UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended           April 4, 2020

☐
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 001-07416

Vishay Intertechnology, Inc.
(Exact name of registrant as specified in its charter)

Delaware
  
38-1686453
(State or Other Jurisdiction of Incorporation)
  
(I.R.S. Employer Identification Number)
     
63 LANCASTER AVENUE
Malvern, Pennsylvania  19355-2143
  
610-644-1300
(Address of Principal Executive Offices)
  
(Registrant’s Area Code and Telephone Number)

Securities registered pursuant to Section 12(b) of the Act:
 
     
 
Title of each class
Trading symbol
Name of exchange on which registered
  
 
Common stock, par value $0.10 per share
VSH
New York Stock Exchange LLC
  

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  ◻ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
☒Yes  ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 
Large Accelerated Filer ☒
Accelerated filer ◻
 
Non-accelerated filer ◻
Smaller reporting company ☐
 
Emerging growth company ☐
  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes  ☒ No

As of May 8, 2020 the registrant had 132,547,608 shares of its common stock and 12,097,409 shares of its Class B common stock outstanding.






















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2



VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
April 4, 2020
CONTENTS

       
Page Number
PART I.
FINANCIAL INFORMATION
    
         
 
Item 1.
Financial Statements
    
         
   
Consolidated Condensed Balance Sheets – April 4, 2020 (Unaudited) and December 31, 2019
  
4
         
   
Consolidated Condensed Statements of Operations (Unaudited) – Fiscal Quarters Ended April 4, 2020 and March 30, 2019
  
6
         
   
Consolidated Condensed Statements of Comprehensive Income (Unaudited) – Fiscal Quarters Ended April 4, 2020 and March 30, 2019
  
7
         
   
Consolidated Condensed Statements of Cash Flows (Unaudited) – Fiscal Quarters Ended April 4, 2020 and March 30, 2019
  
8
         
   
Consolidated Condensed Statements of Equity (Unaudited)
  
9
         
   
Notes to Consolidated Condensed Financial Statements (Unaudited)
  
10
         
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
30
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
  
49
         
 
Item 4.
Controls and Procedures
  
49
         
PART II.
OTHER INFORMATION
    
         
 
Item 1.
Legal Proceedings
  
50
         
 
Item 1A.
Risk Factors
  
50
         
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
  
50
         
 
Item 3.
Defaults Upon Senior Securities
  
50
         
 
Item 4.
Mine Safety Disclosures
  
50
         
 
Item 5.
Other Information
  
50
         
 
Item 6.
Exhibits
  
51
         
   
SIGNATURES
  
52
3




PART I  - FINANCIAL INFORMATION

Item 1. Financial Statements

VISHAY INTERTECHNOLOGY, INC.
Consolidated Condensed Balance Sheets
(In thousands)

   
April 4, 2020
    
December 31, 2019
  
   
(Unaudited)
        
Assets
            
Current assets:
            
Cash and cash equivalents
  
$
680,703
    
$
694,133
  
Short-term investments
    
140,725
      
108,822
  
Accounts receivable, net
    
325,704
      
328,187
  
Inventories:
                
Finished goods
    
122,231
      
122,466
  
Work in process
    
202,318
      
187,354
  
Raw materials
    
128,639
      
121,860
  
Total inventories
    
453,188
      
431,680
  
                 
Prepaid expenses and other current assets
    
124,871
      
141,294
  
Total current assets
    
1,725,191
      
1,704,116
  
                 
Property and equipment, at cost:
                
Land
    
74,442
      
75,011
  
Buildings and improvements
    
579,161
      
585,064
  
Machinery and equipment
    
2,591,804
      
2,606,355
  
Construction in progress
    
105,832
      
110,722
  
Allowance for depreciation
    
(2,426,757
)
    
(2,425,627
)
Property and equipment, net
    
924,482
      
951,525
  
                 
Right of use assets
    
99,506
      
93,162
  
                 
Goodwill
    
150,288
      
150,642
  
                 
Other intangible assets, net
    
60,468
      
60,659
  
                 
Other assets
    
156,569
      
160,671
  
Total assets
  
$
3,116,504
    
$
3,120,775
  

Continues on following page.
4



VISHAY INTERTECHNOLOGY, INC.
Consolidated Condensed Balance Sheets (continued)
(In thousands)

   
April 4, 2020
    
December 31, 2019
  
   
(Unaudited)
        
Liabilities and equity
            
Current liabilities:
            
Notes payable to banks
  
$
199
    
$
2
  
Trade accounts payable
    
153,999
      
173,915
  
Payroll and related expenses
    
116,456
      
122,100
  
Lease liabilities
    
21,033
      
20,217
  
Other accrued expenses
    
174,556
      
186,463
  
Income taxes
    
24,030
      
17,731
  
Total current liabilities
    
490,273
      
520,428
  
                 
Long-term debt less current portion
    
552,096
      
499,147
  
U.S. transition tax payable
    
140,196
      
140,196
  
Deferred income taxes
    
20,627
      
22,021
  
Long-term lease liabilities
    
83,440
      
78,511
  
Other liabilities
    
94,762
      
100,207
  
Accrued pension and other postretirement costs
    
265,284
      
272,402
  
Total liabilities
    
1,646,678
      
1,632,912
  
                 
Redeemable convertible debentures
    
-
      
174
  
                 
Equity:
                
Vishay stockholders' equity
                
Common stock
    
13,255
      
13,235
  
Class B convertible common stock
    
1,210
      
1,210
  
Capital in excess of par value
    
1,416,260
      
1,425,170
  
Retained earnings
    
84,570
      
72,180
  
Accumulated other comprehensive income (loss)
    
(48,174
)
    
(26,646
)
Total Vishay stockholders' equity
    
1,467,121
      
1,485,149
  
Noncontrolling interests
    
2,705
      
2,540
  
Total equity
    
1,469,826
      
1,487,689
  
Total liabilities, temporary equity, and equity
  
$
3,116,504
    
$
3,120,775
  

See accompanying notes.
5



VISHAY INTERTECHNOLOGY, INC.
Consolidated Condensed Statements of Operations
(Unaudited - In thousands, except per share amounts)

   
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
             
Net revenues
  
$
612,841
    
$
745,159
  
Costs of products sold
    
465,601
      
534,000
  
Gross profit
    
147,240
      
211,159
  
                 
Selling, general, and administrative expenses
    
99,832
      
103,424
  
Operating income
    
47,408
      
107,735
  
                 
Other income (expense):
                
Interest expense
    
(8,552
)
    
(8,392
)
Loss on early extinguishment of debt
    
(2,920
)
    
(1,307
)
Other
    
198
      
1,912
  
Total other income (expense)
    
(11,274
)
    
(7,787
)
                 
Income before taxes
    
36,134
      
99,948
  
                 
Income tax expense
    
8,750
      
24,307
  
                 
Net earnings
    
27,384
      
75,641
  
                 
Less: net earnings attributable to noncontrolling interests
    
165
      
182
  
                 
Net earnings attributable to Vishay stockholders
  
$
27,219
    
$
75,459
  
                 
Basic earnings per share attributable to Vishay stockholders
  
$
0.19
    
$
0.52
  
                 
Diluted earnings per share attributable to Vishay stockholders
  
$
0.19
    
$
0.52
  
                 
Weighted average shares outstanding - basic
    
144,792
      
144,554
  
                 
Weighted average shares outstanding - diluted
    
145,295
      
145,289
  
                 
Cash dividends per share
  
$
0.0950
    
$
0.0850
  

See accompanying notes.
6



VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Comprehensive Income
(Unaudited - In thousands)

