1993 at one of the Company's U.S. subsidiaries. The remaining $623,000 relates to closing a facility in France. At December 31, 1997, $11,982,000 of restructuring costs are included in other accrued expenses. When fully implemented, the 1997 restructuring program is expected to reduce the Company's costs by approximately $10,000,000 annually. Interest costs the year ended increased by $1,411,000 December 31, 1997 from the prior year due to the acquisition of LPSC. The Company borrowed $130,000,000 from a group of banks to finance the acquisition of LPSC. for Other income decreased by $4,255,000 for the year ended December 31, 1997 from the prior year due to an unrealized noncash loss of $5,295,000 relating to a forward exchange contract (entered into in connection with the TEMIC acquisition, the purchase price of which was denominated in German Marks and payable in U.S. Dollars). The effective tax rate for the year ended December 31, 1997 was 39.1% as compared to 25.2% for the prior year. The higher tax rate for the year ended December 31, 1997 was due to a charge of $10,000,000 for various tax uncertainties in the fourth quarter of 1997. Without this charge, the effective tax rate for 1997 would have been 27.6%. The continuing effect of low tax rates in Israel (as compared to the statutory rate in the United States) has increased net earnings by $10,685,000 and $10,109,000 for the years ended December 31, 1997 and 1996, respectively. The more favorable Israeli tax rates are applied to specific approved projects and normally continue to be available for periods of either ten or fifteen years. Vishay Intertechnology, Inc. Year ended December 31, 1996 compared to Year ended December 31, 1995 Net sales for the year ended December 31, 1996 decreased $126,437,000 or 10.3% from the prior year. The decrease in net sales is indicative of the worldwide slowdown in the demand for tantalum and multi- layer ceramic chip capacitors, the economic downturn in Germany, where a significant portion of the Company's products are sold, and the abrupt world- wide decline in demand for passive electronic components by personal com- puter and telecommunications manufacturers, which started at the end of 1995. The strengthening of the U.S. Dollar against foreign currencies for the year ended December 31, 1996, in comparison to the prior year, resulted in a decrease in reported sales of $20,712,000. Net sales, exclusive of foreign currency fluctuations, decreased 8.6% over the prior year. Costs of products sold for the year ended December 31, 1996 were 75.2% of net sales, as compared to 73.7% for the prior year. Costs of products sold for the year ended December 31, 1996 were negatively affected by, among other things, a difficult pricing environment and start-up costs of the Company's new capacitor plant in Israel. Israeli government grants, recorded as a reduction of costs of products sold, were $8,943,000 for the year ended December 31, 1996, as compared to $13,243,000 for the prior year. To the extent the Israeli government continues these grant and incentive programs, future benefits offered to the Company by the Israeli government will likely depend on the Company continuing to increase capital investment and the number of the Company's employees in Israel. Deferred income at December 31, 1996 relating to Israeli government grants was $58,570,000 as compared to $30,849,000 at December 31, 1995. Selling, general, and administrative expenses for the year ended December 31, 1996 were 12.9% of net sales, as compared to 13.0% for the prior year. Selling, general, and administrative expenses have decreased by $17,056,000, as compared to the prior year, as a result of a cost reduction program instituted in the fourth quarter of 1995, lower sales, and a reduction in management incentives. The Company incurred a pretax restructuring charge of $38,030,000 for the year ended December 31, 1996. Approximately $28,953,000 of those 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 December 31, 1996, approximately 1,939 employees had been terminated and $12,822,000 of the termination costs were paid. The remaining $9,077,000 of restructuring expense relates to facility closure costs in North America and Europe. The restructuring plan is expected to be completed by March 31, 1998. The Company has sufficient lines of credit to fund these payments. Depending on future economic conditions, the Company may continue to downsize or close existing facilities in North America, Europe, or elsewhere. When fully implemented, the 1996 restructuring program is expected to reduce the Company's costs by approximately $38,000,000 annually. Interest costs decreased by $12,025,000 the year ended December 31, 1996 from the prior year primarily as a result of the net proceeds of $230,279,000 from a common stock offering completed in September 1995 which were used, in large part, to prepay bank indebtedness. for Other income increased by $1,950,000 for the year ended December 31, 1996, as compared to the prior year. The increase is primarily due to foreign exchange gains of $371,000 for the year ended December 31, 1996 as compared to foreign exchange losses of $2,022,000 for the year ended December 31, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The effective tax rate for the year ended December 31, 1996 was 25.2% as compared to 24.6% for the prior year. 