Vishay Intertechnology, Inc.
Vishay Intertechnology, Inc.
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Corporate Headquarters
63 Lincoln Highway
Malvern, PA 19355-2143
United States
P 610.644.1300 F 610.296.0657
w w w. v i s h a y. c o m
Annual Report 2004
21.8% Compound Annual Growth Rate (CAGR) of Sales from 1985 to 2004
FORTUNE Magazine (March 7, 2005), "America's Most Admired Companies"
Listed in Semiconductors Category*
*Only discrete semiconductor company in this category
© Copyright 2005 Vishay Intertechnology, Inc.
® Registered trademarks of Vishay Intertechnology, Inc., and Siliconix incorporated
All rights reserved.
One of the world’s largest manufacturers
of discrete semiconductors and passive components
Financial Highlights
Corporate Information
Financial Highlights
OPERATING PROFIT (LOSS)*
$ in millions
NET EARNINGS (LOSS)*
$ in millions
100 –
0 –
-100 –
02
($79.2)
03
$59.4
04
$92.5
100 –
0 –
-100 –
02
($92.6)
03
$26.8
04
$44.7
NET SALES
$ in millions
OPERATING PROFIT, ADJUSTED**
$ in millions
NET EARNINGS, ADJUSTED**
$ in millions
2,500 –
2,000 –
1,500 –
1,000 –
500 –
0 –
02
$1,822.8
03
$2,170.6
04
$2,413.6
200 –
100 –
0 –
02
$88.6
03
$107.4
04
$185.6
200 –
100 –
0 –
02
$43.5
03
$45.2
04
$103.9
The following table reconciles amounts as reported to the adjusted operating profit and adjusted net earnings presented in the charts above.
* As reported
Restructuring and severance costs
Asset write-downs
Inventory write-downs and loss on purchase commitments
Purchased research and development
Gain on insurance claim
Other
Net tax benefit of reconciling items
** Adjusted
Operating Profit (Loss) in millions
2004
2003
2002
$ 92.5
$ 59.4
$ (79.2)
47.3
28.6
18.6
27.3
1.0
12.4
17.0
18.4
136.8
1.5
—
—
—
—
—
—
—
—
—
—
—
$185.6
$107.4
$ 88.6
Net Earnings (Loss) in millions
2003
$ 26.8
28.6
1.0
18.4
—
(33.9)
9.9
(5.6)
$ 45.2
2002
$ (92.6)
18.6
12.4
136.8
—
—
2.1
(33.8)
$ 43.5
2004
$ 44.7
47.3
27.3
17.0
1.5
—
(3.1)
(30.8)
$103.9
Management believes that adjusted operating profit and adjusted net earnings, “non-GAAP” measures, are meaningful to investors because they provide insight with respect
to intrinsic operating results of the Company. Reconciling items to arrive at adjusted operating profit and adjusted net earnings represent significant charges or credits that are
important to an understanding of the Company’s intrinsic operations. These reconciling items are more fully described in the Company’s consolidated financial statements.
Measurements such as adjusted operating profit and adjusted net earnings are not recognized by generally accepted accounting principles (GAAP) and should not be viewed
as alternatives to GAAP measures of performance.
About Vishay
Vishay is one of the world’s largest manufacturers of discrete semiconductors and passive electronic
components. These components are used in virtually all types of electronic devices and equipment, in the
industrial, computing, automotive, consumer, telecommunications, military, aerospace, and medical markets.
Vishay’s global footprint includes sales offices worldwide, as well as manufacturing plants in China and
other Asian countries, Europe, and the Americas. Vishay has market shares ranging from substantial to
number one for each of its products. Its product innovations, successful acquisition strategy, focus on cost
reductions, and ability to provide “one-stop shop” service have made Vishay a global industry leader.
www.vishay.com
VISHAY INTERTECHNOLOGY, INC.
BOARD OF DIRECTORS
SHAREHOLDERS’ INFORMATION
Corporate Headquarters
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2143 USA
Phone: 610-644-1300
Fax: 610-296-0657
www.vishay.com
CORPORATE OFFICERS
Dr. Felix Zandman
Founder and Chairman of the Board
Chief Technical Officer
Chief Business Development Officer
Dr. Gerald Paul
President
Chief Executive Officer
Chief Operating Officer
Marc Zandman
Vice Chairman of the Board
President, Vishay Israel Ltd.
Richard N. Grubb
Executive Vice President
Treasurer, Chief Financial Officer
Ziv Shoshani
Assistant Chief Operating Officer
Executive Vice President, Resistor and
Inductor Group and Measurements Group
William M. Clancy
Senior Vice President
Assistant Secretary
Steven Klausner
Vice President
Assistant Treasurer
ANNUAL MEETING
May 10, 2005 at 10:30 a.m.
Four Seasons Hotel
South Ballroom
Lobby Level
One Logan Square
Philadelphia, PA 19103
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Philadelphia, PA
Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Phone: 800-937-5449
Stock Exchange Listings
New York Stock Exchange
Symbol: VSH
On June 14, 2004, Vishay certified to the
NYSE that it is not aware of any violations of
the NYSE's Corporate Governance Listing
Standards.
Midwest Stock Exchange
Chicago Board of Options Exchange
Investor Relations Contact
Peter Henrici
Vice President
Vishay Intertechnology, Inc.
Phone: 610-644-1300
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, extension 7483.
Shareholders with access to the Internet can
find quarterly reports, press releases, SEC
filings, and all other financial documents at
ir.vishay.com.
SEC FORM 10-K
A copy of the Company’s Annual Report on
Form 10-K for the year ended December
31, 2004, filed with the Securities and
Exchange Commission, is included in
this report and may also be obtained by
shareholders without charge by writing to
the Investor Relations Department, Vishay
Intertechnology, Inc., 63 Lincoln Highway,
Malvern, PA 19355-2143 or through Vishay’s
website at ir.vishay.com.
Dr. Felix Zandman
Founder and Chairman of the Board
Chief Technical Officer
Chief Business Development Officer
Vishay Intertechnology, Inc.
Marc Zandman
Vice Chairman of the Board
President, Vishay Israel Ltd.
Vishay Intertechnology, Inc.
Philippe Gazeau
Investor
Zvi Grinfas
Investor
Eliyahu Hurvitz
Chairman of the Board
Teva Pharmaceutical Industries, Ltd.
Dr. Abraham Ludomirski
Founder and Managing Director of
Vitalife Fund
Dr. Gerald Paul
President
Chief Executive Officer
Chief Operating Officer
Vishay Intertechnology, Inc.
Ziv Shoshani
Assistant Chief Operating Officer
Executive Vice President, Resistor and
Inductor Group and Measurements Group
Vishay Intertechnology, Inc.
Mark I. Solomon
Founder and Chairman
CMS Companies
Thomas C. Wertheimer
Accounting Consultant
Ruta Zandman
Public Relations Associate
Vishay Intertechnology, Inc.
Dr. Edward B. Shils
1915–2004
Vishay's Board of Directors mourns
the passing of Edward B. Shils, J.D.,
Ph.D., S.J.D. Dr. Shils served for many
years on Vishay’s Board and helped to
make possible the growth of Vishay.
HONORARY CHAIRMAN OF
THE BOARD
Alfred P. Slaner
(Deceased March 14, 1996)
Financial Highlights
As of and for the year
ended December 31
(In thousands, except per share amounts)
2004
2003
2002
Net sales ................................................................................................... $ 2,413,576
$ 2,170,597
$ 1,822,813
Operating income (loss) ............................................................................
92,491
59,367
(79,206 )
Net earnings (loss) .....................................................................................
44,696
26,842
(92,614 )
Depreciation and amortization ..................................................................
202,580
194,055
180,748
Basic earnings (loss) per share ................................................................. $
0.27
Diluted earnings (loss) per share ............................................................... $
0.27
$
$
0.17
0.17
$
$
(0.58 )
(0.58 )
Weighted average shares outstanding – basic .........................................
163,701
159,631
159,413
Weighted average shares outstanding – diluted .......................................
165,938
160,443
159,413
Cash flows from operations ...................................................................... $ 233,084
$ 255,756
$ 366,871
Working capital ..........................................................................................
1,164,682
1,049,892
897,456
Property and equipment – net ..................................................................
1,171,815
1,213,600
1,274,850
Long-term debt .........................................................................................
752,145
836,606
706,316
Stockholders’ equity .................................................................................
2,773,335
2,514,034
2,358,787
About the Cover
The cover features an enlarged image of a
silicon wafer used in the manufacturing of
Siliconix semiconductors. The small product
images at the top and bottom of the cover are
samples of Vishay’s broad product portfolio.
(Note: Products are not shown to scale.)
Table of Contents
A Message from the Chairman and the CEO . . 2
Essential Building Blocks of Electronics . . . . . . 4
The Vishay Story . . . . . . . . . . . . . . . . . . . . . . . . 6
Successful Strategy, Financial Strength . . . . . . 8
Diverse Products and Markets . . . . . . . . . . . . 10
Financial Summary . . . . . . . . . . . . . . . . . . . . . 14
Product List . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Form 10-K
Corporate Information . . . . . . . inside back cover
VISHAY INTERTECHNOLOGY
1
A Message from the Chairman and the CEO
To Our Shareholders, Employees,
Customers, and Vendors
Year 2004 was Vishay’s best ever operationally, with the
exception of year 2000, despite the industry-wide slowdown
that began during the middle of 2004. With a book-to-bill
ratio of over one for the first months of the current year, we
look ahead with confidence. We continue to have a strong
cash flow from operations and a strong balance sheet.
Vishay announced in November 2004 that I would trans-
fer the CEO position to Dr. Gerald Paul, effective January
1, 2005. As part of this transition, I will continue to serve
as Chairman and will assume the new positions of Chief
Technical Officer and Chief Business Development Officer.
In the two new positions, I will be focusing on mergers and
acquisitions (M&A) as I did in the past. In addition, I will
coordinate research and development (R&D) activities across
all Vishay divisions. The resulting synergies should help in
developing new products and new processes. Furthermore,
I will head up a new program to acquire innovative start-up
companies, mainly in the wireless sector. Dr. Paul, in addi-
tion to serving as CEO, will continue to serve as COO, a
position held by him since 1996.
Reasons for optimism include an aggressive program in
2005 to reduce our annual fixed costs by $50 million, cost
savings of $23 million from restructuring efforts in 2004, and
ongoing cost reduction programs as usual. Also, in anticipa-
tion of increased market demand, we are increasing capacity
for our discrete semiconductors. In addition, the launch of
our new program to acquire start-up companies in the wire-
less sector is expected to help insure Vishay’s continued
growth as the market evolves.
Vishay has the resources needed to complete a major
acquisition during 2005, should a suitable opportunity arise.
We continue as well to look for smaller acquisitions to add
technologies and product lines.
Year 2004
During 2004, we completed two small acquisitions: the MIC
division of Aeroflex and RFWaves. We announced a transac-
tion to acquire SI Technologies (expected to close in the first
half of 2005). Our MIC acquisition, like the Electro-Films acqui-
sition in 2000, will further enhance our range of high-precision,
thin film products for military and commercial markets. With
SI Technologies, we will be continuing to reinforce our posi-
tion in the transducer, instrumentation, and systems markets.
Our acquisition of RFWaves marks the start of Vishay’s new
program of acquiring innovative start-up companies.
During 2004, we continued our restructuring efforts to shift
production to low-labor-cost countries. Actions in this regard
included closing our assembly and test facility in Colmar,
France, and shifting diode and rectifier production from Taiwan
to China. We are continuing to increase manufacturing capac-
ity in Asia. By the end of 2004, we had decreased the per-
centage of our workforce in high-labor-cost countries to 28%.
We took steps to increase capacity for semiconductor
products, without making any significant capital invest-
ments or building new plants. Our majority-owned Siliconix
subsidiary signed an outsourcing agreement with Tower
Semiconductor for silicon wafers. We also expect to receive
a grant from the local state government that will be used
to expand the production capacity of the Siliconix-oper-
ated chip fabrication facility in Itzehoe, Germany, and begin
the transition from 6-inch wafers to more profitable 8-inch
wafers. These two moves will enable Siliconix to increase
production of its high-cell-density products.
During 2004, we launched a new program based on the
recently created sales team of field application engineers
(FAEs). This team cuts across Vishay product lines to lever-
age the advantages of our broad product portfolio and
increase usage of Vishay components in new customer
designs. Vishay’s FAE team has made great strides: We now
Dr. Felix Zandman
Chairman of the Board
have an extensive and growing database that allows us to
identify new opportunities in key market sectors and increase
opportunities to secure design wins for Vishay components.
We also continued our very successful Vishay Sample
Service Program and Bill of Materials (BOM) Conversion
Program. The Sample Service Program provides a single
point of contact for customers to obtain free Vishay product
samples. Our BOM Conversion Program, staffed by a team
of Vishay engineers, involves adding Vishay part numbers
next to the existing part numbers of our competitors on the
BOMs of our customers, which has increased the number of
requests for quotes considerably.
Our FAE Program, Sample Service Program, and BOM
Conversion Program maximize the advantages of our broad
product portfolio by providing “one-stop shop” service to
customers. In so doing, they reinforce our worldwide “one
face to the customer” initiative.
Financial Highlights
Sales for the year ended December 31, 2004 were
$2,413,576,000 compared to sales of $2,170,597,000 for
the year ended December 31, 2003. Net earnings for the
year ended December 31, 2004 were $44,696,000 or $0.27
per diluted share, compared with net earnings for the year
ended December 31, 2003 of $26,842,000 or $0.17 per
2
VISHAY INTERTECHNOLOGY
diluted share. Adjusted net earnings for 2004 and 2003
were $103.9 million and $45.2 million respectively, or $0.59
and $0.28 per diluted share. The adjustments are related
to restructuring and severance costs, write-downs of fixed
assets, and other items. (For more detail about the adjust-
ments, see the table on the inside front cover.)
Vishay continued to generate cash from operations dur-
ing year 2004. For the year ended December 31, 2004, the
Company’s cash flow from operations was $233.1 million.
Purchases of property and equipment for the year ended
December 31, 2004 were $158.6 million, and depreciation
and amortization for the year ended December 31, 2004
Dr. Gerald Paul
President and Chief Executive Officer
were $202.6 million. Free cash (net cash provided by oper-
ating activities minus capital expenditures) generated by
Vishay was $74.5 million. Our cash balance at December 31,
2004 was $632.7 million.
The long-term debt of Vishay was $752.1 million (substan-
tially all in convertibles) at December 31, 2004, and stock-
holders’ equity was $2,773.3 million, resulting in a debt-
to-equity ratio of 0.27. Our net debt (long-term debt minus
cash) was only $119.4 million.
Looking Ahead
We have accomplished a smooth transition to a new CEO.
Dr. Paul has held management positions at Vishay and at
Draloric (acquired by Vishay in 1987) since 1978. As CEO, Dr.
Paul will continue to lead the experienced management team
that has managed worldwide Company operations, integrat-
ed acquired companies and businesses, and enabled Vishay
to become a global industry leader. To assure Vishay’s future,
I carefully designed a succession plan for all key executive
functions. The transition to Dr. Paul as Vishay’s new CEO is
part of this plan for seamless succession.
We have an extremely broad product portfolio and diverse
markets and customers, all of which provide stability and
potential for growth. With the Company’s operations remain-
ing in highly capable and experienced hands, we have the
A Message from the Chairman and the CEO
opportunity to explore new areas for growth, while at the
same time successfully managing our ongoing business.
Exploring new areas for growth will encompass assessing
technology trends and market conditions to determine what
lies just over the horizon.
A key area for Vishay’s future growth is wireless tech-
nologies. In all the markets we serve, wireless connectivity
and wireless communications are integral to new product
development. For that reason, Vishay has started a new pro-
gram to acquire small start-up companies — primarily in the
wireless sector — with products and technologies that can
open up new markets for us. For example, RFWaves brings
to Vishay low-cost chipsets that are ideal for use in popular
consumer products such as game controllers and high-qual-
ity audio and video devices. Furthermore, the platform of
this chipset product is applicable to many other areas.
Meanwhile, Vishay will continue to explore major acquisi-
tion opportunities. As demonstrated in the past by our suc-
cessful acquisitions of the Semiconductor Business Group
of TEMIC (Telefunken and 80.4% of Siliconix), General
Semiconductor, and BCcomponents, Vishay has the exper-
tise needed to pursue suitable opportunities for dramatic
growth through acquisition. Future acquisitions could be in
either the semiconductor or passive component areas. But
we aim to expand more in the semiconductor area where
organic growth rates and gross margins are higher.
We will continue our restructuring efforts in all product
areas. We will continue with our very successful FAE
Program, Sample Service Program, and BOM Conversion
Program. And as always, we will continue to focus on
research and development and on introducing new products
to gain new markets.
As in past years, there are likely to be many challenges in
2005. We are confident that Vishay will surmount these chal-
lenges and continue to strengthen our market position, as
the Company has done for over four decades. We are grate-
ful to our employees for their loyalty, hard work, inventive-
ness and dedication. We thank our partners — customers,
vendors, and stockholders — for their loyalty.
Sincerely,
Sincerely,
Dr. Felix Zandman
Chairman of the Board
April 2005
April 2005
Dr. Gerald Paul
Dr. Gerald Paul
President and Chief Executive Officer
April 2005
VISHAY INTERTECHNOLOGY
3
Components Are Essential Building Blocks of Electronics
Discrete Semiconductors and ICs
Discrete semiconductors (diodes, transistors, and optoelectronic components) typically perform a single function in electronic
circuits, such as switching, amplifying, or rectifying and transmitting electrical signals. Semiconductors are referred to as
“active” components because they require power to function.
Rectifiers
Rectifiers convert alternating
current (AC) into direct current
(DC), a unidirectional current
required for operation of many
electronic systems. For exam-
ple, a bridge rectifier is used
in a clock radio to change the
AC voltage from a wall outlet
to a specific DC voltage.
Small-Signal Diodes
All diodes allow current to
travel in only one direction.
Small-signal diodes, which
typically pass electrical cur-
rents of up to one-half amp,
are commonly used in rout-
ing, switching, and signal
blocking. For example, a
band-switching diode is
used to switch VHF and UHF
used to switch VHF and UHF
bands in a television.
bands in a television.
Suppressor and
Zener Diodes
Suppressor diodes protect
electronic equipment from
sudden increases in voltage
caused by lightning, power
line fluctuations, and other
power line problems. Zener
diodes, which come in a wide
variety of voltage and power-
handling specifications, are
used to maintain a fixed volt-
age in electronic circuits.
RF Transistors
RF transistors amplify ana-
log or digital signals. They
are designed specifically to
handle small-signal radio fre-
quencies in the front ends of
radios, television sets, mobile
phones, and other devices to
amplify antenna signals.
Optoelectronics
Optoelectronic components
emit or detect light. Types
include infrared data com-
munications devices (IRDCs)
for two-way data transfer;
optocouplers for circuit isola-
tion; IR emitters for one-way
remote controls (as used in
television sets, for example);
optical sensors for detection;
and LEDs for light sources.
MOSFETs
Metal-oxide-semiconductor
field-effect transistors
(MOSFETs) function as
switches to control power. For
example, they turn off specific
functions of notebook com-
puters and cell phones when
these functions are not in use,
thereby extending battery
life. They also help convert
power into levels required by
other components. Siliconix
other components. Siliconix
other components. Siliconix
TrenchFET®
®
MOSFETs (with
up to 300 million transistors
per square inch) use innova-
tive silicon and packaging
technologies to switch and
manage power very efficiently.
Integrated Circuits
(ICs)
ICs take the functions of
discrete semiconductors and
passive components and
combine them on a single sili-
con chip. These may include
“on-board” transistors,
diodes, resistors, capacitors
and other circuit components.
Unlike discrete semiconductor
components, which usually
perform one function (such as
switching or amplifying), ICs
can perform multiple func-
tions. Vishay produces analog
switching ICs and power ICs.
Integrated Modules
Integrated modules combine
different discrete components
in a single package to save
space, reduce assembly
costs, and increase reliability.
costs, and increase reliability.
costs, and increase reliability.
®
Vishay FunctionPAK®
dc-to-
dc converters include all the
active and passive compo-
nents required for a complete
power conversion solution in
a single package. All these
components are produced by
Vishay.
4
VISHAY INTERTECHNOLOGY
Components Are Essential Building Blocks of Electronics
Passive Components
Passive components (resistors, capacitors, inductors, transducers) do not require a power supply to handle the signals that
pass through them. They are used to store electrical charges, to limit or resist electrical current, and to help in filtering, surge
suppression, measurement, timing, and tuning applications.
Capacitors
Capacitors store energy and discharge
it when needed. Applications include
power conversion, DC-linking, frequency
conversion, bypass, decoupling, and fil-
tering. Types of capacitors manufactured
by Vishay include tantalum (both solid
and wet), ceramic (both multilayer chip
and disk), film, power, heavy-current,
and aluminum, as well as high-perfor-
mance, high-precision, silicon-based
RF capacitors. Capacitors are used in
almost all electronic circuits.
Resistive Products
Resistors restrict current flow. Vishay
manufactures many different types of
resistive products, including single (dis-
crete) resistors based on foil, thin film,
thick film, metal oxide film, carbon film,
and wirewound technologies, as well as
resistor networks and arrays, in which
multiple resistors are combined in a
single package. Vishay also manufactures
thermistors and varistors, which are used
to suppress voltage increases. Resistors
are used in all electronic circuits.
Magnetics
Inductors and transformers are catego-
rized as magnetics. Inductors use an
internal magnetic field to change current
phase or resist current. Inductor applica-
tions include controlling AC current and
voltage and filtering out unwanted electri-
cal signals. Transformers (two inductors
on a common core of magnetic material)
increase or decrease AC voltage or AC
currents.
Strain Gages and Instruments
Strain gages are sensors used to detect
stress and other physical forces. They
are widely used in weighing, process
control, force measurement, and other
systems. Related instruments are used
to measure, display, and record the infor-
mation detected by strain gages.
PhotoStress®
PhotoStress coatings and instruments
use a unique optical process to reveal
and measure the distribution of stresses
in structures under live load conditions.
They are used to improve structural
design in aerospace, automotive, military,
civil engineering, industrial, and medical
applications.
Transducers
Load-cell-type transducers measure
weight. For example, in a digital bathroom
scale, small strain gages are attached to
a transducer that is hidden beneath the
platform of the scale. A person’s weight
pressing down on the transducer causes
the strain gage to issue a signal to the
electronic system that displays the weight
in pounds or kilograms.
Sophisticated microprocessor chips and other complex integrated circuits (ICs) coordinate and control the
functions of electronic products. Supporting the work of microprocessors are discrete semiconductors and
passive components. Vishay is one of the world’s largest manufacturers of discrete semiconductors and
passive components that serve as “building blocks” of electronic circuits.
VISHAY INTERTECHNOLOGY
5
The Vishay Story
“We are advancing in our core
business of discrete semiconductors
and passive components, while
also seeking growth in new areas.
Vishay is recognized by the market
for its excellence in technology,
is financially strong, and is well
prepared for further growth.”
Dr. Felix Zandman, Chairman,
Chief Technical Officer, and
Chief Business Development Officer
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Rep Areas (NE, SE, NC, W)
Manufacturing
Sales
Sales and Manufacturing
Design Center
R & D Center
Worldwide Headquarters
Operational and Regional Headquarters (includes Sales)
FORTUNE Magazine (March 7, 2005)
"America's Most Admired Companies" 2005, Listed in Semiconductors Category*
*Only discrete semiconductor company in this category
The Vishay Story
Initial Technology Breakthroughs
In the 1950s, Dr. Felix Zandman, a physicist, and currently
Chairman and Chief Technical and Business Development
Chairman and Chief Technical and Business Development
Chairman and Chief Technical and Business Development
Officer of Vishay, was issued patents for his PhotoStress®
®
coatings and instruments. These devices are used to reveal
and measure the distribution of stresses in structures such as
airplanes and cars under live load conditions. Dr. Zandman’s
research in this area led him to develop Bulk Metal® foil
resistors — ultra-precise, ultra-stable resistors with perfor-
mance far beyond any other resistor available.
In 1962, Dr. Zandman, with the financial help of the late
Alfred P. Slaner, founded Vishay to develop and manufacture
Bulk Metal foil resistors. Concurrently, J.E. Starr, a colleague
of Dr. Zandman, developed foil resistance strain gages,
which also became a part of Vishay. The Company was
named after Dr. Zandman’s and Mr. Slaner’s ancestral village
in Lithuania, in memory of family members who perished in
the Holocaust. Throughout the '60s and '70s, Vishay estab-
lished itself as a technical and market leader in foil resistors,
PhotoStress products, and strain gages.
Passive Component Acquisitions
Because the markets for foil resistors, PhotoStress prod-
ucts, and strain gages were relatively small, the Company
decided to expand into high-volume resistors. Beginning in
1985, Vishay acquired Dale Electronics, Draloric Electronic,
and Sfernice. These acquisitions helped produce dramatic
sales growth and brought other passive electronic compo-
nents into Vishay, such as inductors, specialty capacitors,
plasma displays, specialty connectors, transformers, therm-
istors, potentiometers, and trimmers.
In the early '90s, Vishay applied its acquisition strategy
to the high-volume capacitor market. Major acquisitions
included Sprague Electric, the inventor and manufacturer
of tantalum capacitors; Roederstein, a manufacturer of film,
aluminum, and ceramic disk capacitors and thick film chip
resistors; and Vitramon, a manufacturer of multilayer ceramic
chip capacitors.
Vishay subsequently made several smaller passive-com-
ponent acquisitions: Electro-Films, Cera-Mite, and Spectrol
in 2000, and Tansitor and North American Capacitor
Company (Mallory) in 2001.
The major acquisition in 2002 of BCcomponents (the
former passive components business of Philips Electronics
and Beyschlag), a leading manufacturer of passive compo-
nents with operations in Europe and Asia, greatly enhanced
Vishay’s global market position in passive components. The
acquired BCcomponents product lines (now divided into
Vishay BCcomponents and Vishay Beyschlag) include thin-
film MELF resistors; linear and non-linear resistors; ceramic,
film, and aluminum electrolytic capacitors; and switches and
trimming potentiometers.
Vishay made a small passive component acquisition in
2004 with its purchase of the MIC division of Aeroflex. This
enhanced Vishay’s existing thin film capabilities.
Expansion in Semiconductors
In 1997, Vishay entered the discrete semiconductor mar-
ket, acquiring 65% of Lite-On Power Semiconductor. In
1998, Vishay acquired the Semiconductor Business Group
of TEMIC, which included Telefunken and 80.4% of Siliconix,
producers of transistors, diodes, optoelectronics, and power
and analog switching integrated circuits. Vishay subsequent-
ly sold its interest in Lite-On in order to better focus on its
successful Siliconix and Telefunken businesses.
Vishay’s next semiconductor acquisition came in 2001,
with the purchase of the infrared components business of
Infineon Technologies. That was followed that same year
by the acquisition of General Semiconductor, a leading
global manufacturer of rectifiers and diodes. The addi-
tion of Infineon’s infrared components group and General
Semiconductor enhanced Vishay’s existing Telefunken and
6
VISHAY INTERTECHNOLOGY
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Sales and Manufacturing
Design Center
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Worldwide Headquarters
Operational and Regional Headquarters (includes Sales)
Siliconix businesses — and propelled Vishay into the
top ranks of discrete semiconductor manufacturers.
Strain Sensors and Transducers: Vertical Integration
In recent years, Vishay has made several small
acquisitions that have significantly expanded its
strain gage business. During 2002, Vishay acquired
the Sensortronics, Tedea-Huntleigh, BLH, Nobel, and
Celtron businesses, which have been integrated into
Vishay Measurements Group. With these acquisitions,
Vishay entered the global markets for strain-gage-based
transducers and instruments used in the weighing
industry, and also implemented a strategy of vertical
market integration: from resistance strain gages (in
which Vishay has a strong worldwide position), to trans-
ducers (the metallic structures to which strain gages are
cemented), to the electronic instruments and systems
that measure and control output of the transducers.
In the first half of 2005, Vishay expects to complete
its acquisition of SI Technologies, which will further rein-
force Vishay’s position in the transducer, instrumenta-
tion, and systems markets.
New Areas for Growth
In 2004, with its acquisition of RFWaves, a fabless IC
design house, Vishay implemented a new program to
acquire innovative start-up companies, mainly in the wire-
less sector. This represents a new direction for Vishay, but
one that is consistent with its commitment to innovation,
which dates back to the Company’s founding in 1962.
RFWaves is part of a new Vishay unit that will “incubate”
and nurture advanced products and technologies that are
new to Vishay and that have strong potential for growth.
By seeking growth in new areas, while also advancing
in Vishay’s core business of discrete semiconductors
and passive components, Vishay is making an invest-
ment in the future that will ensure its continued strength.
Strategic Acquisitions
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Years
VISHAY INTERTECHNOLOGY
7
Successful Strategy, Financial Strength
Successful Strategy,
Financial Strength
Strong Financial Position
Vishay, by following a consistent business strategy, has
remained financially strong during both upturns and down-
turns in the highly cyclical electronics industry. Our ability
to generate cash even during tough times has proven the
validity of our consistent focus on new products, acquisi-
tions, and cost reductions. Vishay’s growth through acquisi-
tions is complemented by organic growth that reflects the
Company’s roots as a technology leader.
Vishay sales had a compound average growth rate (CAGR)
from 1985 to 2004 of 21.8%. In addition, the Company has
a strong cash flow from operations. In 2004, the Company
generated $233.1 million cash from operations. Its cash
position as of December 31, 2004 was $632.7 million.
Growth Through Acquisitions and Innovations
Vishay carefully evaluates each potential acquisition tar-
get with the goal of ensuring that each acquisition becomes
accretive to earnings within one year. All of Vishay’s acquisi-
tions have enhanced its existing product portfolio; provided
new products, new markets, and new customers; and
yielded cost-savings through consolidation of sales, manu-
facturing, and other key functions.
Vishay’s organic growth is driven by increased demand
for its products — discrete semiconductors and passive
components — in diverse markets. Trends towards func-
tionality, miniaturization, and wireless connectivity increase
the need for the components produced by Vishay. This is
true not just for portable end products, such as MP3 play-
ers, cell phones, and laptop computers, but for larger-scale
end products with sophisticated electronic sub-systems,
such as automobiles, trains, aircraft and spacecraft, and
industrial equipment.
Growing demand for electronic components generally
leads to commoditization, increased competition, and pric-
ing pressure. It is thus particularly significant that Vishay’s
extensive product portfolio includes many specialty prod-
ucts, a number of which are protected by patents, that are
resistant to pricing pressure. This helps to insulate Vishay
from declining prices for commodity products and helps to
stabilize Vishay’s revenue base.
Aggressive Cost Reductions
Vishay has been very aggressive about relocating its work-
force to low-labor-cost countries, including China. Vishay
continues to expand its manufacturing presence in China
and other countries in Asia, as well as in Israel, the Czech
Republic, and Hungary. In doing so, Vishay has decreased
the percentage of its workforce in high-labor-cost countries
to 28 percent, with a goal of 20 to 25 percent.
In the high-labor-cost countries where Vishay continues
to operate, it uses tax incentives and other means to mini-
mize costs. For example, expanding production capacity
at the Siliconix-operated chip fabrication facility in Itzehoe,
Germany, and the accompanying transition from 6-inch
wafers to 8-inch wafers, will make it possible to increase
capacity for high-cell-density Siliconix products.
Vishay also has increased capacity through outsourc-
ing arrangements and strategic partnerships. For example,
Siliconix has an agreement with Tower Semiconductor, based
in Israel, as well as a top contractor in Japan, for produc-
tion of silicon wafers. Strategic partnerships include the
2003 technological and marketing agreement with Walsin
Technology Corporation, a Taiwan-based manufacturer of
multilayer ceramic capacitors (MLCCs).
Broad Product Portfolio, Industry Awards
Vishay’s commitment to innovation extends throughout the
Company and includes all Vishay product groups. In addi-
tion to working on internal research and development (R&D),
when we acquire new companies we continue the process
of innovation that made them successful in the first place.
It is fitting that two Vishay products introduced in 2004 that
won industry awards were part of product lines that came to
Vishay through acquisition. Vishay Schottky rectifiers in the
SMA, SMB, and SMC packages were named one of EDN
magazine’s “Hot 100 Products” for 2004. And Vishay’s fam-
ily of 200-volt, 20-amp dual Schottky rectifiers was honored
with a Product of the Year Award by analogZONE.
Increasing Global Presence
Revenue by Geographic Location
Asia
10%
Europe
42%
Americas
48%
Americas
26%
Asia
36%
Europe
38%
1997
2004
“One-Stop Shop” Service
Vishay maximizes the advantages of its extremely broad
— and growing — product portfolio by providing “one-stop
shop” service to customers. They can send their bills of
materials (BOMs) to Vishay and ask the Company to cross-
reference Vishay products in all categories. This enables
customers to order multiple components from one source:
Vishay. In addition, Vishay’s product sample service for
design engineers provides free product samples worldwide.
Vishay’s “one-stop shop” service to customers is part of
its “one face to the customer” initiative. The goal is to make
it easier for each customer — large or small — to purchase
a wide range of Vishay components via a single point of
contact.
Vishay’s design-in sales team of field application engi-
neers (FAEs) cuts across product lines to increase usage of
Vishay components in new customer designs. The FAE team,
which was set up only at the beginning of last year, already
has made great strides: Vishay has an extensive and grow-
8
VISHAY INTERTECHNOLOGY
“Vishay’s ability to generate cash
during good times and bad has proven
the success of our long-term business
strategy. Thanks to our consistent focus
on product innovations, acquisitions,
and cost reductions, we have the
strong balance sheet needed to support
organic growth and acquisitions.”
Dr. Gerald Paul, President and CEO
Successful Strategy, Financial Strength
Measurements
Group 5%
Group 5%
Siliconix
19%
Capacitors
22%
Resistors/Inductors
23%
Vishay
Semiconductors
31%
PASSIVE COMPONENTS
50%
SEMICONDUCTORS
50%
Vishay Revenue
by Product Group: 2004
ing database that allows the Company to leverage existing
opportunities to design in Vishay products and identify new
opportunities in key market sectors.
Over Four Decades of Technology Leadership
Vishay was founded in 1962 to manufacture and market
foil resistors and strain gages — innovative products that,
even now, over four decades later, have unsurpassed techni-
cal performance. The Company has grown to become one
of the world’s largest manufacturers of discrete semiconduc-
tors and passive components.
As Vishay has grown through acquisitions and new prod-
ucts, it has established an extremely broad customer base.
No single customer accounts for more than 6% of Vishay
sales. This highly diversified customer base — like Vishay's
diverse product portfolio and high percentage of specialty
products — helps to offset the impact of market fluctuations
and economic cycles.
Vishay partners with leading original equipment manu-
facturers (OEMs), original design manufacturers (ODMs),
electronic manufacturing services (EMS) companies, and
distributors worldwide. Vishay is a preferred supplier to many
companies, and has a roster of customers that includes blue-
chip companies based in the Americas, Europe, and Asia.
Leading Worldwide Manufacturer
Vishay has market shares ranging from substantial to
number one for each of its products. Vishay’s broad product
portfolio, innovations in technology, superior product quality,
successful acquisition strategy, and focus on cost reductions
have made it a global industry leader.
Industry Rankings
Discrete semiconductors
Number 1 worldwide in low-voltage power MOSFETs
Number 1 worldwide in rectifiers
Number 1 worldwide in glass diodes
Number 1 worldwide in infrared components
...and others
Passive components
Number 1 worldwide in wirewound and other
power resistors
Number 1 worldwide in foil resistors
Number 1 worldwide in thin film resistors
Number 1 worldwide in MELF resistors
Number 1 worldwide in leaded power film resistors
Number 1 worldwide in leaded fusible resistors
Number 1 worldwide in wet tantalum and
conformal-coated tantalum capacitors
Number 1 in aluminum capacitors for the
automotive market, Europe
Number 1 worldwide in strain gage sensors
and load cells
...and others
Avnet/E B V
C elestica
C o m pal
Alcatel
B osch
Arro w
Cisco
C ontinental Te mic
D aimlerC hrysler
D ell
Flextronics
D yna m ar
Ericsson
Foxconn
D elphi
Future
D elta
H ella
H e wlett-Packard
Hi-S peed
Highland
Intel
IB M
Jabil
L G Electronics
San mina-S CI
S olectron
Sa m sung
M otorola
Sie m ens
Seagate
Ryoden
Q uanta
P hilips
To m en
N okia
S ony
TTI
Vishay Blue-Chip Customer Base
U ppertech
Visteon
W PI
...and others
VISHAY INTERTECHNOLOGY
9
Diverse Products and Markets
Vishay's Participation in
Multiple End Markets: 2004
Computer
18%
Consumer
12%
Medical
2%
Military/Aero
4%
Industrial
36%
Automotive
16%
Telecom
12%
Computer
18%
Industrial Market
Computer Market
Factories. Power plants. High-voltage transmission lines.
Inside every desktop and notebook computer are circuit
Paper mills. Chemical processing facilities. Electronic cir-
cuits with discrete semiconductors and passive components
are at the heart of these systems of our industrial infrastruc-
ture. Electronic circuits also support the functions of trains,
elevators, automatic teller machines, and myriad other prod-
ucts. All of these and more are part of the industrial market.
It is estimated that, in 2005, sales of semiconductors for
the global industrial market will be $14.5 billion. The com-
pound annual growth rate of industrial semiconductor rev-
enue is estimated to be 8% per year. [Source: DSP-FPGA.
com, January 28, 2005] Vishay expects the demand for pas-
sive components in the global industrial market to increase
as well.
Vishay components are used in industrial equipment, sys-
tems, and products for such critical applications as power
management, data handling, instrumentation, filtering, motor
control, and many others. Vishay manufactures components
designed to handle wide voltage and capacitance ranges,
extreme temperatures, space constraints, and other factors
associated with industrial applications.
To cite a few examples, Vishay wirewound resistors,
heavy-current capacitors, and small-signal diodes are used
heavy-current capacitors, and small-signal diodes are used
in wind turbines, Vishay wet tantalum capacitors are used in
in wind turbines, Vishay wet tantalum capacitors are used in
oil drilling for Measure While Drilling (MWD) and other activi-
oil drilling for Measure While Drilling (MWD) and other activi-
ties, and Vishay strain gages are used in weighing, process
ties, and Vishay strain gages are used in weighing, process
control, force measurement, and other industrial applications.
control, force measurement, and other industrial applications.
boards studded with electronic components. Located on
the motherboard of each computer is a highly sophisticated
integrated circuit (IC) — the microprocessor that performs
calculations and coordinates the computer’s activities. The
work performed by the microprocessor is supported by
discrete components — many of which are manufactured
by Vishay.
Microprocessing speeds have increased dramatically
in recent years — from 200 megahertz (200 million cycles
per second) in 1995 to several gigahertz (billions of cycles
per second) now. Faster microprocessing speeds increase
demand for discrete semiconductors and passive compo-
demand for discrete semiconductors and passive compo-
demand for discrete semiconductors and passive compo-
®
nents. For example, the Intel®
486 microprocessor chip
required 124 supporting passive components, the Intel
required 124 supporting passive components, the Intel
required 124 supporting passive components, the Intel
required 124 supporting passive components, the Intel
required 124 supporting passive components, the Intel
Pentium 4®
®
requires approximately 600, and the P5®
®
require an estimated 800 to 1,000 supporting passive compo-
nents. [Source: Paumanok Publications, 2003]
will
Extended battery life in new notebook computers drives
increased demand for Siliconix power MOSFETs. These
components conserve power and prevent overheating.
The average number of MOSFETs in notebook comput-
ers increased from eight in 2003 to 10 in 2004. [Source:
Company estimates]
Vishay components also play key supporting roles in
monitors, keyboards, PCMCIA cards, mice, disk drives,
modems, and related computer hardware, as well as
other data processing hardware — from printers, scanners,
photocopiers, and fax machines to mainframes and
network servers.
10
VISHAY INTERTECHNOLOGY
Diverse Products and Markets
Automotive
16%
Consumer
12%
Automotive Market
Consumer Market
Automotive market demand for electronic components
continues to increase. It is estimated that the worldwide
automotive semiconductor market, which was $12.7 billion
in 2003, will grow to $21.3 billion by 2011. [Source: Strategy
Analytics, October 14, 2004] Vishay expects demand for
passive components in the global automotive market to
increase as well.
Vishay components are used in virtually every electronic
control unit of the typical vehicle to provide functions includ-
ing power management; electric motor control; switching of
data, audio, and video signals; infrared (IR) signal transmis-
sion; radio-frequency (RF) signal control and switching; pro-
tection against electro-magnetic interference (EMI), radio-fre-
quency interference (RFI), and overtemperature conditions;
airbag deployment; and lighting.
airbag deployment; and lighting.
airbag deployment; and lighting.
®
Vishay Power Metal Strip®
resistors, ceramic capacitors,
tantalum capacitors, aluminum capacitors, power MOSFETs,
diodes, and rectifiers are used for power management and
conversion in automobiles. Vishay LEDs are used for interior
lighting, audio and dashboard controls, and exterior lighting
such as turn signals and taillights. Vishay motion transduc-
ers, which are custom-designed according to customer
requirements, support essential engine control functions
such as power, traction control, emission control, and more.
Vishay manufactures driver ICs designed specifically for use
in automotive diagnostic communications. These are just a
few examples of the ways in which Vishay components are
used in automobiles.
Vishay has well-established, decades-long relationships
with automobile companies and with the manufacturers and
suppliers of automotive systems and sub-assemblies.
It is estimated that total global sales (factory-to-dealer
shipments) of consumer electronics will be $125.7 billion in
2005. That represents an increase of 11% compared to the
2004 figure of $113.5 billion. [Source: Consumer Electronics
Association as reported by Xinhua via COMTEX, January 5,
2005] Driving this growth is the growing popularity of consum-
er entertainment products such as high-definition televisions,
DVD players, digital cameras, and portable audio devices.
As in the computer market, the growing popularity of
portable, battery-powered devices in the consumer market
drives increased demand for MOSFETs to manage and con-
serve power. Types of components manufactured by Vishay
are used for many other applications as well in practically
all consumer entertainment products, from MP3 players to
video game consoles to DVD players.