   
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
             
Net earnings
  
$
27,384
    
$
75,641
  
                 
Other comprehensive income (loss), net of tax
                
                 
Pension and other  post-retirement actuarial items
    
1,601
      
1,457
  
                 
Foreign currency translation adjustment
    
(23,129
)
    
(9,989
)
                 
Other comprehensive income (loss)
    
(21,528
)
    
(8,532
)
                 
Comprehensive income
    
5,856
      
67,109
  
                 
Less: comprehensive income attributable to noncontrolling interests
    
165
      
182
  
                 
Comprehensive income attributable to Vishay stockholders
  
$
5,691
    
$
66,927
  

See accompanying notes.
7



VISHAY INTERTECHNOLOGY, INC.
Consolidated Condensed Statements of Cash Flows
(Unaudited - In thousands)

   
Three fiscal months ended
  
   
April 4, 2020
    
March 30, 2019
  
             
Operating activities
            
Net earnings
  
$
27,384
    
$
75,641
  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
    
41,520
      
40,428
  
(Gain) loss on disposal of property and equipment
    
(45
)
    
(173
)
Accretion of interest on convertible debt instruments
    
3,637
      
3,490
  
Inventory write-offs for obsolescence
    
5,643
      
6,967
  
Deferred income taxes
    
(3,517
)
    
(2,614
)
Loss on extinguishment of debt
    
2,920
      
1,307
  
Other
    
3,524
      
(1,744
)
Net change in operating assets and liabilities, net of effects of businesses acquired
    
(46,588
)
    
(43,784
)
Net cash provided by operating activities
    
34,478
      
79,518
  
                 
Investing activities
                
Capital expenditures
    
(24,328
)
    
(36,367
)
Proceeds from sale of property and equipment
    
53
      
395
  
Purchase of businesses, net of cash received
    
-
      
(11,862
)
Purchase of short-term investments
    
(35,463
)
    
(1,920
)
Maturity of short-term investments
    
-
      
71,455
  
Other investing activities
    
(1,507
)
    
2,893
  
Net cash provided by (used in) investing activities
    
(61,245
)
    
24,594
  
                 
Financing activities
                
Repurchase of convertible debentures
    
(19,849
)
    
(22,695
)
Net proceeds (payments) on revolving credit lines
    
54,000
      
-
  
Net changes in short-term borrowings
    
85
      
-
  
Dividends paid to common stockholders
    
(12,592
)
    
(11,249
)
Dividends paid to Class B common stockholders
    
(1,149
)
    
(1,028
)
Cash withholding taxes paid when shares withheld for vested equity awards
    
(1,991
)
    
(2,659
)
Net cash provided by (used in) financing activities
    
18,504
      
(37,631
)
Effect of exchange rate changes on cash and cash equivalents
    
(5,167
)
    
(3,087
)
                 
Net increase (decrease) in cash and cash equivalents
    
(13,430
)
    
63,394
  
                 
Cash and cash equivalents at beginning of period
    
694,133
      
686,032
  
Cash and cash equivalents at end of period
  
$
680,703
    
$
749,426
  

See accompanying notes.
8



VISHAY INTERTECHNOLOGY, INC.
Consolidated Condensed Statements of Equity
(Unaudited - In thousands, except share and per share amounts)

   
Common Stock
    
Class B Convertible Common Stock
    
Capital in Excess of Par Value
    
Retained Earnings (Accumulated Deficit)
    
Accumulated Other Comprehensive Income (Loss)
    
Total Vishay Stockholders' Equity
    
Noncontrolling Interests
    
Total Equity
  
Balance at December 31, 2018
  
$
13,212
    
$
1,210
    
$
1,436,011
    
$
(61,258
)
  
$
(6,791
)
  
$
1,382,384
    
$
2,286
    
$
1,384,670
  
Cumulative effect of accounting change for adoption of ASU 2016-02
    
-
      
-
      
-
      
23,013
      
-
      
23,013
      
-
      
23,013
  
Net earnings (loss)
    
-
      
-
      
-
      
75,459
      
-
      
75,459
      
182
      
75,641
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
(8,532
)
    
(8,532
)
    
-
      
(8,532
)
Conversion of Class B shares (18 shares)
    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
Temporary equity reclassification
    
-
      
-
      
3
      
-
      
-
      
3
      
-
      
3
  
Issuance of stock and related tax withholdings for vested restricted stock units (220,718 shares)
    
22
      
-
      
(2,681
)
    
-
      
-
      
(2,659
)
    
-
      
(2,659
)
Dividends declared (0.085 per share)
    
-
      
-
      
15
      
(12,292
)
    
-
      
(12,277
)
    
-
      
(12,277
)
Stock compensation expense
    
-
      
-
      
3,536
      
-
      
-
      
3,536
      
-
      
3,536
  
Repurchase of convertible debentures due 2040 and due 2042
    
-
      
-
      
(11,783
)
    
-
      
-
      
(11,783
)
    
-
      
(11,783
)
Balance at March 30, 2019
  
$
13,234
    
$
1,210
    
$
1,425,101
    
$
24,922
    
$
(15,323
)
  
$
1,449,144
    
$
2,468
    
$
1,451,612
  
                                                                 
Balance at December 31, 2019
    
13,235
      
1,210
      
1,425,170
      
72,180
      
(26,646
)
    
1,485,149
      
2,540
      
1,487,689
  
Cumulative effect of accounting change for adoption of ASU 2016-13 (see Note 1)
    
-
      
-
      
-
      
(1,070
)
    
-
      
(1,070
)
    
-
      
(1,070
)
Net earnings
    
-
      
-
      
-
      
27,219
      
-
      
27,219
      
165
      
27,384
  
Other comprehensive income (loss)
    
-
      
-
      
-
      
-
      
(21,528
)
    
(21,528
)
    
-
      
(21,528
)
Temporary equity reclassification
    
-
      
-
      
174
      
-
      
-
      
174
      
-
      
174
  
Issuance of stock and related tax withholdings for vested restricted stock units (199,251 shares)
    
20
      
-
      
(2,011
)
    
-
      
-
      
(1,991
)
    
-
      
(1,991
)
Dividends declared (0.095 per share)
    
-
      
-
      
18
      
(13,759
)
    
-
      
(13,741
)
    
-
      
(13,741
)
Stock compensation expense
    
-
      
-
      
2,998
      
-
      
-
      
2,998
      
-
      
2,998
  
Repurchase of convertible senior debentures due 2041
    
-
      
-
      
(10,089
)
    
-
      
-
      
(10,089
)
    
-
      
(10,089
)
Balance at April 4, 2020
  
$
13,255
    
$
1,210
    
$
1,416,260
    
$
84,570
    
$
(48,174
)
  
$
1,467,121
    
$
2,705
    
$
1,469,826
  

See accompanying notes.

9

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 1 – Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Vishay Intertechnology, Inc. (“Vishay” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented.  The financial statements should be read in conjunction with the consolidated financial statements filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.  The results of operations for the fiscal quarter and three fiscal months ended April 4, 2020 are not necessarily indicative of the results to be expected for the full year.