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 $10,109,000 and $19,183,000 for the years ended December 31, 1996 and 1995, respectively. The more favorable Israeli tax rates are applied to specific approved projects and normally continue to be available for periods of either ten of fifteen years. The Israeli tax effect benefit was more pronounced in 1995 primarily as a result of an increased proportion earnings in Israel. Financial Condition and Liquidity Cash flows from operations were $175,913,000 for the year ended December 31, 1997 compared to $122,186,000 for the prior year. The increase in cash flows from operations is primarily due to a decrease in inventories for the year ended December 31, 1997 as compared to an increase in inventories for the year ended December 31, 1996. Net purchases of property and equipment for the year ended December 31, 1997 were $75,870,000 compared to $123,984,000 in the prior year. This decrease reflects the fact that the Company has substantially completed its current restructuring/expansion program. Net cash provided by financing activities of $60,601,000 for the year ended December 31, 1997 includes $130,000,000 used to finance the acqui- sition of LPSC. See Note 5 to the Company’s Consolidated Financial Statements elsewhere herein for additional information with respect to Vishay’s loan agreements, long-term debt, and available short-term credit lines. The Company’s financial condition at December 31, 1997 is strong, with a current ratio of 3.38 to 1. The Company’s ratio of long-term debt (less current portion) to stockholders’ equity was .36 to 1 at December 31, 1997 and .24 to 1 at December 31, 1996. On March 2, 1998, the Company and certain of its subsidiaries obtained a $1.1 billion revolving credit facility made available to Vishay under the (i) Vishay Intertechnology, Inc. $825,000,000 Long Term Revolving Credit Agreement, dated as of March 2, 1998 (the "LT Agreement"), and (ii) Vishay Intertechnology, Inc. $275,000,000 Short Term Revolving Credit Agreement, dated as of March 2, 1998 (the "ST Agreement" and collectively with the LT Agreement, the "Loan Agreements") each by and among Vishay, Comerica Bank, NationsBanc Montgomery Securities LLC, and the other banks signatory thereto (collectively, the "Banks"), and Comerica Bank, as administrative agent for the Banks (the "Agent"). The Loan Agreements replace all prior loans made to Vishay by the Banks. The LT Agreement provides for a $825,000,000 loan, comprising a revolving credit facility and a swing line facility that mature on March 2, 2003, subject to Vishay's right to request year-to-year renewals. The 364-day ST Agreement provides for a $275,000,000 revolving credit facility that matures on March 2, 1999, subject to Vishay's right to request an initial three month extension and, if granted, subsequent year-to-year renewals. Borrowings under the Loan Agreements will bear interest at variable rates based, at the option of Vishay, on the prime rate or a eurocurrency rate and in the case of any swing line advance, the quoted rate. The borrowings under the Loan Agree- ments are secured by certain pledges of stock in certain significant subsidiaries and indirect subsidiaries of Vishay and certain guaranties by significant subsidiaries. The Company is restricted from paying cash dividends and must comply with financial covenants. 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 expen- ditures during the next twelve months. Year 2000 Compliance To address its need to modify its computer systems for adaptation to the Year 2000, the Company has taken an inventory of its computer systems and is creating and implementing plans to make them Year 2000 compliant. Currently, the Company is in the process of making the Company's European facilities Year 2000 functional by the end of 1998. The Company is also focusing on bringing its U.S., Asian, and Israeli computer systems into compli- ance. The Company plans to spend approximately $1.4 million in 1998 to address all potential software-related issues by the end of 1998. Management does not believe the Company will suffer any material loss of customers or other material adverse effects as a result of these modifications. 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. • • • • 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. 