The consumer market also includes “white goods” – refrig-
erators, washers and dryers, microwaves, air conditioners,
and other common household appliances. In this area as
well, electronic functions are becoming more sophisticated.
For example, refrigerators include food-freshness monitoring
systems, temperature-management systems, and sometimes
even video displays and wireless connectivity. In washers and
dryers, mechanical rotary controls and switches have been
replaced by electronic touch-pad controls and sensors to
monitor and adjust water level, temperature, and speed.
The types of components manufactured by Vishay are
widely used in white goods. Examples include aluminum
capacitors for motor control; thermistors for temperature
sensing and overtemperature protection; wirewound resistors
for capacitive discharge, short-term pulsing, power dissipa-
tion, voltage division, and dc-to-dc conversion; and others.
VISHAY INTERTECHNOLOGY
11
Diverse Products and Markets
Vishay's Participation in
Multiple End Markets: 2004
Telecom
12%
Military/Aero
4%
Telecommunications Market
Military and Aerospace Markets
Vishay participates in all aspects of the telecommunica-
tions market — from cell phones to satellites. Discrete semi-
conductors and passive components manufactured by Vishay
are used in phones of all kinds, PDAs, battery chargers and
adapters, base stations, routers and hubs for wireless local
area networks (W-LANs), PCMCIA cards and dongles for
area networks (W-LANs), PCMCIA cards and dongles for
area networks (W-LANs), PCMCIA cards and dongles for
Bluetooth®
®
, remote controls for infrared data communica-
tions, and optical networking, as well as in telecommunica-
tions satellites and other infrastructure equipment.
Each advance in telecommunications technology helps
to increase demand for the types of electronic components
manufactured by Vishay. Perhaps the clearest example of
this is the cell phone, which is evolving rapidly into a hybrid
device with multiple functions. A cell phone with a color
display and built-in camera uses, on average, four power
MOSFETs for battery management. In contrast, a GSM
phone with a black-and-white display and no camera uses
one power MOSFET. It is projected that a 3G phone with
video capabilities will need six power MOSFETs. [Source:
Company estimates]
It is projected that total worldwide sales of cell phones
will increase from 670 million in 2004 to 1.1 billion in 2008.
[Source: EE Times, January 20, 2005] Also projected to
increase are sales of camera phone: from approximately 150
million in 2004 to approximately 656 million in 2008. This
represents a compound annual growth rate of 55%. [Source:
Info Trends Research Group, March 11, 2004]
Other features and functions helping to spur cell phone
sales are email, Web browsing, voice dialing, games, and
wireless connectivity. According to one industry estimate,
approximately 56% of all handsets will have Bluetooth
capability by 2008. [Source: In-Stat/MDR, October 13, 2004]
Vishay has well-established relationships with leading mil-
itary and aerospace manufacturers. We manufacture a wide
range of MIL-spec components that meet stringent require-
ments for reliable performance in demanding environments
— from battlefields to outer space. We also manufacture
high-precision commercial components used in mission-
critical military and aerospace applications.
Vishay components have been used in tanks, submarines,
missile systems, satellites, and jet aircraft. They are used
in the Hubble space telescope and the U.S. Space Shuttle.
Vishay makes components for key subsystems in commer-
cial aircraft, including cockpit instrumentation and “fly-by-
wire” systems.
Vishay components used in military and aerospace equip-
ment are designed to function reliably when subjected to
extremely hot and cold temperatures, intense vibration,
extreme humidity, and other environmental stresses. In addi-
tion, Vishay custom-designs components that provide the
high quality and reliability demanded by military and aero-
space customers.
Trends in the military market include ultra-broadband
satellite-based communications, automation and robotics
involving unmanned aircraft and ground vehicles, and sen-
sor-based “situational awareness” systems for real-time
battlefield intelligence. Vishay has the product portfolio, R&D
capabilities, and customer relationships needed to support
these kinds of technological developments.
12
VISHAY INTERTECHNOLOGY
Diverse Products and Markets
Computer
18%
Consumer
12%
Automotive
16%
Telecom
12%
Medical
2%
Medical
2%
Military/Aero
4%
Industrial
36%
ment, external defibrillators, laser vision equipment, ventila-
tors, and many others.
The medical communications area includes a growing
range of equipment and systems. Innovations include using
Wi-Fi (an increasingly popular wireless broadband technol-
ogy) to transmit medical data, monitor patient location,
and track medical devices. [Source: BusinessWeek online,
January 11, 2005]
Medical Market
The expanding use of
The expanding use of minimally invasive therapies (such
The expanding use of minimally invasive therapies (such
as laparoscopic surgery), the move towards home health
care, and the “greying” of the population in the U.S. and
other countries are among the trends increasing demand for
medical services. The medical electronics market also shares
several features with the computing and telecommunications
market, including increased emphasis on miniaturization,
portability, and wireless communications.
Sub-sectors within the medical market include implantable
devices, instrumentation, and communications. In all three
of these, where people’s lives depend on reliable and highly
accurate diagnosis, monitoring, and treatment, types of com-
ponents manufactured by Vishay are widely used.
Vishay provides close engineering support to its custom-
ers in the medical market. With its broad product portfolio
and proven ability to custom-design components, Vishay
has a track record of excellent engineering relationships with
medical manufacturers.
Vishay is a leading manufacturer of telemetry coils for
defibrillators and pacemakers, transformers for defibrillators,
and tantalum capacitors for hearing aids. These and other
types of components manufactured by Vishay are used in a
wide variety of medical implantable devices, including bone
growth stimulators to speed healing, drug delivery systems
for treating chronic pain and diabetes, and neurostimulators
to treat neurological disorders such as Parkinson’s disease.
In the medical instrumentation area, types of components
manufactured by Vishay are used in end products ranging
from small, handheld devices to large, heavy equipment.
Examples include blood pressure cuffs, glucose meters,
monitors, ultrasound equipment, X-ray equipment, magnetic
resonance imaging (MRI) systems, radiation therapy equip-
VISHAY INTERTECHNOLOGY
13
Financial Summary
SUMMARY OF OPERATIONS
(in thousands, except per share amounts)
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
Net sales .................................................................................. $ 2,413,576
$ 2,170,597
$ 1,822,813
$ 1,655,346
$ 2,465,066
$ 1,760,091
$ 1,572,745
$ 1,125,219
$ 1,097,979
$ 1,224,416
$ 987,837
Costs of products sold .............................................................
1,842,080
1,690,267
1,454,540
1,273,827
1,459,784
1,299,705
1,189,107
858,020
825,866
902,518
748,135
Loss on purchase commitments ..............................................
Gross profit ..........................................................................
Selling, general, and administrative expenses ........................
Amortization of goodwill ...........................................................
Other operating expenses .......................................................
Operating profit (loss) ..............................................................
Other income (expense):
Interest expense ...................................................................
Other .....................................................................................
Total other income (expense) ........................................
Earnings (loss) before income taxes and minority interest ......
Income tax provision (benefit) .................................................
Minority interest ........................................................................
16,613
554,883
386,346
—
76,046
92,491
(34,252)
11,778
(22,474)
70,017
13,729
11,592
11,392
468,938
380,011
—
29,560
59,367
106,000
262,273
310,509
—
30,970
(79,206)
—
381,519
278,171
11,190
77,908
14,250
(39,226)
(29,503)
(16,848)
26,285
8,664
(12,941)
(20,839)
46,426
11,528
8,056
(100,045)
(16,900)
9,469
12,701
(4,147)
10,103
5,695
3,895
696,498
193,744
—
1,005,282
297,315
11,469
—
(25,177)
18,904
(6,273)
690,225
148,186
24,175
—
460,386
254,282
12,360
—
(53,296)
(5,737)
(59,033)
134,711
36,940
14,534
—
383,638
234,840
12,272
42,601
93,925
(49,038)
(2,241)
(51,279)
42,646
30,624
3,810
—
267,199
136,876
7,218
14,503
108,602
—
272,113
141,765
6,494
38,030
85,824
—
321,898
158,821
6,461
4,200
152,416
—
239,702
137,124
4,609
—
97,969
(18,819)
(17,408)
(29,433)
(24,769)
(222)
2,430
272
916
(19,041)
(14,978)
(29,161)
(23,853)
89,561
34,167
2,092
70,846
17,741
489
123,255
30,307
281
74,116
15,169
—
Net earnings (loss) ............................................................... $
44,696
$
26,482
$
(92,614)
$
513
$ 517,864
$ 83,237
$
8,212
$ 53,302
$
52,616
$
92,667
$ 58,947
Earnings (loss) per share:
Basic .................................................................................... $
Diluted .................................................................................. $
0.27
0.27
$
$
0.17
0.17
$
$
(0.58)
(0.58)
$
$
0.00
0.00
$
$
3.83
3.77
$
$
0.66
0.65
$
$
0.07
0.07
$
$
0.42
0.42
$
$
0.41
0.41
$
$
0.78
0.78
$
$
0.55
0.55
Shares used in computing earnings (loss) per share:
Basic .....................................................................................
Diluted ...................................................................................
163,701
165,938
159,631
160,443
159,413
159,413
141,171
142,514
135,295
137,463
126,678
128,233
126,665
126,797
126,627
126,904
126,632
126,717
117,857
117,923
106,571
106,571
FINANCIAL DATA (in thousands, except ratios)
Cash and cash equivalents ..................................................... $ 632,700
$ 555,540
$ 339,938
$ 367,115
$ 337,213
$ 105,193
$ 113,729
$ 55,263
$
20,945
$
19,584
$ 26,876
Working capital ........................................................................
1,164,682
1,049,892
897,456
1,096,034
1,057,200
604,150
650,483
455,134
434,199
411,286
328,322
Current ratio .............................................................................
3.25
2.81
2.56
3.29
Property and equipment – net .................................................
1,171,815
1,213,600
1,274,850
1,167,533
Capital expenditures ................................................................
Depreciation and amortization .................................................
158,627
202,580
126,635
194,055
110,074
180,748
162,493
163,387
3.53
973,554
229,781
140,840
2.87
930,545
119,638
139,676
3.13
997,067
151,682
127,947
Total assets ...............................................................................
4,638,590
4,566,360
4,315,159
3,951,523
2,783,658
2,323,781
2,462,744
1,719,648
1,558,515
1,543,331
1,345,070
Long-term debt ........................................................................
752,145
836,606
706,316
605,031
Stockholders' equity .................................................................
2,773,335
2,514,034
2,358,787
2,366,545
140,467
656,943
814,838
1,833,855
1,013,592
1,002,519
3.38
709,142
78,074
81,874
347,463
959,648
3.27
710,662
136,276
77,247
229,885
945,230
2.80
669,228
165,699
69,547
228,610
907,853
2.41
543,402
91,571
57,742
402,337
565,088
Note: This table should be read in conjunction with the related consolidated financial statements and accompanying notes and management’s discus-
sion and analysis of financial condition and results of operations. Earnings per share amounts and weighted average shares outstanding have been
retroactively restated for stock dividends and stock splits.
14
VISHAY INTERTECHNOLOGY
SUMMARY OF OPERATIONS
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
Financial Summary
$ 2,170,597
$ 1,822,813
$ 1,655,346
1,690,267
1,454,540
1,273,827
11,392
468,938
106,000
262,273
—
—
—
29,560
30,970
—
381,519
278,171
11,190
77,908
14,250
(16,848)
12,701
(4,147)
10,103
5,695
3,895
26,285
8,664
46,426
11,528
8,056
(100,045)
(16,900)
9,469
$ 2,465,066
$ 1,760,091
$ 1,572,745
$ 1,125,219
$ 1,097,979
$ 1,224,416
$ 987,837
1,459,784
1,299,705
1,189,107
858,020
825,866
902,518
748,135
—
1,005,282
297,315
11,469
—
—
460,386
254,282
12,360
—
696,498
193,744
(25,177)
18,904
(6,273)
690,225
148,186
24,175
(53,296)
(5,737)
(59,033)
134,711
36,940
14,534
—
383,638
234,840
12,272
42,601
93,925
(49,038)
(2,241)
(51,279)
42,646
30,624
3,810
—
267,199
136,876
7,218
14,503
108,602
—
272,113
141,765
6,494
38,030
85,824
—
321,898
158,821
6,461
4,200
152,416
—
239,702
137,124
4,609
—
97,969
(18,819)
(17,408)
(29,433)
(24,769)
(222)
2,430
272
916
(19,041)
(14,978)
(29,161)
(23,853)
89,561
34,167
2,092
70,846
17,741
489
123,255
30,307
281
74,116
15,169
—
$
26,482
$
(92,614)
$
513
$ 517,864
$ 83,237
$
8,212
$ 53,302
$
52,616
$
92,667
$ 58,947
$
$
0.17
0.17
$
$
(0.58)
(0.58)
$
$
0.00
0.00
$
$
3.83
3.77
$
$
0.66
0.65
$
$
0.07
0.07
$
$
0.42
0.42
$
$
0.41
0.41
$
$
0.78
0.78
$
$
0.55
0.55
159,631
160,443
159,413
159,413
141,171
142,514
135,295
137,463
126,678
128,233
126,665
126,797
126,627
126,904
126,632
126,717
117,857
117,923
106,571
106,571
$ 555,540
$ 339,938
$ 367,115
$ 337,213
$ 105,193
$ 113,729
$ 55,263
$
20,945
$
19,584
$ 26,876
897,456
1,096,034
2.56
3.29
1,274,850
1,167,533
126,635
194,055
110,074
180,748
162,493
163,387
1,057,200
604,150
650,483
455,134
434,199
411,286
328,322
3.53
973,554
229,781
140,840
2.87
930,545
119,638
139,676
3.13
997,067
151,682
127,947
3.38
709,142
78,074
81,874
3.27
710,662
136,276
77,247
2.80
669,228
165,699
69,547
2.41
543,402
91,571
57,742
4,315,159
3,951,523
2,783,658
2,323,781
2,462,744
1,719,648
1,558,515
1,543,331
1,345,070
836,606
706,316
605,031
2,514,034
2,358,787
2,366,545
140,467
656,943
814,838
1,833,855
1,013,592
1,002,519
347,463
959,648
229,885
945,230
228,610
907,853
402,337
565,088
FINANCIAL DATA
VISHAY INTERTECHNOLOGY
15
Product List
Discrete
Semiconductors
and ICs
Passive
Components
RECTIFIERS
Schottky (single, dual)
Standard, Fast and Ultra-Fast Recovery
MOSFETs
Power MOSFETs
JFETs
(single, dual)
Clamper/Damper
Bridge
Superectifier®
Sinterglass Avalanche Diodes
SMALL-SIGNAL DIODES
Schottky and Switching (single, dual)
Tuner/Capacitance (single, dual)
Bandswitching
PIN
ZENER AND SUPPRESSOR
DIODES
Zener (single, dual)
TVS (TRANSZORB®, Automotive,
ESD, Arrays)
RF TRANSISTORS
Bipolar Transistors (AF and RF)
Dual Gate MOSFETs
MOSMICs®
OPTOELECTRONICS
IR Emitters and Detectors, and IR
Receiver Modules
Optocouplers and Solid-State Relays
Optical Sensors
LEDs and 7-Segment Displays
Infrared Data Transceiver Modules
Custom Products
ICs
Power ICs
Analog Switches
DC/DC Converters
RESISTIVE PRODUCTS
Foil Resistors
Film Resistors
Thin Film Resistors
Thick Film Resistors
Metal Oxide Film Resistors
Carbon Film Resistors
Wirewound Resistors
Power Metal Strip® Resistors
Variable Resistors
Cermet Variable Resistors
Wirewound Variable Resistors
Conductive Plastic Variable Resistors
Networks/Arrays
Non-linear Resistors
NTC Thermistors
PTC Thermistors
Varistors
MAGNETICS
Inductors
Transformers
CAPACITORS
Tantalum Capacitors
Solid Tantalum Capacitors
Wet Tantalum Capacitors
Ceramic Capacitors
Multilayer Chip Capacitors
Disc Capacitors
Film Capacitors
Power Capacitors
Heavy-Current Capacitors
Aluminum Capacitors
Silicon Capacitors
STRAIN GAGES AND
INSTRUMENTS
PHOTOSTRESS® INSTRUMENTS
TRANSDUCERS
Load Cells
Instruments
Force Transducers
Weighing Systems
16
VISHAY INTERTECHNOLOGY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-7416
Vishay Intertechnology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
38-1686453
(IRS employer identification no.)
63 Lincoln Highway
Malvern, Pennsylvania 19355-2143
(Address of principal executive offices)
(610) 644-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value
(Title of Class)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ____
The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($17.28 on July 3, 2004), assuming
conversion of all of its Class B common stock held by non-affiliates into common stock of the registrant, was $2,608,643,000. There is no
non-voting stock outstanding.
As of March 9, 2005, registrant had 151,429,179 shares of its common stock and 14,679,440 shares of its Class B common stock
outstanding.
Portions of the registrant’s definitive proxy statement, which will be filed within 120 days of December 31, 2004, are incorporated by
reference into Part III.
DOCUMENTS INCORPORATED BY REFERENCE
- 1 -
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-2-
Vishay Intertechnology, Inc.
Form 10-K for the year ended December 31, 2004
CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 4A. Executive Officers of the Registrant
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
SIGNATURES
5
20
21
22
23
24
25
26
52
53
53
53
55
55
55
55
55
56
56
59
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
F-2
F-4
F-6
F-7
F-8
F-10
-3-
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-4-
Item 1.
BUSINESS
General
PART I
Vishay Intertechnology, Inc. is a leading international manufacturer and supplier of passive and active electronic
components. Passive components include resistors, capacitors, transducers and inductors. Active components
include diodes, transistors, rectifiers, power integrated circuits (ICs), infrared (IR) transceivers, IR sensors and
optocouplers. Passive electronic components and discrete active electronic components are the primary elements of
almost every electronic circuit. We offer our customers “one-stop” access to one of the most comprehensive
electronic component lines of any manufacturer in the United States, Europe and Asia.
Our components are used in virtually every type of product that contains electronic circuitry, including:
••••
••••
••••
computer-related products,
power management products,
••••
••••
automotive applications,
process control systems,
telecommunications equipment,
•••• military and aerospace applications,
•••• measuring instruments,
••••
consumer electronics and appliances,
••••
industrial equipment,
•••• medical instruments, and
••••
electronic scales.
Since 1985, we have pursued a business strategy that principally consists of the following elements:
expanding within the electronic components industry, primarily through the acquisition of other
1.
manufacturers of electronic components that have established positions in major markets, reputations for
product quality and reliability, and product lines with which we have substantial marketing and technical
expertise;
2.
redundant sales offices and administrative functions at acquired companies;
reducing selling, general and administrative expenses through the integration or elimination of
3.
achieving significant production cost savings through the transfer and expansion of manufacturing
operations to countries such as the Czech Republic, Hungary, India, Israel, Malaysia, Mexico, the People’s
Republic of China, and the Philippines, where we can take advantage of lower labor costs and available tax
and other government-sponsored incentives;
4.
products in order to enhance the service and responsiveness that we provide to our customers;
maintaining significant production facilities in those regions where we market the bulk of our
5.
6.
consistently rolling out new and innovative products; and
strengthening our relationships with customers and strategic partners.
As a result of this strategy, we have grown from a small manufacturer of precision resistors and resistance strain
gages to one of the world’s largest manufacturers and suppliers of a broad line of electronic components.
-5-
Our significant acquisitions in the last several years include:
Siliconix and Telefunken. We acquired an 80.4% interest in Siliconix incorporated (NASDAQ: SILI) in March 1998
from Daimler-Benz A.G. Siliconix is a publicly-traded chip maker, based in Santa Clara, California, which designs,
markets and manufactures power and analog semiconductor products, such as metal-oxide-semiconductor field-
effect transistors (MOSFETs), junction field-effect transistors (JFETs), bipolar switches, signal processing ICs and
power ICs for computers, cell phones, fixed communications networks, automobiles and other electronic systems.
Siliconix has manufacturing facilities in Santa Clara, California and Itzehoe, Germany, maintains assembly and
testing facilities in the Republic of China (Taiwan), is party to a joint venture in Shanghai, the People’s Republic of
China and has subcontractors in the Philippines, the People’s Republic of China, and the United States.
In the same transaction, we acquired from Daimler-Benz the semiconductor business unit of TEMIC Telefunken
Microelectronic GmbH headquartered in Heilbronn, Germany, but promptly disposed of its integrated circuits
division. This business, renamed Vishay Semiconductor GmbH, offers a product line of diodes, RF transistors,
optoelectronic semiconductors, infrared data transceivers (IRDCs) and light-emitting diodes (LEDs).
Electro-Films, Cera-Mite and Spectrol. In May 2000, we acquired Electro-Films, Inc., a manufacturer of thin film
components and networks on ceramic and silicon. In August 2000, we acquired Cera-Mite Corporation, a worldwide
supplier of ceramic capacitors, used in power supplies, electronic lighting and other applications, and thermistors
(temperature-sensitive resistors) used in refrigeration, HVAC, telecommunications and other electronic applications.
Separately, in August 2000, we acquired Spectrol, a manufacturer of sensing potentiometers used primarily in the
automotive industry and trimmer potentiometers used in various kinds of electronic circuitry.
Tansitor and Mallory. In January 2001, we acquired Tansitor, a leading manufacturer of wet tantalum electrolytic
capacitors and miniature conformal coated solid tantalum capacitors. These components have power management
applications in the military, aerospace and medical industries. In November 2001, we acquired Yosemite
Investment, Inc. d/b/a the North American Capacitor Company, known as Mallory, a manufacturer and distributor of
wet tantalum capacitors and other products. As a result of these two acquisitions, we have become the number one
manufacturer of wet tantalum capacitors worldwide.
Infineon infrared components business. In July 2001, we acquired the infrared components business of Infineon
A.G. As a result, we added several new device types to our optoelectronics portfolio. We also became the largest
supplier outside Japan of optocouplers and the largest supplier worldwide of IRDCs.
General Semiconductor. On November 2, 2001, we completed the acquisition of General Semiconductor, Inc., a
leader in the design, manufacture and distribution of semiconductors for the power management market. General
Semiconductor manufactures and distributes a broad range of power management products, including rectifiers,
transient voltage suppressors, small-signal transistors, diodes, MOSFETs and analog ICs. As a result of this
acquisition, we became the number one manufacturer of diodes and rectifiers worldwide.
Sensortronics, Tedea-Huntleigh, BLH and Nobel, and Celtron. In January 2002, we acquired the transducer and
strain gage business of Sensortronics, Inc. In June 2002, we acquired Tedea-Huntleigh BV, a leading manufacturer
of load cells used in digital scales by the weighing industry. In July 2002, we purchased the BLH and Nobel
businesses from Thermo Electron Corporation. BLH and Nobel are engaged in the production and sale of load cell
based process weighing systems, weighing and batching instruments, web tension instruments, weighing scales,
servo control systems, and components relating to load cells, including strain gages, foil gages and transducers. In
October 2002, we acquired Celtron Technologies, another company engaged in the production and sale of load cells
used in digital scales for the weighing industry. As a result of these acquisitions, the product portfolio of our
Measurements Group has been expanded and we are now a world leader in stress analysis products and transducers
used in the weighing industry (load cells).
BCcomponents. In December 2002, we completed the acquisition of BCcomponents Holdings B.V., a leading
manufacturer of passive components with operations in Europe, India and the People’s Republic of China. The
product lines of BCcomponents include linear and non-linear resistors; ceramic, film and aluminum electrolytic
capacitors; and trimming potentiometers. This major acquisition has significantly enhanced our global market
position in passive components.
-6-
Aeroflex thin film interconnect business. In September 2004, we acquired all of the outstanding shares of Aeroflex
Pearl River Inc. (renamed Vishay MIC Technology Inc.), the former thin film interconnect subsidiary of Aeroflex,
Incorporated. This business has significant synergies with our existing Electro-Films business.
SI Technologies. On December 22, 2004, we signed a definitive merger agreement pursuant to which Vishay will
acquire all of the outstanding capital stock of SI Technologies, Inc., a designer, manufactuer, and marketer of high-
performance industrial sensors and controls, weighing and automotive systems, and related products. Completion
of the merger is subject to certain closing conditions, including the approval of the stockholders of SI Technologies.
The parties currently anticipate that the merger will be completed in the first half of 2005.
Siliconix. As further described in Note 19 to our consolidated financial statements, on March 3, 2005, we
announced our intention to commence a tender offer for all outstanding shares of Siliconix not owned by Vishay.
We continue to explore opportunities to acquire electronic component manufacturers that have established positions
in major markets, reputations for product quality and reliability, and product lines with which we have substantial
marketing and technical expertise.
We also seek to explore opportunities with privately held developers of electronic components, or “start-ups,”
whether through acquisition, investment in non-controlling interests, or strategic alliances. We made the first such
investment in August 2004, when we acquired substantially all of the assets of RFWaves, Ltd., a fab-less integrated
circuit design house located in Israel.
In addition to our acquisition activity in recent years, we have taken steps to assure our competitiveness, enhance
our operating efficiency and strengthen our liquidity in the face of the economic downturn which broadly impacted
the electronics industry from 2001 to 2003. In this regard, we:
(i)
closed or consolidated several manufacturing facilities and administrative offices;
(ii)
reduced our headcount, particularly in high-labor-cost countries;
(iii)
integrated our acquisitions within our existing management and operational infrastructure; and
(iv)
relying on the strength of our balance sheet, continued our search for suitable acquisition
candidates.
Vishay was incorporated in Delaware in 1962 and maintains its principal executive offices at 63 Lincoln Highway,
Malvern, Pennsylvania 19355-2143. Our telephone number is (610) 644-1300.
-7-
Products
We design, manufacture and market electronic components that cover a wide range of products and technologies.
Our products primarily consist of:
••••
••••
resistors,
tantalum capacitors,
•••• multi-layer and disc ceramic capacitors (MLCCs),
••••
••••
••••
••••
•
aluminum and specialty ceramic capacitors,
film capacitors,
power MOSFETs,
power ICs,
inductors,
and, to a lesser extent:
••••
••••
connectors,
transformers,
••••
••••
••••
••••
••••
••••
••••
••••
••••
••••
••••
signal processing ICs,
transistors,
voltage suppressors,
infrared data transceivers (IRDCs),
optocouplers,
IR sensors,
strain gages and load cells, and
diodes and rectifiers
plasma displays,
thermistors, and
potentiometers.
We believe that we produce one of the broadest lines of discrete electronic components available from any single
manufacturer.
Product Segments
Our products can be divided into two general classes: passive components and active components. These broad
categories are also the basis used to determine our operating segments for financial reporting purposes. See Note
16 to our consolidated financial statements for additional information on revenues, income, and total assets by
segment.
Passive Components
Passive components include resistors, capacitors and inductors. They are referred to as “passive” because they do
not require power to operate. These components adjust and regulate voltage and current, store energy and filter
frequencies. We also include in this category the products and services of our Measurements Group that employ
passive components in electro-mechanical measurements.
Resistors
Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and
current. They vary widely in precision and cost, and are manufactured from numerous materials and in many forms.
Linear resistive components are classified as variable or fixed, depending on whether or not their resistance is
adjustable. Non-linear resistors can also be used as measuring devices. We manufacture a line of thermistors, which
are heat sensitive resistors. Other types of resistive sensors are strain gages for measurement of mechanical stress.
See “Measurements Group” below.
-8-
We manufacture virtually all types of fixed resistors, both in discrete and network forms, as well as many variable
types. These resistors are produced for virtually every segment of the resistive product market, from resistors used in
the highest quality precision instruments for which the performance of the resistor is the most important
requirement, to low-cost resistors for which price is the most important factor.
Capacitors
Capacitors perform energy storage, frequency control, discharge, coupling, timing and filtering functions. The more
important applications for capacitors are:
••••
••••
••••
electronic filtering for linear and switching power supplies;
decoupling and bypass of electronic signals for integrated circuits and circuit boards; and
frequency control, timing and conditioning of electronic signals for a broad range of applications.
Our capacitor products include solid tantalum surface mount chip capacitors, solid tantalum leaded capacitors,
wet/foil tantalum capacitors, MLCC capacitors, disc ceramic capacitors, aluminum and specialty ceramic capacitors,
and film capacitors. Each capacitor product has unique physical and electrical performance characteristics that
make that type of capacitor useful for specific applications. Tantalum and MLCC capacitors are generally used in
conjunction with integrated circuits in applications requiring low to medium capacitance values, “capacitance” being
the measure of the capacitor’s ability to store energy. The tantalum capacitor is the smallest type of capacitor for its
range of capacitance. MLCC capacitors, on the other hand, are more cost-effective for applications requiring lower
capacitance. Disc ceramic capacitors are used for high voltage applications. Aluminum capacitors are used for high
capacitance applications. Film capacitors are suitable for general use in telecommunications, automotive, consumer
and industrial products. They are the most stable capacitors.
Inductors
Inductors use an internal magnetic field to change the phase of electric current. They are utilized in electronic
circuitry to control alternating current and voltage, and to filter out unwanted electronic signals. They are also used
in transformers to change voltage levels.
Measurements Group
Vishay Measurements Group is a leading manufacturer of products for precision measurement of mechanical strains.
Our products include strain gages, load cells, force measurement sensors, displacement sensors, and photoelastic
sensors. These products are used in experimental stress analysis systems, as well as in the electronic measurement of
loads (electronic scales), acceleration and fluid pressure. The Measurements Group also provides installation
accessories for its products, instrumentation to sample and record measurement output, and training seminars in
stress analysis testing and transducer development and manufacture.
As a result of Vishay’s acquisitions in 2002, the Measurements Group has implemented a strategy of vertical market
integration, with a product range from resistance strain gages, to transducers (the metallic structures to which strain
gages are cemented), to the electronic instruments and systems that measure and control output of the transducers.
Vishay Measurements Group now has two operating divisions: Vishay Micro-Measurements (for strain gages,
instruments and PhotoStress® products) and Vishay Transducers (for load cells, weigh modules, instruments and
weighing systems).
-9-
Active Components
Our active electronic components include both discrete devices and integrated circuits (ICs). They are referred to as
“active” because they require power to function. Discrete devices are single components or an arrangement of
components that generate, control, regulate and amplify or switch electronic signals or energy. Examples of our
discrete active components include diodes, rectifiers, transient voltage suppressors, transistors and power
MOSFETs. These devices are interconnected with passive components or other active components to create an
electronic circuit. Our IC devices consist of a number of active and passive components interconnected on a single
chip to perform a specific function. Examples of our integrated circuits include power ICs, motor control ICs and
signal processing ICs. Our discrete active components and ICs are manufactured and marketed primarily through
our majority owned Siliconix subsidiary, our European subsidiary Vishay Semiconductor GmbH, and our General
Semiconductor business.
We also include in the category of active components our line of optoelectronic components, manufactured and
marketed by our European subsidiary Vishay Semiconductor GmbH, our infrared components business, and our
radio frequency products business.
Discrete Devices
Diodes and rectifiers are used to convert electrical currents from alternating current (AC) into direct current (DC) by
conducting electricity in one direction and blocking it in the reverse direction. Because electrical outlets carry AC
while the vast majority of electronic devices use DC, rectifiers are used in a wide variety of applications. We offer a
broad line of diodes and rectifiers with differing power, speed, cost, packaging and conversion (half wave or full
wave) characteristics. Our rectifiers include a series of high voltage devices that have been optimized for power
correction circuits.
Transient voltage suppressors protect electronic circuits by limiting voltage to a safe level. Examples of transient
events that could damage unprotected circuits include static electricity charges and natural or induced lightning.
Voltage suppressors protect circuits by absorbing large amounts of energy for short periods of time. We offer a
broad range of state-of-the-art transient voltage suppressors for use in most modern electronic equipment.
Small signal diodes and transistors perform amplification, signal blocking, routing and switching functions at lower
current levels. Our small-signal transistors range from the older junction field-effect transistors (JFETs), to newer
products such as those based upon double-diffused metal oxide semiconductor (DMOS) technology.
Discrete power MOSFETs are specialized field-effect transistors used to switch and manage power in a broad range
of electronic devices. They are used in particularly low-voltage applications such as cell phones, portable and
desktop computers, automobiles, instrumentation and industrial applications. Our innovative TrenchFET® power
MOSFET technology offers very high cell density, very low on-resistance and optimized switching parameters for
high frequency DC-DC power conversion. Power MOSFETs conserve power and help prevent components from
over-heating.
Integrated Circuits
Power ICs are used in applications such as cell phones, where an input voltage from a battery or other supply source
must be switched, interfaced or converted to a level that is compatible with logic signals used by microprocessors
and other digital components. Our ICs are designed to operate at higher frequencies without compromising
efficiencies. Often our power MOSFETs and power ICs can be used together as chip sets with complementary
performance characteristics optimized for a specific application.
Motor control ICs control the starting, speed or position of electric motors, such as the head positioning and spindle
motors in hard disk drives.
Signal processing ICs are used for analog switching and multiplexing in devices that either receive or output analog
(non-digital) signals. A recent application of this technology is in broadband communications devices such as DSL
modems.
-10-
Optoelectronics
Our line of optoelectronic components includes light emitting diodes (LEDs), infrared emitters (IREDs) and photo
detectors, infrared receiver modules, optocouplers, solid-state relays (SSRs), optical sensors, and infrared
transceivers (IRDCs).
Our photo detectors are light-sensitive semiconductor devices, and include linear photo diodes for light
measurement, photo-transistors for light switching applications in printers, copiers, facsimile machines, vending
machines and automobiles, and high speed photo PIN diodes specially designed for infrared data transfer. Our photo
detector products are available in a wide variety of sensitivity angles, light sensitivities, daylight filters and
packaging shapes. Our infrared emitters are used for optical switching and data transfer applications, often in
conjunction with our photo detectors, and in devices like infrared remote controls for televisions.
An optocoupler consists of an infrared emitting diode and a receiver facing each other through an insulation medium
inside a light-isolated housing. The receiver may either be a photodetector or a pair of MOSFETs, and in the latter
case the device is referred to as a solid-state relay (SSR). The function of an optocoupler is to electrically isolate
input and output signals. Our optocouplers are used in switch mode power supplies, safety circuitry and
programmable controllers for computer monitors, consumer electronics, telecommunications equipment and
industrial systems.
IRDCs consist of a detector photo diode, an infrared light emitting diode and a control IC. IRDCs are used for short
range, two-way wireless, infrared data transfer between electronic devices such as mobile phones and other
telecommunications equipment, computers and personal digital assistants (PDAs). LEDs are light emitting diodes
used as light indicators in a broad range of electronic devices.
Packaging
We have taken advantage of the growth of the surface mount component market, and we are an industry leader in
designing and marketing surface mount devices. Surface mount devices adhere to the surface of a circuit board
rather than being secured by leads that pass through holes to the back side of the board.
We believe that we are a market leader in the development and production of a wide range of surface mount devices,
including:
thick film chip resistors,
•••• wirewound chip resistors,
thick film resistor networks and arrays,
•••• metal film leadless resistors (MELFs),
•••• molded tantalum chip capacitors,
••••
coated tantalum chip capacitors,
•••• multi-layer ceramic chip capacitors,
thin film chip resistors,
thin film networks,
••••
••••
••••
••••
••••
••••
power strip resistors,
bulk metal foil chip resistors,
current sensing chips,
chip inductors,
chip transformers,
chip trimmers,
•••• NTC chip thermistors,
certain diodes and transistor products,
•••• PTC chip thermistors, and
power MOSFETs,
••••
strain gages.
••••
••••
••••
••••
••••
••••
We also provide a number of component packaging styles to facilitate automated product assembly by our
customers.
-11-
Military Qualifications
We have qualified certain products under various military specifications, approved and monitored by the United
States Defense Electronic Supply Center (DESC), and under certain European military specifications. DESC
qualification levels are based in part upon the rate of failure of products. In order to maintain the classification level
of a product, we must continuously perform tests on the product and the results of these tests must be reported to
DESC. If the product fails to meet the requirements for the applicable classification level, the product’s
classification may be reduced to a lower level. Products from some of our United States manufacturing facilities
experience a reduction in product classification levels from time to time. During the time that the DESC
classification level is reduced for a product with military application, net sales and earnings attributable to that
product may be adversely affected.
Manufacturing Operations
We strive to balance the location of our manufacturing facilities. In order to better serve our customers, we maintain
production facilities in regions where we market the bulk of our products, such as the United States, Germany,
France, the United Kingdom, and Asia. To maximize production efficiencies, we seek whenever practicable to
establish manufacturing facilities in countries, such as the Czech Republic, Hungary, India, Israel, Malaysia,
Mexico, the People’s Republic of China, and the Philippines, where we can take advantage of lower labor and tax
costs and, in the case of Israel, to take advantage of various government incentives, including grants and tax relief.
One of our most sophisticated manufacturing operations is the production of power semiconductor components. This
manufacturing process involves two phases of production: wafer fabrication and assembly (or packaging). Wafer
fabrication subjects silicon wafers to various thermal, metallurgical and chemical process steps that change their
electrical and physical properties. These process steps define cells or circuits within numerous individual devices
(termed “dies” or “chips”) on each wafer. Assembly is the sequence of production steps that divides the wafer into
individual chips and encloses the chips in structures (termed “packages”) that make them usable in a circuit. Both
wafer fabrication and assembly phases incorporate wafer level and device level electrical testing to ensure that
device design integrity has been achieved.
At December 31, 2004, approximately 16% of our fixed assets were located in the United States, approximately
31% were located in Europe, approximately 23% were located in Israel, and approximately 30% were located in
Asia. In the United States, our manufacturing facilities are located in California, Connecticut, Maine, Maryland,
New York, Nebraska, North Carolina, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin. In
Europe, our main manufacturing facilities are located in Germany, France, Hungary, and the Czech Republic, with
other facilities in Austria, Belgium, Portugal, the Netherlands, and the United Kingdom. We also have
manufacturing facilities in India, Israel, Malaysia, Mexico, the People’s Republic of China, the Philippines, and the
Republic of China (Taiwan). Over the past several years, we have invested substantial resources to increase capacity
and to maximize automation in our plants, which we believe will further reduce production costs.
We are aggressively undertaking to have the quality systems at most of our major manufacturing facilities approved
under the ISO 9001 international quality control standard. ISO 9001 is a comprehensive set of quality program
standards developed by the International Standards Organization. A majority of our manufacturing operations have
already received ISO 9001 approval and others are actively pursuing such approval.
In 2004, we continued the implementation of our strategy to shift manufacturing emphasis to higher automation in
higher labor cost regions and to relocate a fair amount of production to regions with skilled workforces and
relatively lower labor costs. As a result, we incurred restructuring costs in the year ended December 31, 2004
associated with the downsizing of manufacturing facilities in Europe and the United States. We may continue to
incur such expenses in 2005.
See Note 16 to our consolidated financial statements for financial information by geographic area.
-12-
Sources of Supplies
Although most materials incorporated in our 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
We are a major consumer of the world’s annual production of tantalum. Tantalum, a metal purchased in powder or
wire form, is the principal material used in the manufacture of tantalum capacitors. There are currently three major
suppliers that process tantalum ore into capacitor grade tantalum powder. Due to the strong demand for our tantalum
capacitors and difficulty in obtaining sufficient quantities of tantalum powder from our suppliers, we stockpiled
tantalum in 2000 and early 2001. From 2001 to 2003, we and our competitors experienced a significant decline in
the tantalum capacitor business as well as significant decreases in the market prices for tantalum. As a result, we
recorded in costs of products sold write-downs of $5.4 million and $25.7 million on tantalum inventories during the
years ended December 31, 2003 and 2002, respectively.
We have two agreements with Cabot Corporation for the supply of tantalum powder, a July 2000 agreement (which
expires in 2005) and a November 2000 agreement (which expires in 2006). With the decline in market demand and
prices for tantalum during 2001, we began the process of negotiating modifications to the agreements with Cabot.
Our major competitors in the tantalum capacitor business were also seeking modifications to their contracts with
Cabot. In June 2002, following the prior initiation of legal proceedings by Cabot, we and Cabot agreed to make
certain modifications to the supply agreements. These included price reductions, the extension of the term of one of
the contracts, and the regular scheduling of our purchase commitments. The contracts with Cabot commit us to
minimum purchases of tantalum powder and wire at fixed prices through 2006. One of these contracts provides for
price reductions in 2006 if certain conditions are met.
In addition to the raw material write-downs described above, we also recorded losses on purchase commitments of
$16.2 million, $11.4 million and $106.0 million for the years ended December 31, 2004, 2003 and 2002,
respectively. Our purchase commitments were entered into at a time when market demand for tantalum capacitors
was high and tantalum powder was in short supply. Our liability for purchase commitments is estimated based on
our contractually obligated purchase prices, expected market prices and the mix of tantalum-grades expected to be
purchased. The mix of tantalum-grades expected to be purchased is within a range specified by the contracts. The
pricing trend for tantalum has been relatively stable since 2003. The mix of our purchases of tantalum grades during
2004 was significantly different than initially expected, which resulted in additional losses on purchase
commitments being recorded in 2004. If the downward pricing trend were to resume, we could again be required to
write down the carrying value of our tantalum inventory and record additional losses on our purchase commitments.
Changes in our mix of tantalum-grade purchases could also require us to record additional losses on our purchase
commitments. Our estimates of losses on purchase commitments are based on the assumption that we will not
receive certain conditional price reductions in 2006 pursuant to one of our contracts with Cabot. We may be
required to reverse a portion of these recorded losses if we meet all conditions to receive these price reductions.
Palladium
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South Africa and
Russia. Palladium is a commodity product that is subject to price volatility. The price of palladium fluctuated in the
range of approximately $148 to $435 per troy ounce during the three years ended December 31, 2004, and during
2001, the price was as high as $1,090 per troy ounce. As of December 31, 2004, the price of palladium was
approximately $184 per troy ounce. During the years ended December 31, 2004, 2003 and 2002, we recorded in
costs of products sold write-downs of palladium inventories to then-current market value of $0.4 million, $1.6
million and $1.7 million, respectively. At December 31, 2004, we had commitments to purchase palladium in 2005
at prices in excess of current market. Accordingly, we recorded a loss on purchase commitment of approximately
$0.4 million during the year ended December 31, 2004.