The Company reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first fiscal quarter, which always begins on January 1, and the fourth fiscal quarter, which always ends on December 31.  The four fiscal quarters in 2020 ended on April 4, 2020, July 4, 2020, October 3, 2020, and December 31, 2020, respectively.  The four fiscal quarters in 2019 ended on March 30, 2019, June 29, 2019, September 28, 2019, and December 31, 2019, respectively.

Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The Company adopted the ASU effective  January 1, 2020.

Payment terms for the Company's sales are generally less than ninety days.  Substantially all of the Company's receivables are collected within twelve months of the transfer of products to the customer and the Company expects this to continue going forward.  The credit loss 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.  Receivables from customers with deteriorating financial condition and those over 180 days past due are removed from the pool and evaluated separately.  The adoption of ASU 2016-13 on January 1, 2020 had no material impact on the Company’s allowance for accounts receivable credit losses.

The Company’s cash equivalents, short-term investments, and restricted investments are accounted for as held-to-maturity debt instruments, at amortized cost.  Interest income on these instruments is recorded as “Other income” on the consolidated condensed statements of operations and interest receivable is recognized as a separate asset and recorded in “Prepaid expenses and other current assets” on the consolidated condensed balance sheets.  The Company has not experienced a credit loss on the principal or interest receivable of its cash equivalents, short-term investments, or restricted investments.  The Company pools its cash equivalents, short-term investments, and restricted investments by credit rating of the issuing financial institution and estimates an allowance for credit losses based on the corporate bond default ratios, evaluation of the impact of current and projected economic conditions, and probability of credit loss.  The Company recorded a cumulative-effect adjustment of $810 to January 1, 2020 retained earnings to recognize an allowance for credit losses for these financial instruments upon the adoption of ASU 2016-13.  The Company does not measure an allowance for credit losses on interest receivable.  Any uncollectible interest receivable will be recognized by reversing interest income within the fiscal quarter that the interest becomes uncollectible.

The Company has an immaterial amount of other short-term held-to-maturity debt instruments recorded within “Prepaid expenses and other current assets” on the consolidated condensed balance sheets.  The Company analyzes these assets on a separate asset basis and estimates an allowance for credit losses based on historical credit loss rates and an evaluation of the impact of current and projected economic conditions.  The Company recorded a cumulative-effect adjustment of $260 to January 1, 2020 retained earnings to recognize an allowance for credit losses for these financial instruments upon the adoption of ASU 2016-13.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation. 

10

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Note 2 – Impact of Coronavirus Outbreak

The Company's operations have been impacted by the coronavirus ("COVID-19") outbreak.  Some manufacturing facilities are or were temporarily closed and some are operating at levels less than full capacity.  The Company has incurred incremental costs separable from normal operations that are directly related to the outbreak and containment efforts, primarily wages paid to manufacturing employees during government-mandated shut-downs, additional wages and hardship allowances for working during lockdown periods, additional costs of cleaning and disinfecting facilities, costs of additional safety equipment for employees, and temporary housing for employees due to travel restrictions, which were partially offset by government subsidies.  The net impact of the costs and subsidies are reported as cost of products sold ($3,130) and selling, general, and administrative expenses ($317) based on employee function on the consolidated condensed statement of operations.

The Company's insurance coverages generally exclude losses incurred due to pandemics.  Any amounts that may be received will not be recognized until all contingencies are settled.

11

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 3 – Leases

The Company leases buildings and machinery and equipment used for manufacturing and/or sales and administrative purposes.  The Company is also party to various service, warehousing, and other agreements that it evaluates for potential embedded leases.

The Company leases assets in each region in which it operates.  No individual lease is considered significant and there are no leases that have not yet commenced that are considered significant.

The net right of use assets and lease liabilities recognized on the consolidated condensed balance sheets for the Company's operating leases were as follows:


 
April 4, 2020
    
December 31, 2019
  
Right of use assets
            
Operating Leases
            
Buildings and improvements
  
$
94,353
    
$
87,689
  
Machinery and equipment
    
5,153
      
5,473
  
Total
  
$
99,506
    
$
93,162
  
Current lease liabilities
                
Operating Leases
                
Buildings and improvements
  
$
18,324
    
$
17,410
  
Machinery and equipment
    
2,709
      
2,807
  
Total
  
$
21,033
    
$
20,217
  
Long-term lease liabilities
                
Operating Leases
                
Buildings and improvements
  
$
81,036
    
$
75,877
  
Machinery and equipment
    
2,404
      
2,634
  
Total
  
$
83,440
    
$
78,511
  
Total lease liabilities
  
$
104,473
    
$
98,728
  
12

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Lease expense is classified on the statement of operations based on asset use.  Total lease cost recognized on the consolidated condensed statements of operations is as follows:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Lease expense
            
Operating lease expense
  
$
5,652
    
$
5,536
  
Short-term lease expense
    
194
      
833
  
Variable lease expense
    
23
      
12
  
Total lease expense
  
$
5,869
    
$
6,381
  

The Company paid $5,609 and $5,050 for its operating leases in the three fiscal months ended April 4, 2020 and March 30, 2019, respectively, which are included in operating cash flows on the consolidated condensed statements of cash flows.  The weighted-average remaining lease term for the Company's operating leases is 8.8 years and the weighted-average discount rate is 5.9% as of April 4, 2020.

The undiscounted future lease payments for the Company's operating lease liabilities are as follows:


 
April 4, 2020
  
2020 (excluding the three fiscal months ended April 4, 2020)
  
$
16,499
  
2021
    
19,647
  
2022
    
16,044
  
2023
    
13,699
  
2024
    
12,640
  
Thereafter
    
57,162
  

The undiscounted future lease payments presented in the table above include payments through the term of the lease, which may include periods beyond the noncancellable term.  The difference between the total payments above and the lease liability balance is due to the discount rate used to calculate lease liabilities.

13

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 4 – Restructuring and Related Activities

In the third fiscal quarter of 2019, the Company announced global cost reduction and management rejuvenation programs as part of its continuous efforts to improve efficiency and operating performance.
The programs are primarily designed to reduce manufacturing fixed costs and selling, general, and administrative costs company-wide, and provide management rejuvenation.  The Company expects to incur charges of approximately $25,000, primarily related to cash severance costs, to implement these programs.  The Company expects these cost reductions to be fully achieved by December 2020.
The following table summarizes the activity to date related to this program:

Expense recorded in 2019
  
$
24,139
  
Cash paid
    
(1,330
)
Foreign currency translation
    
35
  
Balance at December 31, 2019
  
$
22,844
  
Cash paid
    
(3,742
)
Foreign currency translation
    
(307
)
Balance at April 4, 2020
  
$
18,795
  

The payment terms vary by country, but generally are paid in a lump sum at cessation of employment.  The current portion of the liability is $15,348 and is included in other accrued expenses on the consolidated condensed balance sheet.  The non-current portion of the liability is $3,447 and is included in other liabilities on the consolidated condensed balance sheet.
14

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 5 – Income Taxes

The provision for income taxes consists of provisions for federal, state, and foreign income taxes.  The effective tax rates for the periods ended April 4, 2020 and March 30, 2019 reflect the Company’s expected tax rate on reported income from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in various jurisdictions outside the United States.  Accordingly, the consolidated income tax rate is a composite rate reflecting the Company’s earnings and the applicable tax rates in the various jurisdictions where the Company operates.