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. The Company operates in a highly competitive environment, which includes significant competitive pricing pressures and intense compe- tition for entry into new markets. 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 impact the Company's results of operations. • Many 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 ensure 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. • • • Approximately 57% 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 prohi- bitions, intergovernmental disputes, increased labor costs and reduc- tion or cancellation of government grants, tax benefits or other incen- tives could impact the Company's results of operations. 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 signifi- cant 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. 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 construc- tion 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. • 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. The Company's results of operations may be adversely impacted by (i) difficulties in obtaining raw materials, supplies, power, natural re- sources, and any other items needed for the production of the Company's products; (ii) the effects of quality deviations in raw mate- rials, particularly tantalum powder, palladium, and ceramic dielectric materials; and (iii) the effects of significant price increases for tantalum or palladium, or an inability to obtain adequate supplies of tantalum or palladium from the limited number of suppliers. The Company's historic growth in revenues and net earnings has resulted in large part from its strategy to expand through acquisitions. However, there is no assurance that the Company will find or consum- mate transactions with suitable acquisition candidates in the future. From time to time, when the Company is in the process of pursuing a strategic acquisition, the Company or the acquisition target may feel compelled for securities and other legal reasons to announce the potential acquisition or the Company's desire to enter into a certain market prior to entering into formal agreements. As a result, there can be no assurance that the Company will consummate any such acquisi- tion. The Company's strategy also focuses on the reduction of selling, general, and administrative expenses through the integration or elimi- nation of redundant sales offices and administrative functions at ac- quired companies and achievement of significant production cost sav- ings through the transfer and expansion of manufacturing operations to lower cost regions such as Israel, Mexico, Portugal, the Czech Repub- lic, Taiwan, and the People's Republic of China. The Company's inability to achieve any of these goals could have an adverse effect on the Company's results of operations. • • • Vishay Intertechnology, Inc. • • • • 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. The Company's results of operations may also be affected by (i) changes within the Company's organization, particularly at the ex- ecutive 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. The inherent risk of environmental liability and remediation costs associated with the Company's manufacturing operations may result in large and unforeseen liabilities. 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 sys- tems; and (iii) the effects of a disruption in the Company's communica- tions systems. Common Stock Market Prices Calendar 1997 Low High Calendar 1996 Low High First Quarter ............................... Second Quarter ......................... Third Quarter ............................. Fourth Quarter ........................... $ 25.00 $ 30.83 $ 31.88 $ 28.00 $ 20.60 $ 20.48 $ 23.19 $ 18.50 $ 29.48 $ 31.07 $ 23.81 $ 22.26 $ 21.77 $ 19.29 $ 16.55 $ 16.67 The Company’s Common Stock is listed on the New York Stock Ex- change under the symbol VSH. The table shown above sets forth the high and low sales prices for the Company’s Common Stock as reported on the New York Stock Exchange Composite Tape for the quarterly periods within the 1997 and 1996 calendar years indicated. Stock prices have been restated to reflect stock dividends. The Company does not currently pay cash dividends on its capital stock. Its policy is to retain earnings to support the growth of the Company's business and the Company does not intend to change this policy at the present time. In addition, the Company is restricted from paying cash dividends under the terms of the Company's revolving credit agreements (see Note 5 to the consolidated financial statements). Holders of record of the Company’s Common Stock totaled approximately 2,100 at March 25, 1998. On November 27, 1995, the Company commenced a stock repurchase program pursuant to which the Company was authorized to repurchase up to 750,000 shares of its Common Stock for an aggregate amount not to exceed $30 million. The purchases of Common