-13-
Israeli Government Incentives
We have substantial manufacturing operations in Israel, where we benefit from the government’s employment and
tax incentive programs. These programs have contributed substantially to our growth and profitability. For the year
ended December 31, 2004, sales of products manufactured in Israel accounted for approximately 19% of our net
sales.
Under the terms of the Israeli government’s incentive programs, once a project is approved, the recipient is eligible
to receive the benefits of the related grants for the life of the project, so long as the recipient continues to meet preset
eligibility standards. None of our approved projects has ever been cancelled or modified, and we have already
received approval for a majority of the projects contemplated by our capital expenditure program. However, as a
result of the economic downturn beginning in 2001, we were forced to lay off a significant number of employees in
Israel in 2001. In 2002, the Israeli government initially withheld certain grant monies claiming that we had not
maintained employment at the required minimum levels; however, we were able to settle our dispute in the fourth
quarter of 2002 and the government agreed to continue making grant payments to us, conditioned upon our
agreement to employ a certain number of additional employees by December 31, 2005. Under certain
circumstances, we would be able to delay the December 31, 2005 deadline by one year. While we expect the
number of employees to satisfy the eligibility requirements for our Israeli government grants, economic
circumstances could compel future additional layoffs. Also, over the past few years, the Israeli government has
scaled back or discontinued some of its incentive programs. There can be no assurance that we will maintain our
eligibility for existing projects or that in the future the Israeli government will continue to offer new incentive
programs applicable to us or that, if it does, such programs will provide the same level of benefits we have
historically received or that we will continue to be eligible to take advantage of them. Because we have received
approvals for most projects currently contemplated, we do not anticipate that cutbacks in the incentive programs for
new projects would have an adverse impact on our earnings and operations for at least several years.
We might be materially adversely affected if events were to occur in the Middle East that interfered with our
operations in Israel. However, we have never experienced any material interruption in our Israeli operations in our
34 years of operations there, in spite of several Middle East crises, including wars.
Inventory and Backlog
We manufacture both standardized products and those designed and produced to meet customer specifications. We
maintain an inventory of standardized components. Backlogs of outstanding orders for our products were $439.9
million, $532.0 million, and $407.6 million at December 31, 2004, 2003, and 2002, respectively.
We include in our backlog only open orders that have been released by the customer for shipment in the next twelve
months. Our customers encounter uncertain and changing demand for their products. They typically order products
from us based on their forecasts. If demand falls below customers’ forecasts, or if customers do not control their
inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many
instances without the payment of any penalty. Therefore, the backlog at any point in time is not necessarily
indicative of the results to be expected for future periods.
-14-
Customers and Marketing
We sell our products to original equipment manufacturers (OEMs), electronic manufacturing services (EMS)
companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large
inventories of electronic components for resale to OEMs. During 2004, approximately 46% of our sales were to
distributors, approximately 47% of our sales were to OEMs, and approximately 7% of our sales were to EMS
companies.
To better serve our customers, we maintain production facilities in regions where we market the bulk of our
products. We work with our customers so that our products are incorporated into the design of electronic equipment
at the research and prototype stages. We also employ a staff of application and field engineers to assist our
customers, independent manufacturers’ representatives and distributors in solving technical problems and
developing products to meet specific needs.
The sales organizations are regionally based. The aim of our sales organizations is to unify the activities of all our
divisions and subsidiaries, provide efficiencies by eliminating duplication of functions, and bring greater value to
end customers by allowing them to deal with one entity for their active and passive electronic component purchasing
needs. We market our products in different geographic areas as follows:
North America: Sales are made by our North American sales force, sales representative organizations and
distributors. Sales representatives are compensated by commissions. Regional sales directors employed by Vishay
coordinate these representatives and the North American sales force. Our North American sales headquarters are
located in Shelton, Connecticut. Regional sales offices are located in or near Chicago, Illinois; Tampa, Florida;
Irving, Texas; Santa Clara, California; Orange County, California; Hauppauge, New York; Juarez, Mexico; and
Guadalajara, Mexico.
South America: Sales are made by our South American sales force, sales representative organizations, and
distributors. Sales representatives are compensated by commissions. Regional sales directors employed by Vishay
coordinate these representatives and the South American sales force. Vishay’s South American sales office is
located in Campinas, Brazil.
Europe: Sales of our products in Europe are made by our European sales force, sales representative organizations
and distributors. Our European headquarters are in Selb, Germany. Regional sales offices are in Heilbronn, Heide,
and Selb, Germany; Sunderland and Bracknell, United Kingdom; Paris, Lyon, and Nice, France; Madrid, Spain;
Stockholm, Sweden; Helsinki, Finland; Milan, Italy; Istanbul, Turkey; Warsaw, Poland; Moscow, Russia; Budapest,
Hungary; Voecklabruck, Austria; and Eindhoven, the Netherlands.
Japan: Sales in Japan are made both by our Japan sales force and distributors. Sales representatives are
compensated by commissions. Regional sales offices are located in Tokyo and Osaka.
Asia-Pacific: Sales are made in Hong Kong, Korea, the Republic of China (Taiwan), the People’s Republic of China
and in Southeast Asia by our Asia-Pacific sales force, sales representative organizations and distributors. Our Asian
sales headquarters are in Singapore. Regional sales offices are located in Singapore; Taipei, Taiwan; Beijing,
Shanghai, Shenzhen and Hong Kong, China; Seoul and Gumi, Korea; New Delhi, Pune and Bangalore, India;
Penang, Malaysia; and Bangkok, Thailand.
Sales in the rest of the world are made through sales representatives, stocking representatives and distributors.
We have established a Strategic Global Account program, which aligns our top customers with an identified
Strategic Global Account manager, enabling our diverse product families to have “one face to the customer.” This
Strategic Global Account manager coordinates sales, marketing, and contract administration for all Vishay products,
providing “one-stop” access to one of the broadest selections of discrete electronic components available directly
from a manufacturing source anywhere in the world.
-15-
Our top 30 customers are quite stable despite not having long-term commitments to purchase our products. With
selected customers, we have signed two to three year contracts for specific products. Sales to our top 30 customers
comprise approximately 60% of our total sales.
During 2004, approximately 26% of our net sales were attributable to customers in the Americas, approximately
38% were attributable to customers in Europe, and approximately 36% were attributable to customers in Asia.
During 2004, the share of net sales by end-use market was as follows: Industrial, 36%; Computer, 18%; Automotive,
16%; Consumer Products, 12%; Telecommunications, 12%; Aerospace and Military, 4%; Medical, 2%.
Competition
We face strong competition in various product lines from both domestic and foreign manufacturers that produce
products using technologies similar to ours. Our main competitors for tantalum capacitors are KEMET Corporation,
AVX Corporation and NEC Electronics, Inc. For MLCC capacitors, our principal competitors are KEMET, AVX,
Murata and TDK Corp. For thick film chip resistors, our major competitors include Rohm Corp., Koa Speer
Electronics Inc. and Yageo Corporation. For wirewound and metal film resistors, our principal competitors are
I.R.C. Inc., Rohm Corp., Koa Speer Electronics Inc. and Ohmite Manufacturing Company. For active components,
our main competitors include International Rectifier, Philips, N.V., ON Semiconductor, Rohm Corp., Motorola, Inc.,
Fairchild Semiconductor Corp., Maxim, Shindengen Electric Manufacturing Co. Ltd., Sanken Electric Co. Ltd.,
STMicroelectronics N.V. and Samsung Co., Ltd. There are many other companies that produce products in the
markets in which we compete.
Our competitive position depends on our product quality, know-how, proprietary data, marketing and service
capabilities and business reputation, as well as on price. We compete for sales of certain products on the basis of our
marketing and distribution network, which provides a high level of customer service. For example, we work closely
with our customers to have our components incorporated into their electronic equipment at the early stages of design
and production and maintain redundant production sites for some of our products to ensure an uninterrupted supply
of products. Additionally, our Strategic Global Accounts program, described above, provides us with a competitive
advantage.
Research and Development
Many of our products and manufacturing techniques, technologies and packaging methods have been invented,
designed and developed by our engineers and scientists. We maintain strategically placed design centers where
proximity to customers enables us to more easily gauge and satisfy the needs of local markets. These design centers
are located predominantly in the United States, Germany, Israel, the People’s Republic of China, France, the
Republic of China (Taiwan) and South Korea.
We also maintain research and development staffs and promote programs at a number of our production facilities to
develop new products and new applications of existing products, and to improve manufacturing techniques. This
decentralized system encourages individual product development at individual manufacturing facilities that
occasionally has applications at other facilities. Our research and development costs (exclusive of purchased in-
process research and development) were approximately $51.0 million for 2004, $45.4 million for 2003, and $37.1
million for 2002. These amounts include expenditures of our Siliconix subsidiary of $21.2 million, $19.5 million,
and $19.3 million in 2004, 2003, and 2002, respectively, principally for the development of new power products and
power ICs. These amounts do not include substantial expenditures for the development and manufacturing of
machinery and equipment for new processes and for cost reduction measures.
Patents and Licenses
We have made a significant investment in securing intellectual property protection for our technology and products.
We seek to protect our technology by, among other things, filing patent applications for technology considered
important to the development of our business. We also rely upon trade secrets, unpatented know-how, continuing
technological innovation and the aggressive pursuit of licensing opportunities to help develop and maintain our
competitive position.
-16-
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary
nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under
numerous patents in the United States and other countries, there can be no assurance concerning the degree of
protection afforded by these patents or the likelihood that pending patents will be issued.
We require all employees and most consultants and other advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with us. These agreements provide that all confidential
information developed or made known to the entity or individual during the course of the entity’s or individual’s
relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. All
of our employees have entered into agreements providing for the assignment to us of rights to inventions made by
them while employed by us.
When we believe other companies are misappropriating our intellectual property rights, we vigorously enforce those
rights through legal action, and we intend to continue to do so. See Item 3, “Legal Proceedings.”
Although we have numerous United States and foreign patents covering certain of our products and manufacturing
processes, no particular patent is considered individually material to our business.
Environment, Health and Safety
We have adopted an Environmental Health and Safety Corporate Policy that commits us to achieve and maintain
compliance with applicable environmental laws, to promote proper management of hazardous materials for the
safety of our employees and the protection of the environment, and to minimize the hazardous materials generated in
the course of our operations. This policy is implemented with accountability directly to the Chairman of the Board
of Directors. In addition, our manufacturing operations are subject to various federal, state and local laws restricting
discharge of materials into the environment.
We are not involved in any pending or threatened proceedings that would require curtailment of our operations. We
continually expend funds to ensure that our facilities comply with applicable environmental regulations. While we
believe that we are in material compliance with applicable environmental laws, we cannot accurately predict future
developments and do not necessarily have knowledge of all past occurrences on sites that we currently occupy.
More stringent environmental regulations may be enacted in the future, and we cannot determine the modifications,
if any, in our operations that any such future regulations might require, or the cost of compliance with such
regulations. Moreover, the risk of environmental liability and remediation costs is inherent in the nature of our
business and, therefore, there can be no assurance that material environmental costs, including remediation costs,
will not arise in the future.
We have been named a Potentially Responsible Party (PRP) at nine Superfund sites, including two Siliconix
facilities, and have become responsible for certain obligations as a PRP in connection with our acquisition of
General Semiconductor. We expend minimal amounts in connection with several of these sites and do not expect
costs associated with the others to be material.
General Semiconductor has also been named as a defendant in three actions in the United States District Court for
the Eastern District of New York in connection with its former operations at a facility in Hicksville, New York. The
plaintiffs in these actions allege that they have suffered personal injury and property damage as a result of the
facility’s operations.
-17-
The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required
cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon our
experience with the foregoing environmental matters, we have concluded that there is at least a reasonable
possibility that we will incur remedial costs in the range of $30 million to $40 million. As of December 31, 2004,
we concluded that the best estimate within this range is $37.6 million, of which $33.2 million is included in other
noncurrent liabilities on the consolidated balance sheet, and $4.4 million is included in accrued expenses on the
consolidated balance sheet. Of this accrual, approximately $19.4 million is due to the acquisition of General
Semiconductor; approximately $7.8 million is due to the acquisition of BCcomponents; and approximately $10.4
million is reserved for other miscellaneous environmental liabilities, the most significant of which is related to our
Vitramon subsidiary in the United States. In view of our financial position and provisions for environmental matters
of $37.6 million, we have concluded that any potential payment of such estimated amounts will not have a material
adverse effect on our consolidated financial position, results of operations or liquidity.
With each acquisition, we attempt to identify potential environmental concerns and to minimize, or obtain
indemnification for, the environmental matters we may be required to address. In addition, we establish reserves for
specifically identified potential environmental liabilities. We believe that the reserves we have established are
adequate. Nevertheless, we often unavoidably inherit certain pre-existing environmental liabilities, generally based
on successor liability doctrines. Although we have never been involved in any environmental matter that has had a
material adverse impact on our overall operations, there can be no assurance that in connection with any past or
future acquisition we will not be obligated to address environmental matters that could have a material adverse
impact on our operations.
Employees
As of December 31, 2004, we employed approximately 25,700 full time employees, of whom approximately 22,500
were located outside the United States. Our future success is substantially dependent on our ability to attract and
retain these highly qualified technical and administrative personnel. Some of our employees outside the United
States are members of trade unions, and employees at one small U.S. facility are represented by a union. Our
relationship with our employees is good. However, no assurance can be given that, if we continue to restructure our
operations in response to changing economic conditions, labor unrest or strikes, especially at European facilities,
will not occur.
-18-
Company Information and Website
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and
Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may
read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and
information statements, and other information regarding issuers, including us, that file electronically with the SEC.
The public can obtain any documents that we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at www.vishay.com. The website contains
information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and
Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably
practicable after the reports and amendments are electronically filed with or furnished to the SEC. To view the
reports, access ir.vishay.com and click on “SEC Filings”.
The following corporate governance related documents are also available on our website:
• Corporate Governance Principles
• Code of Business Conduct and Ethics
• Code of Ethics Applicable to the Company’s Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer or Controller and Financial Managers
• Audit Committee Charter
• Nominating and Corporate Governance Committee Charter
• Compensation Committee Charter
• Policy on Director Attendance at Annual Meetings
• Nominating and Corporate Governance Committee Policy Regarding Qualification of Directors
• Procedures for Securityholders’ Submissions of Nominating Recommendations
• Securityholder Communications with Directors and Interested Party Communication with Non-
Management Directors
• Whistleblower and Ethics Hotline Procedures.
To review these documents, access ir.vishay.com and click on “Corporate Governance”.
Any of the above documents can also be obtained in print by any shareholder upon request to our Investor Relations
Department at the following address:
Corporate Investor Relations
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2143
-19-
Item 2.
PROPERTIES
As of December 31, 2004, we maintained approximately 70 manufacturing facilities. The principal locations of such
facilities, along with available space including administrative offices, are:
Owned Locations
Business Segment
Approx. Available
Space (Square Feet)
United States
Columbus and Norfolk, NE
Sanford, ME
Santa Clara, CA
Wendell and Statesville, NC
Pearl River and Niagra Falls, NY
Monroe, CT
Malvern, PA
Yankton, SD
Warwick, RI
Bennington, VT
Grafton, WI
Hagerstown, MD
Passive components
Passive components
Active components
Passive components
Passive components
Passive components
Passive components
Passive components
Passive components
Passive components
Passive components
Passive components
Passive components
Non-U.S.
Israel (5 locations)
Active and passive components
People’s Republic of China (4 locations) Active and passive components
Czech Republic (4 locations)
Republic of China (Taiwan) (3 locations) Active and passive components
Active and passive components
Germany (3 locations)
Passive components
Portugal
Passive components
Hungary (2 locations)
Passive components
Netherlands
Passive components
France (2 locations)
Passive components
Belgium (2 locations)
Active components
Austria
Passive components
Philippines
Passive components
India
Active components
Malaysia
Passive components
Mexico
298,000
225,000
220,000
159,000
104,000
91,000
79,000
58,000
55,000
54,000
49,000
39,000
1,058,000
631,000
446,000
397,000
333,000
301,000
294,000
286,000
259,000
248,000
153,000
149,000
140,000
115,000
57,000
Leased facilities in the United States include 120,000 square feet of space located in California (passive
components), Connecticut (passive components), New York (active components), and South Dakota (passive
components). Foreign leased facilities consist of 750,000 square feet in China (active and passive components),
273,000 square feet in Germany (active and passive components), 192,000 square feet in Mexico (passive
components), 120,000 square feet in Austria (passive components), 85,000 square feet in the Czech Republic
(passive components), 40,000 square feet in Sweden (passive components), 30,000 square feet in Israel (active and
passive components), 13,000 square feet in the United Kingdom (passive components), and 3,000 square feet in
Taiwan (active components).
In the opinion of management, our properties and equipment generally are in good operating condition and are
adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in
finding alternative facilities.
-20-
Item 3.
LEGAL PROCEEDINGS
From time to time we are involved in routine litigation incidental to our business. Management believes that such
matters, either individually or in the aggregate, should not have a material adverse effect on our business or financial
condition.
Environmental Matters
Our 80.4% owned subsidiary, Siliconix, is a party to two environmental proceedings. The first involves property that
Siliconix vacated in 1972. In July 1989, the California Regional Water Quality Control Board (“RWQCB”) issued
Cleanup and Abatement Order No. 89-115 both to Siliconix and the then-owner of the property. The Order alleged
that Siliconix contaminated both the soil and the groundwater on the property by the improper disposal of certain
chemical solvents. The RWQCB considered both parties to be liable for the contamination and sought to have them
decontaminate the site to acceptable levels. Siliconix subsequently reached a settlement of this matter with the then-
owner of the property. The settlement provided that said owner will indemnify Siliconix and its employees, officers,
and directors against any liability that may arise out of any governmental agency actions brought for environmental
cleanup of the subject site, including liability arising out of RWQCB Order No. 89-115, to which Siliconix remains
nominally subject.
The second proceeding involves Siliconix’s Santa Clara, California facility, which Siliconix has owned and
occupied since 1969. In February 1989, the RWQCB issued Cleanup and Abatement Order No. 89-27 to Siliconix.
The Order is based on the discovery of contamination of both the soil and the groundwater on the property by
certain chemical solvents. The Order calls for Siliconix to specify and implement interim remedial actions and to
evaluate final remedial alternatives. The RWQCB issued subsequent orders regarding monitoring and clean-up of
the site. Siliconix has substantially complied with the RWQCB’s orders to date.
Our subsidiary General Semiconductor has been named a PRP at several Superfund sites and as a defendant in three
lawsuits in the United States District Court for the Eastern District of New York. See “Environment, Health and
Safety.”
Intellectual Property Matters
We are engaged in discussions with various parties regarding patent licensing and cross patent licensing issues. In
addition, we have observed that in the current electronic component and semiconductor industry business
environment, companies have become more aggressive in asserting and defending patent claims against competitors.
While we will continue to vigorously defend our intellectual property rights, we may become party to disputes
regarding patent licensing and cross patent licensing. An unfavorable outcome regarding one of these intellectual
property matters could have a material adverse effect on our business and operating results.
When we believe other companies are misappropriating our intellectual property rights, we vigorously enforce those
rights through legal action, and we intend to continue to do so. During 2004, we settled two suits which we had
initiated to enforce our intellectual property rights. We are receiving royalty income on sales of these companies’
products which use our technology. We presently have other pending legal actions that we have initiated against
companies which we believe are misappropriating our intellectual property rights.
-21-
Siliconix Shareholder Matters
In January 2005, an amended class action complaint was filed on behalf of all non-Vishay shareholders of our
80.4% owned subsidiary, Siliconix, against Vishay, Ernst & Young LLP (independent registered public accounting
firm that audits the Company’s consolidated financial statements), Dr. Felix Zandman, Chairman and Chief
Technical and Business Development Officer of Vishay, and, as a nominal defendant, Siliconix. The suit purports to
state various derivative and class claims against the defendants including the purported taking by Vishay of
Siliconix sales subsidiaries and the profits of those subsidiaries; the purported taking by Vishay of Siliconix’s SAP
software system without compensation to Siliconix; the alleged use by Vishay of Siliconix’s assets as security
for Vishay loans without compensation to Siliconix; the purported misappropriation by Vishay of Siliconix’s
identity; the alleged taking by Vishay of Siliconix testing equipment; the alleged use by Vishay of Siliconix to
save Vishay certain credits made available by an Israeli business development agency; the alleged misuse by Vishay
of Siliconix’s patents
improper
identification of Dr. Zandman as a co-inventor on certain Siliconix patents. The action seeks injunctive relief and
unspecified damages. The defendants have not yet responded to the complaint, but intend to deny all allegations.
to help Vishay acquire General Semiconductor; and the allegedly
As further described in Note 19 to our consolidated financial statements, on March 3, 2005, we announced our
intention to commence a tender offer for all outstanding shares of Siliconix not owned by Vishay. Following this
announcement, several purported class-action complaints were filed against Vishay, Siliconix, and the Siliconix
directors, alleging, among other things, that the intended offer is unfair and a breach of fiduciary duty, and seeking,
among other things, to enjoin the transaction. The defendants have not yet responded to the complaints.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-22-
Item 4A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding our executive officers as of March 15, 2005:
Name
Age
Positions Held
Dr. Felix Zandman*
Dr. Gerald Paul*
Marc Zandman*
Richard N. Grubb
Ziv Shoshani*
76
56
43
58
39
Chairman of the Board, Chief Technical and
Business Development Officer
Chief Executive Officer, President, Chief
Operating Officer, and Director
Vice-Chairman of the Board, President-
Vishay Israel Ltd.
Executive Vice President, Treasurer, and
Chief Financial Officer
Assistant Chief Operating Officer, Executive
Vice President, Resistor and Inductor
Group and Vishay Measurements Group,
and Director
* Member of the Executive Committee of the Board of Directors.
Dr. Felix Zandman, a founder of the Company, has been Chairman of the Board since March 1989, and has been a
Director of the Company since its inception in 1962. Dr. Zandman became Chief Technical and Business
Development Officer effective January 1, 2005. Dr. Zandman was Chief Executive Officer of the Company since
its inception in 1962 through December 31, 2004, when Dr. Gerald Paul was appointed Chief Executive Officer. Dr.
Zandman had been President of the Company from its inception until March 16, 1998.
Dr. Gerald Paul was appointed Chief Executive Officer effective January 1, 2005. Dr. Paul has served as a Director
of the Company since May 1993, has been Chief Operating Officer and an Executive Vice President of the
Company since August 1996, and has been President of the Company since March 16, 1998. Dr. Paul was President
of Vishay Electronic Components, Europe from January 1994 to August 1996. Dr. Paul has been Managing Director
of Draloric Electronic GmbH, an affiliate of the Company, since January 1991. Dr. Paul has been employed by
Draloric since February 1978.
Marc Zandman was appointed Vice-Chairman of the Board as of March 1, 2003. He has been a Director of the
Company since May 2001, and President of Vishay Israel Ltd. since April 1998. Mr. Zandman was Group Vice
President of Vishay Measurements Group from August 2002 until December 31, 2004. Mr. Zandman has served in
various other capacities with the Company since August 1984. He is the son of Dr. Felix Zandman, the Company’s
Chairman and Chief Technical and Business Development Officer.
Richard N. Grubb has been Vice President, Treasurer and Chief Financial Officer of the Company since May 1994,
and has been an Executive Vice President of the Company since August 1996. Mr. Grubb has been associated with
the Company in various capacities since 1972, and was a Director from 1994 through 2003.
Ziv Shoshani has been Executive Vice President of the Resistor and Inductor Group since 2002, and Executive Vice
President of Vishay Measurements Group since January 1, 2005. In March 2005, Mr. Shoshani was also appointed
to the position of Assistant Chief Operating Officer, effective April 1, 2005. He was Executive Vice President of
the Capacitors Group in 2001 and 2002 and was Executive Vice President, Specialty Products Division in 2000 and
2001, including responsibility for oversight of Vishay’s Measurements Group Division. Prior to that, Mr. Shoshani
served in various capacities including Senior Vice President Precision Resistors and Worldwide Foil Resistors
Manager. Mr. Shoshani has been employed by the Company since 1995. He is the nephew of Dr. Felix Zandman,
the Company’s Chairman and Chief Technical and Business Development Officer.
-23-
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol VSH. The following table sets forth
the high and low sales prices for our common stock as reported on the New York Stock Exchange composite tape
for the indicated fiscal quarters. We do not currently pay cash dividends on our capital stock. Our policy is to retain
earnings to support the growth of our business and we do not intend to change this policy at the present time. In
addition, we are restricted from paying cash dividends under the terms of our revolving credit agreement. See Note 6
to our consolidated financial statements. Holders of record of our common stock totaled approximately 1,563 at
March 9, 2005.
Fourth quarter
Third quarter
Second quarter
First quarter
2004
High
$ 15.37
$ 17.57
$ 22.79
$ 24.99
Low
$ 11.60
$ 11.49
$ 16.58
$ 18.96
Fourth quarter
Third quarter
Second quarter
First quarter
2003
High
$ 23.15
$ 19.00
$ 15.15
$ 13.24
Low
$ 17.45
$ 12.47
$ 9.93
$ 8.77
At March 9, 2005, we had outstanding 14,679,440 shares of Class B common stock, par value $.10 per share, each
of which entitles the holder to ten votes. The Class B common stock generally is not transferable except in certain
very limited instances, and there is no market for those shares. The Class B common stock is convertible, at the
option of the holder, into common stock on a share for share basis. Substantially all of the Class B common stock is
owned by Dr. Felix Zandman, our Chairman and Chief Technical and Business Development Officer, the estate of
Mrs. Luella B. Slaner, a former director, the children of Mrs. Slaner, and trusts for the benefit of the grandchildren
of Mrs. Slaner, either directly or beneficially. Directly, and as voting trustee under a voting trust agreement, Dr.
Zandman has voting power over substantially all of the outstanding Class B common stock.
See Item 12 for certain equity compensation information with respect to equity compensation plans approved by
security holders.
-24-
Item 6.
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information as of and for the fiscal years ended
December 31, 2004, 2003, 2002, 2001, and 2000. This table should be read in conjunction with our consolidated
financial statements and the related notes thereto included elsewhere in this Form 10-K (in thousands, except per
share amounts):
Statement of Operations Data:
Net sales
Interest expense
Earnings (loss) before income tax provision
(benefit) and minority interest
Income tax provision (benefit)
Minority interest
Net earnings (loss)
As of and for the years ended December 31,
2004 (1)
2003 (2)
2002 (3)
2001 (4)
2000
$ 2,413,576 $ 2,170,597 $ 1,822,813 $ 1,655,346 $ 2,465,066
25,177
34,252 39,226 29,503 16,848
70,017 46,426 (100,045) 10,103
13,729 11,528 (16,900) 5,695
11,592 8,056 9,469 3,895
44,696 26,842 (92,614) 513
690,225
148,186
24,175
517,864
Basic earnings (loss) per share (5)
Diluted earnings (loss) per share (5)
Weighted average shares outstanding – basic (5)
Weighted average shares outstanding – diluted (5)
$ 0.27 $ 0.17 $ (0.58) $ 0.00 $ 3.83
$ 0.27 $ 0.17 $ (0.58) $ 0.00 $ 3.77
135,295
163,701 159,631 159,413 141,171
137,463
165,938 160,443 159,413 142,514
Balance Sheet Data:
Total assets
Long-term debt
Working capital
Stockholders’ equity
$ 4,638,590 $ 4,566,360 $ 4,315,159 $ 3,951,523 $ 2,783,658
140,467
752,145 836,606 706,316 605,031
1,057,200
1,164,682 1,049,892 897,456 1,096,034
1,833,855
2,773,335 2,514,034 2,358,787 2,366,545
_______________________________________________________________________
(1)
(2)
(3)
(4)
Includes the results of RFWaves from August 31, 2004 and Vishay MIC Technology from September 29, 2004. Also includes net charges
of $89,959,000 for restructuring and severance costs, asset write-downs, inventory write-downs, losses on purchase commitments, a write-
off of purchased in-process research and development, partially offset by a gain on favorable settlement on a note receivable. These items
and their related tax consequences, net of a favorable tax settlement, had a negative $0.32 effect on earnings per share. These items are
more fully described in the notes to the consolidated financial statements.
Includes the results of BCcomponents, acquired in December 2002. Also includes net charge of $23,947,000 for restructuring and
severance costs, asset write-downs, inventory write-downs, losses on purchase commitments, and a loss on extinguishment of debt, partially
offset by a gain on insurance proceeds. These items and their tax related consequences had a negative $0.11 effect on earnings per share.
These items are more fully described in the notes to the consolidated financial statements.
Includes the results of Infineon Malaysia optoelectronic infrared components business from January 1, 2002, of Sensortronics from January
31, 2002, of Tedea-Huntleigh from July 1, 2002, of BLH/Nobel from August 1, 2002, and of Celtron from October 1, 2002. Also includes
charges for restructuring and severance costs, asset write-downs, inventory write-downs, losses on purchase commitments and other charges
of $169,900,000. These items and their tax related consequences had a negative $0.85 effect on earnings per share. These items are more
fully described in the notes to the consolidated financial statements.
Includes the results of Tansitor from January 1, 2001, of Infineon U.S. optoelectronic infrared components business from July 27, 2001, of
General Semiconductor from November 2, 2001, and of Mallory from November 7, 2001. Also includes charges for restructuring and
severance costs, asset write-downs, inventory write-downs, a write-off of purchased in-process research and development, and other charges
of $156,590,000. These items and their tax related consequences had a negative $0.84 effect on earnings per share. These items are more
fully described in the notes to the consolidated financial statements.
(5) Adjusted to reflect a three-for-two stock split distributed June 9, 2000.
Management believes that stating the impact on net earnings of items such as restructuring, asset write-downs, inventory write-downs, losses on
purchase commitments, losses on early extinguishment of debt, gains on insurance proceeds, write-offs of in-process research and development,
and other charges and credits is meaningful to investors because its provides insight with respect to ongoing operating results of the Company.
-25-
Item 7.
Overview
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Vishay Intertechnology, Inc. is an international manufacturer and supplier of passive and active electronic
components, including resistors, capacitors, inductors, strain gages, load cells, force measurement sensors,
displacement sensors, photoelastic sensors, power MOSFETs, power conversion and motor control integrated
circuits, transistors, diodes and optoelectronic components. Electronic components manufactured by Vishay are used
telecommunications,
in virtually all
military/aerospace, instrument, automotive, medical, and consumer electronics industries.
types of electronic products,
the computer,
including
those
in
Vishay operates in two segments, passive components and active components. Passive components include
resistors, capacitors, and inductors. We include in this segment our Measurements Group, which manufactures and
markets strain gages, load cells, transducers, instruments and weighing systems whose core components are resistors
that are sensitive to various types of mechanical stress. Active components include transistors, diodes, rectifiers,
certain types of integrated circuits and optoelectronic products. Our active segment includes our 80.4% owned
subsidiary, Siliconix. The passive components business had historically predominated at Vishay until the purchase
of General Semiconductor in November 2001, after which the lead position shifted to the active business. With the
acquisition of BCcomponents in December 2002, revenues from our active and passive businesses are essentially
split evenly.
Consolidated sales for the year ended December 31, 2004 were $2.414 billion, compared to sales of $2.171 billion
for the year ended December 31, 2003. Net earnings for the year ended December 31, 2004 were $44.7 million or
$0.27 per share, compared to net earnings of $26.8 million or $0.17 per share for the year ended December 31, 2003.
Earnings for the year ended December 31, 2004 were impacted by restructuring and severance costs of $47.3
million, asset write-downs of $27.3 million, losses on purchase commitments of $16.6 million, write-downs of
inventory of $0.4 million, a write-off of purchased in-process research and development of $1.5 million, partially
offset by a favorable settlement of an outstanding note receivable of $3.1 million. These items and their related tax
effects, net of a favorable tax settlement, reduced earnings by $0.32 per share. Earnings for the year ended
December 31, 2003 were impacted by restructuring and severance costs of $28.5 million, asset write-downs of $1.0
million, a loss on extinguishment of debt of $9.9 million, losses on purchase commitments of $11.4 million, and
write-downs of tantalum and palladium inventories on hand to then-market value of $7.0 million, offset by a gain on
an insurance claim of $33.9 million. These items and their tax related consequences had a negative $0.11 effect on
earnings per share.
Strong financial results for the first half of 2004 followed an economic recovery that began in the active business
during the third quarter of 2003 and continued in the passive business in the fourth quarter of 2003. By the third
quarter of 2004, we noted a decline in orders from our distributors, but sales levels were still higher than in prior
year periods. There was a noticeable recovery of orders from distributors in the fourth quarter, but distributor orders
remained at a book-to-bill ratio of less than 1.0. Orders from original equipment manufacturers and electronic
manufacturing services companies were substantially reduced in the fourth quarter of 2004. We believe these
changes in ordering patterns are largely attributable to inventory levels in the various supply channels. Despite
challenges in the second half of 2004, we believe that the macro economy will remain friendly into 2005.
-26-
Financial Metrics
We utilize several financial measures and metrics to evaluate the performance and assess the future direction of our
business. These key financial measures and metrics include sales, gross profit margin, end-of-period backlog, and
the book-to-bill ratio. We also monitor changes in inventory turnover and average selling prices (“ASP”).
End-of-period backlog is one indicator of future sales. However, if demand falls below customers’ forecasts, or if
customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included
in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily
indicative of the results to be expected for future periods.
Another important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of
product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio
that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in
future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may
foretell declining sales.
We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory
turnover for a financial reporting period as our cost of products sold for the four fiscal quarters ending on the last
day of the reporting period divided by our average inventory (computed using each quarter-end balance) for this
same period. A higher level of inventory turnover reflects more efficient use of our capital.
Pricing in our industry can be volatile. We analyze trends and changes in average selling prices to evaluate likely
future pricing.
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of
our business. The following table shows sales, gross profit margin, the end-of-period backlog, the book-to-bill ratio,
the inventory turnover, and changes in ASP for our business as a whole during the five quarters beginning with the
fourth quarter of 2003 and through the fourth quarter of 2004 (dollars in thousands):
4th Quarter
2003
1st Quarter
2004
2nd Quarter
2004
3rd Quarter
2004
4th Quarter
2004
Sales
$ 567,199 $ 640,921 $ 646,699 $ 584,320 $ 541,636
Gross profit margin
22.0%
24.9%
26.1%
24.1%
15.7%
End-of-Period Backlog
$ 532,000 $ 619,900 $ 607,000 $ 473,900 $ 439,900
Book-to-Bill Ratio
Inventory Turnover
1.14
3.25
1.14
3.53
0.98
3.51
0.84
3.22
0.90
3.27
Change in ASP vs. prior quarter
-1.8%
0.1%
-0.8%
-0.4%
-2.4%
Despite relatively friendly macroeconomic conditions, we noted deterioration in market conditions in the second
half of 2004, with sequential declines in sales and orders in the third and fourth quarters. Orders from original
equipment manufacturers and electronic manufacturing services companies declined significantly during the fourth
quarter, with a book-to-bill ratio of 1.03 in the third quarter, decreasing to a book-to-bill ratio of 0.87 in the fourth
quarter. Orders from distributors declined significantly in the third quarter, with some recovery noted in the fourth
quarter. The book-to-bill ratio was 0.65 for distributors in the third quarter, as compared to 0.94 in the fourth
quarter. The weak order rates have reduced our backlog as of the end of 2004. We believe these changes in
ordering patterns are largely attributable to inventory levels in the various supply channels.
-27-
Price declines were abrupt during the fourth quarter, particularly in the active components segment. During this
period, average selling prices declined by 3.9% in the active components segment, and 1.0% in the passive
component segment. This follows a year of historically-low volatility in prices. We expect pricing to be moderately
lower for 2005.
These volume and price declines in the second half of 2004 had a negative impact on our gross profit margins,
particularly in the fourth quarter of 2004. Despite these challenges in the second half of 2004, we believe that the
macro economy will remain friendly into 2005.
Capacity Utilization
Capacity utilization is a reflection of product demand trends.
Capacity load declined during the second half of 2004 in the passive components segment. While certain specialty
resistor lines were operating at up to 90% of capacity, commodity resistors and inductors were operating at
approximately 60% to 70% of capacity on average. This level of capacity utilization was in line with 2003
utilization of 60% to 75%, but lower than the 70% to 80% utilization during the first half of 2004. During the
second half of 2004, our capacitor lines operated at approximately 50% to 60% of capacity, in line with average
utilization of 50% in 2003, but below the approximately 65% utilization rate during the first half of 2004.
We continue to operate near full capacity in most of our front-end active components facilities. We have taken and
will continue to take necessary steps to increase our capacity to accommodate increased demand. These steps have
included removing production bottlenecks in our fabrication facilities and securing additional equipment to expand
our backend operations. We have made significant investments in expanding capacity in our active components
facilities, which will ramp up in future quarters. Our 80.4% owned subsidiary, Siliconix, has begun a project to add
8-inch silicon wafer manufacturing capabilities at the fabrication facility in Itzehoe, Germany. This project is
expected to alleviate capacity constraints for high-cell-density wafers and reduce costs. We expect Siliconix to be
eligible to receive the benefits of grants from the government of the German state of Schleswig Holstein related to
these additional investments at the Itzehoe facility. Except for any grant monies received, this significant increase in
capital expenditures required to support our expansion program is expected to be funded almost entirely by cash
flows from operations.
Siliconix also maintains long-term foundry agreements with subcontractors to ensure access to external front-end
capacity. Siliconix entered into a long-term foundry agreement for semiconductor manufacturing with Tower
Semiconductor in May 2004, pursuant to which Siliconix will purchase semiconductor wafers from and transfer
certain technology to Tower Semiconductor. Siliconix will place orders valued at approximately $200 million for
the purchase of semiconductor wafers to be manufactured in Tower’s Fab 1 facility over a seven to ten year period.
The agreement specifies minimum quantities per month and a fixed quantity for the term of the agreement.
Siliconix must pay for any short-fall in minimum order quantities specified under the agreement. The technology
transfer from Siliconix to Tower has started and is estimated to be completed by the second quarter of 2005, at
which time Siliconix will begin receiving wafers.
Also in 2004, Siliconix entered into a five-year foundry agreement for semiconductor manufacturing with a
subcontractor in Japan. This agreement was a continuation and expansion of a previous technology transfer and
business agreement for the manufacture of silicon wafers. The agreement calls for Siliconix to provide a rolling
twelve month forecast of estimated requirements. The first six months of this forecast are fixed as to quantity, and
the subsequent six months are guaranteed not to be less than a quantity stated in the agreement. Thereafter, the
monthly quantity may vary based on market demand. Under the agreement, Siliconix must guarantee that its
business with this subcontractor represents a minimum percentage of wafer requirements and is required to make its
best efforts not to reduce the average monthly demand rate below a specified threshold.
-28-
Acquisitions
As part of our growth strategy, we seek to expand through acquisition of other manufacturers of electronic
components that have established positions in major markets, reputations for product quality and reliability, and
product lines with which we have substantial marketing and technical expertise. Also as part of this growth strategy,
we seek to explore opportunities with privately held developers of electronic components, whether through
acquisition, investment in non-controlling interests, or strategic alliances.
During 2004, we completed two acquisitions. On August 31, 2004, we acquired substantially all of the assets of
RFWaves, Ltd., a fab-less integrated circuit design house located in Israel. On September 29, 2004, we acquired all
of the outstanding shares of Aeroflex Pearl River Inc. (renamed Vishay MIC Technology Inc.), the former thin film
interconnect subsidiary of Aeroflex, Incorporated. The total purchase price of these acquisitions was approximately
$12.7 million, which included cash payments of $11.8 million plus stock options with an aggregate fair value of
approximately $0.9 million. The purchase agreement for RFWaves includes provisions for Vishay to pay additional
consideration subject to RFWaves achieving operational targets through 2006. The payment of this additional
consideration would not be material to Vishay’s financial position or cash flows.
Purchased in-process research and development represents the value assigned in a business combination to research
and development projects of the acquired business that were commenced, but not completed at the date of
acquisition, for which technological feasibility has not been established, and which have no alternative future use in
research and development activities or otherwise. Amounts assigned to purchased in-process research and
development meeting the above criteria must be charged to expense at the date of consummation of the business
combination. A charge of $1.5 million was recorded in the third quarter of 2004 in conjunction with the RFWaves
acquisition.
For financial reporting purposes, the results of operations for RFWaves have been included in the actives segment
from August 31, 2004. The results of operations for Vishay MIC Technology have been included in the passives
segment from September 29, 2004. The inclusion of these entities did not have a material impact on consolidated
results for the third fiscal quarter of 2004. After allocating the purchase price to the assets acquired and liabilities
assumed based on an evaluation of their fair values, we recorded goodwill of $10.1 million related to these
acquisitions.
Had these acquisitions occurred as of the beginning of the periods presented in the consolidated financial statements,
the pro forma statements of operations would not be materially different than the consolidated statements of
operations presented.
Pending Transactions
We are continuously evaluating opportunities to expand our business, whether through acquisition, investment in
non-controlling interests, or strategic alliances. When appropriate or necessary, we periodically announce the status
of possible transactions to the public. On December 22, 2004, we signed a definitive merger agreement pursuant to
which Vishay will acquire all of the outstanding capital stock of SI Technologies, Inc. for approximately $17.65
million in cash, plus assumption of SI Technologies debt. SI Technologies, traded on NASDAQ, is a designer,
manufacturer, and marketer of high-performance industrial sensors and controls, weighing and factory automotive
systems, and related products. Completion of the merger is subject to certain closing conditions, including the
approval of the stockholders of SI Technologies. The parties currently anticipate that the merger will be completed
in the first half of 2005.
As further described in Note 19 to our consolidated financial statements, on March 3, 2005, we announced our
intention to commence a tender offer for all outstanding shares of Siliconix not owned by Vishay.
-29-
Segments
The following table shows sales, book-to-bill ratios, and gross profit margins broken out by segment for the five
quarters beginning with the fourth quarter of 2003 through the fourth quarter of 2004 (dollars in thousands):
Passive Components
Sales
4th Quarter
2003
1st Quarter
2004
2nd Quarter
2004
3rd Quarter
2004
4th Quarter
2004
$ 281,558 $ 321,328 $ 325,745 $ 290,698 $ 272,191
Book-to-Bill Ratio
1.06
1.08
0.95
0.89
Gross profit margin*
17.5%
22.6%
23.1%
20.4%
0.94
9.3%
Active Components
Sales
$ 285,641 $ 319,593 $ 320,954 $ 293,622 $ 269,445
Book-to-Bill Ratio
1.23
1.21
1.02
0.79
0.86
Gross profit margin
26.4%
27.3%
29.2%
27.8%
22.3%
* - Gross profit margins for the passive components segment include the impact of inventory write-downs and losses
on purchase commitments during the fourth quarters of 2004 and 2003.