The Company has approximately $100,000 of unremitted foreign earnings that it has deemed not permanently reinvested and thus has accrued foreign withholding and other taxes.   The Company plans to repatriate these foreign earnings in the second fiscal quarter of 2020. 

The Company repurchased a portion of outstanding convertible debentures in the first fiscal quarters of 2020 and 2019 (see Note 6).  The Company recognized tax benefits on the pre-tax loss on early extinguishment of debt.  The Company also recognized tax benefits of $1,346 and $1,312 in the first fiscal quarters of 2020 and 2019, respectively, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the extinguished debentures.

Income tax expense for the first fiscal quarter of 2019 includes tax benefits of $585 for the periodic remeasurement of the deferred tax liability recorded for the foreign taxes associated with the Company's cash repatriation program.

During the fiscal quarter ended April 4, 2020, the liabilities for unrecognized tax benefits decreased by $1,264 on a net basis, primarily due to currency translation adjustments and the expiration of a statute, partially offset by interest.

15

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 6 – Long-Term Debt

Long-term debt consists of the following:


 
April 4, 2020
    
December 31, 2019
  
             
Credit facility
  
$
54,000
    
$
-
  
Convertible senior notes, due 2025
    
512,745
      
509,128
  
Convertible senior debentures, due 2040
    
127
      
126
  
Convertible senior debentures, due 2041
    
1,050
      
6,677
  
Deferred financing costs
    
(15,826
)
    
(16,784
)
     
552,096
      
499,147
  
Less current portion
    
-
      
-
  
   
$
552,096
    
$
499,147
  

The following table summarizes some key facts and terms regarding the outstanding convertible debt instruments as of April 4, 2020:


 
Convertible
Senior Notes
Due 2025
    
Convertible
Senior
Debentures
Due 2040
    
Convertible
Senior
Debentures
Due 2041
  
Issuance date
  
June 12, 2018
    
November 9, 2010
    
May 13, 2011
  
Maturity date
  
June 15, 2025
    
November 15, 2040
    
May 15, 2041
  
Principal amount as of April 4, 2020
  
$
600,000
    
$
300
    
$
2,640
  
Cash coupon rate (per annum)
    
2.25
%
    
2.25
%
    
2.25
%
Nonconvertible debt borrowing rate at issuance (per annum)
    
5.50
%
    
8.00
%
    
8.375
%
Conversion rate effective March 11, 2020 (per $1 principal amount)
    
31.8278
      
80.4668
      
58.7205
  
Effective conversion price effective March 11, 2020 (per share)
  
$
31.42
    
$
12.43
    
$
17.03
  
130% of the conversion price (per share)
  
$
40.85
    
$
16.16
    
$
22.14
  
Call date
    
n/a
    
November 20, 2020
    
May 20, 2021
  

The terms of the convertible senior debentures due 2040 and due 2041 are generally congruent.

Prior to three months before the maturity date, the holders may convert their convertible senior debentures due 2040 and due 2041 only under the following circumstances: (1) during any fiscal quarter after the first full quarter subsequent to issuance, if the sale price of Vishay common stock reaches 130% of the conversion price for a specified period; (2) the trading price of the debentures falls below 98% of the product of the sale price of Vishay's common stock and the conversion rate for a specified period; (3) Vishay calls any or all of the debentures for redemption, at any time prior to the close of business on the third scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.  The convertible senior debentures due 2040 and due 2041 are not currently convertible.

Prior to December 15, 2024, the holders of the convertible senior notes due 2025 may convert their notes only under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ending September 29, 2018, if 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 product of the sale price of Vishay's common stock and the conversion rate for a specified period; or (3) upon the occurrence of specified corporate transactions.

The quarterly cash dividend program of the Company results in adjustments to the conversion rate and effective conversion price for the convertible debt instruments effective as of the ex-dividend date of each cash dividend.  The conversion rate and effective conversion price for the convertible senior notes due 2025 is adjusted for quarterly cash dividends to the extent such dividends exceed $0.085 per share of common stock.

GAAP requires an issuer to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate when interest costs are recognized in subsequent periods.  The resulting discount on the debt is amortized as non-cash interest expense in future periods.
16

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The carrying values of the liability and equity components of the convertible debt instruments are reflected in the Company’s consolidated condensed balance sheets as follows:


 
Principal
amount of the
debt
instruments
    
Unamortized
discount
    
Carrying
value of
liability
component
    
Equity
component
(including
temporary
equity) -net
carrying value
  
April 4, 2020
                        
Convertible senior notes due 2025
  
$
600,000
      
(87,255
)
  
$
512,745
    
$
85,262
  
Convertible senior debentures due 2040 and due 2041
  
$
2,940
      
(1,763
)
  
$
1,177
    
$
1,216
  
Total
  
$
602,940
    
$
(89,018
)
  
$
513,922
    
$
86,478
  
                                 
December 31, 2019
                                
Convertible senior notes due 2025
  
$
600,000
      
(90,872
)
  
$
509,128
    
$
85,262
  
Convertible senior debentures due 2040 and due 2041
  
$
17,190
      
(10,387
)
  
$
6,803
    
$
7,129
  
Total
  
$
617,190
    
$
(101,259
)
  
$
515,931
    
$
92,391
  

Interest is payable on the convertible debt instruments semi-annually at the cash coupon rate; however, the remaining debt discount is being amortized as additional non-cash interest expense using an effective annual interest rate equal to the Company’s estimated nonconvertible debt borrowing rate at the time of issuance.  In addition to ordinary interest, contingent interest will accrue in certain circumstances relating to the trading price of the convertible senior debentures due 2040 and due 2041 and under certain other circumstances, beginning in 2020 and 2021, respectively.  The convertible senior notes due 2025 do not possess contingent interest features.

Interest expense related to the convertible debt instruments is reflected on the consolidated condensed statements of operations for the fiscal quarters ended:


 
Contractual
coupon
interest
    
Non-cash
amortization
of debt
discount
    
Other non-cash
interest expense
    
Total interest
expense
related to the
debt
instruments
  
April 4, 2020
                        
Convertible senior notes due 2025
  
$
3,375
      
3,617
      
454
    
$
7,446
  
Convertible senior debentures
  
$
44
      
20
      
-
    
$
64
  
Total
  
$
3,419
    
$
3,637
    
$
454
    
$
7,510
  
                                 
March 30, 2019
                                
Convertible senior notes due 2025
  
$
3,375
      
3,426
      
454
    
$
7,255
  
Convertible senior debentures
  
$
148
      
64
      
(16
)
  
$
196
  
Total
  
$
3,523
    
$
3,490
    
$
438
    
$
7,451
  

Other non-cash interest expense includes amortization of deferred financing costs and changes in the value of embedded derivative liabilities.

The Company used cash to repurchase $14,250 principal amount of convertible senior debentures due 2041 in the first fiscal quarter of 2020.  The net carrying value of the debentures repurchased was $5,645.  In accordance with the authoritative accounting guidance for convertible debentures, the aggregate repurchase payment of $19,926 was allocated between the liability ($9,837) and equity ($10,089) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchase.  As a result, the Company recognized a loss on extinguishment of convertible debentures of $2,920, including the write-off of unamortized debt issuance costs.