Stock by the Company under the repurchase program are made in accordance with the rules of the Securities and Exchange Commission and at the discretion of management. As of December 31, 1995, the Company had repurchased 110,000 shares at an approximate cost of $3,578,000. No repurchases were made in 1996 or 1997. FINANCIAL SUMMARY Summary of Operations (in thousands, except per share amounts) 1997 1996 1995 1994 1993 As of and for the Year ended December 31 Net sales ................................................................................................... $ 1,125,219 $ 1,097,979 $ 1,224,416 $ 987,837 $ 856,272 Costs of products sold ............................................................................. Gross profit ........................................................................................... Selling, general, and administrative expenses ...................................... Amortization of goodwill ........................................................................... Unusual items ........................................................................................... Operating margin ...................................................................................... Other income (expense): Interest expense .................................................................................. Other ..................................................................................................... Total other income (expense) .................................................... Earnings before income taxes and cumulative effect of accounting change ............................................................................... Income taxes ............................................................................................. Earnings before cumulative effect of accounting change ..................... Cumulative effect of accounting change ................................................. 858,020 267,199 136,876 7,218 14,503 108,602 (18,819) (2,314) (21,133) 87,469 34,167 53,302 — 825,866 272,113 141,765 6,494 38,030 85,824 (17,408) 1,941 (15,467) 70,357 17,741 52,616 — 902,518 321,898 158,821 6,461 4,200 152,416 748,135 239,702 137,124 4,609 — 97,969 663,239 193,033 118,906 3,294 (562) 71,395 (29,433) (24,769) (20,624) (9) 916 123 (29,442) (23,853) (20,501) 122,974 30,307 92,667 — 74,116 15,169 58,947 — 50,894 8,246 42,648 1,427 Net earnings .............................................................................................. $ 53,302 $ 52,616 $ 92,667 $ 58,947 $ 44,075 Earnings per share: Basic ..................................................................................................... $ 0.83 $ 0.82 $ 1.55 $ 1.09 Diluted ................................................................................................... $ 0.83 $ 0.82 $ 1.55 $ 1.09 $ 0.85 $ 0.85 Shares used in computing earnings per share: Basic ..................................................................................................... Diluted ................................................................................................... 64,318 64,459 64,321 64,364 59,864 59,897 54,131 54,131 51,603 51,603 Financial Data (in thousands, except ratios) Cash and short-term investments ........................................................... $ 55,263 $ 20,945 $ 19,584 $ 26,876 $ 10,949 Working capital ......................................................................................... Current ratio .............................................................................................. Property and equipment — net ............................................................... Capital expenditures — net ..................................................................... Depreciation and amortization ................................................................. 455,134 3.38 709,142 75,870 81,874 434,199 3.27 710,662 123,984 77,247 411,286 2.80 669,228 165,699 69,547 328,322 2.41 543,402 91,571 57,742 Total assets ............................................................................................... 1,719,648 1,558,515 1,543,331 1,345,070 Long-term debt ......................................................................................... Stockholders’ equity ................................................................................. 