Cost Management
We place a strong emphasis on reducing our costs. One way we do this is by moving production to the extent
possible from high-labor-cost markets, such as the United States and Western Europe, to lower-labor-cost markets,
such as Israel, Mexico, the People’s Republic of China and Eastern Europe. The percentage of our total headcount in
lower-labor-cost countries is a measure of the extent to which we are successful in implementing this program. This
percentage was 72% at the end of 2004, as compared to 69% at the end of 2003, 65% at the end of 2002, 61% at the
end of 2001, and 57% at the end of 2000. We expect this percentage to be 73% at the end of 2005. Our long-term
target is to have between 75% and 80% of our headcount in lower-labor-cost countries.
We are placing particular emphasis on cost reduction in our capacitor lines, which were hardest hit by the market
downturn experienced from 2001 to 2003 and where the business continues to suffer from worldwide overcapacity.
In 2003, we completed the transfer of our power capacitor production from Western Europe to the Czech Republic
and began moving our molded tantalum capacitor business to the People’s Republic of China. We also began to
consolidate our existing film capacitor line within the business of BCcomponents.
In 2004, we successfully transferred certain back-end production from Austria to Hungary and the People’s
Republic of China. In August, we announced our intent to close our small-signal diode assembly facility in Colmar,
France, and transfer the production to the People’s Republic of China and Hungary.
Our previous plan to transfer power diode production from the Republic of China (Taiwan) to the People’s Republic
of China was intentionally delayed due to an increase in orders in the first half of 2004. We anticipate this transfer
of production will be finalized by the third quarter of 2005. We also delayed the planned transfer of certain
production lines from our BCcomponents acquisition from Germany to Israel, but expect to complete this transfer of
production by the fourth quarter of 2005.
The restructuring plans we initiated in 2004 are expected to generate approximately $23 million of annual cost
savings. Furthermore, we are implementing an aggressive program in 2005 to reduce our annual fixed costs by an
additional $50 million.
-30-
In addition to completing the delayed projects described above, these 2005 programs include finalizing the planned
closing of our Norfolk, Nebraska resistors plant, finalizing the production transfer of tantalum molded finishing
from Israel to the People’s Republic of China, integrating Vishay MIC Technologies into our existing Electro-Films
business, transferring our film capacitor production to India and the People’s Republic of China after closing
facilities in Germany and the Czech Republic and reducing production in Portugal and Belgium, finalizing transfers
of production from France to the Czech Republic and also streamlining various general and administrative costs.
Israeli Government Incentives
Our production facilities in Israel benefit from incentives offered by the Israeli government for the creation of jobs
and capital investment in that country. These benefits take the form of government grants and reduced tax rates that
are lower than those in the United States.
These reduced tax rates apply to specific approved projects and are normally available for a period of ten or fifteen
years. The lower tax rates in Israel applicable to us ordinarily have resulted in increased earnings compared to what
earnings would have been had statutory United States tax rates applied. However, due to write-downs of inventories
and the losses on purchase commitments recorded in 2002, 2003, and 2004, the application of the Israeli tax rates
rather than United States tax rates resulted in decreases in net income of $18.9 million in 2004 and $3.1 million in
2003, and an increase in net loss of $24.8 million in 2002, as compared to what earnings would have been had
statutory United States tax rates applied.
Israeli government grants are awarded to specific projects. These grants are intended to promote employment in
Israel’s industrial sector and are conditioned on the recipient maintaining certain prescribed employment levels.
Grants are paid when the related projects become operational, and the Israeli government approves the project.
Israeli government grants, recorded as a reduction in the costs of products sold, were $8.9 million, $12.4 million,
and $17.3 million in 2004, 2003, and 2002, respectively. At December 31, 2004, our consolidated balance sheet
reflected $18.7 million in deferred grant income.
During the second quarter of 2002, the government of Israel informed us that because the headcount in our Israeli
subsidiaries decreased significantly over the previous 18 months, the government intended to withhold up to $15
million in grant monies otherwise due to us. The grant, which was made by the Israeli government under an
economic stimulus program, was conditioned in part on the employment levels at certain of our Israeli facilities.
The Israeli government argued that we had not maintained employment at the required minimum levels. During the
fourth quarter of 2002, we settled our dispute with the government of Israel, and the government agreed to continue
making grant payments to us. Under the terms of the settlement with the Israeli government, we are required to
employ at least an additional 1,500 employees in Israel by December 31, 2005 in order to preserve our eligibility for
the government grant and tax benefits. Under certain circumstances, we would be able to delay the December 31,
2005 deadline by one year. We have hired an additional 1,428 employees to date and expect to comply with these
requirements.
If we were no longer able to maintain the required level of employment in the future, we could be required to return
some grant funds and repay certain tax benefits that were previously awarded to us. The effect of the return of these
funds would be to reduce our income in future years.
Write-Downs of Inventory and Purchase Commitments
Tantalum is the principal material used in the manufacture of tantalum capacitors. We generally purchase this metal
in powder or wire form, although in 2000 and early 2001, when we perceived possible supply shortages, we also
stockpiled quantities of tantalum ore. In July and November of 2000, we entered into purchase contracts with Cabot
Corporation for tantalum powder and wire that committed us to minimum purchases of these materials at fixed
prices through 2006. Palladium is a precious metal used in the production of multi-layer ceramic capacitors that we
purchase under short-term contracts.
-31-
In 2001 through 2003, as a result of the general downturn in the electronics business, we experienced a significant
decrease in capacitor sales. Prices of tantalum ore, powder and wire and of palladium also experienced significant
declines. As a result of these declines in prices, we recorded in costs of products sold write-downs of tantalum
inventories to then-current market value of $5.4 million and $25.7 million during the years ended December 31,
2003 and 2002, respectively. Also as a result of this decline in prices, we recorded losses on purchase commitments
for tantalum of $11.4 million and $106.0 million for the years ended December 31, 2003 and 2002, respectively.
We recorded in costs of products sold write-downs of palladium inventories to then-current market value of $0.4
million, $1.6 million and $1.7 million, for the years ended December 31, 2004, 2003, and 2002, respectively, and a
loss on purchase commitments of $0.4 million during the year ended December 31, 2004.
Losses on purchase commitments and the related liability recorded on our consolidated balance sheet is estimated
based on our contractually obligated purchase prices, expected market prices, and the mix of tantalum-grades
expected to be purchased. The mix of tantalum-grades expected to be purchased is within a range specified by the
contracts. The pricing trend for tantalum has been relatively stable since 2003. The mix of our purchases of
tantalum grades during 2004 was significantly different than initially expected, which resulted in losses on purchase
commitments of $16.2 million being recorded in the year ended December 31, 2004. If the downward pricing trend
were to resume, we could again be required to write down the carrying value of our tantalum inventory and record
additional losses on our purchase commitments. Changes in our mix of tantalum-grade purchases could also require
us to record additional losses on our purchase commitments. Furthermore, one of our contracts for tantalum
purchases provides for price reductions in 2006 if certain conditions are met. Our estimates of losses on purchase
commitments are based on the assumption that we will not receive these conditional price reductions in 2006. We
may be required to reverse a portion of these recorded losses if we meet all conditions to receive these price
reductions.
The improvement in market conditions for our capacitor products in 2003 and the first half of 2004 resulted in
increased usage of our tantalum inventories as compared to previous years. However, we still anticipate, based on
current and foreseeable demand for tantalum capacitors, that our minimum purchase commitments under the
contracts with Cabot will exceed our requirements over the terms of the contracts. See “Contractual Commitments”
below. Tantalum powder and wire have an indefinite shelf life; therefore, we believe that we will eventually utilize
all of the material in our inventory or purchased under the contracts. Based on usage currently expected in 2005, our
inventory on hand plus our future purchase commitments represent approximately 3 to 4 years of usage. We have
little visibility of the demand for our tantalum capacitor products beyond twelve months. It is almost certain that our
actual requirements of tantalum will differ from those projected, and likely that the difference will be material.
Write-downs of raw materials inventory and losses on purchase commitments have the effect of improving gross
margins in subsequent periods by reducing cost of products sold as inventory is utilized. This effect cannot be
precisely quantified in any specific reporting period, however, because of the large number of affected products and
the impracticality of tracking raw material inventory usage on a product-by-product basis. Management estimates
that the impact on margins for 2004 was between approximately $6 million to $10 million.
Foreign Currency
In 2004, we realized approximately 74% of our revenues from customers outside the United States. Any third party
sales not using the U.S. dollar as the functional currency must be reported in the local currency and be translated at
the weighted average exchange rate. This translation has an impact on the net sales line of the consolidated
statements of operations and also on the expense lines of the consolidated statements of operations. We generally do
not purchase foreign currency exchange contracts or other derivative instruments to hedge our exposure to foreign
currency fluctuations, although we do maintain cash balances in foreign currencies to act as a natural hedge of
certain net exposures. As of December 31, 2004 and 2003, we had no outstanding foreign currency forward
exchange contracts.
-32-
Critical Accounting Policies and Estimates
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify
here a number of policies that entail significant judgments or estimates.
Revenue Recognition
We recognize revenue on product sales during the period when the sales process is complete. This generally occurs
when products are shipped to the customer in accordance with terms of an agreement of sale, title and risk of loss
have been transferred, collectibility is reasonably assured and pricing is fixed or determinable. For a small
percentage of sales where title and risk of loss passes at point of delivery, we recognize revenue upon delivery to the
customer, assuming all other criteria for revenue recognition are met. We historically have had agreements with
distributors that provided limited rights of product return. Beginning in 2002, we modified these arrangements to
allow distributors a limited credit for unsaleable products, which we term a “scrap allowance.” Consistent with
industry practice, we also have a “stock, ship and debit” program whereby we consider, and grant at our discretion,
requests by distributors for credits on previously purchased products that remain in distributors’ inventory, to enable
the distributors to offer more competitive pricing. In addition, we have contractual arrangements whereby we
provide distributors with protection against price reductions that we initiate after sale of product to the distributor
and prior to resale by the distributor.
We record end of period accruals for each of the programs based upon our estimate of future credits under the
programs that will be attributable to sales recorded through the end of the period. We calculate reductions of
revenue attributable to each of the programs during any period by computing the change in the accruals from the
prior period and adding the credits actually given to distributors during the period under the programs. These
procedures require the exercise of significant judgments, but we believe they enable us to estimate reasonably future
credits under the programs.
Recording and monitoring of these accruals takes place at our subsidiaries and divisions, with input from sales and
marketing personnel and review, assessment and, if necessary, adjustment by corporate management. While our
subsidiaries and divisions utilize different methodologies based on their individual experiences, all of the
methodologies take into account certain elements that management considers relevant, such as sales to distributors
during the relevant period, inventory levels at the distributors, current and projected market trends and conditions,
recent and historical activity under the relevant programs, changes in program policies, and open requests for
credits. In our judgment, the different methodologies provide us with equally reliable estimates upon which to base
our accruals. We do not track the credits that we record against specific products sold from distributor inventories,
so as to directly compare revenue reduction for credits recorded during any period with credits ultimately awarded in
respect of products sold during that period. Nevertheless, we believe that we have an adequate basis to assess the
reasonableness and reliability of our estimates.
Accounts Receivable
Our receivables represent a significant portion of our current assets. We are required to estimate the collectibility of
our receivables and to establish allowances for the amount of receivables that will prove uncollectible. We base
these allowances on our historical collection experience, the length of time our receivables are outstanding, the
financial circumstances of individual customers, and general business and economic conditions.
-33-
Inventories
We value our inventories at the lower of cost or market, with cost determined under the first-in first-out method and
market based upon net realizable value. The valuation of our inventories requires our management to make market
estimates. For instance, in the case of tantalum, we estimate market value by obtaining current quotations from
available sources of supply. For work in process goods, we are required to estimate the cost to completion of the
products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices
at which we believe the inventory can be sold. As noted, we recorded write-downs of our tantalum and palladium
inventories in 2002 and 2003, and write-downs of our palladium inventories in 2004. Inventories are also adjusted
for estimated obsolescence and written down to net realizable value based upon estimates of future demand,
technology developments and market conditions.
Estimates of Restructuring and Severance Costs and Purchase-Related Restructuring Costs
In 2004 and 2003, we recorded restructuring and severance costs of approximately $47.3 million and $28.5 million,
respectively, related to our existing businesses. In 2002, we recorded restructuring costs of approximately $48.0
million related to our acquisitions and $18.6 million related to our existing businesses. Our acquisition-related
restructuring costs included, among other things, costs related to our acquisition of BCcomponents in December
2002. Our restructuring activities related to existing business were designed to reduce both our fixed and variable
costs, particularly in response to the reduced demand for our products occasioned by the electronics industry
downturn. These included the disposition of fixed assets and the termination of employees. Acquisition-related
costs are included in the allocation of the cost of the acquired business and generally add to goodwill. Other
restructuring costs are expensed during the period in which we determine that we will incur those costs, and all of
the requirements for accrual are met.
Because these costs are recorded based upon estimates, our actual expenditures for the restructuring activities may
differ from the initially recorded costs. If this happens, we will have to adjust our estimates in future periods. In the
case of acquisition-related restructuring costs, if our initial estimate is too high, this would generally require a
change in value of the goodwill appearing on our balance sheet, but would not affect our earnings. Assuming our
allocation of purchase price of the respective acquisition is finalized, if our initial estimate of purchase-related
restructuring costs is too low, we would be required to record additional expenses in future periods.
In the case of other restructuring costs, we could be required either to record additional expenses in future periods, if
our initial estimates were too low, or to reverse part of the charges that we recorded initially, if our initial estimates
were too high.
Raw Material Write-Downs
In 2002 and 2003, we took charges against contractual commitments to purchase tantalum powder and wire through
2006 and wrote-down our existing inventory of tantalum ore, powder and wire to then-present market value. We did
this because the current market prices of tantalum are substantially below the prices at which we are committed to
purchase tantalum in the future under long-term contracts and the prices at which we were carrying our tantalum raw
materials inventory. These actions involved significant judgments on our part, including decisions of whether to
take these charges and write-downs, their timing and their amount.
We made the decision to take the charges and write-downs after our management concluded that the substantial fall-
off in the demand for tantalum capacitors was likely to continue for the foreseeable future. Combining this
assessment with the worldwide over-capacity in tantalum production, we could not foresee when tantalum prices
might recover from their currently depressed levels. Although we believe that both the charges and write-downs as
well as their timing were appropriate under the circumstances, our visibility for future demand and pricing is limited
and the judgments made by our management necessarily involved subjective assessments.
-34-
Losses on purchase commitments and the related liability recorded on our consolidated balance sheet is estimated
based on our contractually obligated purchase prices, expected market prices, and the mix of tantalum-grades
expected to be purchased. The mix of tantalum-grades expected to be purchased is within a range specified by the
contracts. There is no established market on which tantalum raw materials are regularly traded and quoted. We
based our determination of current market price on quotations from two suppliers of these materials. We cannot say
that the prices at which we could currently enter into contracts for the purchase of tantalum would be the same as
these quoted prices. Had we made other assumptions on current and future prices for tantalum, the amount of the
inventory write-downs and the losses on our purchase commitments would have been different. The pricing trend
for tantalum has been relatively stable since 2003. The mix of our purchases of tantalum grades during 2004 was
significantly different than initially expected, which resulted in losses on purchase commitments of $16.2 million
being recorded during that year. If the downward pricing trend were to resume, we could again be required to write
down the carrying value of our tantalum inventory and record additional losses on our purchase commitments.
Changes in our mix of tantalum-grade purchases could also require us to record additional losses on our purchase
commitments. Furthermore, one of our contracts for tantalum purchases provides for price reductions in 2006 if
certain conditions are met. Our estimates of losses on purchase commitments are based on the assumption that we
will not receive these conditional price reductions in 2006. We may be required to reverse a portion of these
recorded losses if we meet all conditions to receive these price reductions.
If tantalum prices were to recover in the future, we would not reverse the write-downs that we have taken on our raw
materials inventory, so that our cost of materials will continue to reflect these write-downs regardless of future price
increases in tantalum. This could have the effect of increasing the earnings that we realize in future periods.
Based upon similar considerations, we recorded write-downs of our palladium inventory to market value in 2004,
2003, and 2002. We also recorded a loss on purchase commitments for palladium of $0.4 million in 2004.
Goodwill
Goodwill represents the excess of the cost of businesses acquired over the fair value of the related net assets at the
date of acquisition. Goodwill is tested for impairment at least annually. These tests will be performed more
frequently if there are triggering events. Statement of Financial Accounting Standards (“SFAS”) No. 142 prescribes
a two-step method for determining goodwill impairment. In the first step, we determine the fair value of the
reporting unit using a comparable companies market multiple approach. The comparable companies utilized in our
evaluation are the members of our peer group included in the presentation of our stock performance in our annual
proxy statement. If the net book value of the reporting unit exceeds the fair value, we would then perform the
second step of the impairment test which requires allocation of the reporting unit’s fair value to all of its assets and
liabilities in a manner similar to a purchase price allocation, with any residual fair value being allocated to goodwill.
An impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than
its carrying amount. We noted no impairment in our annual assessment of goodwill during the years ended
December 31, 2004, 2003, or 2002.
Impairment of Long-Lived Assets
We assess the impairment of our long-lived assets, other than goodwill and tradenames, including property and
equipment, and identifiable intangible assets subject to amortization, whenever events or changes in circumstances
indicate the carrying value may not be recoverable. Factors we consider important, which could trigger an
impairment review, include significant changes in the manner of our use of the asset, changes in historical or
projected operating performance and significant negative economic trends.
During the years ended December 31, 2004, 2003 and 2002, we recorded asset write-downs of $27.3 million, $1.0
million, and $12.4 million, respectively. Asset write-downs in 2004 and 2003 included amounts to reduce the
carrying value of certain buildings which had been vacated as part of our restructuring activities, based on expected
future selling prices. Asset write downs in 2004 and 2002 included charges to write down certain equipment to
salvage value after we determined that it would not be used at other Vishay locations subsequent to the completion
of our restructuring plans.
-35-
Income Tax Exposures
Our income tax returns in the United States and several foreign tax jurisdictions are presently under examination by
the U.S. Internal Revenue Service and foreign tax authorities. We believe that any potential tax assessment plus
related interest and penalties, if any, have been sufficiently provided for in the consolidated financial statements.
These provisions are based on management’s best estimate of potential tax exposures. The completion of these
examinations could have a material impact on our results of operations or cash flows during the period in which they
are resolved. However, the resolution of these examinations is not expected to have a material adverse effect on our
financial position or liquidity.
Results of Operations
Statement of operations captions as a percentage of sales and the effective tax rates were as follows:
Costs of products sold
Gross profit*
Selling, general & administrative expenses
Operating income
Earnings before taxes & minority interest
Net earnings
Effective tax rate
2004
Years ended December 31,
2003
2002
76.3%
23.0%
16.0%
3.8%
2.9%
1.9%
19.6%
77.9%
21.6%
17.5%
2.7%
2.1%
1.2%
24.8%
79.8%
14.4%
17.0%
-4.3%
-5.5%
-5.1%
16.9%
* - Reflects losses on purchase commitments of $16.6 million, $11.4 million and $106.0 million during the years
ended December 31, 2004, 2003 and 2002, respectively.
Net Sales
Net sales for the year ended December 31, 2004 increased by $243.0 million or 11% over the prior year. The
increase is attributable to strong volumes and positive foreign currency effects, partially offset by lower pricing.
Despite the weaker market conditions during the second half of 2004 compared to the first half of 2004, virtually all
market segments performed better during 2004 versus 2003. Telecom (networks and mobile phones) was
particularly strong in Asia and Europe during the first half of 2004. Automotive products have been solid,
particularly in Europe. Industrial products were strong throughout all of 2004. In the consumer products segment,
we noted some softening in Asia during the second half of the year, especially compared to the strong conditions
noted during the first half of the year. The European consumer products segment was relatively weak during 2004.
During the second half of 2004, we also noted a slow-down in notebook computers and mobile phones, mainly
impacting sales in Asia. The weakening of the U.S. dollar against foreign currencies for the year ended December
31, 2004 resulted in increases in reported revenues of $81 million as compared to 2003.
Net sales for the year ended December 31, 2003 increased by $347.8 million or 19% over the prior year. The
increase primarily reflects the acquisitions of BCcomponents in December 2002, Celtron Technologies in October
2002, BLH and Nobel in July 2002 and Tedea-Huntleigh BV in September 2002. Net sales of our existing
businesses increased $49.1 million, or 3%. The weakening of the U.S. dollar against foreign currencies for the year
ended December 31, 2003 resulted in increases in reported revenues of $74 million as compared to 2002.
-36-
We deduct, from the sales that we record to distributors, allowances for future credits that we expect to provide for
returns, scrapped product and price adjustments under various programs made available to the distributors. We
make deductions corresponding to particular sales in the period in which the sales are made, although the
corresponding credits may not be issued until future periods. We estimate the deductions based on sales levels to
distributors, inventory levels at the distributors, current and projected market trends and conditions, recent and
historical activity under the relevant programs, changes in program policies and open requests for credits. We
recorded deductions from gross sales under our distributor incentive programs of $51.4 million, $67.2 million, and
$67.4 million for the years ended December 31, 2004, 2003 and 2002, respectively, or, as a percentage of gross sales
2.1%, 3.0%, and 3.6%, respectively. Actual credits issued under the programs for the years ended December 31,
2004, 2003 and 2002 were approximately $55.9 million, $62.4 million, and $63.4 million, respectively. Increases
and decreases in these incentives are largely attributable to the then-current business climate. The decrease in the
incentives since 2002 is indicative of the generally improving business climate affecting our distributors and the
electronic component industry. The decrease in 2004 is also attributable to changes in our pricing structure to more
closely match the distributors’ pricing structure to their end-use customers. The decline in distributor orders noted
in the second half of 2004 has not had a material impact on our distributor incentive programs. We continue to
monitor the factors described above in light of current market conditions.
Gross Profit and Margins
Costs of products sold as a percentage of net sales for the year ended December 31, 2004 was 76.3%, as compared
to 77.9% for the prior year. Gross profit as a percentage of net sales for the year ended December 31, 2004 was
23.0% as compared to 21.6% for the prior year. Gross profit margins for 2004 were favorably impacted by volume
increases and our cost reduction programs, partially offset by lower pricing. Gross profit for 2004 reflects a write-
down of palladium inventories to current market value of $0.4 million, included in cost of goods sold, and losses on
tantalum purchase commitments of $16.2 million and losses on palladium purchase commitments of $0.4 million.
Gross profit for 2003 reflects a write-down of tantalum and palladium inventories to then-current market value of
$7.0 million, which is included in cost of goods sold, and losses on tantalum purchase commitments of $11.4
million.
Costs of products sold as a percentage of net sales for the year ended December 31, 2003 was 77.9% as compared to
79.8% for the prior year. Gross profit as a percentage of net sales for year ended December 31, 2003 was 21.6% as
compared to 14.4% for the prior year. Price declines were offset in substantial part by volume increases and cost
savings programs. As described above, gross profit for 2003 reflects inventory-related charges totaling $18.4
million. Gross profit for 2002 reflects inventory-related charges totaling $133.4 million, reflecting a write-down of
raw material inventory to then-current market value of $27.4 million, which is included in cost of products sold, and
an accrual for losses on purchase commitments of $106.0 million.
See “Israeli Government Incentives” regarding Israeli government grants, which are recorded as a reduction in costs
of products sold.
Segments
Discussion and analysis of sales and gross profit margins for our passive and active segments are provided below.
Passive Components
(In thousands)
2004
Years ended December 31,
2003
2002
Net sales
Gross margin percentage
$
1,209,962
19.2%
$
1,104,856
17.3%
$
767,246
-4.9%
-37-
Net sales of passive components for the year ended December 31, 2004 increased $105.1 million or 10% as
compared to the prior year. The increase in net sales is attributable to volume increases in all passive component
product lines and the positive impact of foreign currency exchange rates, partially offset by price declines.
Volumes increased approximately 11% in 2004, which was offset by a 5% decline in average selling prices versus
the prior year. The weakening of the U.S. dollar against foreign currencies for the year ended December 31, 2004
resulted in increases in reported revenues of $47 million as compared to 2003.
Net sales of passive components for the year ended December 31, 2003 increased $337.6 million or 44% as
compared to the prior year. Without the acquisitions of BCcomponents, Celtron Technologies, BLH and Nobel,
and Tedea-Huntleigh, the passive components business sales would have increased by $38.9 million or 5% as
compared to the prior year. The organic increase in net sales was attributable to the volume increases in the resistor
and inductor product lines and the positive impact of foreign currency exchange rates, partially offset by price
declines.
Several significant cost reduction programs have been initiated in all of the products lines, including facility
combinations and shifting production to lower cost regions. The impact of these cost savings plans has been
partially offset by the underutilization of capacity in commodity products.
Gross margins were 19.2% for the year ended December 31, 2004 as compared to 17.3% for the prior year. Margins
were affected negatively by raw material related write-downs in both 2004 and 2003. During 2004, we recorded
write-downs of $0.4 million to reduce palladium inventories to market value. We also recorded losses on tantalum
purchase commitments of $16.2 million and on palladium purchase commitments of $0.4 million during 2004.
During 2003, we recorded write-downs of $7.0 million to reduce tantalum and palladium inventories to then-current
market value, and losses on purchase commitments for future delivery of tantalum of $11.4 million. The
improvement in gross margins in 2004 is primarily due to lower inventory-related charges in 2004, higher volume,
lower obsolescence costs, and our cost reduction programs, partially offset by lower prices.
Gross margins were 17.3% for the year ended December 31, 2003, as compared to negative 4.9% for the prior year.
Results for 2003 reflected average margins of 29% for our resistor and inductor lines and 5% for our capacitor lines.
Margins were affected negatively by raw material related write-downs in 2003 and 2002, as market prices for these
materials continued to decline. As described above, during 2003, we recorded inventory-related charges of $18.4
million. In 2002, we recorded losses on purchase commitments of tantalum of $106.0 million and write-downs of
$27.4 million on tantalum and palladium inventories.
-38-
Active Components
(In thousands)
2004
Years ended December 31,
2003
2002
Net sales
Gross margin percentage
$
1,203,614
26.8%
$
1,065,741
26.1%
$
1,055,567
28.4%
Net sales of the active components business for the year ended December 31, 2004 increased $137.9 million, or 13%
as compared to the prior year. The increase in sales was primarily attributable to increased volumes and the
positive impact of foreign currency exchange rates, partially offset by lower prices versus the prior year. The
weakening of the U.S. dollar against foreign currencies for the year ended December 31, 2004 resulted in increases
in reported revenues of $34 million as compared to 2003. Our active components business was particularly
impacted by the decline in distributor orders noted in the second half of 2004. Despite these sequential declines in
sales as compared to the first half of 2004, demand was stronger across all product lines and virtually all market
segments versus 2003. In particular, sales volume of products for end-uses in mobile phones and networks,
industrial products, and consumer products (digital cameras and DVDs) was strong compared to the prior year.
Volumes increased approximately 15% in 2004, which was offset by a 4% decline in average selling prices versus
the prior year. The volume increase was due to improved market conditions, and also due to the absence of the
2003 SARS-related sales declines in Asia, particularly at our Siliconix subsidiary, which sells approximately 70% of
its products to customers in Asia. Gross margins were 26.8%, as compared to 26.1% for the prior year. The
improvement in margins is attributable to higher volumes and lower costs.
Net sales of the active components business for year ended December 31, 2003 increased by $10.2 million, or 1%,
as compared to the prior year. The active segment continued to experience pricing pressure in 2003, especially
during the first half of the year. Sales for the first half of 2003 actually decreased from the comparable 2002 period,
primarily as a result of the SARS outbreak in Asia where Siliconix sells approximately 70% of its total sales. The
modest revenue growth for the year was fueled by a significant rebound in Asian business during the second half of
2003, driven by demand for computer components and by distributors restocking inventories. Gross margins were
26.1% for the year ended December 31, 2003 as compared to 28.4% for the prior year. Margins were negatively
impacted by product mix changes at Siliconix, where there was a higher share of commodity products as compared
to the comparable prior year periods. Also, because of capacity constraints that it had begun to experience, Siliconix
made greater use of subcontractors during 2003, which had the effect of driving down margins. Siliconix’s net sales
for 2003 were $392.1 million, compared to $372.9 million in 2002, a 5% increase, and its gross profit margins
declined from 31% for 2002 to 29% for 2003.
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses were 16.0% of net sales for 2004 as compared to 17.5% of
net sales for the prior year. The prior year included expenses due to the acquisition of BCcomponents. The
reduction in this percentage is largely due to increased sales, but also reflects progress in our cost reduction
initiatives. These improvements, as a percentage of sales, were achieved despite increased costs associated with
Sarbanes-Oxley compliance requirements.
SG&A expenses for the year ended December 31, 2003 were 17.5% of net sales as compared to 17.0% of net sales
for the prior year. This increase was mainly due to the costs associated with the acquisition and integration of
BCcomponents.
-39-
Restructuring and Severance Costs and Related Asset Write-Downs
Our restructuring activities have been designed to cut both fixed and variable costs, particularly in response to the
reduced demand for products occasioned by the electronics industry downturn experienced from 2001 to 2003.
These activities include the closing of facilities and the termination of employees. Because costs are recorded based
upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the
initial estimates are too low or too high, we could be required either to record additional expenses in future periods
or to reverse previously recorded expenses. We anticipate that we will realize the benefits of our restructuring
through lower labor costs and other operating expenses in future periods. We expect to continue to restructure our
operations and incur restructuring and severance costs as explained in “Cost Management” above, and in Note 4 to
our consolidated financial statements.
We continued our restructuring activities during the year ended December 31, 2004, recording restructuring and
severance costs of $47.3 million and asset write-downs of $27.3 million. The largest component of our 2004
restructuring costs relate to our decision to close our Colmar, France small-signal diode assembly facility and
transfer production to other Vishay facilities. During the fourth quarter, we recorded restructuring and severance
costs of $26.2 million related to this closure. Of the $47.3 million restructuring and severance costs recorded in
2004, approximately $43.1 million relates to workforce reduction expenses, and approximately $4.2 million relates
to other exit costs. The asset write-downs are related to plant closures and decisions not to utilize certain equipment
in other locations. As a result of restructuring activities initiated in 2004, we expect an annual increase in gross
profit of approximately $23 million.
We recorded restructuring and severance costs for the years ended December 31, 2003, 2002 and 2001 of $28.5
million, $18.6 million, and $40.9 million, respectively. We also recorded asset write-downs of $1.0 million, $12.4
million, and $21.0 million during the years ended December 31, 2003, 2002, and 2001, respectively. We continued
to realize the expected savings in 2004 related to these restructuring charges, and we expect to continue to realize
annual cost savings associated with the restructuring activities initiated in 2001, 2002, and 2003.
Restructuring and severance costs are separate from plant closure, employee termination and similar integration
costs we incur in connection with our acquisition activities. These amounts are included in the costs of our
acquisitions and do not affect earnings or losses on our statement of operations. For a discussion of these costs, see
Note 2 to our consolidated financial statements.
Other Income (Expense)
2004 Compared to 2003
Interest expense for the year ended December 31, 2004 decreased by $5.0 million, as compared to the prior year.
This decrease is primarily attributable to repayment of debt with the proceeds of lower interest rate debt issued in the
third quarter of 2003. These proceeds, from our issuance of our 3-5/8% convertible subordinated notes, were used
to repay approximately $171 million principal amount of General Semiconductor’s 5.75% convertible notes,
approximately $97 million accreted principal amount of our Liquid Yield Option™ Notes (“LYONs”) and $130
million in borrowings under our revolving credit facility in the third quarter of 2003. Additionally, on June 4, 2004,
we repurchased $102.1 million accreted principal amount of our LYONs through the issuance of 5,534,905 shares of
common stock. The repurchase of the LYONs is expected to reduce future interest expense by approximately $3
million per year.
We recorded a loss of $9.9 million for extinguishment of debt during the year ended December 31, 2003 on the
redemption of $171 million principal amount of the General Semiconductor notes and the repurchase of $97 million
in accreted principal amount of our LYONs. Also during 2003, we recorded a gain of $33.9 million on the receipt
of insurance proceeds in excess of book value subsequent to the destruction of the thin film resistor facility of our
Electro-Films, Inc. subsidiary in Warwick, Rhode Island. That facility has now been completely rebuilt into a state-
of-the-art production center. No comparable losses or gains were recorded in 2004. These items are reported on
separate lines in the consolidated statement of operations.
-40-
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in
thousands):
Foreign exchange losses
Interest income
Dividend income
Losses on disposal of property
and equipment
Other
Royalty income
Gain on interest rate swap
Incentive from Chinese government
Favorable settlement of note receivable
Years ended December 31,
2004
2003
Change
$ (2,310)
8,702
490
$ (5,235)
7,228
96
$
2,925
1,474
394
(1,697)
38
1,078
-
2,377
3,100
$
11,778
(2,521)
(1,062)
-
3,783
-
-
$
2,289
824
1,100
1,078
(3,783)
2,377
3,100
9,489
$
The year ended December 31, 2004 includes a one-time gain of $3.1 million due to the favorable settlement of an
outstanding note receivable, and includes $2.4 million received from the Chinese government as an incentive for
being a foreign investment partner in China. There were no comparable items in 2003. The year ended December
31, 2003 included a gain on expiration of an interest rate swap of $3.8 million, and there was no comparable item in
2004.
Foreign exchange losses were incurred in both years due to the weakening of the U.S. dollar. The amount of the
exchange loss is driven by the extent of currency fluctuation and by the timing of receipts and payments. We do not
use any derivative financial instruments to hedge foreign currency exposures, although we do maintain cash
balances in foreign currencies to act as a natural hedge of certain net exposures.
Interest income for 2004 increased as compared to 2003, primarily attributable to an increase in invested cash and
higher average interest rates.
Royalty income was approximately $1.1 million in 2004 and is expected to be higher in future periods due to the
settlement of two patent infringement cases which we had initiated.
2003 Compared to 2002
Interest expense for the year ended December 31, 2003 increased by $9.7 million, as compared to the prior year.
This increase was primarily a result of debt issued or assumed in the various acquisitions made in 2002 and the
issuance in August 2003 of our $500 million principal amount 3-5/8% convertible subordinated notes due 2023, net
of debt repaid with the proceeds of these notes of $398 million. Acquisition-related debt included borrowings of
$116 million under our revolving credit facility and the issuance of $105 million principal amount of unsecured loan
notes, currently bearing interest at LIBOR plus 1.5%, in connection with the BCcomponents acquisition in
December 2002.
As described above, we recorded a loss of $9.9 million for extinguishment of debt during the year ended December
31, 2003. Also during 2003, we recorded a gain of $33.9 million on the receipt of insurance proceeds in excess of
book value. No comparable losses or gains were recorded in 2002. These items are reported on separate lines in the
consolidated statement of operations.
-41-
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in
thousands):
Foreign exchange losses
Gain (loss) on interest rate swap
Interest income
Dividend income
Losses on disposal of property
and equipment
Other
Incentive from Chinese government
Years ended December 31,
2003
$ (5,235)
3,783
7,228
96
(2,521)
(1,062)
-
$
2,289
2002
$ (777)
(115)
7,952
100
(296)
400
1,400
$
8,664
Change
$
(4,458)
3,898
(724)
(4)
(2,225)
(1,462)
(1,400)
(6,375)
$
The year ended December 31, 2002 includes $1.4 million received from the Chinese government as an incentive for
being a foreign investment partner in China, with no comparable item in 2003.
The year ended December 31, 2003 included a gain on expiration of an interest rate swap of $3.8 million, compared
to a loss on ineffective interest rate swaps of $0.1 million in 2002.
Foreign exchange losses were incurred in both years due to the weakening of the U.S. dollar. The amount of the
exchange loss is driven by the extent of currency fluctuation and by the timing of receipts and payments. We do not
use any derivative financial instruments to hedge foreign currency exposures, although we do maintain cash
balances in foreign currencies to act as a natural hedge of certain net exposures.
Interest income for 2003 decreased as compared to 2002, primarily attributable to lower average interest rates.
Minority Interest
Minority interest in earnings increased by $3.5 million for the year ended December 31, 2004 as compared to the
prior year, primarily due to an increase in net earnings of Siliconix, of which we own 80.4% of the outstanding
shares. Minority interest in earnings decreased by $1.4 million for the year ended December 31, 2003 as compared
to the prior year, primarily due to a decrease in net earnings of Siliconix.
Income Taxes
The effective tax rate, based on earnings before income taxes and minority interest, for the year ended December 31,
2004 was 19.6% as compared to 24.8% for the comparable prior year period. The effective tax rate for 2004 reflects
the favorable settlement of a tax audit in Germany, which resulted in a decrease in tax expense of $10.6 million.
The effective tax rates reflect the fact that we could not recognize for accounting purposes the tax benefit of losses
incurred in certain jurisdictions, although these losses are available to offset future taxable income. Under
applicable accounting principles, we may not recognize deferred tax assets for loss carryforwards in jurisdictions
where there is a recent history of cumulative losses, where there is no taxable income in the carryback period, where
there is insufficient evidence of future earnings to overcome the loss history and where there is no other positive
evidence, such as the likely reversal of temporary timing differences, that would result in the utilization of loss
carryforwards for tax purposes.
The effective tax rate for the year ended December 31, 2003 was 24.8%, reflecting tax expense, as compared to
16.9% for the prior year, reflecting a tax benefit. The effective tax rate in 2003 reflects the fact that we could not
recognize for accounting purposes the tax benefit of losses incurred in certain jurisdictions, although these losses are
available to offset future taxable income.
-42-
Financial Condition, Liquidity, and Capital Resources
Cash and cash equivalents were $633 million as of December 31, 2004, of which $306 million belonged to
Siliconix. Siliconix has its own Board of Directors which must approve transactions with Vishay. Excluding cash
held by Siliconix, the remaining amount of $327 million includes approximately $292 million held by our non-U.S.
subsidiaries. Under U.S. tax law, any repatriation of earnings and cash back to the United States would be deemed
to be a dividend and would be subject to U.S. income taxes, state income taxes, and foreign withholding taxes. We
continue to evaluate the impact of repatriation of earnings and cash pursuant to the American Jobs Creation Act of
2004, which was signed into law in October 2004. At the present time, we expect our cash and profits generated by
foreign subsidiaries, including foreign subsidiaries of Siliconix, to continue to be reinvested indefinitely.
Cash flows from operations were $233.1 million for the year ended December 31, 2004 as compared to $255.8
million for the year ended December 31, 2003, despite increased earnings. The decrease in cash flows from
operations was primarily due to changes in working capital and the prepayment of $20 million to Tower
Semiconductor related to the semiconductor manufacturing agreement entered into by Siliconix.
Our financial condition at December 31, 2004 continued to be strong, with a current ratio (current assets to current
liabilities) of 3.2 to 1, compared with a ratio of 2.8 to 1 at December 31, 2003. The increase in this ratio in 2004 is
primarily due to cash generated by operations. Our ratio of long-term debt, less current portion, to stockholders’
equity was 0.27 to 1 at December 31, 2004. This ratio was 0.33 to 1 at December 31, 2003. The improvement in
this ratio in 2004 is due to the reduction of debt subsequent to the issuance of shares of common stock to holders of
our LYONs who elected to exercise their option to require us to repurchase their LYONs on June 4, 2004.
Holders of our LYONs had the option to require us to purchase all or a portion of their LYONs on June 4, 2004 at
their accreted value of $602.77 per $1,000 principal amount at maturity. Pursuant to the terms of the notes, we
elected to pay the purchase price in Vishay common stock. Holders representing approximately 44% of outstanding
LYONs exercised their option. We issued 5,534,905 shares of common stock as consideration in the purchase of
approximately $102.1 million accreted principal amount of the LYONs. The remaining LYONs holders also have
the right to require us to repurchase their notes on June 4, 2006, June 4, 2011, and June 4, 2016 at their accreted
value on those dates, as set forth in the notes. See also “Contractual Commitments” below.
Even with the reduction of debt by $102.1 million subsequent to our repurchase of the LYONs, our debt levels have
increased significantly since 2000. This is primarily attributable to acquisition activity. Additionally, in 2003, we
issued $500 million of convertible subordinated notes, using a majority of the proceeds to repay other higher interest
rate debt.
We maintain a secured revolving credit facility of $400 million, which was extended in 2003 until May 2007. At
December 31, 2004, an Asian subsidiary had $11 million outstanding under the revolving credit facility. There were
no borrowings outstanding under this credit facility at December 31, 2003. Letters of credit totaling $7.3 million
were issued under the revolving credit facility at December 31, 2004. Accordingly, $381.7 million was available
under the revolving credit facility at December 31, 2004.
The revolving credit facility restricts us from paying cash dividends and requires us to comply with other covenants,
including the maintenance of specific financial ratios. Pursuant to the amended and restated credit facility
agreement, we must maintain a tangible net worth of $850 million plus 50% of net income (without offset for losses)
and 75% of net proceeds of equity offerings since July 1, 2003. Our tangible net worth at December 31, 2004, as
calculated pursuant to the terms of the credit facility, was $1,093 million, which is $193 million more than the
minimum required under the related credit facility covenant.
Borrowings under the revolving credit facility are secured by pledges of stock in certain significant subsidiaries and
certain guarantees by significant subsidiaries. The subsidiaries would be required to perform under the guarantees in
the event that Vishay failed to make principal or interest payments under the revolving credit facility. Our Siliconix
subsidiary is not a party to our revolving credit agreement. Certain of Vishay’s subsidiaries, not including Siliconix,
are permitted to borrow under the revolving credit facility. Any borrowings of these subsidiaries under the credit
facility are guaranteed by Vishay, including the borrowing by our Asian subsidiary referred to above.