17

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 7 – Revenue Recognition

Sales returns and allowances accrual activity is shown below:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Beginning balance
  
$
40,508
    
$
42,663
  
Sales allowances
    
22,632
      
28,211
  
Credits issued
    
(27,982
)
    
(33,062
)
Foreign currency
    
(346
)
    
(235
)
Ending balance
  
$
34,812
    
$
37,577
  

See disaggregated revenue information in Note 11.
18

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 8 – Accumulated 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:


 
Pension and
other post-
retirement
actuarial
items
    
Currency
translation
adjustment
    
Total
  
Balance at January 1, 2020
  
$
(68,020
)
  
$
41,374
    
$
(26,646
)
Other comprehensive income before reclassifications
    
-
      
(23,129
)
  
$
(23,129
)
Tax effect
    
-
      
-
    
$
-
  
Other comprehensive income before reclassifications, net of tax
    
-
      
(23,129
)
  
$
(23,129
)
Amounts reclassified out of AOCI
    
2,223
      
-
    
$
2,223
  
Tax effect
    
(622
)
    
-
    
$
(622
)
Amounts reclassified out of AOCI, net of tax
    
1,601
      
-
    
$
1,601
  
Net other comprehensive income
  
$
1,601
    
$
(23,129
)
  
$
(21,528
)
Balance at April 4, 2020
  
$
(66,419
)
  
$
18,245
    
$
(48,174
)

Reclassifications of pension and other post-retirement actuarial items out of AOCI are included in the computation of net periodic benefit cost.  See Note 9 for further information.

19

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 9 – Pensions and Other Postretirement Benefits

The Company maintains various retirement benefit plans.  The service cost component of net periodic pension cost is classified in costs of products sold or selling, general, and administrative expenses on the consolidated condensed statements of operations based on the respective employee's function.  The other components of net periodic pension cost are classified as other expense on the consolidated condensed statements of operations.

Defined Benefit Pension Plans

The following table shows the components of the net periodic pension cost for the first fiscal quarters of 2020 and 2019 for the Company’s defined benefit pension plans:


 
Fiscal quarter ended
April 4, 2020
    
Fiscal quarter ended
March 30, 2019
  
   
U.S. Plans
    
Non-U.S.
Plans
    
U.S. Plans
    
Non-U.S.
Plans
  
                         
Net service cost
  
$
-
    
$
1,074
    
$
-
    
$
852
  
Interest cost
    
342
      
924
      
424
      
1,291
  
Expected return on plan assets
    
-
      
(495
)
    
-
      
(490
)
Amortization of prior service cost
    
36
      
30
      
36
      
51
  
Amortization of losses
    
298
      
1,592
      
118
      
1,359
  
Curtailment and settlement losses
    
-
      
229
      
-
      
505
  
Net periodic benefit cost
  
$
676
    
$
3,354
    
$
578
    
$
3,568
  

Other Postretirement Benefits

The following table shows the components of the net periodic benefit cost for the first fiscal quarters of 2020 and 2019 for the Company’s other postretirement benefit plans:


 
Fiscal quarter ended
April 4, 2020
    
Fiscal quarter ended
March 30, 2019
  
   
U.S. Plans
    
Non-U.S.
Plans
    
U.S. Plans
    
Non-U.S.
Plans
  
                         
Service cost
  
$
28
    
$
69
    
$
35
    
$
72
  
Interest cost
    
59
      
15
      
77
      
30
  
Amortization of losses (gains)
    
7
      
31
      
(32
)
    
27
  
Net periodic benefit cost
  
$
94
    
$
115
    
$
80
    
$
129
  

20

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 10 – Stock-Based Compensation

The Company has various stockholder-approved programs which allow for the grant of stock-based compensation to officers, employees, and non-employee directors of the Company.

The amount of compensation cost related to stock-based payment transactions is measured based on the grant-date fair value of the equity instruments issued.  The Company determines compensation cost for restricted stock units (“RSUs”) and phantom stock units based on the grant-date fair value of the underlying common stock adjusted for expected dividends paid over the required vesting period for non-participating awards.  Compensation cost is recognized over the period that an officer, employee, or non-employee director provides service in exchange for the award.

The following table summarizes stock-based compensation expense recognized:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
             
Restricted stock units
  
$
2,783
    
$
3,359
  
Phantom stock units
    
215
      
177
  
Total
  
$
2,998
    
$
3,536
  

The Company recognizes compensation cost for RSUs that are expected to vest and records cumulative adjustments in the period that the expectation changes.

The following table summarizes unrecognized compensation cost and the weighted average remaining amortization periods at April 4, 2020 (amortization periods in years):


 
Unrecognized
Compensation
Cost
    
Weighted
Average
Remaining
Amortization
Periods
  
             
Restricted stock units
  
$
5,041
      
1.0
  
Phantom stock units
    
-
      
0.0
  
Total
  
$
5,041
          

The Company currently expects all performance-based RSUs to vest and all of the associated unrecognized compensation cost for performance-based RSUs presented in the table above to be recognized.

21

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
2007 Stock Incentive Plan

The Company’s 2007 Stock Incentive Program (the “2007 Program”), as amended and restated, permits the grant of up to 6,500,000 shares of restricted stock, unrestricted stock, RSUs, stock options, and phantom stock units, to officers, employees, and non-employee directors of the Company.  Such instruments are available for grant until May 20, 2024.

Restricted Stock Units

RSU activity under the 2007 Program as of April 4, 2020 and changes during the three fiscal months then ended are presented below (number of RSUs in thousands):


 
Number of
RSUs
    
Weighted
Average
Grant-date
Fair Value per
Unit
  
Outstanding:
            
January 1, 2020
    
842
    
$
17.93
  
Granted
    
272
      
18.30
  
Vested*
    
(293
)
    
15.52
  
Cancelled or forfeited
    
-
      
-
  
Outstanding at April 4, 2020
    
821
    
$
18.91
  
                 
Expected to vest at April 4, 2020
    
808
          

* The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy the statutory tax withholding requirements.

The number of performance-based RSUs that are scheduled to vest increases ratably based on the achievement of defined performance criteria between the established target and maximum levels.  RSUs with performance-based vesting criteria are expected to vest as follows (number of RSUs in thousands):

Vesting Date
  
Expected
to Vest
  
Not Expected
to Vest
  
Total
January 1, 2021
    
141
    
-
    
141
January 1, 2022
    
174
    
-
    
174
January 1, 2023
    
152
    
-
    
152

Phantom Stock Units

The 2007 Program authorizes the grant of phantom stock units to the extent provided for in the Company’s employment agreements with certain executives.  Each phantom stock unit entitles the recipient to receive a share of common stock at the individual’s termination of employment or any other future date specified in the applicable employment agreement.  Phantom stock units participate in dividend distribution on the same basis as the Company's common stock and Class B common stock.  Dividend equivalents are issued in the form of additional units of phantom stock.  The phantom stock units are fully vested at all times.