347,463 959,648 229,885 945,230 228,610 907,853 402,337 565,088 205,806 2.09 422,668 79,377 48,578 950,670 266,999 376,503 Note: This table should be read in conjunction with the related consolidated financial statements and accompanying notes and management’s discussion and analysis of financial condition and results of operations. Includes the results of Lite-On Power Semiconductor Corporation from July 1, 1997, the results of Vitramon from July 1, 1994, the results of Roederstein from January 1, 1993 and the results of the businesses acquired from Sprague Technologies, Inc. from January 1, 1992. Earnings per share amounts and weighted average shares outstanding have been retroactively restated for stock dividends and a 2-for-1 stock split in June 1995. Basic and diluted earnings per share for 1993 includes $0.03 for the cumulative effect of an accounting change for income taxes. As of and for the Year ended December 31 1992 1991 1990 1989 $ 664,226 $ 442,283 $ 445,596 $ 415,619 508,018 156,208 101,327 2,380 — 52,501 (19,110) 4,533 (14,577) 37,924 7,511 30,413 — 318,166 124,117 75,973 1,695 3,700 42,749 (15,207) (289) (15,496) 27,253 6,363 20,890 — 312,925 132,671 77,740 1,552 2,441 50,938 (19,426) 2,344 (17,082) 33,856 10,655 23,201 — 290,801 124,818 75,423 1,502 1,846 46,047 (21,068) 1,439 (19,629) 26,418 8,651 17,767 — As of and for the Six Months ended December 31 1988 $ 175,820 123,802 52,018 33,712 551 — 17,755 (9,577) 3,462 (6,115) 11,640 3,557 8,083 — Vishay Intertechnology, Inc. As of and for the Year ended June 30 1988 1987 $ 108,951 $ 59,043 68,552 40,399 26,430 — — 13,969 (2,351) 9,778 7,427 21,396 5,879 15,517 — 32,079 26,964 18,725 — — 8,239 (1,588) 5,550 3,962 12,201 1,959 10,242 — $ 30,413 $ 20,890 $ 23,201 $ 17,767 $ 8,083 $ 15,517 $ 10,242 $ 0.72 $ 0.70 41,982 47,079 $ 15,994 145,327 2.02 271,619 49,801 36,062 661,643 139,540 346,625 $ 0.52 $ 0.52 40,475 40,475 $ 14,438 128,733 2.65 171,951 26,660 27,056 448,771 127,632 201,366 $ 0.62 $ 0.61 37,192 43,663 $ 16,306 120,384 2.42 166,346 28,999 26,157 440,656 140,212 177,839 $ 0.51 $ 0.51 34,895 34,895 $ 27,779 115,945 2.35 150,912 21,605 22,288 419,958 186,182 117,984 $ 0.23 $ 0.23 35,110 35,110 $ 29,761 118,990 2.50 145,723 13,585 9,494 409,487 202,551 104,488 $ 0.44 $ 0.44 $ 0.31 $ 0.31 35,075 35,075 32,744 32,744 $ 23,476 $ 24,031 52,501 2.21 35,135 864 4,492 179,353 26,974 94,529 47,238 4.42 18,936 2,640 2,782 101,431 7,255 77,609 VISHAY INTERTECHNOLOGY, INC. World Headquarters 63 Lincoln Highway, Malvern, PA 19355-2120 USA Phone: 610-644-1300 • Fax: 610-296-0657 http://www.vishay.com Board of Directors Dr. Felix Zandman Chairman of the Board Chief Executive Officer Vishay Intertechnology, Inc. Avi D. Eden Vice Chairman of the Board Executive Vice President Vishay Intertechnology, Inc. Donald G. Alfson Executive Vice President Chief Business Development Officer Vishay Intertechnology, Inc. Robert A. Freece Senior Vice President Vishay Intertechnology, Inc. Richard N. Grubb Executive Vice President Treasurer, Chief Financial Officer Vishay Intertechnology, Inc. Eliyahu Hurvitz President and Chief Executive Officer Teva Pharmaceutical Industries, Ltd. Dr. Gerald Paul President Chief Operating Officer Vishay Intertechnology, Inc. Luella B. Slaner Investor Dr. Edward B. Shils George W. Taylor Professor Emeritus of Entrepreneurial Studies The Wharton School University of Pennsylvania Mark I. Solomon Founder and Chairman CMS Companies Jean-Claude Tine Investor and Former Chairman of the Board Sfernice, S.A. Corporate Directory Honorary Chairman of the Board Alfred P. Slaner (Deceased March 14, 1996) Corporate Officers Dr. Felix Zandman Chairman of the Board Chief Executive Officer Avi D. Eden Vice Chairman of the Board Executive Vice President Dr. Gerald Paul President Chief Operating Officer Richard N. Grubb Executive Vice President, Treasurer, Chief Financial Officer Donald G. Alfson Executive Vice President Chief Business Development Officer Robert A. Freece Senior Vice President Abraham Inbar Senior Vice President Henry V. Landau Vice President William J. Spires Vice President, Secretary Annual Meeting May 21, 1998 at 10:30 a.m. Four Seasons Hotel South Ballroom Lobby Level One Logan Square Philadelphia, PA 19103 Quarterly Report Mailings Shareholders owning Vishay stock indirectly (through a bank, broker, or nominee who is a registered holder) can receive our reports directly and promptly from the Company at the same time we mail to shareholders of record. To be placed on Vishay's mailing list, call 610/644-1300, Ext. 2314. Shareholders with access to the Internet can find the quarterly report, press releases, and other financial documents at http://www.vishay.com. Stockholders’ Information Independent Auditors Ernst & Young LLP Philadelphia, PA Transfer Agent and Registrar American Stock Transfer & Trust Company New York, NY Stock Exchange Listings New York Stock Exchange Symbol: VSH Midwest Stock Exchange Chicago Board of Options Exchange SEC Form 10-K A copy of the Company’s Form 10-K Annual Report for the year ended December 31, 1997, filed with the Securities and Exchange Commission, may be obtained by stockholders without charge by writing to the Corporate Communications Department, Vishay Intertechnology, Inc., 63 Lincoln Highway, Malvern, PA 19355-2120 or through Vishay's website at http://www.vishay.com.

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