-43-
On May 24, 2004, we entered into a Consent and First Amendment to our revolving credit facility, effective as of
May 14, 2004. The amendment provides for lender consent to the corporate restructuring of certain subsidiaries of
Vishay, permits subsidiary guarantees of certain equipment leases and revises and clarifies the conditions under
which Vishay and its subsidiaries may extend loans to one another. In addition, in connection with the execution of
the amendment, certain additional Vishay subsidiaries, which have become “significant subsidiaries” as that term is
defined under the credit agreement, have become parties to various security and guaranty documents. Effective
August 6, 2004, we entered into a second amendment, which made certain additional technical changes to the
collateral arrangements under the revolving credit agreement.
At December 31, 2004, we had committed and uncommitted short-term credit lines with various U.S. and foreign
banks aggregating approximately $73.6 million, of which approximately $69.9 million was unused.
Net purchases of property and equipment for the year ended December 31, 2004 were $158.6 million, as compared
to $126.6 million in the prior year. This increase is principally due to our planned expansion of capacity in the
active business. Our capital expenditures are projected to be approximately $135 million in 2005, principally to
expand capacity in the active business. Purchase of businesses, net of cash acquired, of $24.9 million and $41.2
million, for the years ended December 31, 2004 and 2003, respectively, represent cash payments for the acquisition
of the assets of RFWaves and the acquisition of Aeroflex Pearl River, Inc. (renamed Vishay MIC Technology Inc.)
in 2004, and payments made related to liabilities assumed from previous acquisitions in both periods.
For the next twelve months, management expects that cash flows from operations will be sufficient to meet our
normal operating requirements, to meet our obligations under restructuring and acquisition integration programs,
and to fund our research and development and capital expenditure plans. Acquisition activity may require additional
borrowing under our revolving credit facilities or may require us to incur additional debt.
Contractual Commitments
As of December 31, 2004 we had contractual obligations as follows (in thousands):
Payments due by period
Total
Less than
1 year
1-3
years
4-5
years
After 5
years
$ 752,196 $ 51 $ 11,272 $ 95 $ 740,778
5,629 2,563
34,068
65,540
23,280
319,170
24,961
53,547
61,715 178,947
11,600
183,600
200,000
137,000
$ 1,669,106 $ 234,392 $ 246,987 $ 161,439 $ 1,026,288
11,600
123,500
4,000
47,000
60,100
34,000
54,000
58,000 104,000
36,000
-
-
-
-
-
-
Long-term debt
Operating leases
Expected pension and
postretirement plan funding
Estimated costs to complete
construction in progress
Purchase commitments - tantalum
Purchase commitments - Tower
Purchase commitments - other
Total contractual cash obligations
Pursuant to the terms of the LYONs due 2021, the remaining holders of the LYONs will have the right to “put”
these notes to us on June 4, 2006, June 4, 2011, and June 4, 2016 at their accreted values on those dates, as set forth
in the notes. The aggregate purchase price for the June 2006 put date would be approximately $138 million.
Pursuant to the terms of the convertible subordinated notes due 2023, the holders of these notes will have the right to
“put” these notes to us on August 1, 2008, August 1, 2010, August 1, 2013 and August 1, 2018 at a redemption price
equal to 100% of the principal amount of the notes ($500 million). The commitments set forth in the table are based
on the stated maturity dates and do not assume acceleration of payment pursuant to the respective options of the
holders.
-44-
In 2004, our subsidiary Siliconix signed a long-term manufacturing and supply agreement with Tower
Semiconductor. The technology transfer from Siliconix to Tower has started and is estimated to be completed by
the second quarter of 2005. The commitments reflected above are based on the expected date of completion of the
technology transfer in the second quarter of 2005. An acceleration or delay in the completion of the technology
transfer will accelerate or delay, respectively, the timing of the future purchase commitments.
In 2004, our subsidiary Siliconix entered a five-year foundry agreement for semiconductor manufacturing with a
subcontractor in Japan. This agreement was a continuation and expansion of a previous technology transfer and
business agreement for the manufacture of silicon wafers. The agreement calls for Siliconix to provide a rolling
twelve month forecast of estimated requirements. The first six months of this forecast are fixed as to quantity, and
the subsequent six months are guaranteed not to be less than a quantity stated in the agreement. Thereafter, the
monthly quantity may vary based on market demand. Under the agreement Siliconix must guarantee that its
business with this subcontractor represents a minimum percentage of wafer requirements and is required to make its
best efforts not to reduce the average monthly demand rate below a specified threshold (“best efforts threshold”).
The purchase commitments in the table above represent the minimum commitments for year one (based on the fixed
quantities for months one through six and the minimum average quantities for months seven through twelve), and
the expected minimum commitment based on the best efforts threshold for the remainder of the agreement. Our
actual purchases in future periods are expected to be greater than these minimum commitments.
Generally accepted accounting principles require that management evaluate if purchase commitments are at prices in
excess of current market price. The purchase commitments for silicon wafers entered by Siliconix are for the
manufacture of proprietary products using Siliconix-owned technology licensed to these subcontractors by Siliconix,
and accordingly, management can only estimate the “market price” of the wafers which are the subject of these
commitments. Management believes that these commitments are at prices which are not in excess of estimated
current market prices.
For a further discussion of long-term debt, pensions, operating leases, and purchase commitments, please see Notes
6, 11, 13, and 15 to our consolidated financial statements.
Inflation
Normally, inflation does not have a significant impact on our operations as our products are not generally sold on
long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect
cost increases caused by inflation.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB 51 (“FIN 46”). The primary objectives of this interpretation
are to provide guidance on the identification of entities for which control is achieved through means other than
through voting rights (“variable interest entities”) and how to determine when and which business enterprise (the
“primary beneficiary”) should consolidate the variable interest entity. This new model for consolidation applies to
an entity in which either (i) the equity investors (if any) do not have a controlling financial interest; or (ii) the equity
investment at risk is insufficient to finance that entity’s activities without receiving additional subordinated financial
support from other parties. In addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises
with a significant variable interest in a variable interest entity, make additional disclosures. Certain disclosure
requirements of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46-R”) to address
certain FIN 46 implementation issues. The adoption of FIN 46 and FIN 46-R did not have any effect on our
financial position, results of operations, or liquidity.
-45-
In December 2003, the FASB issued a revision to SFAS No. 132, Employers’ Disclosures about Pensions and Other
Postretirement Benefits (“SFAS No. 132-R”). The revised standard retains the disclosure requirement contained in
the original standard and requires additional disclosures about the assets, obligations, cash flows and net period cost
of defined pension plans and other defined benefit postretirement plans. We adopted the annual disclosure
requirements required by SFAS No. 132-R for our U.S. pension and other postretirement plans in our annual report
on Form 10-K for the year ended December 31, 2003. As permitted by SFAS No. 132-R, certain disclosures
regarding non-U.S. pension plans and estimated future benefit payments for both U.S. and non-U.S. pension and
other postretirement benefit plans were delayed until this annual report on Form 10-K for the year ending December
31, 2004.
On December 8, 2003, the President of the United States signed the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the “Act”). On May 19, 2004, the FASB issued Staff Position (“FSP”) No. 106-2,
Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and
Modernization Act of 2003. The Act introduces a prescription drug benefit under Medicare as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to
Medicare Part D. FSP No. 106-2 is effective for the first interim period beginning after June 15, 2004 and provides
that an employer shall measure the accumulated plan benefit obligation (“APBO”) and net periodic postretirement
benefit cost taking into account any subsidy received under the Act. Management does not believe that the
prescription drug benefits available under our retiree health care benefit plans would be considered actuarially
equivalent to Medicare Part D. Accordingly, our measures of APBO and net periodic postretirement benefit cost as
of and for the year ended December 31, 2004 do not include any subsidies which might be received under the Act.
In September 2004, the Emerging Issues Task Force reached a consensus on Issue No. 04-8, The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share (“EITF 04-8”). The Task Force concluded that
contingently convertible instruments in which conversion into common stock is based on meeting a market price
contingency should be included in the computation of diluted earnings per share at issuance, rather than waiting
until the specified share price is met. EITF 04-8 is effective for reporting periods ending after December 15, 2004
and is applied retroactively. While we have contingently convertible debt, EITF 04-8 has no impact on our
computation of diluted earnings per share, because our contingently convertible debt has a conversion trigger which
has been deemed to be non-substantive and thus these convertible notes have always been considered in our
computation of diluted earnings per share.
In November 2004, the FASB issued Statement No. 151, Inventory Costs—an amendment of ARB No. 43, Chapter
4, which amends and clarifies existing accounting literature regarding abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage). This statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005, with earlier application permitted. The provisions of this
statement are to be applied prospectively. We are presently evaluating the impact of this new standard.
In December 2004, the FASB issued Statement No. 123-R (“SFAS No. 123-R”), Share-Based Payment. This
statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, which we presently apply. SFAS No. 123-R will require compensation
costs related to share-based payment transactions to be recognized in the consolidated financial statements (with
limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. Compensation cost will be recognized over the period that an employee
provides service in exchange for the award. This statement is effective as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005, with earlier adoption permitted. The adoption of this
standard is not expected to have a material effect on our financial position, or liquidity.
In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets—an amendment of APB
Opinion No. 29. This statement amends APB No. 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The provisions of this statement are effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005, with earlier application
permitted. The provisions of this statement are to be applied prospectively. The adoption of this standard is not
expected to have a material effect on our financial position, results of operations, or liquidity.
-46-
In December 2004, the FASB issued two FSP’s that provide accounting guidance on how companies should account
for the effect of the American Jobs Creation Act of 2004 (the “Jobs Act”), which was signed into law in October
2004. The Jobs Act could affect how companies report their deferred income tax balances. In FSP No. 109-1, the
FASB concluded that the tax relief (special tax deduction for domestic manufacturing) from the Jobs Act should be
accounted for as a “special deduction” instead of a tax rate reduction. FSP No. 109-2 allows a company additional
time to evaluate the effects of the Jobs Act on any plan for reinvestment or repatriation of foreign earnings, provided
that appropriate disclosures are made. These disclosures required by FSP No. 109-2 are included in Note 5 to our
consolidated financial statements.
Safe Harbor Statement
From time to time, information provided by us, including but not limited to statements in this report, or other
statements made by or on our behalf, may contain “forward-looking” information within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties and
contingencies, many of which are beyond our control, which may cause actual results, performance or achievements
to differ materially from those anticipated. Set forth below are important factors that could cause our results,
performance or achievements to differ materially from those in any forward-looking statements made by us or on
our behalf:
Factors relating to our business generally
Our business is cyclical and the recent decline in demand in the electronic component industry may resume and may
become more pronounced.
From 2001 to 2003, we and others in the electronic and semiconductor component industry experienced a decline in
product demand on a global basis, resulting in order cancellations and deferrals, lower average selling prices, and a
material and adverse impact on our results of operations. This decline was primarily attributable to a slowing of
growth in the personal computer and cellular telephone product markets. We and others in the industry saw
indications of improvements in the economy and the electronic and semiconductor component industry in the first
half of 2004, followed by a downtrend in the second half of the year. While we are anticipating that there will be an
improved business climate in 2005, improvements in the economy and the electronic and semiconductor component
industry may not materialize. The slowdown may resume and may become more pronounced. A slowdown in
demand, as well as recessionary trends in the global economy, make it more difficult for us to predict our future
sales and manage our operations, and could adversely impact our results of operations.
We have incurred and may continue to incur restructuring costs and associated asset write-downs.
To remain competitive, particularly when business conditions are difficult, we attempt to reduce our cost structure
through restructuring activities. This includes acquisition-related restructuring, where we attempt to streamline the
operations of companies we acquire and achieve synergies between our acquisitions and our existing businesses. It
also includes restructuring our existing businesses, where we seek to eliminate redundant facilities and staff
positions and move operations, where possible, to jurisdictions with lower labor costs. We recorded restructuring
and severance costs, plus related asset write-downs, in each of 2001, 2002, 2003, and 2004 and expect to incur such
expenses during 2005.
In the past we have grown through acquisitions but this may not continue.
Our long-term historical growth in revenues and net earnings has resulted in large part from our strategy of
expansion through acquisitions. We cannot assure you, however, that we will identify or successfully complete
transactions with suitable acquisition candidates in the future. We also cannot assure you that acquisitions that we
complete in the future will be successful. If an acquired business fails to operate as anticipated or cannot be
successfully integrated with our other businesses, our results of operations, enterprise value, market value and
prospects could all be materially and adversely affected.
-47-
Our debt levels have increased, which could adversely affect the perception in the financial markets of our financial
condition.
Our outstanding debt increased from approximately $141 million at the end of 2000 to approximately $752 million
at the end of 2004. While our debt levels decreased in 2004, the marketplace could react negatively to our current
debt levels which in turn could affect our share price and also make it more difficult for us to obtain financing in the
future.
To remain successful, we must continue to innovate.
Our future operating results are dependent on our ability to continually develop, introduce and market new and
innovative products, to modify existing products, to respond to technological change and to customize certain
products to meet customer requirements. There are numerous risks inherent in this process, including the risks that
we will be unable to anticipate the direction of technological change or that we will be unable to develop and market
new products and applications in a timely fashion to satisfy customer demands. If this occurs, we could lose
customers and experience adverse effects on our financial condition and results of operations.
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary
nature of our technology.
Protection of intellectual property often involves complex legal and factual issues. We will be able to protect our
proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are
covered by valid and enforceable patents or are effectively maintained as trade secrets. We have applied, and will
continue to apply, for patents covering our technologies and products, as we deem appropriate. However, our
applications may not result in issued patents. Also, our existing patents and any future patents may not be
sufficiently broad to prevent others from practicing our technologies or from developing competing products.
Others may independently develop similar or alternative technologies, design around our patented technologies or
may challenge or seek to invalidate our patents.
The electronic components industry, particularly the discrete semiconductor sector, is characterized by litigation
regarding patent and other intellectual property rights. We have on occasion been notified that we may be infringing
patent and other intellectual property rights of others. In addition, customers purchasing components from us have
rights to indemnification under certain circumstances if such components violate the intellectual property rights of
others. Further, we have observed that in the current electronic components industry business environment,
companies have become more aggressive in asserting and defending patent claims against competitors. We will
continue to vigorously defend our intellectual property rights, and may become party to disputes regarding patent
licensing and cross patent licensing. Although licenses are generally offered in such situations and we have
successfully resolved these situations in the past, there can be no assurance that we will not be subject to future
litigation alleging intellectual property rights infringement, or that we will be able to obtain licenses on acceptable
terms. An unfavorable outcome regarding one of these matters could have a material adverse effect on our business
and operating results.
We have begun to invest in start-ups but our investments may not prove successful.
We believe that investment in new technologies that are related to our core businesses is important to position us for
the future. Accordingly, we have begun a program of investing in technology start-up enterprises, in which we may
acquire a controlling or non-controlling interest but whose technology would be available to be commercialized by
us. An example is our recent acquisition of all of the assets of RFWaves, Ltd. There are numerous risks in
investments of this nature including the limited operating history of such start-up entities, their need for capital and
their limited or absence of production experience, as well as the risk that their technologies may prove ineffective or
fail to gain acceptance in the market place. Their can be no assurance, therefore, that our investments in start-up
enterprises will prove successful.
-48-
Future acquisitions could require us to issue additional indebtedness or equity.
If we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part
through bank borrowings or the issuance of public or private debt. This acquisition financing would likely decrease
our ratio of earnings to fixed charges and adversely affect other leverage criteria. Under our existing credit facility,
we are required to obtain the lenders’ consent for certain additional debt financing and to comply with other
covenants including the application of specific financial ratios. We are also restricted from paying cash dividends on
our capital stock. We cannot assure you that the necessary acquisition financing would be available to us on
acceptable terms when required. If we were to undertake an acquisition for equity, the acquisition may have a
dilutive effect on the interests of the holders of our common stock.
Our results are sensitive to raw material availability, quality and cost.
Many of our products require the use of raw materials that are produced in only a limited number of regions around
the world or are available from only a limited number of suppliers. Our results of operations may be materially and
adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials
deteriorates or there are significant price increases for these raw materials. For example, the prices for tantalum and
palladium, two raw materials that we use in our capacitors, are subject to fluctuation. For periods in which the prices
of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would
result in decreased margins for the products in which they are used. For periods in which the prices are declining, we
may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at
the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost,
this write-down could have a material adverse effect on our net earnings. We recorded substantial write-downs of
tantalum and palladium in the economic downturn from 2001 to 2003, and recorded more modest write-downs in
2004.
From time to time there have been short-term market shortages of raw materials. While these shortages have not
historically adversely affected our ability to increase production of products containing tantalum and palladium, they
have historically resulted in higher raw material costs for us. We cannot assure you that any of these market
shortages in the future would not adversely affect our ability to increase production, particularly during periods of
growing demand for our products.
Our backlog is subject to customer cancellation.
As of December 31, 2004, our backlog was $439.9 million. Many of the orders that comprise our backlog may be
canceled by our customers without penalty. Our customers may on occasion double and triple order components
from multiple sources to ensure timely delivery when backlog is particularly long. They often cancel orders when
business is weak and inventories are excessive, a situation that we have experienced during periods of economic
slowdown. Therefore, we cannot be certain that the amount of our backlog does not exceed the level of orders that
will ultimately be delivered. Our results of operations could be adversely impacted if customers cancel a material
portion of orders in our backlog.
We face intense competition in our business, and we market our products to an increasingly concentrated group of
customers.
Our business is highly competitive worldwide, with low transportation costs and few import barriers. We compete
principally on the basis of product quality and reliability, availability, customer service, technological innovation,
timely delivery and price. The electronics components industry has become increasingly concentrated and
globalized in recent years and our major competitors, some of which are larger than us, have significant financial
resources and technological capabilities.
Our customers have become increasingly concentrated in recent years, and as a result, their buying power has
increased and they have had greater ability to negotiate favorable pricing. This trend has adversely affected our
average selling prices, particularly for commodity components.
-49-
We may not have adequate facilities to satisfy future increases in demand for our products.
Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products.
During such periods, we may have difficulty expanding our manufacturing to satisfy demand. Factors which could
limit such expansion include delays in procurement of manufacturing equipment, shortages of skilled personnel and
capacity constraints at our facilities. If we are unable to meet our customers’ requirements and our competitors
sufficiently expand production, we could lose customers and/or market share. This loss could have an adverse effect
on our financial condition and results of operations.
Future changes in our environmental liability and compliance obligations may harm our ability to operate or
increase costs.
Our manufacturing operations, products and/or product packaging are subject to environmental laws and regulations
governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances,
wastes and certain chemicals used or generated in our manufacturing processes, employee health and safety labeling
or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions
on the use of certain materials in or on design aspects of our products or product packaging and responsibility for
disposal of products or product packaging. We establish reserves for specifically identified potential environmental
liabilities which we believe are adequate. Nevertheless, we often unavoidably inherit certain pre-existing
environmental liabilities, generally based on successor liability doctrines. Although we have never been involved in
any environmental matter that has had a material adverse impact on our overall operations, there can be no assurance
that in connection with any past or future acquisition we will not be obligated to address environmental matters that
could have a material adverse impact on our operations. In addition, more stringent environmental regulations may
be enacted in the future, and we cannot presently determine the modifications, if any, in our operations that any such
future regulations might require, or the cost of compliance with these regulations. In order to resolve liabilities at
various sites, we have entered into various administrative orders and consent decrees, some of which may be, under
certain conditions, reopened or subject to renegotiations.
Our products may experience a reduction in product classification levels under various military specifications.
We have qualified certain of our products under various military specifications, approved and monitored by the
United States Defense Electronic Supply Center, and under certain European military specifications. These products
are assigned certain classification levels. In order to maintain the classification level of a product, we must
continuously perform tests on the product and the results of these tests must be reported to governmental agencies. If
any of our products fails to meet the requirements of the applicable classification level, that product’s classification
may be reduced to a lower level. A decrease in the classification level for any of our products with a military
application could have an adverse impact on the net sales and earnings attributable to that product.
Our future success is substantially dependent on our ability to attract and retain highly qualified technical,
managerial, marketing, finance and administrative personnel.
Rapid changes in technologies, frequent new product introductions, and declining average selling prices over
product life cycles require us to attract and retain highly qualified personnel to develop technological innovations
and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly
qualified administrative personnel in functions such as legal, tax, accounting, financial reporting, auditing, and
treasury. The market for personnel with such qualifications is highly competitive. While we have employment
agreements with six of our executives, we have not entered into employment agreements with all of our key
personnel.
Management’s assessment of our internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, identified a material weakness regarding the adequacy of our finance organization.
The loss of the services of or the failure to effectively recruit qualified personnel could have a material adverse
effect on our business.
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Factors relating to Vishay’s operations outside the United States
We obtain substantial benefits by operating in Israel, but these benefits may not continue.
We have increased our operations in Israel over the past several years. The low tax rates in Israel applicable to
earnings of our operations in that country, compared to the rates in the United States, have had the general effect of
increasing our net earnings, although this was not the case during 2002, 2003, and 2004 due to losses on purchase
commitments. Also, we have benefited from employment incentive grants made by the Israeli government. In 2002,
the Israeli government suspended payment on one of these grants after we were forced to lay off a significant
number of employees as a result of the recent economic downturn. Although we reached agreement with the Israeli
government to resume payment on this grant, there can be no assurance that we will maintain our eligibility for this
or other existing project grants. There can also be no assurance in the future the Israeli government will continue to
offer new grant and tax incentive programs applicable to us or that, if it does, such programs will provide the same
level of benefits we have historically received or that we will continue to be eligible to take advantage of them. Any
significant increase in the Israeli tax rates or reduction or elimination of the Israeli grant programs that have
benefited us could have an adverse impact on our results of operations.
We attempt to improve profitability by operating in countries in which labor costs are low, but the shift of
operations to these regions may entail considerable expense.
Our strategy is aimed at achieving significant production cost savings through the transfer and expansion of
manufacturing operations to and in countries with lower production costs, such as the Czech Republic, Hungary,
India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines. In this process, we may
experience under-utilization of certain plants and factories in high-labor-cost regions and capacity constraints in
plants and factories located in low-labor-cost regions. This under-utilization may result initially in production
inefficiencies and higher costs. These costs include those associated with compensation in connection with work
force reductions and plant closings in the higher-labor-cost regions, and start-up expenses, manufacturing and
construction delays, and increased depreciation costs in connection with the initiation or expansion of production in
lower-labor-cost regions. In addition, as we implement transfers of certain of our operations we may experience
strikes or other types of labor unrest as a result of lay-offs or termination of our employees in high-labor-cost
countries.
We are subject to the risks of political, economic and military instability in countries outside the United States in
which we operate.
We have operations outside the United States, and approximately 74% of our revenues during 2004 were derived
from sales to customers outside the United States. Some of the countries in which we operate have in the past
experienced and may continue to experience political, economic and military instability or unrest. These conditions
could have an adverse impact on our ability to operate in these regions and, depending on the extent and severity of
these conditions, could materially and adversely affect our overall financial condition and operating results. We
have never experienced any material interruption in our Israeli operations in our 34 years of operations there, in spite
of several Middle East crises, including wars. However, we might be adversely affected if events were to occur in
the Middle East that interfered with our operations in Israel.
Our business was affected by the outbreak of SARS in 2003 and the effects of that outbreak may recur.
The outbreak of severe acute respiratory syndrome, or SARS, that began in the People’s Republic of China
adversely affected our business during the first six months of 2003, particularly in Asia where we derive
approximately 35% to 40% of our revenue. This impact included disruptions in the operations of our customers, a
slowdown in customer orders and reduced sales in certain end markets. If an outbreak of SARS or a like disease
were to recur on a comparable scale in Asia or elsewhere, we could experience similar disruptions to our business.
-51-
General Economic and Business Factors
In addition to the factors relating specifically to our business, a variety of other factors relating to general conditions
could cause actual results, performance, or achievements to differ materially from those expressed in any of our
forward-looking statements. These factors include:
•
•
•
•
•
•
•
overall economic and business conditions;
competitive factors in the industries in which we conduct our business;
changes in governmental regulation;
changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations;
changes in generally accepted accounting principles or interpretations of those principles by governmental
agencies and self-regulatory groups;
interest rate fluctuations, foreign currency rate fluctuations, and other capital market conditions; and
economic and political conditions in international markets, including governmental changes and restrictions
on the ability to transfer capital across borders.
Our common stock, traded on the New York Stock Exchange, has in the past experienced, and may continue to
experience, significant fluctuations in price and volume. We believe that the financial performance and activities of
other publicly traded companies in the electronic component and semiconductor industries could cause the price of
our common stock to fluctuate substantially without regard to our operating performance.
We operate in a continually changing business environment, and new factors emerge from time to time. Other
unknown and unpredictable factors also could have a material adverse effect on our future results, performance, or
achievements.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Disclosure
Our cash flows and earnings are subject to fluctuations resulting from changes in foreign currency exchange rates
and interest rates. We manage our exposure to these market risks through internally established policies and
procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not
allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there
are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any
leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we
can modify or adapt our hedging strategies as needed.
We are exposed to changes in U.S. dollar LIBOR interest rates on our floating rate revolving credit facility. At
December 31, 2004, there was $11 million outstanding under this facility. On a selective basis, we from time to
time enter into interest rate swap or cap agreements to reduce the potential negative impact that increases in interest
rates could have on our outstanding variable rate debt. The impact of interest rate instruments on our results of
operations in each of the three years ended December 31, 2004, 2003, and 2002 was not significant. See Notes 6 and
14 to our consolidated financial statements for components of our long-term debt and interest rate swap
arrangements.
In August 1998, we entered into six interest rate swap agreements with a total notional amount of $300 million to
manage interest rate risk related to our multicurrency revolving line of credit. As of December 31, 2002, five of
these six agreements had been terminated. The remaining agreement had a notional amount of $100 million and
required us to make payments to the counterparty at variable rates based on USD-LIBOR-BBA rates. This
agreement expired in 2003. During the year ended December 31, 2003, we had a pretax gain of approximately $3.8
million related to the expiration of the final swap agreement. During the year ended December 31, 2002, we
recorded pretax losses of $0.1 million relating to an ineffective hedge for a portion of time relating to an interest rate
swap agreement. See Note 14 to our consolidated financial statements.
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Foreign Exchange Risk
We are exposed to foreign currency exchange rate risks. Our significant foreign subsidiaries are located in Germany,
France, Israel and Asia. In most locations, we have introduced a “netting” policy where subsidiaries pay all
intercompany balances within thirty days. As of December 31, 2004, we did not have any outstanding foreign
currency forward exchange contracts.
In the normal course of business, our financial position is routinely subjected to a variety of risks, including market
risks associated with interest rate movements, currency rate movements on non-U.S. dollar denominated assets and
liabilities and collectibility of accounts receivable.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included herein, commencing on page F-1 of this report.
Item 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Item 9A.
CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of our management, including the
Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and
operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation and the
material weakness described below, our CEO and CFO concluded that our disclosure controls and procedures were
not effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2004 based on the framework set forth in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
In making its assessment, our management evaluated the structure and effectiveness of our worldwide finance
organization and the design and operating effectiveness of controls surrounding the financial statement close
processes. Management determined that certain of our operating locations have insufficient staffing of the
accounting and financial reporting function. This inadequate level of staffing results in certain accounting processes
not being performed on a timely basis. These issues, when combined with an inadequate level of finance staffing at
our corporate headquarters, reduce the effectiveness of the corporate finance staff in its monitoring and evaluation of
the financial position and operating results of the Company, increasing the risk of a financial statement
misstatement.
As a result of the items described above, we and our independent registered public accounting firm, Ernst & Young
LLP, identified adjustments during the audit process which have been recorded in our consolidated financial
statements. These adjustments should have been identified and resolved by us as part of our normal operating
procedures. The adjustments primarily were reflected in accounting for accruals, purchase commitments, fixed asset
account reconciliations, and intercompany reconciliations among our wholly owned subsidiaries. The necessary
adjustments were all recorded prior to the public release of our financial results on February 8, 2005 and do not
affect previously reported results.
-53-
Management has determined that this control deficiency represents a “material weakness” as defined in Public
Company Accounting Oversight Board Auditing Standard No. 2. Although no material misstatements were
identified, until this deficiency is remediated, there is more than a remote likelihood that a material misstatement to
the annual or interim financial statements could occur and not be prevented or detected by our controls in a timely
manner.
As a result of this material weakness, our management concluded that our internal control over financial reporting
was not effective as of December 31, 2004.
Despite this material weakness, management believes that our consolidated financial statements as of December 31,
2004 and 2003, and for each of the three years in the period ended December 31, 2004, presented herein, are fairly
stated in all material respects. Ernst & Young LLP has audited our consolidated financial statements as of
December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, as stated in
their report which is included herein on page F-2.
Ernst & Young LLP has issued an attestation report on management’s assessment of our internal control over
financial reporting, as stated in their report which is included herein on page F-3.
Actions to Remediate Material Weakness
Management, in particular the CEO and CFO, is committed to taking the necessary steps to address and correct the
identified weakness through developing processes and enhancing the finance structure.
Management has also instituted interim measures to ensure the accuracy of reported financial results, including
redirecting existing staff resources to focus on the areas identified and authorizing the use of consultants and
temporary employees where necessary.
Management believes that these interim measures, combined with additional interim procedures and permanent staff
resources to be added to the finance group during the next year, will ensure that we report financial data which is
fairly stated in all material respects during the interim fiscal periods of 2005.
Changes in Internal Control Over Financial Reporting
Except as described above, there were no changes in our internal control over financial reporting during the quarter
ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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Item 9B.
OTHER INFORMATION
None.
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
PART III
We have a code of ethics applicable to our chief executive officer, chief financial officer, principal accounting
officer or controller and financial managers. The text of this code has been posted on our website. To view the
code, go to our website at ir.vishay.com and click on Corporate Governance. You can obtain a printed copy of this
code, free of charge, by contacting us at the following address:
Corporate Investor Relations
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2143
It is the intention of the Company to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any
amendment to, or any waiver from, a provision of this code by posting such information on our website, at the
aforementioned address and location.
Information required under this Item with respect to our Executive Officers is set forth in Part I, Item 4A hereof
under the caption, “Executive Officers of the Registrant.”
Other information required under this Item is contained in our definitive proxy statement, which will be filed within
120 days of December 31, 2004, our most recent fiscal year end, and is incorporated herein by reference.
Item 11.
EXECUTIVE COMPENSATION
Information required under this Item is contained in our definitive proxy statement, which will be filed within 120
days of December 31, 2004, our most recent fiscal year end, and is incorporated herein by reference.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information required under this Item is contained in our definitive proxy statement, which will be filed within 120
days of December 31, 2004, our most recent fiscal year end, and is incorporated herein by reference.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is contained in our definitive proxy statement, which will be filed within 120
days of December 31, 2004, our most recent fiscal year end, and is incorporated herein by reference.
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Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required under this Item is contained in our definitive proxy statement, which will be filed within 120
days of December 31, 2004, our most recent fiscal year end, and is incorporated herein by reference.
Item 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Documents Filed as Part of Form 10-K
1.
Financial Statements
The Consolidated Financial Statements for the year ended December 31, 2004 are filed herewith. See Index
to the Consolidated Financial Statements on page F-1 of this report.
2.
Financial Statement Schedules
All financial statement schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions or are inapplicable and
therefore have been omitted.
3.
Exhibits
2.1
2.2
3.1
3.2
4.1
4.2
Share Sale and Purchase Agreement between Phoenix Acquisition Company S.ar.l; Other
Investors (as defined); Mezzanine Lenders (as defined); Vishay Intertechnology, Inc.; Vishay
Europe GmbH; and BCcomponents International B.V., dated as of November 10, 2002.
Incorporated by reference to Exhibit 2.1 to Form 8-K filed December 23, 2002.
Amendment to the Share Sale and Purchase Agreement between Phoenix Acquisition Company
S.ar.l; Other Investors (as defined); Mezzanine Lenders (as defined); Vishay Intertechnology, Inc.;
Vishay Europe GmbH; and BCcomponents International B.V., dated as of December 4, 2002.
Incorporated by reference to Exhibit 2.2 to Form 8-K filed December 23, 2002.
Composite Amended and Restated Certificate of Incorporation of Vishay Intertechnology, Inc.
dated August 3, 1995; Certificate of Amendment of Composite Amended and Restated
Certificate of Incorporation dated May 22, 1997; Certificate of Amendment of the Amended and
Restated Certificate of
Amendment of the Amended and Restated Certificate of Incorporation dated July 29, 2003.
Incorporated by reference
Statement on Form S-3, File No. 333-102507, filed on October 3, 2003.
Incorporation dated November 2, 2001; and Certificate of
to our Registration
to Amendment No. 2
to Exhibit 3.1
Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3.1 to our
quarterly report on Form 10-Q for the quarter ended March 31, 2001.
Indenture dated as of June 4, 2001 between Vishay Intertechnology, Inc. and Bank of New York
as Trustee. Incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed on
June 18, 2001 except that clause (x) of Section 5 thereof is corrected to read “(x) 0.0625% of the
average LYON Market Price for the Five Day Period with respect to such Contingent Interest
Period and”.
Indenture, dated as of August 6, 2003, by and between Vishay Intertechnology, Inc. and Wachovia
Bank, National Association. Incorporated by reference to Exhibit 4.1 to our Registration
Statement on Form S-3 (No. 333-110259) filed on November 5, 2003.
-56-
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Vishay Intertechnology Section 162(m) Cash Bonus Plan. Incorporated by reference to Annex B
to our Proxy Statement, dated April 7, 2004, for our 2004 Annual Meeting of Stockholders.
Vishay Intertechnology Senior Executive Phantom Stock Plan. Incorporated by reference to
Annex C to our Proxy Statement, dated April 7, 2004, for our 2004 Annual Meeting of
Stockholders.
Second Amended and Restated Vishay Intertechnology, Inc. Long Term Revolving Credit
Agreement and Consent, made as of July 31, 2003, by and among Vishay Intertechnology, Inc.,
the Permitted Borrowers (as defined), the Lenders signatory thereto and Comerica Bank, as Co-
lead Arranger Co-Book Running Manager and Administrative agent, et al. Incorporated by
reference to Exhibit 10.2 to our annual report on Form 10-K for the year ended December 31,
2003.
Consent and First Amendment to Vishay Intertechnology, Inc. Second Amended and Restated
Long Term Revolving Credit Agreement, dated as of May 14, 2004. Incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed on May 25, 2004.
Consent and Second Amendment to Vishay Intertechnology, Inc. Second Amended and Restated
Long Term Revolving Credit Agreement, dated as of August 6, 2004.
Vishay Intertechnology, Inc. 1997 Stock Option Program. Incorporated by reference to our
Definitive Proxy Statement on Schedule 14A filed April 16, 1998.
Vishay Intertechnology, Inc. 1998 Stock Option Program. Incorporated by reference to our
Definitive Proxy Statement on Schedule 14A filed April 16, 1998.
General Semiconductor, Inc. Amended and Restated 1998 Long-Term Incentive Plan as amended
on February 7, 2001. Incorporated by reference to Exhibit 10.9 to General Semiconductor’s
annual report on Form 10-K for the year ended December 31, 2000.
10.9 Money Purchase Plan Agreement of Measurements Group, Inc. Incorporated by reference to
Exhibit 10(a)(6) to Amendment No. 1 to our Registration Statement on Form S-7 (No. 2-69970).
10.10 Agreement Amending Supply Agreements among Cabot Corporation through its Cabot
Performance Materials Division, Vishay Sprague, Inc. and Vishay Intertechnology, Inc. dated as
of June 6, 2002. Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K for
the year ended December 31, 2002.
10.11 Severance and General Release Agreement, dated November 4, 2003, between Vishay
Intertechnology, Inc. and Avi D. Eden. Incorporated by reference to Exhibit 10.10 to our annual
report on Form 10-K for the year ended December 31, 2003.
10.12 Consulting and Non-Competition Agreement, dated November 4, 2003, between Vishay
Intertechnology, Inc. and Avi D. Eden. Incorporated by reference to Exhibit 10.11 to our annual
report on Form 10-K for the year ended December 31, 2003.
10.13 Employment agreement, between Vishay Intertechnology, Inc. and Dr. Felix Zandman.
Incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the fiscal
quarter ended October 2, 2004.
10.14 Employment agreement, between Vishay Israel Ltd. (an indirect wholly owned subsidiary of
Vishay Intertechnology, Inc.) and Marc Zandman. Incorporated by reference to Exhibit 10.2 to
our quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
-57-
10.15 Employment agreement, between Vishay Europe GmbH (an indirect wholly owned subsidiary of
Vishay Intertechnology, Inc.) and Dr. Gerald Paul. Incorporated by reference to Exhibit 10.3 to
our quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
10.16 Employment agreement, between Vishay Intertechnology, Inc. and Richard N. Grubb.
Incorporated by reference to Exhibit 10.4 to our quarterly report on Form 10-Q for the fiscal
quarter ended October 2, 2004.
10.17 Employment agreement, between Vishay Israel Ltd. (an indirect wholly owned subsidiary of
Vishay Intertechnology, Inc.) and Ziv Shoshani. Incorporated by reference to Exhibit 10.5 to our
quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
10.18 Employment agreement, between Vishay Intertechnology, Inc. and Robert A. Freece.
Incorporated by reference to Exhibit 10.6 to our quarterly report on Form 10-Q for the fiscal
quarter ended October 2, 2004.
21
Subsidiaries of the Registrant.
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
31.2
Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
32.1
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
-58-
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
VISHAY INTERTECHNOLOGY, INC.
By:
/s/ Dr. Gerald Paul
Dr. Gerald Paul
President, Chief Executive Officer, and
Chief Operating Officer
March 15, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signature
Title
Date
Principal Executive Officer:
/s/ Dr. Gerald Paul
Dr. Gerald Paul
Principal Financial and Accounting Officer:
/s/ Richard N. Grubb
Richard N. Grubb
Board of Directors:
/s/ Dr. Felix Zandman
Dr. Felix Zandman
/s/ Marc Zandman
Marc Zandman
/s/ Philippe Gazeau
Philippe Gazeau
/s/ Zvi Grinfas
Zvi Grinfas
/s/ Eli Hurvitz
Eli Hurvitz
/s/ Abraham Ludomirski
Abraham Ludomirski
President, Chief Executive Officer,
Chief Operating Officer, and Director
March 15, 2005
Executive Vice President, Treasurer,
and Chief Financial Officer
March 15, 2005
Chairman of the Board of Directors
March 15, 2005
Vice-Chairman of the Board of
Directors
March 15, 2005
March 15, 2005
March 15, 2005
March 15, 2005
March 15, 2005
Director
Director
Director
Director
-59-
/s/ Ziv Shoshani
Ziv Shoshani
/s/ Mark I. Solomon
Mark I. Solomon
/s/ Thomas C. Wertheimer
Thomas C. Wertheimer
/s/ Ruta Zandman
Ruta Zandman
Director
Director
Director
Director
March 15, 2005
March 15, 2005
March 15, 2005
March 15, 2005
-60-
Vishay Intertechnology, Inc.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm......................................................................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets .......................................................................................................................................F-4
Consolidated Statements of Operations.......................................................................................................................F-6
Consolidated Statements of Cash Flows......................................................................................................................F-7
Consolidated Statements of Stockholders’ Equity ......................................................................................................F-8
Notes to Consolidated Financial Statements .............................................................................................................F-10
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Vishay Intertechnology, Inc.:
We have audited the accompanying consolidated balance sheets of Vishay Intertechnology, Inc. as of December 31, 2004 and
2003, and the related consolidated statements of operations, cash flows, and stockholders’ equity for each of the three years in the
period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States).
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, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Vishay Intertechnology, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Vishay Intertechnology, Inc.’s internal control over financial reporting as of December 31, 2004, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment and
an adverse opinion on the effectiveness of internal control over financial reporting.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 14, 2005
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Board of Directors and Stockholders of Vishay Intertechnology, Inc.:
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over
Financial Reporting, that Vishay Intertechnology, Inc. did not maintain effective internal control over financial reporting as of
December 31, 2004, because of the effect of the material weakness related to inadequate staffing of the accounting and financial
reporting function which resulted in certain accounting processes not being performed on a timely basis, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Vishay Intertechnology, Inc.’s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following
material weakness has been identified and included in management’s assessment. Management determined that certain of its
operating locations have insufficient staffing of the accounting and financial reporting function. This inadequate level of staffing
results in certain accounting processes not being performed on a timely basis. These issues, when combined with an inadequate
level of finance staffing at the Company’s corporate headquarters, reduce the effectiveness of the corporate finance staff in its
monitoring and evaluation of the financial position and operating results of the Company, increasing the risk of a financial
statement misstatement. As a result of the items described above, adjustments were identified during the audit process which
have been recorded in the consolidated financial statements. The adjustments primarily were reflected in accounting for accruals,
purchase commitments, fixed asset account reconciliations, and intercompany reconciliations. This material weakness was
considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial
statements, and this report does not affect our report dated March 14, 2005 on those financial statements.
In our opinion, management’s assessment that Vishay Intertechnology, Inc. did not maintain effective internal control over
financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in
our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control
criteria, Vishay Intertechnology, Inc. has not maintained effective internal control over financial reporting as of December 31,
2004, based on the COSO control criteria.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 14, 2005
F-3
VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances for doubtful
accounts of $13,669 and $13,704, respectively
Inventories:
Finished goods
Work in process
Raw materials
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, at cost:
Land
Buildings and improvements
Machinery and equipment
Construction in progress
Allowance for depreciation
December 31,
2004
December 31,
2003
$
632,700
$
555,540
351,710
368,087
155,195
150,738
212,040
43,786
136,251
1,682,420
97,398
428,829
1,668,225
75,974
(1,098,611)
1,171,815
171,447
154,532
189,413
48,471
143,610
1,631,100
110,021
375,178
1,614,265
85,169
(971,033)
1,213,600
Goodwill
1,435,121
1,466,714
Other intangible assets, net
127,797
135,150
Other assets
Total assets
221,437
4,638,590
$
119,796
4,566,360
$
Continues on following page.