Phantom stock unit activity under the phantom stock plan as of April 4, 2020 and changes during the three fiscal months then ended are presented below (number of phantom stock units in thousands):


 
Number of
units
    
Grant-date
Fair Value per
Unit
  
Outstanding:
            
January 1, 2020
    
183
        
Granted
    
10
    
$
21.49
  
Dividend equivalents issued
    
1
          
Outstanding at April 4, 2020
    
194
          

22

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 11 – Segment Information

Vishay is a global manufacturer and supplier of electronic components.  Vishay operates, and its chief operating decision maker makes strategic and operating decisions with regards to assessing performance and allocating resources based on, six reporting segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.  These segments represent groupings of product lines based on their functionality:

●
  
Metal oxide semiconductor field-effect transistors ("MOSFETs") function as solid-state switches to control power.
●
  
Diodes route, regulate, and block radio frequency, analog, and power signals; protect systems from surges or electrostatic discharge damage; or provide electromagnetic interference filtering.
●
  
Optoelectronic components emit light, detect light, or do both.
●
  
Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current.
●
  
Inductors use an internal magnetic field to change alternating current phase and resist alternating current.
●
  
Capacitors store energy and discharge it when needed.

The current six segment alignment reflects a change in reporting structure made during the fourth fiscal quarter of 2019.  The fiscal period ended March 30, 2019 has been recast to separately present Resistors and Inductors.

Vishay's reporting segments generate substantially all of their revenue from product sales to the industrial, automotive, telecommunications, computing, consumer products, power supplies, military and aerospace, and medical end markets.  A small portion of revenues is from royalties.

The Company evaluates business segment performance on operating income, exclusive of certain items (“segment operating income”).  Only dedicated, direct selling, general, and administrative expenses of the segments are included in the calculation of segment operating income.  The Company’s calculation of segment operating income excludes such selling, general, and administrative costs as global operations, sales and marketing, information systems, finance and administration groups, as well as restructuring and severance costs, the impact of the COVID-19 outbreak, goodwill and long-lived asset impairment charges, and other items.  Management believes that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the Company.  These items represent reconciling items between segment operating income and consolidated operating income.  Business segment assets are the owned or allocated assets used by each business.

The Company also regularly evaluates gross profit by segment to assist in the analysis of consolidated gross profit.  The Company considers segment operating income to be the more important metric because it more fully captures the business operations of the segments.

23

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
The following tables set forth business segment information:


 
MOSFETs
    
Diodes
    
Optoelectronic
Components
    
Resistors
    
Inductors
    
Capacitors
    
Corporate / Other*
    
Total
  
Fiscal quarter ended April 4, 2020:
                                            
Net revenues
  
$
116,893
    
$
115,343
    
$
54,179
    
$
159,208
    
$
73,785
    
$
93,433
    
$
-
    
$
612,841
  
                                                                 
Gross profit
  
$
28,152
    
$
19,518
    
$
14,585
    
$
44,773
    
$
22,987
    
$
20,355
    
$
(3,130
)
  
$
147,240
  
                                                                 
Segment operating income
  
$
18,658
    
$
14,422
    
$
10,686
    
$
38,885
    
$
20,310
    
$
15,070
    
$
(3,130
)
  
$
114,901
  
                                                                 
Fiscal quarter ended March 30, 2019:
                                                          
Net revenues
  
$
137,341
    
$
167,840
    
$
60,562
    
$
188,831
    
$
71,640
    
$
118,945
    
$
-
    
$
745,159
  
                                                                 
Gross profit
  
$
36,059
    
$
43,492
    
$
16,017
    
$
62,589
    
$
23,280
    
$
29,722
    
$
-
    
$
211,159
  
                                                                 
Segment operating income
  
$
26,678
    
$
38,128
    
$
11,710
    
$
56,347
    
$
20,640
    
$
24,566
    
$
-
    
$
178,069
  

*Amounts reported in Corporate/Other above represent unallocated costs directly related to the COVID-19 outbreak, which are reported as costs of products sold on the consolidated condensed statement of operations.



 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Reconciliation:
            
Segment Operating Income
  
$
114,901
    
$
178,069
  
Impact of COVID-19 Outbreak on Selling, General, and Administrative Expenses
    
(317
)
    
-
  
Unallocated Selling, General, and Administrative Expenses
    
(67,176
)
    
(70,334
)
Consolidated Operating Income
  
$
47,408
    
$
107,735
  
Unallocated Other Income (Expense)
    
(11,274
)
    
(7,787
)
Consolidated Income Before Taxes
  
$
36,134
    
$
99,948
  
24

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

The Company has a broad line of products that it sells to OEMs, EMS companies, and independent distributors.  The distribution of sales by customer type is shown below:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Distributors
  
$
305,446
    
$
411,560
  
OEMs
    
261,129
      
282,636
  
EMS companies
    
46,266
      
50,963
  
Total Revenue
  
$
612,841
    
$
745,159
  

Net revenues were attributable to customers in the following regions:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Asia
  
$
217,084
    
$
259,726
  
Europe
    
233,052
      
278,899
  
Americas
    
162,705
      
206,534
  
Total Revenue
  
$
612,841
    
$
745,159
  

The Company generates substantially all of its revenue from product sales to end customers in the industrial, automotive, telecommunications, computing, consumer products, power supplies, military and aerospace, and medical end markets.  Sales by end market are presented below:


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Industrial
  
$
215,111
    
$
281,590
  
Automotive
    
201,943
      
214,786
  
Telecommunications
    
29,692
      
53,280
  
Computing
    
45,223
      
47,508
  
Consumer Products
    
20,553
      
34,049
  
Power Supplies
    
25,194
      
30,127
  
Military and Aerospace
    
43,935
      
47,561
  
Medical
    
31,190
      
36,258
  
Total revenue
  
$
612,841
    
$
745,159
  
25

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 12 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share attributable to Vishay stockholders (shares in thousands):


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
             
Numerator:
            
Net earnings attributable to Vishay stockholders
  
$
27,219
    
$
75,459
  
                 
Denominator:
                
Denominator for basic earnings per share:
                
Weighted average shares
    
144,599
      
144,375
  
Outstanding phantom stock units
    
193
      
179
  
Adjusted weighted average shares - basic
    
144,792
      
144,554
  
                 
Effect of dilutive securities:
                
Convertible debt instruments
    
95
      
237
  
Restricted stock units
    
408
      
498
  
Dilutive potential common shares
    
503
      
735
  
                 
Denominator for diluted earnings per share:
                
Adjusted weighted average shares - diluted
    
145,295
      
145,289
  
                 
Basic earnings per share attributable to Vishay stockholders
  
$
0.19
    
$
0.52
  
                 
Diluted earnings per share attributable to Vishay stockholders
  
$
0.19
    
$
0.52
  
26

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
Diluted earnings per share for the periods presented do not reflect the following weighted average potential common shares that would have an antidilutive effect or have unsatisfied performance conditions (in thousands):


 
Fiscal quarters ended
  
   
April 4, 2020
    
March 30, 2019
  
Convertible debt instruments:
            
Convertible senior notes due 2025
    
19,088
      
19,052
  
Convertible senior debentures due 2041
    
88
      
-
  
Weighted average other
    
325
      
315
  

The Company’s convertible debt instruments are only convertible for specified periods upon the occurrence of certain events.  The Company's convertible debt instruments are not currently convertible.  In periods that the convertible debt instruments are not convertible, the certain conditions which could trigger conversion of the debt instruments have been deemed to be non-substantive, and accordingly, the Company assumes the conversion of these instruments in its diluted earnings per share computation during periods in which they are dilutive.

At the direction of its Board of Directors, the Company intends, upon conversion, to repay the principal amounts of any of the convertible debt instruments in cash and settle any additional amounts in shares of Vishay common stock. Accordingly, the convertible instruments are included in the diluted earnings per share computation using the “treasury stock method” (similar to options and warrants) rather than the “if converted method” otherwise required for convertible debt.  Under the “treasury stock method,” Vishay calculates the number of shares issuable under the terms of the debentures based on the average market price of Vishay common stock during the period, and that number is included in the total diluted shares figure for the period.  If the average market price is less than $12.43, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2040, if the average market price is less than $17.03, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2041, and if the average market price is less than $31.42, no shares are included in the diluted earnings per share computation for the convertible senior notes due 2025.

27

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 13 – Fair Value Measurements

The fair value measurement accounting guidance establishes a valuation hierarchy of the inputs used to measure fair value. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs that reflect the Company’s own assumptions.

An asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. There have been no changes in the classification of any financial instruments within the fair value hierarchy in the periods presented.

The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis:


 
Total
Fair Value
    
Level 1
    
Level 2
    
Level 3
  
April 4, 2020
                        
Assets:
                        
Assets held in rabbi trusts
  
$
48,137
    
$
33,687
    
$
14,450
    
$
-
  
Available for sale securities
  
$
4,073
      
4,073
      
-
      
-
  
   
$
52,210
    
$
37,760
    
$
14,450
    
$
-
  
December 31, 2019
                                
Assets:
                                
Assets held in rabbi trusts
  
$
52,148
    
$
34,280
      
17,868
    
$
-
  
Available for sale securities
  
$
4,405
      
4,405
      
-
      
-
  
   
$
56,553
    
$
38,685
    
$
17,868
    
$
-
  

As described in Note 6, the Company allocated the aggregate repurchase payment of convertible senior debentures between the associated liability and equity components of the repurchased convertible senior debentures based on a nonrecurring fair value measurement of the convertible senior debentures due 2041 immediately prior to the repurchase.  The nonrecurring fair value measurement is considered a Level 3 measurement.  See Note 6 for further information on the measurement and input.

The Company maintains non-qualified trusts, referred to as “rabbi” trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale and company-owned life insurance assets.  The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company’s insurance brokers using the value of underlying assets of the insurance contracts.  The fair value measurement of the marketable securities held in the rabbi trust is considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.
28

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

The Company holds investments in equity securities that are intended to fund a portion of its pension and other postretirement benefit obligations outside of the United States.  The investments are valued based on quoted market prices on the last business day of the period.  The fair value measurement of the investments is considered a Level 1 measurement within the fair value hierarchy.

The fair value of the long-term debt, excluding the derivative liabilities and deferred financing costs, at April 4, 2020 and December 31, 2019 is approximately $574,800 and $632,200, respectively, compared to its carrying value, excluding the derivative liabilities and deferred financing costs, of $567,922 and $515,931, respectively.  The Company estimates the fair value of its long-term debt using a combination of quoted market prices for similar financing arrangements and expected future payments discounted at risk-adjusted rates, which are considered Level 2 inputs.

At April 4, 2020 and December 31, 2019, the Company’s short-term investments were comprised of time deposits with financial institutions that have maturities that exceed 90 days from the date of acquisition; however they all mature within one year from the respective balance sheet dates.  The Company's short-term investments are accounted for as held-to-maturity debt instruments, at amortized cost, which approximates their fair value.  The investments are funded with excess cash not expected to be needed for operations prior to maturity; therefore, the Company believes it has the intent and ability to hold the short-term investments until maturity.  At each reporting date, the Company performs an evaluation to determine if any unrealized losses are other-than-temporary.  No other-than-temporary impairments have been recognized on these securities, and there are no unrecognized holding gains or losses for these securities during the periods presented.  There have been no transfers to or from the held-to-maturity classification.  All decreases in the account balance are due to returns of principal at the securities’ maturity dates.  Interest on the securities is recognized as interest income when earned.

At April 4, 2020 and December 31, 2019, the Company’s cash and cash equivalents were comprised of demand deposits, time deposits with maturities of three months or less when purchased, and money market funds.  The Company estimates the fair value of its cash, cash equivalents, and short-term investments using level 2 inputs.  Based on the current interest rates for similar investments with comparable credit risk and time to maturity, the fair value of the Company's cash, cash equivalents, and held-to-maturity short-term investments approximate the carrying amounts reported in the consolidated condensed balance sheets.

The Company’s financial instruments also include accounts receivable, short-term notes payable, and accounts payable.  The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values.

29



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management's Discussion and Analysis ("MD&A") is intended to provide an understanding of Vishay's financial condition, results of operations and cash flows by focusing on changes in certain key measures from period to period. The MD&A should be read in conjunction with our Consolidated Condensed Financial Statements and accompanying Notes included in Item 1.  This discussion contains forward-looking statements that involve risks and uncertainties.  Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in our Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors," filed with the Securities and Exchange Commission on February 14, 2020.

Overview

Vishay Intertechnology, Inc. (“Vishay,” “we,” “us,” or “our”) is a global manufacturer and supplier of discrete semiconductors and passive components, including power MOSFETs, power integrated circuits, transistors, diodes, optoelectronic components, resistors, capacitors, and inductors. Discrete semiconductors and passive components manufactured by Vishay are used in virtually all types of electronic products, including those in the industrial, computing, automotive, consumer electronic products, telecommunications, power supplies, military/aerospace, and medical industries.

We operate in six product segments: MOSFETs, Diodes, Optoelectronic Components, Resistors, Inductors, and Capacitors.  The current six segment alignment reflects a change in reporting structure made during the fourth fiscal quarter of 2019.  The fiscal quarter ended March 30, 2019 results presented herein have been recast to separately present Resistors and Inductors.

We are focused on enhancing stockholder value by growing our business and improving earnings per share.  Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions.  We plan to continue to grow our business through intensified internal growth supplemented by opportunistic acquisitions, while at the same time maintaining a prudent capital structure. To foster intensified internal growth, we have increased our worldwide R&D and engineering technical staff; we are expanding critical manufacturing capacities; we are increasing our technical field sales force in Asia to increase our market access to the industrial segment and increase the design-in of our products in local markets; and we are directing increased funding and focus on developing products to capitalize on the connectivity, mobility, and sustainability growth drivers of our business.  In addition to our growth plan, we also have opportunistically repurchased our stock and, as further described below, reduced dilution risks by repurchasing a portion of our convertible senior debentures.

In 2014, our Board of Directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of Vishay.  We have paid dividends each quarter since the first fiscal quarter of 2014, and further increased the quarterly cash dividend to $0.095 per share in the second fiscal quarter of 2019.

We continued to repurchase convertible senior debentures in open market and privately-negotiated transactions with holders in the first fiscal quarter of 2020, further reducing the principal amount of outstanding convertible senior debentures to $2.9 million.

Our business and operating results have been and will continue to be impacted by worldwide economic conditions.  Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets.  The worldwide economy and, specifically, our business have been impacted by the outbreak of the coronavirus ("COVID-19").  The outbreak has significantly impacted the global market, including our customers, suppliers, and shipping partners, which has impacted our net revenues.  We have also incurred incremental costs separable from normal operations that are directly attributable to the outbreak and containment efforts, primarily salaries and wages for employees impacted by quarantines and additional safety measures, including masks and temperature scanners, which were partially offset by government subsidies.  The net impact of the costs and subsidies are classified as cost of products sold ($3.1 million) and selling, general, and administrative expenses ($0.3 million) based on employee function on the consolidated condensed statement of operations.  We exclude from the amounts reported above indirect financial changes from the outbreak of COVID 19 such as higher shipping costs due to reduced shipping capacity and any missing revenues during the outbreak.