F-4
VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets (continued)
(In thousands, except share amounts)
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
Total current liabilities
Long-term debt less current portion
Deferred income taxes
Deferred grant income
Other liabilities
Accrued pension and other postretirement costs
Minority interest
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $1.00 per share:
authorized - 1,000,000 shares; none issued
Common stock, par value $0.10 per share:
authorized - 300,000,000 shares; 151,423,558 and 144,668,594
shares outstanding after deducting 332,850 shares in
treasury
Class B convertible common stock, par value $0.10 per share:
authorized - 40,000,000 shares; 14,679,440 and 15,382,296
shares outstanding after deducting 279,453 shares in
treasury
Capital in excess of par value
Retained earnings
Unearned compensation
Accumulated other comprehensive income
See accompanying notes.
December 31,
2004
December 31,
2003
$
3,727
131,243
131,128
221,958
29,631
51
517,738
$
17,511
158,182
111,842
282,279
10,112
1,282
581,208
752,145
14,017
18,723
235,923
232,142
94,567
836,606
35,036
27,659
248,652
239,950
83,215
15,142
14,467
1,468
2,028,253
594,892
(152)
133,732
2,773,335
4,638,590
$
1,538
1,918,785
550,196
(306)
29,354
2,514,034
4,566,360
$
F-5
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Operations
(In thousands, except for per share)
2004
Years ended December 31,
2003
2002
Net sales
Costs of products sold
Loss on purchase commitments
Gross profit
$
2,413,576
1,842,080
16,613
554,883
$
2,170,597
1,690,267
11,392
468,938
$
1,822,813
1,454,540
106,000
262,273
Selling, general, and administrative expenses
Purchased in-process research and development
Restructuring and severance costs
Asset write-downs
Operating income (loss)
Other income (expense):
Interest expense
Loss on extinguishment of debt
Gain on insurance claim
Other
Earnings (loss) before taxes and minority interest
Income tax provision (benefit)
Minority interest
386,346
1,500
47,250
27,296
92,491
(34,252)
-
-
11,778
(22,474)
70,017
13,729
11,592
380,011
-
28,546
1,014
59,367
(39,226)
(9,910)
33,906
2,289
(12,941)
46,426
11,528
8,056
310,509
-
18,607
12,363
(79,206)
(29,503)
-
-
8,664
(20,839)
(100,045)
(16,900)
9,469
Net earnings (loss)
$
44,696
$
26,842
$
(92,614)
Basic earnings (loss) per share
$
0.27
$
0.17
$
(0.58)
Diluted earnings (loss) per share
$
0.27
$
0.17
$
(0.58)
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted
163,701
165,938
159,631
160,443
159,413
159,413
See accompanying notes.
F-6
VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net earnings (loss)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization
Loss on disposal of property and equipment
Minority interest in net earnings of consolidated subsidiaries
Purchased in-process research and development
(Gain) loss on interest rate swap
Accretion of interest on convertible debentures
Write-downs of tantalum and palladium inventories
Inventory write-offs for obsolescence
Changes in purchase commitment liability
Gain on insurance claim
Loss on extinguishment of debt
Asset write-downs
Deferred grant income
Prepayment to Tower Semiconductor
Other
Changes in operating assets and liabilities, net of effects of
businesses acquired:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Other current liabilities
Net cash provided by operating activities
Investing activities
Capital expenditures
Proceeds from sale of property and equipment
Purchase of software license
Purchase of businesses, net of cash acquired
Net cash used in investing activities
Financing activities
Proceeds from long-term borrowings, net of issuance costs
Principal payments on long-term debt
Net borrowings (payments) on revolving credit lines
Net changes in short-term borrowings
Stock issuance costs
Proceeds from stock options exercised
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes.
F-7
Years ended December 31,
2004
2003
2002
$
44,696
$
26,842
$
(92,614)
202,580
194,055
180,748
1,697
11,592
1,500
-
5,138
400
32,226
(24,890)
-
-
27,296
(8,936)
(20,000)
1,156
30,526
(35,292)
17,328
(30,280)
(23,653)
233,084
(158,627)
10,446
(4,500)
(24,892)
(177,573)
87
(3,351)
11,000
(13,700)
(163)
9,185
3,058
18,591
77,160
555,540
2,521
8,056
-
(3,783)
8,396
6,991
54,285
(16,608)
(33,906)
9,910
1,014
(12,359)
-
296
9,469
-
115
9,325
27,400
37,120
106,000
-
-
12,363
(17,322)
-
(24,307)
(27,595)
(5,634)
(30,448)
51,367
25,474
(6,110)
255,756
(126,635)
19,349
-
(41,161)
(148,447)
484,206
(284,595)
(111,000)
(316)
-
4,740
93,035
15,258
215,602
339,938
102,322
42,298
6,257
455
(29,766)
366,871
(110,074)
20,621
-
(278,735)
(368,188)
201
(17,217)
(14,000)
(10,452)
-
3,161
(38,307)
12,447
(27,177)
367,115
$
632,700
$
555,540
$
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F
Vishay Intertechnology, Inc.
Notes to Consolidated Financial Statements
Vishay Intertechnology, Inc. (“Vishay” or the “Company”) is an international manufacturer and supplier of
passive and active electronic components, including resistors, capacitors, inductors, strain gages, load cells,
force measurement sensors, displacement sensors, photoelastic sensors, power MOSFETs, power
conversion and motor control integrated circuits, transistors, diodes and optoelectronic components.
Electronic components manufactured by the Company are used in virtually all types of electronic products,
including those in the computer, telecommunications, military/aerospace, industrial, automotive, medical,
and consumer electronics products industries.
Note 1 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results could differ significantly
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Vishay and all of its subsidiaries in which a
controlling financial interest is maintained. For those consolidated subsidiaries in which the Company's
ownership is less than 100 percent, the outside stockholders’ interests are shown as Minority Interest in the
accompanying consolidated balance sheets. Investments in affiliates over which the Company has
significant influence but not a controlling interest are carried on the equity basis. Investments in affiliates
over which the Company does not have significant influence are accounted for by the cost method. All
significant intercompany transactions, accounts, and profits are eliminated.
Revenue Recognition
The Company recognizes revenue on product sales during the period when the sales process is complete.
This generally occurs when products are shipped to the customer in accordance with terms of an agreement
of sale, title and risk of loss have been transferred, collectibility is reasonably assured and pricing is fixed
or determinable. For a small percentage of sales where title and risk of loss passes at point of delivery, the
Company recognizes revenue upon delivery to the customer, assuming all other criteria for revenue
recognition are met. The Company historically has had agreements with distributors that provided limited
rights of product return. Beginning in 2002, the Company modified these arrangements to allow
distributors a limited credit for unsaleable products, which it terms a “scrap allowance.” Consistent with
industry practice, the Company also has a “stock, ship and debit” program whereby it considers requests by
distributors for credits on previously purchased products that remain in distributors’ inventory, to enable
the distributors to offer more competitive pricing. In addition, the Company has contractual arrangements
whereby it provides distributors with protection against price reductions initiated by the Company after
product is sold by the Company to the distributor and prior to resale by the distributor.
F-10
Note 1 – Summary of Significant Accounting Policies (continued)
The Company records a reduction of revenue during each period, and records a related accrued expense for
the period, based upon its estimate of product returns, scrap allowances, “stock, ship and debit” credits and
price protection credits that will be attributable to sales recorded through the end of the period. The
Company makes these estimates based upon sales levels to its distributors during the period, inventory
levels at the distributors, current and projected market conditions and historical experience under the
programs. While the Company utilizes a number of different methodologies to estimate the accruals, all of
the methodologies take into account sales levels to distributors during the relevant period, inventory levels
at the distributors, current and projected market trends and conditions, recent and historical activity under
the relevant programs, changes in program policies and open requests for credits. These procedures require
the exercise of significant judgments, but the Company believes that they allow the Company to reasonably
estimate future credits under the programs.
Shipping and Handling Costs
Shipping and handling costs are included in costs of products sold.
Research and Development Expenses
Research and development costs are expensed as incurred. The amount charged to expense for research
and development (exclusive of purchased in-process research and development) aggregated $51,008,000,
$45,377,000, and $37,095,000, for the years ended December 31, 2004, 2003, and 2002, respectively. The
Company spends additional amounts for the development of machinery and equipment for new processes
and for cost reduction measures.
Grants
Grants received by certain foreign subsidiaries from foreign governments, 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 from the Israeli government recognized as a reduction of costs of
products sold were $8,936,000, $12,359,000, and $17,322,000 for the years ended December 31, 2004,
2003, and 2002, respectively. Grants receivable of $3,568,000 and $9,223,000 are included in other current
assets at December 31, 2004 and 2003, respectively. Deferred grant income was $18,723,000 and
$27,659,000 at December 31, 2004 and 2003, respectively. The grants are subject to certain conditions,
including maintaining specified levels of employment for periods up to ten years. Noncompliance with
such conditions could result in the repayment of grants. However, management expects that the Company
will comply with all terms and conditions of the grants.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for
income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur
when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes
represents income taxes paid or payable for the current year plus the change in deferred taxes during the
year. Deferred taxes result from differences between the financial and tax bases of the Company’s assets
and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized.
Cash Equivalents
Cash and cash equivalents includes demand deposits and highly liquid investments with maturities of three
months or less when purchased.
F-11
Note 1 – Summary of Significant Accounting Policies (continued)
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the
inability of its customers to make required payments. The allowance is determined through an analysis of
the aging of accounts receivable and assessments of risk that are based on historical trends and an
evaluation of the impact of current and projected economic conditions. The Company evaluates the past-
due status of its trade receivables based on contractual terms of sale. If the financial condition of the
Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required. Bad debt expense was $3,444,000, $4,181,000, and $6,672,000 for
the years ended December 31, 2004, 2003, and 2002, respectively.
Inventories
Inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.
Inventories are adjusted for estimated obsolescence and written down to net realizable value based upon
estimates of future demand, technology developments and market conditions.
Property and Equipment
Property and equipment is carried at cost and is depreciated principally by the straight-line method based
upon the estimated useful lives of the assets. Machinery and equipment are being depreciated over useful
lives of seven to ten years. Buildings and building improvements are being depreciated over useful lives of
twenty to forty years. Construction in progress is not depreciated until the assets are placed in service. The
estimated cost to complete construction in progress at December 31, 2004 was approximately $11.6
million. Depreciation of capital lease assets is included in total depreciation expense. Depreciation expense
was $191,132,000, $180,706,000, and $172,174,000 for the years ended December 31, 2004, 2003, and
2002, respectively.
Goodwill and Other Intangible Assets
The Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.
Goodwill and indefinite-lived intangible assets are not amortized but rather are tested for impairment at
least annually. These tests will be performed more frequently if there are triggering events. The Company
has assigned an indefinite useful life to its tradenames.
Definite-lived intangible assets are amortized over their estimated useful lives. Completed technology is
being amortized over useful lives of seven to ten years. Capitalized software is being amortized over
periods of three to ten years. Noncompete agreements are being amortized over a period of one to five
years. The Company continually evaluates the reasonableness of the useful lives of these assets.
SFAS No. 142 prescribes a two-step method for determining goodwill impairment. In the first step, the
Company determines the fair value of the reporting unit using a comparable companies market multiple
approach. If the net book value of the reporting unit were to exceed the fair value, the Company would then
perform the second step of the impairment test which requires allocation of the reporting unit’s fair value to
all of its assets and liabilities in a manner similar to a purchase price allocation, with any residual fair value
being allocated to goodwill. An impairment charge will be recognized only when the implied fair value of a
reporting unit’s goodwill is less than its carrying amount.
F-12
Note 1 – Summary of Significant Accounting Policies (continued)
The Company completed the transitional goodwill impairment test as of January 1, 2002. Fair value of
reporting units was determined using comparable company market multiples. The Company determined
that there was no goodwill impairment as of January 1, 2002. The Company’s required annual impairment
test is completed as of the first day of the fourth fiscal quarter each year. The Company also performed an
additional impairment test at September 30, 2002 because events and circumstances indicated that goodwill
of its passives reporting unit might be impaired. Management concluded that no impairment existed at
September 30, 2002. Additionally, it was determined that no impairment existed based on the annual
impairment tests for 2004, 2003 and 2002.
The Company completed the transitional impairment test of its tradenames as of January 1, 2002. The fair
value of the tradenames was measured as the discounted cash flow savings realized from owning such
tradenames and not having to pay a royalty for their use. No impairment of the tradenames was determined
to exist at January 1, 2002. The annual impairment test of tradenames is completed as of the first day of the
fourth fiscal quarter each year. It was determined that no impairment existed based on the annual
impairment tests for 2004, 2003 and 2002.
Impairment of Long-Lived Assets
The Company evaluates impairment of its long-lived assets, other than goodwill and indefinite-lived
intangible assets, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets. The carrying value of long-lived assets held-and-used, other than goodwill and indefinite-
lived intangible assets, is evaluated when events or changes in circumstances indicate the carrying value
may not be recoverable. The carrying value of a long-lived asset is considered impaired when the total
projected undiscounted cash flows from such asset are separately identifiable and are less than the carrying
value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily using the projected cash
flows from the asset discounted at a rate commensurate with the risk involved. Losses on long-lived assets
held-for-sale, other than goodwill and indefinite-lived intangible assets, are determined in a similar manner,
except that fair market values are reduced for disposal costs.
Available-for-Sale Securities
Other assets includes investments in marketable securities which are classified as available-for-sale. These
assets are held in trust related to the Company’s non-qualified pension and deferred compensation plans.
See Note 11. These assets are reported at fair value, based on quoted market prices as of the end of the
reporting period. Unrealized gains and losses are reported, net of their related tax consequences, as a
component of accumulated other comprehensive income in stockholders’ equity until sold. At the time of
sale, any gains or losses calculated by the specific identification method are recognized as a reduction to
benefits expense, within selling, general, and administrative expenses.
Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages entities to record compensation
expense for stock-based employee compensation plans at fair value but provides the option of measuring
compensation expense using the intrinsic value method prescribed in Accounting Principles Board (“APB”)
Opinion No. 25, Accounting for Stock Issued to Employees. The Company accounts for stock-based
compensation in accordance with APB No. 25 and related interpretations. The following is provided to
comply with the disclosure requirements of SFAS No. 123 as amended.
F-13
Note 1 – Summary of Significant Accounting Policies (continued)
If compensation cost for the Company’s stock option programs had been determined using the fair-value
method prescribed by SFAS No. 123, the Company’s results would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
Net income (loss), as reported
Add: Total stock-based employee
compensation expense included in
reported net income, net of related tax
effects
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards,
net of related tax effects
Pro forma net income (loss)
Earnings (loss) per share:
Basic—as reported
Basic—pro forma
Diluted—as reported
Diluted—pro forma
Years ended December 31,
2003
2002
2004
$ 44,696
$ 26,842
$ (92,614)
365
-
-
(1,385)
$ 43,676
(1,612)
$ 25,230
(2,430)
$ (95,044)
$ 0.27
$ 0.27
$ 0.17
$ 0.16
$ (0.58)
$ (0.60)
$ 0.27
$ 0.26
$ 0.17
$ 0.16
$ (0.58)
$ (0.60)
The weighted average fair value of the options granted was estimated using the Black-Scholes option-
pricing model, with the assumptions presented below. Options granted in 2004, 2003 and 2002 had a
weighted average fair value of $7.11, $6.53 and $8.62, respectively, and an exercise price equal to the
market value.
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (in years)
2004
Grants
0.0%
3.4%
59.1%
4.5
2003
Grants
0.0%
2.2%
61.2%
4.5
2002
Grants
0.0%
3.5%
63.2%
4.5
As described in Note 2, the Company granted 120,000 options as part of an acquisition made in 2004.
These option grants are not considered stock-based compensation.
F-14
Note 1 – Summary of Significant Accounting Policies (continued)
Derivative Financial Instruments
The Company reports derivative instruments on the consolidated balance sheet at their fair values. The
accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it
is designated and qualifies for hedge accounting. For instruments designated as hedges, the effective
portion of gains or losses is reported in other comprehensive income and the ineffective portion, if any, is
reported in net earnings (loss). Changes in the fair values of derivative instruments that are not designated
as hedges are recorded in current period earnings.
The Company has in the past used interest rate swap agreements to modify variable rate obligations to fixed
rate obligations, thereby reducing exposure to market rate fluctuations. Such interest rate swap agreements
were designated as hedges. See Note 14.
In prior years, the Company used financial instruments such as forward exchange contracts to hedge a
portion, but not all, of its firm commitments denominated in foreign currencies. The purpose of the
Company’s foreign currency management is to minimize the effect of exchange rate changes on actual cash
flows from foreign currency denominated transactions.
At December 31, 2004 and 2003, the Company had no outstanding derivative instruments.
Foreign Currency Translation
The financial statements for most of the Company’s foreign subsidiaries are measured using the local
currency as the functional currency. Foreign assets and liabilities in the consolidated balance sheets have
been translated at the rate of exchange as of the balance sheet date. Revenues and expenses are translated
at the average exchange rate for the year. Translation adjustments do not impact the results of operations
and are reported as a separate component of stockholders’ equity. Foreign currency transaction gains and
losses are included in the results of operations.
For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency
financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from
remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results
of operations.
Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation costs, arising from claims,
assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.
Accrued liabilities for environmental matters recorded at December 31, 2004 and 2003 do not include
claims against third parties and are not discounted.
F-15
Note 1 – Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46,
Consolidation of Variable Interest Entities, an interpretation of ARB 51 (“FIN 46”). The primary objectives
of this interpretation are to provide guidance on the identification of entities for which control is achieved
through means other than through voting rights (“variable interest entities”) and how to determine when
and which business enterprise (the “primary beneficiary”) should consolidate the variable interest entity.
This new model for consolidation applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is insufficient to finance that
entity’s activities without receiving additional subordinated financial support from other parties. In
addition, FIN 46 requires that the primary beneficiary, as well as all other enterprises with a significant
variable interest in a variable interest entity, make additional disclosures. Certain disclosure requirements
of FIN 46 were effective for financial statements issued after January 31, 2003. In December 2003, the
FASB issued FIN 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN 46-R”) to
address certain FIN 46 implementation issues. The adoption of FIN 46 and FIN 46-R did not have any
effect on the Company’s financial position, results of operations, or liquidity.
The consolidated financial statements also include the new required disclosures required by SFAS No. 132-
R, Employers’ Disclosures about Pensions and Other Postretirement Benefits in Note 11. Note 11 also
includes disclosures regarding the impact of FASB Staff Position (“FSP”) No. 106-2 on the Company’s
measurement of accumulated postretirement benefit obligation. Note 5 includes disclosures regarding the
Company’s accounting for FSP No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004.
In September 2004, the Emerging Issues Task Force reached a consensus on Issue No. 04-8, The Effect of
Contingently Convertible Instruments on Diluted Earnings per Share (“EITF 04-8”). The Task Force
concluded that contingently convertible instruments in which conversion into common stock is based on
meeting a market price contingency should be included in the computation of diluted earnings per share at
issuance, rather than waiting until the specified share price is met. EITF 04-8 is effective for reporting
periods ending after December 15, 2004 and is applied retroactively. While the Company has contingently
convertible debt, EITF 04-8 has no impact on its computation of diluted earnings per share because these
convertible notes have always been considered in the computation of diluted earnings per share. See Note
17.
In November 2004, the FASB issued Statement No. 151, Inventory Costs—an amendment of ARB No. 43,
Chapter 4, which amends and clarifies existing accounting literature regarding abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). This statement is effective for
inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application
permitted. The provisions of this statement are to be applied prospectively. The Company is presently
evaluating the impact of this new standard.
In December 2004, the FASB issued Statement No. 123-R (“SFAS No. 123-R”), Share-Based Payment.
This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB
No. 25, which the Company presently applies. SFAS No. 123-R will require compensation costs related to
share-based payment transactions to be recognized in the consolidated financial statements (with limited
exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the
equity or liability instruments issued. Compensation cost will be recognized over the period that an
employee provides service in exchange for the award. This statement is effective as of the beginning of the
first interim or annual reporting period that begins after June 15, 2005, with earlier adoption permitted.
The adoption of this standard is not expected to have a material effect on our financial position, or liquidity.
F-16
Note 1 – Summary of Significant Accounting Policies (continued)
In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary Assets—an
amendment of APB Opinion No. 29. This statement amends APB No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result of the
exchange. The provisions of this statement are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005, with earlier application permitted. The provisions of this
statement are to be applied prospectively. The adoption of this standard is not expected to have a material
effect on our financial position, results of operations, or liquidity.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current financial statement
presentation.
Note 2 - Acquisitions
As part of its growth strategy, the Company seeks to expand through the acquisition of other manufacturers
of electronic components that have established positions in major markets, reputations for product quality
and reliability, and product lines with which the Company has substantial marketing and technical
expertise. During the industry downturn experienced from 2001 to 2003, the Company utilized the strength
of its own balance sheet to acquire businesses for consideration that it believes was lower than what it
would have been required to pay in other economic environments.
In pricing an acquisition, the Company focuses primarily on the target’s revenues and customer base, the
strategic fit of its product line with the Company’s existing product offerings, opportunities for cost cutting
and integration with the Company’s existing operations and production and other post-acquisition synergies
rather than on the target’s assets, such as its property, equipment and inventory. As a result, the fair value
of the acquired assets may correspond to a relatively smaller portion of the acquisition price, with the
Company recording a substantial amount of goodwill related to the acquisition. These principles apply in
particular to acquisitions in the passive segment during 2002. The passive electronics business is a mature
industry that, in general, has a slow organic growth rate linked to macro economic trends.
Also as part of its growth strategy, the Company seeks to explore opportunities with privately held
developers of electronic components, whether through acquisition, investment in non-controlling interests,
or strategic alliances.
Year ended December 31, 2004
During 2004, the Company made two acquisitions. On August 31, 2004, the Company acquired
substantially all of the assets of RFWaves, Ltd., a fab-less integrated circuit design house located in Israel.
On September 29, 2004, the Company acquired all of the outstanding shares of Aeroflex Pearl River Inc.
(renamed Vishay MIC Technology), the former thin film interconnect subsidiary of Aeroflex, Incorporated.
The total purchase price of these acquisitions was approximately $12,700,000, which included cash
payments of $11,800,000 plus 120,000 stock options with an aggregate fair value of approximately
$900,000. The stock options were valued using the Black-Scholes option-pricing model. The significant
assumptions used included an exercise price of $12.75 (market price on date of grant), an expected
dividend yield of 0.0%, a risk-free interest rate of 3.76%, an expected volatility of 54.3%, and expected life
of 7.0 years. The purchase agreement for RFWaves includes provisions for Vishay to pay additional
consideration subject to RFWaves achieving operational targets through 2006. The payment of this
additional consideration would not be material to Vishay’s financial position or cash flows.
F-17
Note 2 – Acquisitions (continued)
Purchased in-process research and development represents the value assigned in a business combination to
research and development projects of the acquired business that were commenced, but not completed at the
date of acquisition, for which technological feasibility has not been established, and which have no
alternative future use in research and development activities or otherwise. Amounts assigned to purchased
in-process research and development meeting the above criteria must be charged to expense at the date of
consummation of the business combination. A charge of $1,500,000 was recorded in the third quarter of
2004 in conjunction with the RFWaves acquisition.
For financial reporting purposes, the results of operations for RFWaves have been included in the actives
segment from August 31, 2004. The results of operations for Vishay MIC Technology have been included
in the passives segment from September 29, 2004. The inclusion of these entities did not have a material
impact on consolidated results for the year ended December 31, 2004. After allocating the purchase price
to the assets acquired and liabilities assumed based on an evaluation of their fair values, the Company
recorded goodwill of $10.1 million related to these acquisitions.
Had these acquisitions occurred as of the beginning of the periods presented in these consolidated financial
statements, the pro forma statements of operations would not be materially different than the consolidated
statements of operations presented.
Year ended December 31, 2003
No acquisitions were made during the year ended December 31, 2003.
Year ended December 31, 2002
In January 2002, the Company acquired the transducer and strain gage businesses of Sensortronics, Inc.
The acquisition included the wholly owned subsidiary of Sensortronics, JP Technologies, a manufacturer of
strain gages, located in San Bernardino, California. The purchase price was $10 million in cash. The
purchase price has been allocated, with resulting goodwill of $3,027,000. The results of operations are
included in the results of the passives segment from January 31, 2002.
In June 2002, the Company acquired Tedea-Huntleigh BV (“Tedea-Huntleigh”), a subsidiary of Tedea
Technological Development and Automation Ltd. (“Tedea”). Tedea-Huntleigh is engaged in the
production and sale of load cells used in digital scales by the weighing industry. The purchase price was
approximately $21 million in cash. Additionally, Vishay is paying Tedea a $1 million consulting fee over a
three-year period and repaid a $9 million loan of Tedea to Tedea-Huntleigh. Tedea-Huntleigh operates two
plants in Israel, in Netanya and Carmiel, where it employs approximately 350 people, as well as a number
of facilities outside Israel. Tedea-Huntleigh also has load cell operations in the People’s Republic of China.
The purchase price has been allocated, with resulting goodwill of $13,841,000. Results of operations are
included in the passives segment beginning July 1, 2002.
On July 31, 2002, the Company acquired the BLH and Nobel businesses of Thermo Electron Corporation.
BLH and Nobel are engaged in the production and sale of load cell-based process weighing systems,
weighing and batching instruments, web tension instruments, weighing scales, servo control systems, and
components relating to load cells including strain gages, foil gages, and transducers. The purchase price
was $18.5 million in cash. The purchase price has been allocated, with resulting goodwill of $11,262,000.
The results of operations are included in the passives segment beginning August 1, 2002.
F-18
Note 2 – Acquisitions (continued)
In October 2002, the Company acquired Celtron Technologies. Celtron is engaged in the production and
sale of load cells used in digital scales for the weighing industry, with manufacturing facilities and offices
in Taiwan, the People’s Republic of China, and California. The purchase price of $13.5 million in cash has
been allocated with resulting goodwill of $4,711,000. Results of operations are included in the passives
segment beginning October 1, 2002.
As part of purchase accounting for these acquisitions, the Company accrued certain restructuring costs.
During the fourth quarter of 2004, the Company determined that, due to the passage of time since the
acquisitions, and also given different market conditions, its remaining restructuring plans for the above
mentioned Measurements Group businesses had significantly changed. As a result, the remaining liability
of $994,000 was reversed against goodwill. The Company continues to seek the most efficient use of its
assets and employees, and should these operations be restructured in the future, the Company would need
to record a charge against earnings.
On December 13, 2002, the Company acquired BCcomponents Holdings B.V. (“BCcomponents”), a
leading manufacturer of passive components with operations in Europe, India and the Far East. The product
lines of BCcomponents include linear and non-linear resistors; ceramic, film and aluminum electrolytic
capacitors; and switches and trimming potentiometers. The acquisition of BCcomponents, and the
recognition of substantial goodwill in the acquisition, was consistent with the general principles described
above that guide the Company’s acquisition activity and the application of these principles in particular to
acquisitions in the passive component segment.
Vishay acquired the outstanding shares of BCcomponents in exchange for ten-year warrants to acquire
7,000,000 shares of Vishay common stock at an exercise price of $20.00 per share and ten-year warrants to
acquire 1,823,529 shares of Vishay common stock at an exercise price of $30.30 per share. The fair value
of the warrants ($39,462,000) was determined using the Black-Scholes option-pricing model. Significant
assumptions used included an expected dividend yield of 0%, a risk-free interest rate of 3%, an expected
volatility of 66%, and an expected life of five years.
In the transaction, outstanding obligations of BCcomponents, including indebtedness and transaction fees
and expenses, in the amount of approximately $224 million were paid ($191 million) or assumed ($33
million). Also, $105 million in principal amount of BCcomponents’ mezzanine indebtedness and certain
other securities of BCcomponents were exchanged for $105 million principal amount of floating rate
unsecured loan notes of Vishay due 2102. The Vishay notes bear interest at LIBOR plus 1.5% through
December 31, 2006 and at LIBOR thereafter. The interest rate could be further reduced to 50% of LIBOR
after December 31, 2010 if the price of Vishay common stock trades above a specified target price, as
provided in the notes. The notes are subject to a put and call agreement under which the holders may at any
time put the notes to Vishay in exchange for 6,176,471 shares of Vishay common stock in the aggregate,
and Vishay may call the notes in exchange for cash or for shares of its common stock after 15 years from
the date of issuance. The purchase price was as follows (in thousands):
Cash consideration
Warrants issued
Acquisition costs
Total purchase price
$
$
191,000
39,462
3,000
233,462
F-19
Note 2 – Acquisitions (continued)
Under purchase accounting, the total purchase price is allocated to assets acquired and liabilities assumed
based on their estimated fair values. At December 31, 2002, the purchase price allocation was preliminary,
pending the completion of asset appraisals and negotiations with labor councils regarding planned
restructuring. These matters were resolved in 2003, resulting in an increase in goodwill of $66,347,000.
The purchase price was allocated to the acquired assets and liabilities based on fair values as follows (in
thousands):
Current assets
Property and equipment
Other assets
Tradenames
Completed technology
Current liabilities
Long-term debt
Other noncurrent liabilities
Goodwill
Total purchase price
$
$
91,859
68,762
3,054
23,000
19,000
(118,425)
(126,328)
(29,860)
302,400
233,462
In connection with the BCcomponents acquisition, the Company recorded restructuring liabilities of
$47,794,000 under an exit plan that management began to formulate prior to the acquisition date.
Approximately $45,855,000 of these liabilities relate to employee termination costs covering approximately
780 technical, production, administrative and support employees located in the United States, Europe, and
the Pacific Rim.
A rollforward of the activity related to these restructuring liabilities is as follows (in thousands, except
number of employees):
Balance at December 31, 2002
Utilized
Foreign currency translation
Change in estimate
Balance at December 31, 2003
Utilized
Foreign currency translation
Change in estimate
Balance at December 31, 2004
Severance
Costs
Other
Total
Number of
Employees
Terminated
$ 45,855 $ 1,939 $ 47,794 780
(30,018) (1,939) (31,957) (624)
5,153 - 5,153 -
(1,328) - (1,328) (13)
19,662 - 19,662 143
(8,971) (71)
(8,971)
(509) -
(509)
(10,182)
(72)
(10,182)
$ - $ - $ - -
-
-
-
During the fourth quarter of 2004, the Company determined that, due to the passage of time since the
acquisition, and also given different market conditions, its remaining restructuring plans for businesses
acquired from BCcomponents had significantly changed. As a result, the remaining liability of
$10,182,000 was reversed against goodwill. The Company continues to seek the most efficient use of its
assets and employees, and should these operations be restructured in the future, the Company would record
a charge against earnings in that period.
F-20
Note 2 – Acquisitions (continued)
Had all of the 2002 acquisitions previously described been made at the beginning of 2002, the Company’s
pro forma unaudited results would have been (in thousands, except per share amounts):
Net sales
Net loss
Year ended
December 31,
2002
$ 2,095,657
(127,379)
Basic and diluted loss per share
$ (0.80)
The pro forma information includes adjustments for interest expense that would have been incurred to
finance the acquisitions, adjustments to depreciation based on the fair value of property and equipment
acquired, write-off of purchased in-process research and development, amortization of intangible assets and
related tax effects. Goodwill related to the acquisitions is not tax-deductible.
The unaudited pro forma results are not necessarily indicative of the results that would have been attained
had the acquisitions occurred at the beginning of the periods presented.
Year ended December 31, 2001
On November 2, 2001, the Company acquired General Semiconductor, Inc., a leading manufacturer of
rectifiers and power management devices.
In connection with the General Semiconductor acquisition, the Company recorded restructuring liabilities
of $94,643,000 under an exit plan that management began to formulate prior to the acquisition date. The
exit plan included downsizing certain European and Taiwan facilities and moving production to low-labor-
cost countries such as Israel, the Czech Republic, and the People’s Republic of China. The plan also
included reducing selling, general and administrative expenses through the integration or elimination of
redundant sales offices and administrative functions at General Semiconductor. The Company’s goal under
the plan was to achieve significant production cost savings through the transfer and expansion of
manufacturing operations to or in lower-labor-cost regions, where the Company can take advantage of
lower labor costs and available tax and other government-sponsored incentives. Approximately
$88,242,000 of these restructuring liabilities related to employee termination costs covering approximately
1,460 technical, production, administrative and support employees located in the United States, Europe,
and the Pacific Rim. The remaining $6,401,000 related to provisions for lease cancellations and other costs.
F-21
Note 2 – Acquisitions (continued)
A rollforward of the activity related to these restructuring liabilities is as follows (in thousands, except
number of employees):
Balance at January 1, 2002
Utilized
Change in estimate
Balance at December 31, 2002
Utilized
Foreign currency translation
Change in estimate
Balance at December 31, 2003
Utilized
Foreign currency translation
Change in estimate
Balance at December 31, 2004
Severance
Costs
Other
Total
Number of
Employees
Terminated
$ 88,242 $ 6,401 $ 94,643 1,460
(52,118) (1,249) (53,367) (426)
(7,900) - (7,900) (147)
28,224 5,152 33,376 887
(6,563) (2,641) (9,204) (118)
504 - 504 -
(271) - (271) -
21,894 2,511 24,405 769
(4,122) (27)
(3,499)
(21) -
(21)
(20,262)
(742)
(18,374)
$ - $ - $ - -
(623)
-
(1,888)
During the fourth quarter of 2004, the Company determined that, due to the passage of time since the
acquisition, and also given different market conditions, its remaining restructuring plans for businesses
acquired from General Semiconductor had significantly changed. As a result, the remaining liability of
$20,262,000 was reversed against goodwill. The Company continues to seek the most efficient use of its
assets and employees, and should these operations be restructured in the future, the Company would need
to record a charge against earnings.
During the fourth quarter of 2004, the Company closed its Colmar, France small-signal diode facility,
which had been acquired in the November 2001 General Semiconductor acquisition. This restructuring
plan was substantially different than the original plan to relocate certain product lines. As more fully
described in Note 4, the Company recorded a restructuring charge of $26,217,000 during 2004 related to
this plant closure. Also during the fourth quarter of 2004, the Company laid off 126 workers at one of its
Taiwan facilities, which had been acquired in the November 2001 General Semiconductor acquisition.
This restructuring plan, while substantially the same in scope as the original plan, was significantly delayed
due to changing market conditions. Accordingly, the Company recorded a restructuring charge of
$2,904,000 during 2004 as part of this lay off.
Pending Acquisitions
On December 22, 2004, the Company signed a definitive merger agreement pursuant to which Vishay will
acquire all of the outstanding capital stock of SI Technologies, Inc. for approximately $17,650,000, plus
assumption of debt. Completion of the merger is subject to certain closing conditions, including the
approval of the stockholders of SI Technologies.
See also Note 19.
F-22
Note 3 – Goodwill and Other Intangible Assets
The changes in the carrying amounts of goodwill by segment for the years ended December 31, 2004 and
2003 were as follows (in thousands):
Actives
Passives
Total
Balance at January 1, 2003
$ 861,201
$ 495,092
$ 1,356,293
Purchase price allocation adjustments
Other, including currency translation adjustments
Balance at December 31, 2003
-
22,191
883,392
66,347
21,883
583,322
66,347
44,074
1,466,714
Goodwill acquired during the year
Purchase price allocation adjustments
Other, including currency translation adjustments
Balance at December 31, 2004
1,500
(32,242)
(106)
$ 852,544
8,600
(16,247)
6,902
$ 582,577
10,100
(48,489)
6,796
$ 1,435,121
Passives segment goodwill is allocated to the Other Passives and Measurements Group reporting units for
SFAS No. 142 evaluation purposes. Goodwill allocated to the Other Passives reporting unit at December
31, 2004 and 2003 was $543,568,000 and $541,909,000, respectively. Goodwill allocated to the
Measurements Group reporting unit at December 31, 2004 and 2003 was $39,009,000 and $41,413,000,
respectively.
Purchase price allocation adjustments recorded in 2003 are attributable to the finalization of the purchase
price allocation for BCcomponents and the five Measurements Group companies. Purchase price
allocation adjustments recorded in 2004 are attributable to changes in estimates related to restructuring
activities (see Note 2) and reversals of deferred tax related items established in purchase accounting.
F-23
Note 3 – Goodwill and Other Intangible Assets (continued)
Other intangible assets were as follows (in thousands):
Intangible Assets Subject to Amortization
(Definite Lived):
Patents and acquired technology
Capitalized software
Noncompete agreements
Accumulated amortization:
Patents and acquired technology
Capitalized software
Noncompete agreements
Net Intangible Assets Subject to Amortization
Intangible Assets Not Subject to Amortization
(Indefinite Lived):
Tradenames
December 31,
2004
2003
$ 79,801
37,612
2,488
119,901
$ 79,715
30,005
2,421
112,141
(23,753)
(26,742)
(1,600)
(52,095)
67,806
(15,330)
(23,810)
(1,200)
(40,340)
71,801
59,991
$ 127,797
63,349
$ 135,150
Amortization expense was $9,052,000, $11,634,000, and $6,429,000 for the years ended December 31,
2004, 2003, and 2002, respectively. Estimated annual amortization expense for each of the next five years
is as follows: 2005 – $10,627,000; 2006 – $9,933,000; 2007 – $9,933,000; 2008 – $9,933,000; and 2009 –
$8,791,000.
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs
Restructuring and severance costs reflect the cost reduction programs currently being implemented by the
Company. These include the closing of facilities and the termination of employees. Severance costs also
include executive severance and charges for the fair value of stock options of certain former employees
which were modified such that they did not expire at termination. Restructuring costs are expensed during
the period in which the Company determines it will incur those costs and all requirements of accrual are
met. Because these costs are recorded based upon estimates, actual expenditures for the restructuring
activities may differ from the initially recorded costs. If the initial estimates are too low or too high, the
Company could be required either to record additional expenses in future periods or to reverse part of the
previously recorded charges. Asset write-downs are principally related to buildings and equipment that
will not be used subsequent to the completion of restructuring plans presently being implemented, and
cannot be sold for amounts in excess of carrying value.
F-24
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs (continued)
Year ended December 31, 2004
The following table summarizes restructuring programs initiated during the year ended December 31, 2004
(in thousands, except for number of employees):
Severance
Costs
Other
Asset
Exit Costs Write-downs Terminated
Employees
to be
Colmar, France facility closure
Other European and Asian programs
U.S. programs
Total
$ 24,236
17,932
912
$ 43,080
$ 1,981
500
1,689
$ 4,170
$ 2,513
17,119
7,664
$ 27,296
292
467
105
864
During the year ended December 31, 2004, the Company decided to close the Colmar, France small-signal
diode assembly facility and transfer all production to lower-labor-cost regions. The Colmar facility was
acquired as part of Vishay’s acquisition of General Semiconductor, Inc. in November 2001. At that time,
Vishay planned to transfer certain product manufacturing from Colmar to other Vishay locations. The
Company’s plans were expanded such that it will shift production of all products manufactured at Colmar.
The Company reached an agreement with the workers’ council regarding severance in late October 2004.
Substantially all equipment from the Colmar facility has been or will be transferred to other Vishay
locations, and remaining equipment that will not be transferred was written off. No material gain or loss is
anticipated related to the eventual sale of the building or land at Colmar.
The employees terminated or to be terminated under the U.S. and other European and Asian restructuring
programs were employed in technical, production, administrative or support functions at locations in the
United States, Germany, France, Austria, the United Kingdom, Portugal, the Netherlands, Hungary, the
Czech Republic, Israel, Taiwan, and Japan.
Asset write-downs included amounts to reduce the carrying value of certain buildings which had been
vacated as part of restructuring activities, based on expected future selling prices. At December 31, 2004,
these buildings had a carrying value of $10,621,000, which has been reclassified to “other assets” as assets
held-for-sale. Additionally, these charges included the write-down to salvage value of certain equipment
which the Company has determined will not be used at other Vishay locations subsequent to the execution
of its restructuring plans.
Activity related to these restructuring programs initiated during 2004 is as follows (in thousands, except for
number of employees):
Severance
Costs
Other
Exit Costs
Total
Employees
to be
Terminated
Restructuring and severance costs
Utilized
Foreign currency translation
Balance at December 31, 2004
$ 43,080
(22,579)
931
$ 21,432
$ 4,170
(1,315)
-
$ 2,855
$ 47,250
(23,894)
931
$ 24,287
864
(637)
-
227
F-25
Note 4 – Restructuring and Severance Costs and Related Asset Write-Downs (continued)
Substantially all of the remaining restructuring liability, currently shown in other accrued expenses, is
expected to be paid by December 31, 2005. The payment terms related to these programs varies, usually
based on local customs and laws. Most amounts are paid in a lump sum at termination, while some
payments are structured to be paid in installments.
Year ended December 31, 2003
The Company recorded restructuring and severance costs of $28,546,000 for the year ended December 31,
2003. Restructuring of European and Asian operations included $23,007,000 of employee termination costs
covering 546 technical, production, administrative and support employees located in Germany, France,
Hungary, Portugal, the United Kingdom, Austria and the Far East. The remaining $5,539,000 of
restructuring and severance costs relates to termination costs for 162 technical, production, administrative
and support employees located in the United States. Additionally, the Company recorded $1,014,000 of
asset write-downs for buildings no longer in use. At December 31, 2003, approximately $15,974,000 of
severance costs were accrued. Approximately $3.6 million was accrued related to these programs at
December 31, 2004.
Year ended December 31, 2002
Restructuring and severance costs were $18,607,000 for the year ended December 31, 2002. Restructuring
of European and Israeli operations included $10,698,000 of employee termination costs covering
approximately 778 technical, production, administrative and support employees located in the Czech
Republic, France, Hungary, Israel, Portugal, and Austria. In the United States, $7,909,000 of restructuring
and severance costs includes termination costs for approximately 660 technical, production, administrative
and support employees. Additionally, asset write-downs of $12,363,000 were recorded to reduce the
carrying value of buildings and equipment that were no longer in use to salvage value. At December 31,
2003, approximately $2,818,000 of severance costs were accrued. Substantially all costs associated with
restructuring programs initiated in 2002 have been paid as of December 31, 2004.
Note 5 – Income Taxes
Earnings (loss) before income taxes and minority interest consists of the following components (in
thousands):
Domestic
Foreign
Years ended December 31,
2003
2004
2002
$ (3,507)
73,524
70,017
$
$ (20,119)
66,545
46,426
$
$ (59,882)
(40,163)
(100,045)
$
F-26
Note 5 – Income Taxes (continued)
Significant components of income taxes are as follows (in thousands):
Current:
Federal
State and local
Foreign
Deferred:
Federal
State and local
Foreign
Years ended December 31,
2003
2004
2002
$ 39
1,097
12,542
13,678
$ (1,389)
4,977
2,141
5,729
$ (41,991)
6,111
776
(35,104)
(2,472)
(1,991)
4,514
51
$ 13,729
(8,640)
12,767
1,672
5,799
$ 11,528
30,590
(16,152)
3,766
18,204
$ (16,900)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant
components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Pension and other retiree obligations
Net operating loss carryforwards
Tax credit carryforwards
Other accruals and reserves
Total gross deferred tax assets
Less valuation allowance
Deferred tax liabilities:
Tax over book depreciation
Intangible assets other than goodwill
Investment in subsidiaries
Other - net
Total gross deferred tax liabilities
December 31,
2004
2003
$ 26,294
185,662
19,922
67,214
299,092
(94,923)
204,169
$ 48,229
178,029
19,204
69,873
315,335
(107,388)
207,947
69,472
13,172
22,795
26,978
132,417
92,094
24,503
3,144
28,343
148,084
Net deferred tax assets
$ 71,752
$ 59,863
F-27
Note 5 – Income Taxes (continued)
A reconciliation of income tax expense at the U.S. federal statutory income tax rate to actual income tax
provision (benefit) is as follows (in thousands):
Tax at statutory rate
State income taxes, net of U.S. federal
tax benefit
Effect of foreign operations
Settlement of tax audit
Effect of statutory rate change on deferred taxes
Other
Years ended December 31,
2003
2004
2002
$ 24,506
$ 16,249
$ (35,016)
(598)
(921)
(10,550)
2,455
(1,163)
$ 13,729
3,319
(7,816)
-
-
(224)
$ 11,528
2,540
11,090
-
-
4,486
$ (16,900)
At December 31, 2004, the Company had the following significant net operating loss carryforwards for tax
purposes (in thousands):
Austria
Belgium
France
Germany
Israel
Netherlands
Portugal
United States
$ 7,389
95,072
14,163
88,527
112,917
71,179
3,419
198,792
Expires
No expiration
No expiration
No expiration
No expiration
No expiration
No expiration
2005 – 2009
2021 – 2024
Approximately $22,900,000 of the German carryforward resulted from the Company’s acquisition of
Roederstein in 1993 and approximately $171,621,000 of the carryforwards in Austria, Belgium, and the
Netherlands resulted from the Company’s acquisition of BCcomponents in 2002.
In total, valuation allowances of $78,808,000 and $96,061,000 have been recorded at December 31, 2004
and 2003, respectively, for deferred tax assets related to foreign net operating loss carryforwards. Of this,
$57,175,000 and $55,790,000, as of December 31, 2004 and 2003, respectively, are valuation allowances,
recorded through goodwill, for the acquired net operating losses. If tax benefits are recognized in the future
for utilization of these acquired net operating losses, the benefits of such loss utilization will be recorded as
a reduction to goodwill. In 2004 and 2003, tax benefits recognized through reductions of the valuation
allowance recorded through goodwill were $5,071,000 and $0, respectively.
At December 31, 2004, the Company had the following significant tax credit carryforwards available
(in thousands):
Federal Alternative Minimum Tax
California Investment Credit
California Research Credit
$ 13,831
2,996
4,210
Expires
No expiration
2005 – 2010
No expiration
F-28
Note 5 – Income Taxes (continued)
At December 31, 2004, no provision had been made for U.S. federal and state income taxes on
approximately $1,042,116,000 of foreign earnings, which are expected to be reinvested outside of the
United States indefinitely. Upon distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits), state
income taxes, 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.
We continue to evaluate the impact of potential repatriation of earnings and cash pursuant to the American
Jobs Creation Act of 2004, which was signed into law in October 2004. At the present time, we expect our
cash and profits generated by foreign subsidiaries to continue to be reinvested indefinitely.
Income taxes paid, net of amounts refunded, were net payments of $3,780,000 for the year ended
December 31, 2004, a net refund of $31,626,000 for the year ended December 31, 2003, and a net payment
of $2,910,000 for the year ended December 31, 2002.
The Company’s U.S. income tax returns for the years ended 1998 through 2002 are presently under
examination by the Internal Revenue Service. Management believes that potential tax assessment plus
related interest and penalties, if any, have been sufficiently provided for in the consolidated financial
statements.
F-29
Note 6 – Long-Term Debt
Long-term debt consists of the following (in thousands):
Convertible subordinated notes, due 2023
Liquid Yield OptionTM Notes, due 2021
Exchangeable unsecured notes, due 2102
Revolving credit facility
Other debt
Less current portion
Convertible subordinated notes, due 2023
December 31,
2004
2003
$ 500,000
132,213
105,000
11,000
3,983
752,196
51
$ 752,145
$ 500,000
229,206
105,000
-
3,682
837,888
1,282
$ 836,606
On August 6, 2003, the Company sold $450 million aggregate principal amount of 3-5/8% convertible
subordinated notes due 2023 and granted the initial purchasers an option to purchase, within 30 days of the
date of the offering memorandum relating to the notes, an additional $50 million of the notes. This option
was exercised, and the additional $50 million of notes was issued on September 3, 2003. The notes pay
interest semiannually.
Holders may convert the notes into Vishay common stock prior to the close of business on August 1, 2023
if (1) the sale price of Vishay common stock reaches 130% of the conversion price for a specified period;
(2) the trading price of the notes falls below 98% of the average last reported sales price of Vishay common
stock multiplied by the conversion rate for a specified period; (3) the notes have been called for
redemption; (4) the credit ratings assigned to the notes are lowered by two or more levels from their initial
ratings; or (5) specified corporate transactions occur. None of these conditions had occurred as of
December 31, 2004. The conversion price of $21.28 is equivalent to a conversion rate of 46.9925 shares
per $1,000 principal amount of notes.
The notes are subordinated in right of payment to all of the Company’s existing and future senior
indebtedness and are effectively subordinated to all existing and future liabilities of its subsidiaries. The
notes may be redeemed at the Company’s option beginning August 1, 2010 at a redemption price equal to
100% of the principal amount plus accrued and unpaid interest, if any. Holders of the notes will have the
right to require the Company to repurchase all or some of their notes at a purchase price equal to 100% of
their principal amount of the notes, plus accrued and unpaid interest, if any, on August 1, 2008, August 1,
2010, August 1, 2013, and August 1, 2018. In addition, holders of the notes will have the right to require
the Company to repurchase all or some of their notes upon the occurrence of certain events constituting a
fundamental change. On any required repurchase, the Company may choose to pay the purchase price in
cash or shares of Vishay common stock or any combination of cash and Vishay common stock.
A significant portion of the proceeds of this debt issuance was used to repurchase other debt. The early
extinguishment of a portion of the Liquid Yield Option™ Notes (“LYONs”) and the General
Semiconductor convertible subordinated notes resulted in a pretax loss of $9,910,000 in 2003, which
included a premium on redemption of approximately $7.3 million and the write-off of deferred financing
costs of approximately $2.6 million.
F-30
Note 6 – Long-Term Debt (continued)
Liquid Yield Option™ Notes, due 2021
On June 4, 2001, the Company completed a private placement of $550,000,000 face amount LYONs due
2021. In connection with the sale of the LYONs, the Company received net proceeds of $294,096,000 and
used the proceeds to pay down existing bank debt. Each LYON has a $1,000 face amount and was offered
at a price of $551.26 (55.126% of the principal amount at maturity). The Company will not pay interest on
the LYONs prior to maturity unless contingent interest becomes payable.
The issue price of each LYON represents a yield to maturity of 3.00%, excluding any contingent interest.
The LYONs are subordinated in right of payment to all of the Company’s existing and future senior
indebtedness.
At any time on or before the maturity date, the LYONs are convertible into Vishay common stock at a rate
of 17.6686 shares of common stock per $1,000 principal amount at maturity. The conversion rate may be
adjusted under certain circumstances, but it will not be adjusted for accrued original issue discount.
The Company is required to pay contingent interest to the holders of the LYONs during the six-month
period commencing June 4, 2006 and during any six-month period thereafter if the average market price of
a LYON for a certain measurement period immediately preceding the applicable six-month period equals
120% or more of the sum of the issue price and accrued original issue discount for such LYON. The
amount of contingent interest payable during any six-month period will be the sum of any contingent
interest payable in the first and second three-month periods during such six-month period. During any
three-month period in which contingent interest becomes payable, the contingent interest payable per
LYON for such period will be equal to the greater of (1) 0.0625% of the average market price of a LYON
for the measurement period referred to above or (2) the sum of all regular cash dividends paid by the
Company per share on its common stock during such three-month period multiplied by the number of
shares of common stock issuable upon conversion of a LYON at the then-applicable conversion rate.
The Company used approximately $97.4 million of the proceeds of the 2003 offering of the convertible
subordinated notes to fund the purchase of approximately $97.0 million accreted principal amount ($165.0
million face amount) of its LYONs.
The holders of the LYONs had the option to require the Company to purchase all or a portion of their
LYONs on June 4, 2004 at their accreted value of $602.77 per $1,000 principal amount at maturity.
Pursuant to the terms of the notes, the Company could choose to pay the purchase price in cash, Vishay
common stock, or a combination of both. On May 5, 2004, the Company notified holders of the notes that
it had elected to pay the purchase price for the notes on the June 4, 2004 purchase date in shares of
common stock. Each holder of LYONs that exercised the option received 32.6669 shares per $1,000
principal amount at maturity, determined by dividing the total amount of cash the holder would have been
entitled to receive had the purchase price been paid in cash by the average market price of a share of
common stock for the five day trading period ending on the third business day prior to the purchase date,
which was the period from May 25, 2004 to and including June 1, 2004. This average market price was
$18.452.
Holders of $169,435,000 principal amount at maturity ($102,130,000 accreted principal amount) exercised
their option. The Company issued 5,534,905 shares of common stock. The transaction resulted in a non-
cash charge to equity of $2,540,000 for the write-off of a portion of unamortized debt issuance costs
associated with the 2001 issuance of the LYONs.
F-31
Note 6 – Long-Term Debt (continued)
The remaining LYONs holders also have the right to require Vishay to repurchase the notes on June 4,
2006, June 4, 2011, and June 4, 2016 at their accreted value on these dates, as set forth in the notes. The
Company may choose to pay the purchase price in cash, Vishay common stock, or a combination of both.
The Company may redeem for cash all or a portion of the LYONs at any time on or after June 4, 2006 at
the prices set forth in the notes.
Exchangeable unsecured notes, due 2102
On December 13, 2002, the Company completed the acquisition of BCcomponents Holdings B.V. In
connection with this acquisition, $105,000,000 in principal amount of BCcomponents’ mezzanine
indebtedness and certain other securities of BCcomponents were exchanged for $105,000,000 principal
amount of floating rate unsecured loan notes of the Company, due 2102. The notes bear interest at LIBOR
plus 1.5% through December 31, 2006 and at LIBOR thereafter. The interest rate could be further reduced
to 50% of LIBOR after December 31, 2010 if the price of the Company’s common stock trades above a
specified target price, as provided in the notes. The notes are subject to a put and call agreement under
which the holders may at any time put the notes to the Company in exchange for 6,176,471 shares of the
Company’s common stock in the aggregate, and the Company may call the notes in exchange for cash or
for shares of its common stock after 15 years from the date of issuance.
Revolving credit facility
In July 2003, Vishay agreed with the lenders under its secured revolving credit facility to an amendment
and restatement of the agreement governing the facility. The maximum availability under the facility, in
light of the Company’s anticipated liquidity needs, was changed from $500 million to $400 million, and the
final maturity of the facility was extended from June 2005 to May 2007. The restatement decreases the
Company’s minimum tangible net worth requirement to $850 million plus 50% of net income (without
offset for losses) and 75% of net proceeds of equity offerings from July 1, 2003, eliminates the covenant on
minimum earnings before interest and tax, permits securitization of up to $200 million of non-U.S.
accounts receivable, allows for the release of all collateral (other than subsidiary stock and pledges by the
Company and its subsidiaries of intercompany notes) under certain circumstances and creates an event of
default upon the occurrence of a fundamental change as defined under the Company’s convertible
subordinated notes due 2023. The Company used approximately $130 million of the proceeds of the
offering of the convertible subordinated notes to repay amounts outstanding under the revolving credit
facility.
On May 24, 2004, the Company entered into a Consent and First Amendment to the revolving credit
facility, effective as of May 14, 2004. The amendment provides for lender consent to the corporate
restructuring of certain subsidiaries of Vishay, permits subsidiary guarantees of certain equipment leases
and revises and clarifies the conditions under which Vishay and its subsidiaries may extend loans to one
another. In addition, in connection with the execution of the amendment, certain additional Vishay
subsidiaries, which have become “significant subsidiaries” as that term is defined under the credit
agreement, have become parties to various security and guaranty documents. Effective August 6, 2004,
the Company entered into a second amendment, which made certain additional technical changes to the
collateral arrangements under the revolving credit agreement.
Interest on the revolving credit facility is payable at prime or other variable interest rate options. The
Company is required to pay facility fees. As of December 31, 2004, $11,000,000 was outstanding under the
revolving credit facility. No amounts were outstanding under the revolving credit facility at December 31,
2003. Letters of credit totaling $7,314,000 and $6,105,000 were issued under the revolving credit facility
at December 31, 2004 and 2003, respectively. At December 31, 2004, $381,686,000 was available under
the credit facility.
F-32
Note 6 – Long-Term Debt (continued)
Borrowings under the revolving credit facility are secured by pledges of stock in certain significant
subsidiaries and certain guarantees by significant subsidiaries. The subsidiaries would be required to
perform under the guarantees in the event that the Company failed to make principal or interest payments
under the revolving credit facility. Our Siliconix subsidiary is not a party to the revolving credit agreement.
Certain of the Company’s subsidiaries, not including Siliconix, are permitted to borrow under the revolving
credit facility. Any borrowings by these subsidiaries under the revolving credit facility are guaranteed by
Vishay, including the borrowing of an Asian subsidiary of $11,000,000 in December 2004. The revolving
credit facility restricts the Company from paying cash dividends and requires the Company to comply with
other covenants, including the maintenance of specific financial ratios.
Other Borrowings Information
Aggregate annual maturities of long-term debt, based on the terms stated in the respective debt agreements,
are as follows: 2005 – $51,000; 2006 – $0; 2007 – $11,272,000; 2008 – $95,000; 2009 – $0; and thereafter
– $740,778,000. As described above, LYONs with an aggregate accreted principal amount of $132.2
million, due by their terms in 2021, may be put to the Company in 2006 at an aggregate price of
approximately $138 million. Also, as described above, the convertible subordinated notes, due by their
terms in 2023, may be put to the Company in 2008 at an aggregate price of $500 million.
At December 31, 2004, the Company had committed and uncommitted short-term credit lines with various
U.S. and foreign banks aggregating approximately $73.6 million, of which approximately $69.9 million
was unused. The weighted average interest rate on short-term borrowings outstanding as of December 31,
2004 and 2003 was 4.9% and 5.1%, respectively.
Interest paid was $26,902,000, $30,760,000, and $17,977,000 for the years ended December 31, 2004,
2003, and 2002, respectively.
F-33
Note 7 – Stockholders’ Equity
The Company’s Class B common stock carries ten votes per share while the common stock carries one vote
per share. Class B shares are transferable only to certain permitted transferees while the common stock is
freely transferable. Class B shares are convertible on a one-for-one basis at any time into shares of common
stock.
On August 10, 2000, the Board of Directors of the Company authorized the repurchase of up to 5,000,000
shares of its common stock from time to time in the open market. As of December 31, 2004, the Company
had repurchased 248,500 shares for a total of $6,616,000.
Unearned compensation relating to common stock issued under employee stock plans is being amortized
over periods ranging from three to five years. At December 31, 2004, 305,126 shares were available for
issuance under stock plans.
At December 31, 2004, the Company had reserved shares of common stock for future issuance as follows:
Employee stock plan
Common stock options outstanding
Common stock options available to grant
Common stock warrants
Exchangeable unsecured notes, BCcomponents
Convertible subordinated notes, LYONs
Convertible subordinated notes, due 2023
Phantom stock outstanding
Phantom stock available to grant
Conversion of Class B common stock
305,126
8,100,000
1,296,000
8,823,529
6,176,471
3,808,732
23,496,250
30,000
270,000
14,679,440
66,985,548
F-34
Note 8 – Other Income (Expense)
On February 13, 2002, a fire occurred at the Company’s Electro-Films, Inc. facility located in Warwick,
Rhode Island causing a production stoppage. The Company received insurance proceeds based on its costs
to replace the assets, which were in excess of the book value of the assets at the time of the fire. This
insurance claim has been resolved, and the Company recognized a gain of $33,906,000 in 2003.
As described in Note 6, on August 6, 2003, the Company issued 3-5/8% convertible subordinated notes due
2023. The proceeds of the offering were utilized to redeem a portion of the outstanding LYONs and all of
the General Semiconductor notes, which resulted in a pretax loss of $9,910,000 in 2003.
The caption “Other” on the consolidated statements of operations consists of the following (in thousands):
Foreign exchange losses
Gain (loss) on interest rate swap
Interest income
Dividend income
Losses on disposal of property
and equipment
Royalty income
Incentive from Chinese government
Favorable settlement of note receivable
Other
Years ended December 31,
2003
2002
2004
$ (2,310)
-
8,702
490
(1,697)
1,078
2,377
3,100
38
11,778
$
$ (5,235)
3,783
7,228
96
(2,521)
-
-
-
(1,062)
2,289
$
$ (777)
(115)
7,952
100
(296)
-
1,400
-
400
8,664
$
See Note 14 for a description of the Company’s interest rate swap agreements.
Note 9 – Other Accrued Expenses
Other accrued expenses consist of the following (in thousands):
Restructuring
Sales returns and allowances
Accrued loss on tantalum purchase
commitment - current portion
Other
December 31,
2004
2003
$ 30,518
43,254
$ 62,859
41,761
33,810
114,376
221,958
$
31,675
145,984
282,279
$
F-35
Note 10 – Other Comprehensive Income (Loss)
The cumulative balance of each component of other comprehensive income (loss) and the income tax
effects allocated to each component are as follows:
December 31, 2002
Minimum pension liability
adjustment
Currency translation adjustment
Loss on derivative
financial instruments
December 31, 2003
Minimum pension liability
adjustment
Currency translation adjustment
Loss on derivative
financial instruments
Derivative financial instruments:
Loss
Reclassification adjustment
for amounts realized
December 31, 2004
Minimum pension liability
adjustment
Currency translation adjustment
Unrealized gain on
available-for-sale securities
Reclassification adjustment
for amounts realized
Beginning Before-Tax
Balance
Amount
Tax
Effect
Net-of-Tax
Amount
Ending
Balance
$ (13,694)
(116,072)
$ (35,562)
64,343
$ 12,332
-
$ (23,230)
64,343
$ (36,924)
(51,729)
(645)
$ (130,411)
(2,291)
$ 26,490
474
$ 12,806
(1,817)
$ 39,296
(2,462)
$ (91,115)
$ (36,924)
(51,729)
$ 416
111,369
$ 4,600
-
$ 5,016
111,369
$ (31,908)
59,640
-
2,495
(873)
1,622
1,622
(2,462)
(1,321)
-
(1,321)
(3,783)
-
$ (91,115)
3,783
$ 116,742
-
$ 3,727
3,783
$ 120,469
3,783
$ 29,354
$ (31,908)
59,640
$ 33,139
85,549
$ (12,989)
-
$ 20,150
85,549
$ (11,758)
145,189
1,622
574
(201)
373
1,995
-
$ 29,354
(2,606)
$ 116,656
912
$ (12,278)
(1,694)
$ 104,378
(1,694)
$ 133,732
F-36
Note 11 – Pensions and Other Postretirement Benefits
The Company maintains various retirement benefit plans. The following table summarizes amounts
recorded on the consolidated balance sheets associated with these plans:
Prepaid pension costs (included in "Other Assets"):
U.S. pension plans
Intangible pension asset (included in "Other Assets"):
U.S. pension plans
Foreign pension plans
Total intangible pension asset
Accrued pension and other postretirement costs:
U.S. pension plans
Non-U.S. pension plans
U.S. other postretirement plans
Non-U.S. other postretirement plans
Other retirement obligations
Total accrued pension and other postretirement costs
Accumulated other comprehensive income:
U.S. pension plans
Non-U.S. pension plans
Total accumulated other comprehensive income*
Net amounts recognized
December 31,
2004
2003
$ 47,249
$ -
$ 3,436
119
$ 3,555
$ 243
237
$ 480
$ (17,136)
(175,006)
(19,704)
(9,162)
(11,134)
$ (232,142)
$ 6,217
13,931
20,148
(161,190)
$
$
$ (26,152)
(161,996)
(19,179)
(9,738)
(22,885)
$ (239,950)
$
41,611
11,676
53,287
(186,183)
$
$
* - Amounts included in accumulated other comprehensive income are presented in this table pretax.
Defined Benefit Pension Plans
The Company maintains several defined benefit pension plans which cover substantially all full-time
U.S. employees. The U.S. pension plan of BLH is included as of the date of acquisition, July 31, 2002.
The Company provides pension and similar benefits to employees of certain non-U.S. subsidiaries
consistent with local practices. Certain non-U.S. subsidiaries of the Company have defined benefit pension
plans. The pension plans of BCcomponents are included as of the date of acquisition, December 13, 2002.
Pension benefits earned are generally based on years of service and compensation during active
employment.
The Company also maintains pension plans which provide supplemental defined benefits primarily to U.S.
employees whose benefits under the qualified pension plan are limited by the Employee Retirement
Security Act of 1974 and the Internal Revenue Code. These non-qualified plans include both contributory
and non-contributory plans, and are considered to be unfunded. The Company maintains a non-qualified
trust, referred to as a “rabbi” trust, to fund benefit payments under one of these plans. Rabbi trust assets are
subject to creditor claims under certain conditions and are not the property of employees. Therefore, they
are accounted for as other noncurrent assets. Assets held in trust related to the non-qualified pension plan
at December 31, 2004 and 2003 were approximately $8 million and $7 million, respectively.
In 2004, the Company entered into an employment agreement with Dr. Felix Zandman, its Chairman and
then-Chief Executive Officer. Pursuant to this agreement, the Company will provide an annual retirement
benefit equal to 50% of his average base pay and bonus for the five years preceding his retirement (but not
to exceed $1 million annually). These pension benefits are unfunded and fully vested. The obligations
represent prior service costs which will be amortized over the remaining expected service period.
F-37
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth a reconciliation of the benefit obligation, plan assets, and accrued benefit cost
related to U.S. and non-U.S. pension plans (in thousands):
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost (adjusted for actual
employee contributions)
Interest cost
Plan amendments and initiations
Contributions by participants
Actuarial losses
Curtailment gains
Benefits paid
Currency translation
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning
of year
Actual return on plan assets
Company contributions
Plan participants’ contributions
Benefits paid
Currency translation
Fair value of plan assets at end of year
Funded status
Unrecognized net actuarial loss
Unamortized prior service cost
Unrecognized net transition obligation
Net amount recognized
Reconciliation of net amount recognized:
Prepaid pension asset
Intangible pension asset
Accrued benefit liability
Accumulated other comprehensive loss
Net amount recognized
December 31, 2004
U.S.
Plans
Non-U.S.
Plans
December 31, 2003
U.S.
Plans
Non-U.S.
Plans
$ 227,850
$ 208,290
$ 214,318
$ 168,552
3,748
14,544
4,417
1,849
14,545
-
(15,139)
-
$ 251,814
4,259
9,908
429
-
8,952
(91)
(12,592)
13,840
$ 232,995
3,394
14,057
-
1,641
9,689
-
(15,249)
-
$ 227,850
4,011
8,866
-
-
8,941
(163)
(7,877)
25,960
$ 208,290
$ 191,918
22,149
30,290
1,849
(15,139)
-
$ 231,067
$ 32,048
637
12,932
-
(12,592)
2,383
$ 35,408
$ 147,296
30,149
28,081
1,641
(15,249)
-
$ 191,918
$ 24,175
557
11,408
-
(7,877)
3,785
$ 32,048
$ (20,747)
56,866
3,647
-
$ 39,766
$ (197,587)
36,631
-
-
$ (160,956)
$ (35,932)
51,391
-
243
$ 15,702
$ (176,242)
26,159
-
-
$ (150,083)
$
47,249
3,436
(17,136)
6,217
39,766
$
-
$
119
(175,006)
13,931
(160,956)
$
-
$
243
(26,152)
41,611
15,702
$
-
$
237
(161,996)
11,676
(150,083)
$
Accumulated benefit obligation
$
238,407
$
209,169
$
218,070
$
206,181
F-38
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth additional information regarding plans for which the accumulated benefit
obligation exceeds plan assets (in thousands):
Projected benefit obligation
Accumualted benefit obligation
Fair value of plan assets
$
95,361
92,148
75,394
December 31, 2004
U.S.
Plans
$
Non-U.S.
Plans
232,995
209,169
35,408
December 31, 2003
U.S.
Plans
227,850
218,070
191,918
Non-U.S.
Plans
208,290
206,181
32,048
$
$
The following table sets forth the components of net periodic pension cost (in thousands):
2004
Years ended December 31,
2003
2002
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
$ 5,597
$ 4,259
$ 5,035
$ 4,011
$ 5,424
$ 3,049
1,849
3,748
14,544
-
4,259
9,908
1,641
3,394
14,057
-
4,011
8,866
1,991
3,433
13,598
-
3,049
8,018
(16,181)
(1,075)
(12,521)
(671)
(14,227)
(698)
3,102
1,317
4,285
784
1,474
768
1,014
-
32
23
-
-
-
$ 6,227
67
-
$ 14,476
(1)
-
$ 9,246
63
(163)
$ 12,913
(201)
-
$ 4,077
-
-
64
(1,336)
$ 9,865
Annual service cost
Less employee
contributions
Net service cost
Interest cost
Expected return on
plan assets
Amortization of actuarial
losses (gains)
Amortization of
prior service cost
Amortization of
transition obligation
Curtailment gains
Net periodic benefit cost
See Note 10 for the pretax, tax effect and after tax amounts included in other comprehensive income during
the years ended December 31, 2004, 2003, and 2002.
The following weighted average assumptions were used to determine benefit obligations at December 31 of
the respective years:
Discount rate
Rate of compensation increase
2004
2003
U.S.
Plans
6.00%
4.00%
Non-U.S.
Plans
4.75%
2.61%
U.S.
Plans
6.25%
4.00%
Non-U.S.
Plans
4.91%
2.79%
F-39
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following weighted-average assumptions were used to determine the net periodic pension costs for the
years ended December 31, 2004 and 2003:
Discount rate
Rate of compensation increase
Expected return on plan assets
Years ended December 31,
2004
2003
U.S.
Plans
6.25%
4.00%
8.50%
Non-U.S.
Plans
4.91%
2.79%
3.44%
U.S.
Plans
6.75%
4.50%
8.50%
Non-U.S.
Plans
5.44%
3.01%
3.44%
The plans’ expected return on assets is based on management’s expectations of long-term average rates of
return to be achieved by the underlying investment portfolios. In establishing this assumption, management
considers historical and expected returns for the asset classes in which the plans are invested, advice from
pension consultants and investment advisors, and current economic and capital market conditions.
The investment mix between equity securities and fixed income securities is based upon achieving a
desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed
income securities. The Company’s U.S. defined benefit plans are invested in diversified portfolios of
public-market equity and fixed income securities. Investment allocations are made across a range of
markets, industry sectors, capitalization sizes, and, in the case of fixed income securities, maturities and
credit quality. The target allocation is approximately 60% invested in equity securities, 30% invested in
debt securities, and 10% invested in cash and cash equivalents. The Company’s non-U.S. defined benefit
plans are largely invested in cash, with a small percentage invested in fixed income securities, based on
local laws and customs. The plans do not invest in securities of Vishay or its subsidiaries.
Plan assets are comprised of:
Equity securities
Fixed income securities
Cash and cash equivalents
Total
December 31, 2004
U.S.
Plans
Non-U.S.
Plans
December 31, 2003
U.S.
Plans
Non-U.S.
Plans
61%
24%
15%
100%
0%
9%
91%
100%
65%
30%
5%
100%
0%
9%
91%
100%
Estimated future benefit payments are as follows (in thousands):
2005
2006
2007
2008
2009
2010-2014
U.S.
Plans
$
13,590
13,827
15,382
16,005
16,552
89,774
Non-U.S.
Plans
$
8,528
8,920
9,998
11,539
12,455
77,214
The Company anticipates making contributions of approximately $3 million and $9 million, respectively, to
its defined benefit U.S. and Non-U.S. pension plans in 2005.
F-40
Note 11 – Pensions and Other Postretirement Benefits (continued)
Other Postretirement Benefits
In the U.S., the Company maintains two unfunded non-pension postretirement plans funded as costs are
incurred. One plan is contributory, with employee contributions adjusted for general inflation or inflation
in costs under the plan. The plan was amended in 1993 to cap employer contributions at 1993 levels. The
second plan covers all full-time U.S. General Semiconductor employees not covered by a collective
bargaining agreement who meet defined age and service requirements. This plan is the primary provider of
medical benefits for retirees up to age 65, after which Medicare becomes the primary provider. The
Company also maintains two unfunded non-pension postretirement plans at two European subsidiaries.
In 2004, the Company entered into formal employment agreements with six of its executives. These
employment agreements provide medical benefits for these executives and their surviving spouses for life,
up to a $15,000 annual premium value per person. These benefits are fully vested, and accordingly, the
obligations represent prior service costs which will be amortized over the average remaining expected
services period for these six executives.
The following table sets forth a reconciliation of the benefit obligation, plan assets, and accrued benefit cost
related to U.S. and non-U.S. non-pension defined benefit postretirement plans (in thousands):
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan amendments and initiations
Actuarial losses (gains)
Curtailment gains
Benefits paid
Acquisitions
Currency translation
Benefit obligation at end of year
December 31, 2004
U.S.
Plans
Non-U.S.
Plans
December 31, 2003
U.S.
Plans
Non-U.S.
Plans
$ 21,178
267
1,281
381
(83)
-
(1,317)
-
-
$ 21,707
$ 9,738
497
381
-
(931)
-
(1,215)
-
692
$ 9,162
$ 21,999
247
1,358
-
(1,225)
-
(1,201)
-
-
$ 21,178
$ 9,625
481
367
-
(598)
-
(907)
-
770
$ 9,738
Fair value of plan assets at end of year
$ -
$ -
$ -
$ -
Funded status
Unrecognized net actuarial loss
Unamortized prior service cost
Unrecognized net transition obligation
Net amount recognized
$ (21,707)
19
442
1,542
$ (19,704)
$ (9,162)
-
-
-
$ (9,162)
$ (21,178)
131
134
1,734
$ (19,179)
$ (9,738)
-
-
-
$ (9,738)
Reconciliation of net amount recognized:
Accrued benefit liability
Net amount recognized
$
$
(19,704)
(19,704)
$
$
(9,162)
(9,162)
$
$
(19,179)
(19,179)
$
$
(9,738)
(9,738)
F-41
Note 11 – Pensions and Other Postretirement Benefits (continued)
The following table sets forth the components of net periodic benefit cost (in thousands):
2004
Years ended December 31,
2003
2002
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
U.S.
Plans
Non-U.S.
Plans
Service cost
Interest cost
Amortization of
prior service cost
Amortization of
transition obligation
Net periodic benefit cost
$ 267
1,281
$ 497
381
$ 247
1,358
$ 481
367
$ 279
1,466
$ 264
195
72
-
47
-
47
-
193
$ 1,813
-
$ 878
193
$ 1,845
-
$ 848
194
$ 1,986
-
$ 459
The following weighted average assumptions were used to determine benefit obligations at December 31 of
the respective years:
Discount rate
2004
U.S.
Plans
6.00%
Non-U.S.
Plans
4.50%
2003
U.S.
Plans
6.25%
Non-U.S.
Plans
4.50%
The following weighted-average assumptions were used to determine the net periodic pension costs for the
years ended December 31, 2004 and 2003:
Discount rate
Years ended December 31,
2004
U.S.
Plans
6.25%
Non-U.S.
Plans
4.50%
2003
U.S.
Plans
6.75%
Non-U.S.
Plans
4.50%
The impact of a one-percentage-point change in assumed health care cost trend rates on the net periodic
benefit cost and postretirement benefit obligation is not material.
Estimated future benefit payments are as follows (in thousands):
2005
2006
2007
2008
2009
2010-2014
U.S.
Plans
$
1,627
1,535
1,453
1,392
1,340
5,881
Non-U.S.
Plans
1,216
$
1,216
1,216
1,216
1,216
6,078
F-42
Note 11 – Pensions and Other Postretirement Benefits (continued)
As the plans are unfunded, the Company’s anticipated contributions for 2005 are equal to its estimated
benefits payments.
On December 8, 2003, the President of the United States signed the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the “Act”). On May 19, 2004, the FASB issued Staff
Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (“FSP No. 106-2”). The Act introduces a prescription drug
benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP No. 106-2 provides that an
employer shall measure the accumulated postretirement benefit obligation and net periodic postretirement
benefit cost taking into account any subsidy received under the Act. Management does not believe that the
prescription drug benefits presently available under its retiree health care benefit plans would be considered
actuarially equivalent to Medicare Part D. Accordingly, the Company’s measures of accumulated
postretirement benefit obligation and net periodic postretirement benefit cost as of and for the period ended
December 31, 2004 do not include any subsidies which might be received under the Act.
Other Retirement Obligations
The Company participates in various other defined contribution and government-mandated retirement plans
based on local law or custom. The Company periodically makes required contributions for certain of these
plans, whereas other plans are unfunded retirement bonus plans which will be paid at the employee's
retirement date. At December 31, 2004 and 2003, the consolidated balance sheets include $11,134,000 and
$22,885,000 within accrued pension and other postretirement costs related to these plans.
Many of the Company’s U.S. employees are eligible to participate in 401(k) savings plans, some of which
provide for Company matching under various formulas. The Company’s matching expense for the plans
was $2,968,000 $3,401,000, and $2,990,000, for the years ended December 31, 2004, 2003, and 2002,
respectively. No material amounts are included in the consolidated balance sheets at December 31, 2004
and 2003 related to unfunded 401(k) contributions.
Certain key employees participate in deferred compensation plans. During the years ended December 31,
2004, 2003 and 2002, these employees could defer a portion of their compensation until retirement.
Effective January 1, 2005, these employees may elect short deferral periods for future compensation
deferrals. The Company maintains a liability within other noncurrent liabilities on its consolidated balance
sheet related to these deferrals. The Company maintains a non-qualified trust, referred to as a “rabbi” trust,
to fund payments under this plan. Rabbi trust assets are subject to creditor claims under certain conditions
and are not the property of employees. Therefore, they are accounted for as other noncurrent assets.
Assets held in trust related to the deferred compensation plans at December 31, 2004 and 2003 were
approximately $5 million and $4 million, respectively. Assets held in trust approximate the Company’s
liability under these plans.
F-43
Note 12 – Stock-Based Compensation
Stock Options
Under the 1997 Stock Option Program, certain executive officers, key employees, and consultants of the
Company were granted options on May 21, 1998 to purchase 2,687,000 shares of the Company’s common
stock. The options were fully vested on the date of grant and expire June 1, 2008, with one-third
exercisable at $10.89, one-third exercisable at $12.53, and one-third exercisable at $13.61. As of
December 31, 2004, options to purchase 528,000 shares have been exercised under this plan.
Under the 1998 Stock Option Program, certain executive officers and key employees were granted options,
as summarized in the following table:
Date of Grant
Number of
Options
Exercise
Price
Vesting
Expiration
October 6, 1998
October 8, 1999
August 4, 2000
1,598,000
1,334,000
50,000
$ 5.60
15.33
30.00
Evenly over 6 years
Evenly over 6 years
Evenly over 5 years,
March 16, 2008
October 8, 2009
August 4, 2010
October 12, 2000
October 1, 2001
through July 30, 2004
1,114,000
33,000
25.13
13.46 –
25.07
beginning August 4,
2003
Evenly over 6 years
Evenly over 6 years
October 12, 2010
October 1, 2011
through July 30,
2014
As described in Note 2, the Company issued 120,000 stock options from the 1998 plan allocation as part of
acquisitions during 2004.
On May 18, 2000, the stockholders of the Company approved an increase in the number of shares available
for grant under Vishay’s 1998 Stock Option Program. As a result, the number of shares available for grant
under this program increased from 2,953,500 to 4,453,500. As of December 31, 2004, options to purchase
508,000 shares had been exercised under this plan.
On November 2, 2001, Vishay acquired General Semiconductor, which became a wholly owned subsidiary
of the Company. As a result of the acquisition, each outstanding option to acquire General Semiconductor
common stock became exercisable for shares of Vishay common stock. Based on the conversion ratio in
the acquisition of 0.563 of a Vishay share for each General Semiconductor share, the former General
Semiconductor options become exercisable in the aggregate for 4,282,000 shares of Vishay common stock.
All such options were immediately vested and exercisable as a result of the merger but the terms of the
options otherwise remained unchanged. As of December 31, 2004, options to purchase 915,000 shares had
been exercised under this plan.
F-44
Note 12 – Stock-Based Compensation (continued)
The following table summarizes the Company’s stock option activity (number of options in thousands):
2004
Years ended December 31,
2003
2002
Number
of
Options
Weighted
Average
Exercise
Price
Number
of
Options
Weighted
Average
Exercise
Price
Number
of
Options
Weighted
Average
Exercise
Price
8,768
6
(515)
(279)
120
8,100
$ 16.17
15.50
17.63
18.31
12.75
$ 15.95
9,231
12
(356)
(119)
-
8,768
$ 16.07
14.00
13.30
17.10
-
$ 16.17
9,569
15
(261)
(92)
-
9,231
$ 15.97
17.75
12.12
17.14
-
$ 16.07
7,475
1,296
7,725
1,143
7,626
1,036
Outstanding:
Beginning of year
Granted
Exercised
Cancelled
Acquisitions
End of year
Exercisable:
End of year
Available for
future grants
The following table summarizes information concerning stock options outstanding and exercisable at
December 31, 2004 (number of options in thousands):
Ranges of
Exercise Prices
$5.60
$10.89-$12.53
$12.54-$13.46
13.61
$14.22-$14.99
$15.33
$15.43-$16.41
$16.52-$20.86
$21.43-$23.53
$25.13-$34.52
Total
Options Exercisable
Weighted
Average
Exercise
Price
Number of
Options
$
837
1,237
284
843
11
773
1,084
1,200
345
861
7,475
5.60
11.76
12.55
13.61
14.78
15.33
16.02
18.93
22.27
26.15
15.59
Weighted
Average
Exercise
Price
$
5.60
11.76
12.62
13.61
14.61
15.33
16.03
18.93
22.27
25.99
15.95
$
$
Options Outstanding
Weighted
Average
Remaining
Number of Contractual
Options
Life
837
1,237
409
843
16
935
1,090
1,203
345
1,185
8,100
3.76
3.39
5.61
3.39
5.99
4.77
5.86
4.23
2.42
5.48
F-45
Note 12 – Stock-Based Compensation (continued)
Phantom Stock
On May 12, 2004, the Company’s shareholders approved the Senior Executive Phantom Stock Plan. The
Phantom Stock Plan authorizes the grant of up to 300,000 shares of phantom stock to the extent provided
for in employment agreements with the Company. Each share of phantom stock entitles the recipient to
receive a share of common stock at the individual’s termination of employment or any other future date
specified in the employment agreement. The shares of phantom stock are fully vested at all times.
The Phantom Stock Plan provides for the granting of shares of phantom stock to individuals whose
employment arrangements with the Company provide for such grants. The Company has such employment
arrangements with six of its executives. The arrangements provide for an annual grant of 5,000 shares of
phantom stock to each of these executives. If the Company later enters into other employment
arrangements with other individuals that provide for the granting of phantom stock, those individuals also
will be eligible for grants under the Phantom Stock Plan. No grants may be made under the Phantom Stock
Plan other than under the terms of employment arrangements with the Company.
If the Company declares dividends on its common stock, the dividend amounts with respect to the phantom
stock will be deemed reinvested in additional shares of phantom stock.
The Board of Directors of the Company can amend or terminate the Phantom Stock Plan at any time,
except that phantom stock already granted to any individual cannot be adversely affected without the
individual’s consent. Furthermore, stockholder approval of an amendment is required if the amendment
increases the number of shares subject to the Phantom Stock Plan or otherwise materially amends the
Phantom Stock Plan or if stockholder approval is otherwise required by applicable law or stock exchange
rules. If the Board of Directors does not terminate the Phantom Stock Plan, it will terminate when all
phantom stock has been awarded with respect to all 300,000 shares of common stock reserved for the
Phantom Stock Plan.
On May 12, 2004, the Company granted 30,000 phantom stock units and recognized compensation expense
of $561,000, equal to the value of the underlying stock at the date of grant. The fair value of such grants
pursuant to SFAS No. 123 is equal to the intrinsic value as determined pursuant to APB No. 25.
F-46
Note 13 – Commitments and Contingencies
Leases
Total rental expense under operating leases was $30,304,000, $34,621,000, and $27,652,000 for the years
ended December 31, 2004, 2003, and 2002, respectively.
Future minimum lease payments for operating leases with initial or remaining noncancelable lease terms in
excess of one year are as follows: 2005 – $23,280,000; 2006 – $18,817,000; 2007 – $15,251,000; 2008 –
$3,819,000; 2009– $1,810,000; and thereafter – $2,563,000.
Environmental Matters
The Company is subject to various federal, state, local and foreign laws and regulations governing
environmental matters, including the use, discharge and disposal of hazardous materials. The Company’s
manufacturing facilities are believed to be in substantial compliance with current laws and regulations.
Complying with current laws and regulations has not had a material adverse effect on the Company’s
financial condition.
The Company has engaged environmental consultants and attorneys to assist management in evaluating
potential liabilities related to environmental matters. Management assesses the input from these
consultants along with other information known to the Company in its effort to continually monitor these
potential liabilities. Management assesses its environmental exposure on a site-by-site basis, including
those sites where the Company has been named as a “potentially responsible party.” Such assessments
include the Company’s share of remediation costs, information known to the Company concerning the size
of the hazardous waste sites, their years of operation and the number of past users and their financial
viability.
As part of the acquisition of General Semiconductor by Vishay on November 2, 2001, the Company
assumed ongoing environmental matters. The Company has accrued $19,400,000 as of December 31, 2004
for environmental matters relating to ongoing environmental matters at its General Semiconductor
subsidiary. As part of the acquisition of BCcomponents in 2002, the Company has recorded environmental
liabilities of $7,800,000. The Company has also accrued approximately $10,400,000 at December 31, 2004
for other environmental matters, the most significant of which is related to its Vitramon subsidiary in the
United States. The liabilities recorded for these matters total $37,600,000, of which $4,400,000 is included
in other accrued liabilities on the consolidated balance sheet, and $33,200,000 is included in other
noncurrent liabilities on the consolidated balance sheet.
While the ultimate outcome of these matters cannot be determined, management does not believe that the
final disposition of these matters will have a material adverse effect on the Company’s consolidated
financial position, results of operations, or cash flows beyond the amounts previously provided for in the
consolidated financial statements. The Company’s present and past facilities have been in operation for
many years, and over that time in the course of those operations, such facilities have used substances which
are or might be considered hazardous, and the Company has generated and disposed of wastes which are or
might be considered hazardous. Therefore, it is possible that additional environmental issues may arise in
the future, which the Company cannot now predict.
F-47
Note 13 – Commitments and Contingencies (continued)
Litigation
In January 2005, an amended class action complaint was filed on behalf of all non-Vishay shareholders of
the Company’s 80.4% owned subsidiary, Siliconix, against Vishay, Ernst & Young LLP (independent
registered public accounting firm that audits the Company’s consolidated financial statements), Dr. Felix
Zandman, Chairman and Chief Technical and Business Development Officer of Vishay, and, as a nominal
defendant, Siliconix. The suit purports to state various derivative and class claims against the
defendants including the purported taking by Vishay of Siliconix sales subsidiaries and the profits of those
subsidiaries; the purported taking by Vishay of Siliconix’s SAP software system without compensation to
Siliconix; the alleged use by Vishay of Siliconix’s assets as security for Vishay loans without compensation
to Siliconix; the purported misappropriation by Vishay of Siliconix’s identity; the alleged taking by Vishay
of Siliconix testing equipment; the alleged use by Vishay of Siliconix to save Vishay certain credits made
available by an Israeli business development agency; the alleged misuse by Vishay of Siliconix’s patents to
help Vishay acquire General Semiconductor; and the allegedly improper identification of Dr. Zandman as
a co-inventor on certain Siliconix patents. The action seeks injunctive relief and unspecified damages. The
defendants have not yet responded to the complaint, but intend to deny all allegations. See also Note 19.
The Company is a party to various other claims and lawsuits arising in the normal course of business. The
Company is of the opinion that these litigations or claims will not have a material negative effect on its
consolidated financial position, results of operations, or cash flows.
Purchase Commitments
On May 17, 2004, the Company’s 80.4% owned subsidiary Siliconix announced that it had signed a
definitive long-term foundry agreement for semiconductor manufacturing with Tower Semiconductor,
pursuant to which Siliconix will purchase semiconductor wafers from and transfer certain technology to
Tower Semiconductor.
Siliconix will place orders valued at approximately $200 million for the purchase of semiconductor wafers
to be manufactured in Tower’s Fab 1 facility over a seven to ten year period. The agreement specifies
minimum quantities per month and a fixed quantity for the term of the agreement. Siliconix must pay for
any short-fall in minimum order quantities specified under the agreement.
The technology transfer from Siliconix to Tower has started and is estimated to be completed by the second
quarter of 2005. After the completion of the technology transfer, the expected purchase commitments are
approximately $8 million for year one of the agreement; approximately $16 million for year two of the
agreement; and approximately $29 million per year through the end of the agreement. Based on the
expected date of completion of the technology transfer in the second quarter of 2005, the purchase
commitments would be approximately as follows: 2005 – $4,000,000; 2006 – $12,000,000; 2007 –
$22,000,000; 2008 – $29,000,000; 2009– $29,000,000; and thereafter – $104,000,000. An acceleration or
delay in the completion of the technology transfer will accelerate or delay, respectively, the timing of the
future purchase commitments.
F-48
Note 13 – Commitments and Contingencies (continued)
All remaining conditions of this agreement were satisfied in the third quarter of 2004. Pursuant to the
agreement, Siliconix advanced $20 million to Tower in the third quarter of 2004, to be used for the
purchase of additional equipment required to satisfy Siliconix’s orders. This advance is considered a
prepayment on future wafer purchases, reducing the per wafer cost to Siliconix over the term of the
agreement. The consolidated balance sheet as of December 31, 2004 includes $408,000 in other current
assets for prepayments expected to be utilized within one year and $19,592,000 in other assets related to
credits to be utilized during the remaining term of the agreement. An acceleration or delay in the
completion of the technology transfer will accelerate or delay, respectively, the utilization of these
prepayment amounts. Management believes that these commitments are at prices which are not in excess
of current market prices.
In 2004, Siliconix entered into a five-year foundry agreement for semiconductor manufacturing with a
subcontractor in Japan. This agreement was a continuation and expansion of a previous technology transfer
and business agreement for the manufacture of silicon wafers. The agreement calls for Siliconix to provide
a rolling twelve-month forecast of estimated requirements. The first six months of this forecast are fixed as
to quantity, and the subsequent six months are guaranteed not to be less than a quantity stated in the
agreement. Thereafter, the monthly quantity may vary based on market demand. Under the agreement,
Siliconix must guarantee that its business with this subcontractor represents a minimum percentage of
wafer requirements and is required to make its best efforts not to reduce the average monthly demand rate
below a specified threshold. Management believes that its minimum purchase commitments with this
subcontractor are approximately as follows:
2005 – $47,000,000; 2006 – $27,000,000; 2007 –
$27,000,000; 2008 – $27,000,000; 2009 – $9,000,000. Management believes that actual purchases will be
in excess of these minimum commitments. Purchases from this subcontractor in 2004 were approximately
$50,000,000, which includes amounts purchased under the previous agreement. Management believes that
these commitments are at prices which are not in excess of current market prices.
See Note 15 for a discussion of tantalum and palladium purchase commitments.
The Company has various other purchase commitments incidental to the ordinary conduct of business.
Such commitments are at prices which are not in excess of current market prices.
F-49
Note 14 – Financial Instruments
The Company uses financial instruments in the normal course of its business, including derivative financial
instruments, for purposes other than trading. These financial instruments include debt and interest rate swap
agreements. The notional or contractual amounts of these commitments and other financial instruments are
discussed below.
Concentration of Credit Risk
Financial instruments with potential credit risk consist principally of cash and cash equivalents and
accounts receivable. The Company maintains cash and cash equivalents with various major financial
institutions. Concentrations of credit risk with respect to receivables are generally limited due to the
Company’s large number of customers and their dispersion across many countries and industries. At
December 31, 2004 and 2003, the Company had no significant concentrations of credit risk.
Interest Rate Swap Agreements
In August 1998, the Company entered into six interest rate swap agreements, with a total notional amount
of $300,000,000, to manage interest rate risk related to its multicurrency revolving line of credit. These
interest rate swap agreements required the Company to make payments to the counterparties at the fixed
rate stated in the agreements, and in return to receive payments from the counterparties at variable rates.
As of December 31, 2002, five of these six agreements had been terminated. The final agreement expired
in 2003. During the year ended December 31, 2003, the Company had a pretax gain of $3,783,000 related
to the expiration of the final swap agreement. During the year ended December 31, 2002, the Company
recorded pretax loss of $115,000 relating to interest rate swap agreements that were ineffective hedges.
See Note 8.
Cash and Cash Equivalents, Accounts Receivable, Notes Payable, and Long-Term Debt
The carrying amounts of cash and cash equivalents, accounts receivable, and notes payable reported in the
consolidated balance sheets approximate their fair values. The fair value of the long-term debt is
approximately $798,163,000, as compared to its carrying value of $752,196,000. The fair value of long-
term debt was estimated based on trading prices and market prices of debt with similar terms and features.
Market Concentrations
A material portion of the Company’s revenues is derived from the worldwide communications and
computer markets. These markets have historically experienced wide variations in demand for end
products. If demand for these end products should decrease, the producers thereof could reduce their
purchases of the Company’s products, which could have a material adverse effect on the Company’s results
of operations and financial position.
F-50
Note 15 – Current Vulnerability Due to Certain Concentrations
Sources of Supplies
Many of the Company’s products require the use of raw materials that are produced in only a limited
number of regions around the world or are available from only a limited number of suppliers. The
Company’s consolidated results of operations may be materially and adversely affected if the Company has
difficulty obtaining these raw materials, the quality of available raw materials deteriorates or there are
significant price increases for these raw materials. For periods in which the prices of these raw materials
are rising, the Company may be unable to pass on the increased cost to the Company’s customers, which
would result in decreased margins for the products in which they are used. For periods in which the prices
are declining, the Company may be required to write down its inventory carrying cost of these raw
materials which, depending on the extent of the difference between market price and its carrying cost,
could have a material adverse effect on the Company’s net earnings.
From time to time, there have been short-term market shortages of raw material utilized by the Company.
While these shortages have not historically adversely affected the Company’s ability to increase production
of products containing these raw materials, they have historically resulted in higher raw material cost for
the Company. The Company cannot assure that any of these market shortages in the future would not
adversely affect the Company’s ability to increase production, particularly during periods of growing
demand for the Company’s products.
Tantalum
Vishay is a major consumer of the world’s annual production of tantalum. Tantalum, a metal purchased in
powder or wire form, is the principal material used in the manufacture of tantalum capacitors. There are
currently three major suppliers that process tantalum ore into capacitor grade tantalum powder. Due to the
strong demand for the Company’s tantalum capacitors and difficulty in obtaining sufficient quantities of
tantalum powder from our suppliers, the Company stockpiled tantalum in 2000 and early 2001. From 2001
to 2003, the Company and its competitors experienced a significant decline in the tantalum capacitor
business as well as significant decreases in the market prices for tantalum. As a result, the Company
recorded, in costs of products sold, write-downs of $5,406,000 and $25,700,000 on tantalum inventories
during the years ended December 31, 2003 and 2002, respectively. The Company also recorded losses on
purchase commitments of $16,213,000, $11,392,000 and $106,000,000 for the years ended December 31,
2004, 2003, and 2002, respectively. The Company’s purchase commitments were entered into at a time
when market demand for tantalum capacitors was high and tantalum powder was in short supply. The
pricing trend for tantalum has been relatively stable since 2003. The mix of the Company’s purchases of
tantalum grades during 2004 was significantly different than initially expected, which resulted in additional
losses on purchase commitments being recorded in 2004. If the downward pricing trend were to resume,
the Company could again be required to write down the carrying value of its tantalum inventory and record
additional losses on its purchase commitments. Changes in the Company’s mix of tantalum-grade
purchases could also require the Company to record additional losses on its purchase commitments.
The Company is obligated under two contracts with Cabot Corporation to make purchases of tantalum of
approximately $123,500,000 in 2005 and $60,100,000 in 2006. The Company purchased $107,438,000,
$107,906,000, and $53,280,000 under these contracts during the years ended December 31, 2004, 2003,
and 2002, respectively. As long as Vishay is in compliance with its purchase obligations under the Cabot
contracts, its minimum purchase commitments will not increase. The Company believes that it has been in
compliance with all requirements of these contracts through December 31, 2004. If Vishay were to default
under its commitments, then the minimum requirements would revert to the quantities specified in the
contracts prior to their modification in July 2002, and increase to $149,300,000 in 2005 and $81,300,000 in
2006. Vishay believes that the likelihood that it would default on its obligations under the contracts is
remote.
F-51
Note 15 – Current Vulnerability Due to Certain Concentrations (continued)
One of the Company’s contracts with Cabot provides for price reductions in 2006 if certain conditions are
met. The Company’s estimates of losses on purchase commitments are based on the assumption that the
Company will not receive these conditional price reductions in 2006. The Company may be required to
reverse a portion of these recorded losses if it meets all conditions to receive these price reductions.
At December 31, 2004 and 2003, the Company had tantalum with a book value of $97,656,000 and
$95,432,000, respectively. Of these amounts, the Company classified $42,039,000 and $28,724,000.
respectively, as other assets, representing the value of quantities which would not be used within one year.
At December 31, 2004 and 2003, the Company had $64,510,000 and $89,400,000, respectively, of total
liabilities recorded related to tantalum purchase commitments. Of the total liabilities recorded, the
Company has classified $33,410,000 and $31,675,000 as current liabilities within other accrued expenses at
December 31, 2004 and 2003, respectively, for amounts expected to be utilized within one year.
Palladium
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South
Africa and Russia. Palladium is a commodity product that is subject to price volatility. The price of
palladium has fluctuated in the range of approximately $148 to $435 per troy ounce during the last three
years. As of December 31, 2004, the price of palladium was approximately $184 per troy ounce. During
the years ended December 31, 2004, 2003 and 2002, the Company recorded in costs of products sold write-
downs of $400,000, $1,585,000 and $1,700,000, respectively, to reduce palladium inventories on hand to
market value. The net book value of palladium inventories was $3,218,000 and $4,384,000 at
December 31, 2004 and 2003, respectively.
The Company has commitments to purchase palladium in 2005. The contract price is greater than current
market price. The Company recognized a loss of $400,000 during the year ended December 31, 2004
related to these purchase commitments. This amount is included in other accrued expenses on the
consolidated balance sheet.
Geographic Concentration
To address the increasing demand for its products and 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, and various tax
abatement programs. Israeli incentive programs have contributed substantially to the growth and
profitability of the Company. The Company might be materially and adversely affected if these incentive
programs were no longer available to the Company or if events were to occur in the Middle East that
materially interfered with the Company’s operations in Israel.
F-52
Note 16 –Segment and Geographic Data
Vishay designs, manufactures, and markets electronic components that cover a wide range of products and
technologies. The Company has two reportable segments: Passive Electronic Components (Passives)
consisting principally of fixed resistors, solid tantalum surface mount chip capacitors, solid tantalum leaded
capacitors, wet/foil tantalum capacitors, multi-layer ceramic chip capacitors, film capacitors, inductors,
transducers, strain gages, and load cells, and Active Electronic Components (Actives) consisting principally
of diodes, transistors, power MOSFETs, power conversion, motor control integrated circuits, optoelectronic
components and IRDCs.
The Company evaluates business segment performance on operating income, exclusive of certain items.
Management believes that evaluating segment performance excluding items such as restructuring,
inventory write-downs, losses on purchase commitments, write-offs of in-process research and
development, and other charges is meaningful because its provides insight with respect to ongoing
operating results. The accounting policies of the business segments are the same as those described in the
summary of significant accounting policies (see Note 1). Business segment assets are the owned or
allocated assets used by each business. The following table sets forth business segment information as of
and for the years ended December 31, 2004, 2003, and 2002 (in thousands):
2004
Net sales
Segment operating income (loss)
Restructuring and severance costs
Asset write-downs
Depreciation expense
Interest expense
Capital expenditures
Total assets
2003
Net sales
Segment operating income (loss)
Restructuring and severance costs
Asset write-downs
Depreciation expense
Interest expense
Capital expenditures
Total assets
2002
Net sales
Segment operating (loss) income
Restructuring and severance costs
Asset write-downs
Depreciation expense
Interest expense
Capital expenditures
Corporate/
Other
-
$
(116,805)
-
-
1,231
31,508
1,928
80,033
-
$
(68,898)
-
-
4,752
28,797
1,084
121,671
Total
$
2,413,576
92,491
47,250
27,296
191,132
34,252
158,627
4,638,590
$
2,170,597
59,367
28,546
1,014
180,706
39,226
126,635
4,566,360
-
$
(184,429)
-
-
4,481
17,995
2,036
$
1,822,813
(79,206)
18,607
12,363
172,174
29,503
110,074
Passives
Actives
$
1,203,614
155,276
31,088
4,553
91,720
326
104,094
2,317,668
$
1,065,741
114,498
3,272
-
85,821
7,452
72,051
2,280,737
$
1,055,567
139,140
921
-
87,609
10,545
62,933
$
1,209,962
54,020
16,162
22,743
98,181
2,418
52,605
2,240,889
$
1,104,856
13,767
25,274
1,014
90,133
2,977
53,500
2,163,952
$
767,246
(33,917)
17,686
12,363
80,084
963
45,105
F-53
Note 16 –Segment and Geographic Data (continued)
Corporate assets include corporate cash, property and equipment, and certain other assets. The Corporate
component of operating income includes corporate selling, general, and administrative (SG&A) expenses.
Corporate SG&A expenses were $23,745,000, $20,955,000, and $20,059,000 for the years ended
December 31, 2004, 2003, and 2002, respectively. The “Corporate/Other” column for segment operating
income (loss) also includes certain items which management excludes from segment results when
evaluating segment performance. These items in 2004 included restructuring and severance costs, asset
write-downs, inventory write-downs to current market value of $400,000, losses on purchase commitments
of $16,613,000, and a write-off of purchased in-process research and development of $1,500,000. In 2003,
these items included restructuring and severance costs, asset write-downs, write-downs of tantalum and
palladium inventories to then-current market value of $6,991,000, and losses on purchase commitments of
$11,392,000. These items in 2002 included restructuring and severance costs, asset write-downs, write-
downs of tantalum and palladium inventories to then-current market value of $27,400,000, and losses on
purchase commitments of $106,000,000.
The following geographic data include net sales based on revenues generated by subsidiaries located within
that geographic area and property and equipment based on physical location (in thousands):
Net Sales
United States
Germany
France
Other Europe
Israel
Asia Pacific
Years ended December 31,
2003
2002
2004
$
$
$
525,491
588,720
105,130
390,384
185,801
618,050
2,413,576
444,952
534,019
156,124
309,409
130,852
595,241
2,170,597
$
$
482,154
382,932
69,635
269,995
75,238
542,859
1,822,813
Property and Equipment - Net
$
United States
Germany
Czech Republic
France
Other Europe
Israel
Asia Pacific
December 31,
2004
2003
$
$
184,570
130,811
74,073
35,784
122,904
272,186
351,487
1,171,815
$
$
249,733
152,722
66,571
38,200
115,633
312,632
278,109
1,213,600
F-54
Note 17 – Earnings (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted average number of common shares
outstanding during the periods presented. Diluted earnings (loss) per share is computed using the weighted
average number of common shares outstanding adjusted to include the potentially dilutive effect of stock
options granted under the Company’s 1997 and 1998 stock option plans (see Note 12), stock options
assumed in the acquisition of General Semiconductor (see Note 12), and other potentially dilutive
securities.
The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands,
except per share amounts):
Years ended December 31,
2003
2004
2002
Numerator:
Numerator for basic and diluted earnings per share -
net earnings (loss)
$
44,696
$
26,842
$
(92,614)
Denominator:
Denominator for basic earnings per share -
weighted average shares
Effect of dilutive securities
Employee stock options
Warrants
Other
Dilutive potential common shares
163,701
159,631
159,413
1,926
261
50
2,237
684
45
83
812
-
-
-
-
Denominator for diluted earnings per share -
adjusted weighted average shares
165,938
160,443
159,413
Basic earnings (loss) per share
$
0.27
$
0.17
$
(0.58)
Diluted earnings (loss) per share
$
0.27
$
0.17
$
(0.58)
F-55
Note 17 – Earnings (Loss) Per Share (continued)
Diluted earnings (loss) per share for the years presented do not reflect the following weighted-average
potential common shares, as the effect would be antidilutive (in thousands):
Convertible and exchangeable notes:
Convertible Subordinated Notes, due 2023
LYONs, due 2021
Exchangeable unsecured notes, due 2102
General Semiconductor Notes
Weighted average employee stock options
Weighted average warrants
2004
2003
2002
23,496
8,979
6,176
-
3,444
7,074
9,283
8,544
6,176
4,329
5,663
7,074
-
9,718
6,176
6,191
9,231
435
The anti-dilutive potential common shares related to convertible and exchangeable notes presented in the
table above represent weighted-averages, based on the periods and amounts outstanding in the respective
years.
If the potential common shares related to the convertible and exchangeable notes were included in the
computation, the related interest savings, net of tax, assuming conversion/exchange would be added to the
net earnings used to compute earnings per share.
As described in Note 6, the Convertible Subordinated Notes, due 2023, were issued in 2003. These notes
are only convertible upon the occurrence of certain events. While none of these events have occurred as of
December 31, 2004, certain conditions which could trigger conversion have been deemed to be non-
substantive, and accordingly, the Company has always assumed the conversion of these notes in its diluted
earnings per share computation during periods in which they are dilutive. EITF 04-8 (see Note 1) also now
requires the inclusion of these notes in the diluted earnings per share computation during periods in which
they are dilutive.
As described in Note 6, the Company purchased a portion of the LYONs for stock in 2004 and for cash in
2003. By their terms, the LYONs were convertible into 3,809,000, 6,802,000 and 9,718,000 shares of
common stock at December 31, 2004, 2003, and 2002, respectively. Subsequent to the Company’s
decision to utilize stock to settle the holders’ put option in June 2004, the Company assumes all future put
options will be settled in stock based on the settlement formula set forth in the indenture governing the
LYONs.
As described in Note 6, the Company redeemed all notes of its General Semiconductor subsidiary in 2003.
Note 18 – Related Party Transactions
On December 12, 2002, the Company’s Board of Directors passed resolutions to terminate the stock
purchase programs for corporate officers and key employees (together the “Plan”) and to offer to all Plan
participants the opportunity to surrender to the Company the shares of Vishay common stock purchased
with their Plan loans in satisfaction of such loans and all accrued interest thereon. Under the resolutions,
the Company agreed that it would compensate the Plan participants for any income tax that the participants
are required to recognize as a result of the surrender. Two directors of the Company were among the
participants in the Plan. For all Plan participants, at the time the Plan was terminated, the market value of
the Vishay common stock purchased with Plan loans was significantly below the outstanding balances of
the loans. The Company recorded a write-down for the loans and accrued interest, and an accrual for
compensation expense attributable to taxes owing by Plan participants on surrender, totaling $2,591,000 as
of December 31, 2002. This amount was recorded in selling, general, and administrative expense in 2002.
F-56
Note 19 - Subsequent Events
On March 3, 2005, Vishay announced its intention to commence a tender offer for all outstanding shares of
Siliconix not owned by Vishay following the filing of Vishay and Siliconix Annual Reports on Form 10-K
for the year ended December 31, 2004. Under the terms of the intended tender offer, Vishay would
exchange 2.64 shares of Vishay common stock for each outstanding share of Siliconix stock. The closing
prices for Vishay and Siliconix shares on March 3, 2005 were $13.25 and $29.15, respectively. The
intended tender offer would be pursuant to tender offer documentation filed with the Securities and
Exchange Commission, which will contain information about the offer.
The intended tender offer will be subject to the non-waivable condition that the offer be accepted by
holders of a majority of the outstanding shares not owned by Vishay. Also, promptly following the
consummation of the offer, Vishay will effect a merger of Siliconix with a subsidiary of Vishay in which
all remaining holders of Siliconix stock would receive the same consideration for their shares as the holders
who tendered their shares received in the offer.
In March 2005, the Siliconix Board of Directors appointed a special committee of independent directors to
consider and evaluate the tender offer when it is formally received by the Company.
Following the announcement of Vishay’s intention to make this tender offer, several purported class-action
complaints were filed against Vishay, Siliconix, and the Siliconix directors, alleging, among other things,
that the intended offer is unfair and a breach of fiduciary duty, and seeking, among other things, to enjoin
the transaction. The Company and the other defendants have not yet responded to the complaints.
F-57
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Q
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Note: Names of Subsidiaries are indented under name of Parent. Subsidiaries are wholly owned unless
otherwise noted. (Directors’ or other shares required by statute in foreign jurisdictions and totaling less
than 1% of equity are omitted.)
Vishay Americas, Inc.
Vishay Cera-Mite Inc.
Vishay EFI, Inc.
Vishay Infrared Components Inc.
Spectec Logistics, Inc.
Vishay Intertechnology Asia Pte Ltd.
Vishay Japan K.K.
Vishay Hong Kong Ltd.
Vishay Korea Co. Ltd.
Vishay (Taiwan)
Vishay (Thailand) Limited
BCcomponents Taiwan Limited
General Semiconductor (Singapore) Pte. Ltd.
Vishay Temic Semiconductor Acquisition Holding Corporation
Siliconix incorporated
Siliconix Technology C.V.
Siliconix Technology B.V.
Siliconix Israel Ltd.
Siliconix Holding GmbH
Siliconix Itzehoe GmbH
Shanghai Simconix Electronic Company Ltd.
Siliconix Ltd.
Vishay Siliconix (Taiwan) Ltd.
Vishay Siliconix Electronic Co. Ltd.
Vishay Siliconix, LLC
Siliconix Sales Corp.
Siliconix Semiconductor, Inc.
Vishay GSI, Inc.
Vishay GSI Holdings, LLC
Vishay General Semiconductor, L.P.
Vishay General Semiconductor, LLC
Century Components, LLC
General Semiconductor of Taiwan, Ltd.
General Semiconductor (China) Holdings, LLC
General Semiconductor (China) Co., Ltd.
General Semiconductor International Corp.
General Semiconductor Japan, Ltd.
ATC Corp.
GSI-General Semiconductor Ireland
GSI-General Semiconductor (Europe) Ltd.
Delaware
Wisconsin
Rhode Island
California
Delaware
Singapore
Japan
Hong Kong
Korea
Taiwan
Thailand
Taiwan
Singapore
Delaware
Delaware
Netherlands
Netherlands
Israel
Germany
Germany
China
England
Taiwan
Taiwan
Delaware
U.S. Virgin Islands
Delaware
Delaware
Delaware
Cayman Islands
Delaware
Delaware
Taiwan
Delaware
China
New York
Japan
Delaware
Ireland
Ireland
(a)
(b)
(c)
(d)
Subsidiaries of Registrant, continued
General Semiconductor Korea Co., Ltd.
Vishay General Semiconductor France S.A.S.
General Semiconductor Hong Kong Ltd.
General Semiconductor (UK) Ltd.
General Instrument Europe, N.V.
General Semiconductor (Deutschland) GmbH
Vishay BCcomponents Holdings Ltd.
Vishay BCcomponents B.V.
BCcomponents Lux Sarl
Vishay BCcomponents SAS
BCcomponents Estate NV
BCcomponents BVBA
Vishay BCcomponents UK Ltd
Valen Ltd.
Vishay Passives Shanghai Co., Ltd
BCcomponents South Europe SRL
Vishay Components India Pvt Ltd
BCcomponents Hong Kong Ltd.
BCcomponents China Ltd
BCcomponents Singapore Pte Ltd.
Vishay Trading (Shanghai) Co. Ltd
Nippon Vishay, K.K.
Vishay F.S.C., Inc.
Vishay VSH Holdings, Inc.
Vishay Roederstein Electronics, Inc.
Vishay Measurements Group, Inc.
Vishay Transducers Ltd.
Sensortronica de Costa Rica, S.A.
Vishay BLH Inc.
Pharos de Costa Rica S.A.
Celtron Technologies, Inc.
High Goals Investments Limited
Billion Way Industrial Limited
UCC Investment Co. Ltd.
Celtron Technologies (U.S.A.) Inc.
Vishay Celtron (Tianjin) Technologies Co., Ltd.
Korea
France
Hong Kong
United Kingdom
Netherlands
Germany
Delaware
Netherlands
Luxembourg
France
Belgium
Belgium
United Kingdom
Hong Kong
China
Italy
India
Hong Kong
Hong Kong
Singapore
China
Japan
Barbados
Delaware
Delaware
Delaware
Delaware
Costa Rica
Delaware
Costa Rica
Taiwan
British Virgin Islands
Samoa
Samoa
California
China
(e)
Subsidiaries of Registrant, continued
Vishay Israel Limited
Z.T.R. Electronics Ltd.
Vishay International Trade Ltd.
Dale Israel Electronics Industries, Ltd.
Vishay Components (Huizhou) Co. Ltd.
Draloric Israel Ltd.
V.I.E.C. Ltd.
Vishay Advanced Technology, Ltd.
Vilna Equities Holding, B.V.
Tedea-Huntleigh Europe Ltd.
Measurements Group (U.K.) Ltd.
Vishay Nobel Ltd.
Vishay Europe GmbH
Vishay Europe Sales GmbH
BCcomponents Austria GmbH
BCcomponents Holding Gmbh
BCcomponents Beyschlag GmbH
BCcomponents Vertriebs GmbH
Vishay Electronic GmbH
Roederstein Electronics Portugal Lda.
ECOMAL Deutschland GmbH
Grupo Da Medidas Iberica S.L.
ECOMAL Schweiz A.G.
ECOMAL Austria Ges.mbH
Klevestav-Roederstein Festigheter AB
Vishay Components, S.A.
ECOMAL Nederland BV
ECOMAL Belgium N.V.
ECOMAL Denmark A/S
ECOMAL Finland OY
ECOMAL France S.A.
ECOMAL S.r.O.
ECOMAL UK
Okab Roederstein Finland OY
Rogin Electronic S.A.
Roederstein GmbH
Roederstein-Hilfe-GmbH
Vishay Electronic SPOL S RO
Vishay S.A.
Ultronix, Inc.
Tedea-Huntleigh B.V.
Tedea-Huntleigh International Ltd
T-H Technology Ltd
Vishay Measurements Group France, S.A.
T-H Industrial Properties Ltd
Tedea-Huntleigh, Inc.
Tedea-Huntleigh (Beijing) Electronics Co. Ltd
Israel
Israel
Israel
Israel
China
Israel
Israel
Israel
Netherlands
England
England & Wales
England
Germany
Germany
Austria
Germany
Germany
Germany
Germany
Portugal
Germany
Spain
Switzerland
Austria
Sweden
Spain
Netherlands
Belgium
Denmark
Finland
France
Czech Republic
England
Finland
Spain
Germany
Germany
Czech Republic
France
Delaware
Netherlands
Israel
Israel
France
Israel
California
China
(f)
(g)
(h)
(i)
(j)
Subsidiaries of Registrant, continued
E-Sil Components Ltd.
Vishay Roederstein Limited
Vitramon Limited
Vishay Ltd.
Spectrol GmbH
Grued Corporation
Con-Gro Corp.
Gro-Con, Inc.
Sfernice, Ltd.
Heavybarter, Unlimited
Dale ACI Components
Vishay Nobel AB
AB Givareteknik
Vishay Nobel Oy AB
Vishay Nobel AS
Measurements Group GmbH
Vishay Semiconductor GmbH
Facility Services, GmbH
Vishay (Phils.) Inc.
Vishay Semiconductor Ges.mbH
Shanghai Vishay Semiconductors Ltd.
Vishay Hungary
Vishay Semiconductor Malaysia Sdn Bhd
Vishay Dale Holdings, Inc.
Vishay Dale Electronics, Inc.
Components Dale de Mexico S.A. de C.V.
Electronica Dale de Mexico S.A. de C.V.
Vishay Bradford Electronics, Inc.
Vishay Resistive Systems Inc.
Vishay Sprague Holdings Corp.
Vishay Precision Resistors Holdings Corporation
Vishay Thin Film LLC
Vishay Techno Components LLC
Vishay Service Center, Inc.
Vishay Sprague, Inc.
Vishay Sprague Canada Holdings Inc.
Sprague Electric of Canada Limited
Sprague France S.A.S.
Tansitor Barbados Limited
Vishay Acquisition Holdings Corp.
Vishay Vitramon, Inc.
Vishay do Brazil Ltda.
(k)
(l)
England & Wales
England
England
England & Wales
Germany
Delaware
Delaware
Delaware
England & Wales
England & Wales
England
Sweden
Sweden
Finland
Norway
Germany
Germany
Germany
Philippines
Austria
China
Hungary
Malaysia
Delaware
Delaware
Mexico
Mexico
Delaware
Maryland
Delaware
Delaware
New York
Delaware
Massachusetts
Delaware
Canada
Canada
France
Barbados
Delaware
Delaware
Brazil
Subsidiaries of Registrant, continued
(a) - Registrant's direct ownership percentage in Siliconix incorporated is 80.4%.
(b) - Siliconix incorporated's indirect ownership percentage in Shanghai Simconix Electronic Company
Ltd. is 96%.
(c) - Registrant's indirect ownership percentage in Vishay General Semiconductor, L.P. is 100%; 1% is
owned by its indirectly wholly owned subsidiary Vishay GSI Holdings, LLC, and 99% is owned
by its wholly owned subsidiary Vishay GSI, Inc.
(d) - Registrant's indirect ownership percentage in General Semiconductor Japan, Ltd. is 100%;
50% owned by its wholly owned subsidiary General Semiconductor International and 50% owned
by its wholly owned subsidiary General Semiconductor Inc.
(e) - Registrant's indirect ownership percentage in Celtron Technologies (Tianjin) Inc. is 100%;
68% owned by its wholly owned subsidiary Celtron U.S.A. and 32% owned by its wholly owned
subsidiary UCC Investment Co. Ltd.
(f) - Registrant's indirect ownership percentage in Vishay Europe GmbH is 100%; 85.9% is owned by
its wholly owned subsidiary Vishay Israel Limited; 13.1% is owned by directly; and 1% is owned by
its wholly owned subsidiary Vishay Dale Holdings, Inc.
(g) - Registrant's indirect ownership percentage in Klevestav-Roederstein Festigheter AB is 50%.
(h) - Registrant's indirect ownership percentage in Okab Roederstein Finland OY is 44.4%.
(i) - Registrant's indirect ownership percentage in Rogin Electronic S.A. is 33%.
(j) - Registrant's indirect ownership percentage in Vishay S.A. is 99.8%.
(k) - Registrant's indirect ownership percentage in Facility Services, GmbH is 50%.
(l) - Registrant's indirect ownership percentage in Vishay Semiconductor Ges.mbH is 100%; 54% is owned
by its indirectly wholly owned subsidiary Sprague Electric of Canada; 44% is owned by its indirectly
wholly owned subsidiary Vishay Semiconductor GmbH; and 2% is owned by its indirectly wholly
owned subsidiary Vishay Electronic GmbH.
I, Dr. Gerald Paul, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of Vishay Intertechnology, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: March 15, 2005
/s/ Dr. Gerald Paul
Dr. Gerald Paul
Chief Executive Officer
I, Richard N. Grubb, certify that:
CERTIFICATIONS
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K of Vishay Intertechnology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter
in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: March 15, 2005
/s/ Richard N. Grubb
Richard N. Grubb
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vishay Intertechnology, Inc. (the “Company”) on Form 10-K for
the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Dr. Gerald Paul, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Dr. Gerald Paul
Dr. Gerald Paul
Chief Executive Officer
March 15, 2005
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Vishay Intertechnology, Inc. (the “Company”) on Form 10-K for
the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Richard N. Grubb, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ Richard N. Grubb
Richard N. Grubb
Chief Financial Officer
March 15, 2005
This page intentionally left blank.
Financial Highlights
Corporate Information
Financial Highlights
OPERATING PROFIT (LOSS)*
$ in millions
NET EARNINGS (LOSS)*
$ in millions
100 –
0 –
-100 –
02
($79.2)
03
$59.4
04
$92.5
100 –
0 –
-100 –
02
($92.6)
03
$26.8
04
$44.7
NET SALES
$ in millions
OPERATING PROFIT, ADJUSTED**
$ in millions
NET EARNINGS, ADJUSTED**
$ in millions
2,500 –
2,000 –
1,500 –
1,000 –
500 –
0 –
02
$1,822.8
03
$2,170.6
04
$2,413.6
200 –
100 –
0 –
02
$88.6
03
$107.4
04
$185.6
200 –
100 –
0 –
02
$43.5
03
$45.2
04
$103.9
The following table reconciles amounts as reported to the adjusted operating profit and adjusted net earnings presented in the charts above.
* As reported
Restructuring and severance costs
Asset write-downs
Inventory write-downs and loss on purchase commitments
Purchased research and development
Gain on insurance claim
Other
Net tax benefit of reconciling items
** Adjusted
Operating Profit (Loss) in millions
2004
2003
2002
$ 92.5
$ 59.4
$ (79.2)
47.3
28.6
18.6
27.3
1.0
12.4
17.0
18.4
136.8
1.5
—
—
—
—
—
—
—
—
—
—
—
$185.6
$107.4
$ 88.6
Net Earnings (Loss) in millions
2003
$ 26.8
28.6
1.0
18.4
—
(33.9)
9.9
(5.6)
$ 45.2
2002
$ (92.6)
18.6
12.4
136.8
—
—
2.1
(33.8)
$ 43.5
2004
$ 44.7
47.3
27.3
17.0
1.5
—
(3.1)
(30.8)
$103.9
Management believes that adjusted operating profit and adjusted net earnings, “non-GAAP” measures, are meaningful to investors because they provide insight with respect
to intrinsic operating results of the Company. Reconciling items to arrive at adjusted operating profit and adjusted net earnings represent significant charges or credits that are
important to an understanding of the Company’s intrinsic operations. These reconciling items are more fully described in the Company’s consolidated financial statements.
Measurements such as adjusted operating profit and adjusted net earnings are not recognized by generally accepted accounting principles (GAAP) and should not be viewed
as alternatives to GAAP measures of performance.
About Vishay
Vishay is one of the world’s largest manufacturers of discrete semiconductors and passive electronic
components. These components are used in virtually all types of electronic devices and equipment, in the
industrial, computing, automotive, consumer, telecommunications, military, aerospace, and medical markets.
Vishay’s global footprint includes sales offices worldwide, as well as manufacturing plants in China and
other Asian countries, Europe, and the Americas. Vishay has market shares ranging from substantial to
number one for each of its products. Its product innovations, successful acquisition strategy, focus on cost
reductions, and ability to provide “one-stop shop” service have made Vishay a global industry leader.
www.vishay.com
VISHAY INTERTECHNOLOGY, INC.
BOARD OF DIRECTORS
SHAREHOLDERS’ INFORMATION
Corporate Headquarters
Vishay Intertechnology, Inc.
63 Lincoln Highway
Malvern, PA 19355-2143 USA
Phone: 610-644-1300
Fax: 610-296-0657
www.vishay.com
CORPORATE OFFICERS
Dr. Felix Zandman
Founder and Chairman of the Board
Chief Technical Officer
Chief Business Development Officer
Dr. Gerald Paul
President
Chief Executive Officer
Chief Operating Officer
Marc Zandman
Vice Chairman of the Board
President, Vishay Israel Ltd.
Richard N. Grubb
Executive Vice President
Treasurer, Chief Financial Officer
Ziv Shoshani
Assistant Chief Operating Officer
Executive Vice President, Resistor and
Inductor Group and Measurements Group
William M. Clancy
Senior Vice President
Assistant Secretary
Steven Klausner
Vice President
Assistant Treasurer
ANNUAL MEETING
May 10, 2005 at 10:30 a.m.
Four Seasons Hotel
South Ballroom
Lobby Level
One Logan Square
Philadelphia, PA 19103
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Philadelphia, PA
Transfer Agent and Registrar
American Stock Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
Phone: 800-937-5449
Stock Exchange Listings
New York Stock Exchange
Symbol: VSH
On June 14, 2004, Vishay certified to the
NYSE that it is not aware of any violations of
the NYSE's Corporate Governance Listing
Standards.
Midwest Stock Exchange
Chicago Board of Options Exchange
Investor Relations Contact
Peter Henrici
Vice President
Vishay Intertechnology, Inc.
Phone: 610-644-1300
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, extension 7483.
Shareholders with access to the Internet can
find quarterly reports, press releases, SEC
filings, and all other financial documents at
ir.vishay.com.
SEC FORM 10-K
A copy of the Company’s Annual Report on
Form 10-K for the year ended December
31, 2004, filed with the Securities and
Exchange Commission, is included in
this report and may also be obtained by
shareholders without charge by writing to
the Investor Relations Department, Vishay
Intertechnology, Inc., 63 Lincoln Highway,
Malvern, PA 19355-2143 or through Vishay’s
website at ir.vishay.com.
Dr. Felix Zandman
Founder and Chairman of the Board
Chief Technical Officer
Chief Business Development Officer
Vishay Intertechnology, Inc.
Marc Zandman
Vice Chairman of the Board
President, Vishay Israel Ltd.
Vishay Intertechnology, Inc.
Philippe Gazeau
Investor
Zvi Grinfas
Investor
Eliyahu Hurvitz
Chairman of the Board
Teva Pharmaceutical Industries, Ltd.
Dr. Abraham Ludomirski
Founder and Managing Director of
Vitalife Fund
Dr. Gerald Paul
President
Chief Executive Officer
Chief Operating Officer
Vishay Intertechnology, Inc.
Ziv Shoshani
Assistant Chief Operating Officer
Executive Vice President, Resistor and
Inductor Group and Measurements Group
Vishay Intertechnology, Inc.
Mark I. Solomon
Founder and Chairman
CMS Companies
Thomas C. Wertheimer
Accounting Consultant
Ruta Zandman
Public Relations Associate
Vishay Intertechnology, Inc.
Dr. Edward B. Shils
1915–2004
Vishay's Board of Directors mourns
the passing of Edward B. Shils, J.D.,
Ph.D., S.J.D. Dr. Shils served for many
years on Vishay’s Board and helped to
make possible the growth of Vishay.
HONORARY CHAIRMAN OF
THE BOARD
Alfred P. Slaner
(Deceased March 14, 1996)
Vishay Intertechnology, Inc.
Vishay Intertechnology, Inc.
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Corporate Headquarters
63 Lincoln Highway
Malvern, PA 19355-2143
United States
P 610.644.1300 F 610.296.0657
w w w. v i s h a y. c o m
Annual Report 2004
21.8% Compound Annual Growth Rate (CAGR) of Sales from 1985 to 2004
FORTUNE Magazine (March 7, 2005), "America's Most Admired Companies"
Listed in Semiconductors Category*
*Only discrete semiconductor company in this category
© Copyright 2005 Vishay Intertechnology, Inc.
® Registered trademarks of Vishay Intertechnology, Inc., and Siliconix incorporated
All rights reserved.
One of the world’s largest manufacturers
of discrete semiconductors and passive components