We believe the economic impact of the COVID 19 outbreak on Vishay will be temporary.  We have significant liquidity to withstand the temporary disruptions in the economic environment. However, we continue to closely monitor our fixed costs, capital expenditure plans, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs.  We will react quickly and professionally to changes in demand to minimize manufacturing inefficiencies and excess inventory build.  In the third fiscal quarter of 2019, we announced global cost reduction and management rejuvenation programs as part of our continuous efforts to improve efficiency and operating performance.

We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business.  See further discussion in “Financial Metrics” and “Financial Condition, Liquidity, and Capital Resources” below.  The outbreak of COVID-19 has impacted almost all key financial metrics.  We experienced a substantial recovery in orders, particularly from distributors, in the first fiscal quarter of 2020, some of which may have been due to customers preparing for potential disruptions in the supply chain caused by the COVID-19 outbreak.  This increase in orders has positively impacted almost all key financial metrics.

Net revenues for the fiscal quarter ended April 4, 2020 were $612.8 million, compared to $609.6 million and $745.2 million for the fiscal quarters ended December 31, 2019 and March 30, 2019, respectively.  The net earnings attributable to Vishay stockholders for the fiscal quarter ended April 4, 2020 were $27.2 million, or $0.19 per diluted share, compared to $14.0 million, or $0.10 per diluted share for the fiscal quarter ended December 31, 2019, and $75.5 million, or $0.52 per diluted share for the fiscal quarter ended March 30, 2019.
30



We define adjusted net earnings as net earnings determined in accordance with GAAP adjusted for various items that management believes are not indicative of the intrinsic operating performance of our business.  We define free cash as the cash flows generated from continuing operations less capital expenditures plus net proceeds from the sale of property and equipment.  The reconciliations below include certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings, adjusted earnings per share, and free cash.  These non-GAAP measures should not be viewed as alternatives to GAAP measures of performance or liquidity.  Non-GAAP measures such as adjusted net earnings, adjusted earnings per share, and free cash do not have uniform definitions.  These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that adjusted net earnings and adjusted earnings per share are meaningful because they provide insight with respect to our intrinsic operating results.  Management believes that free cash is a meaningful measure of our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends.

Net earnings attributable to Vishay stockholders for the fiscal quarters ended April 4, 2020, December 31, 2019, and March 30, 2019 include items affecting comparability.  The items affecting comparability are (in thousands, except per share amounts):

   
Fiscal quarters ended
  
   
April 4, 2020
    
December 31, 2019
    
March 30, 2019
  
                   
GAAP net earnings attributable to Vishay stockholders
  
$
27,219
    
$
13,962
    
$
75,459
  
                         
Reconciling items affecting gross income:
                        
Impact of COVID-19 outbreak
  
$
3,130
    
$
-
    
$
-
  
                         
Other reconciling items affecting operating income:
                        
Restructuring and severance costs
  
$
-
    
$
16,884
    
$
-
  
Impact of COVID-19 outbreak
    
317
      
-
      
-
  
                         
Reconciling items affecting other income (expense):
                        
Loss on early extinguishment of debt
  
$
2,920
    
$
723
    
$
1,307
  
                         
Reconciling items affecting tax expense:
                        
Change in deferred taxes due to early extinguishment of debt
  
$
(1,346
)
  
$
(289
)
  
$
(1,312
)
Effects of cash repatriation programs
    
-
      
(11,554
)
    
(585
)
Effects of changes in uncertain tax positions
    
-
      
2,831
      
-
  
Tax effects of pre-tax items above
    
(1,482
)
    
(4,277
)
    
(290
)
                         
Adjusted net earnings
  
$
30,758
    
$
18,280
    
$
74,579
  
                         
Adjusted weighted average diluted shares outstanding
    
145,295
      
145,202
      
145,289
  
                         
Adjusted earnings per diluted share
  
$
0.21
    
$
0.13
    
$
0.51
  

Although the term "free cash" is not defined in GAAP, each of the elements used to calculate free cash for the year-to-date period is presented as a line item on the face of our consolidated condensed statement of cash flows prepared in accordance with GAAP and the quarterly amounts are derived from the year-to-date GAAP statements as of the beginning and end of the respective quarter.

   
Fiscal quarters ended
  
   
April 4, 2020
    
December 31, 2019
    
March 30, 2019
  
Net cash provided by continuing operating activities
  
$
34,478
    
$
84,423
    
$
79,518
  
Proceeds from sale of property and equipment
    
53
      
91
      
395
  
Less: Capital expenditures
    
(24,328
)
    
(56,374
)
    
(36,367
)
Free cash
  
$
10,203
    
$
28,140
    
$
43,546
  

Our results for the fiscal quarter ended April 4, 2020 represent the beginning of an expected recovery, which was negatively impacted by the COVID-19 outbreak.  Our results for the fiscal quarters ended December 31, 2019 and March 30, 2019 represent the effects of the normalization of demand that we began to experience in the fourth fiscal quarter of 2018 and accelerated through 2019 as supply, in general, caught up with demand, and customers, particularly distributors, significantly reduced their orders as they decreased their inventory.  Our percentage of euro-based sales approximates our percentage of euro-based expenses so the foreign currency impact on revenues was substantially offset by the impact on expenses.  Our pre-tax results were consistent with expectations based on our business model.
31



Financial Metrics

We utilize several financial metrics to evaluate the performance and assess the future direction of our business.  These key financial measures and metrics include net revenues, gross profit margin, operating margin, segment operating income, end-of-period backlog, and the book-to-bill ratio.  We also monitor changes in inventory turnover and our or publicly available average selling prices (“ASP”).

Gross profit margin is computed as gross profit as a percentage of net revenues.  Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs.  Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used.  Gross profit margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.

Operating margin is computed as gross profit less operating expenses as a percentage of net revenues.  We evaluate business segment performance on segment operating margin.  Only dedicated, direct selling, general, and administrative expenses of the segments are included in the calculation of segment operating income.  Segment operating margin is computed as operating income less items such as restructuring and severance costs, asset write-downs, goodwill and indefinite-lived intangible asset impairments, inventory write-downs, gains or losses on purchase commitments, global operations, sales and marketing, information systems, finance and administrative groups, and other items, expressed as a percentage of net revenues.  We believe that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the segment.  Operating margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.

End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that we expect to ship in the next twelve months.  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.

An 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 revenues.

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 costs 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 fiscal 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.  Using our and publicly available data, we analyze trends and changes in average selling prices to evaluate likely future pricing.  We attempt to offset deterioration in the average selling prices of established products with ongoing cost reduction activities and new product introductions.  Our specialty passive components are more resistant to average selling price erosion.  All pricing is subject to governing market conditions and is independently set by us.
32



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 net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the first fiscal quarter of 2019 through the first fiscal quarter of 2020 (dollars in thousands):

   
1st Quarter 2019
    
2nd Quarter 2019
    
3rd Quarter 2019
    
4th Quarter 2019
    
1st Quarter 2020
  
                               
Net revenues
  
$
745,159
    
$
685,240
    
$
628,329
    
$
609,577
    
$
612,841
  
                                         
Gross profit margin(1)
    
28.3
%
    
25.5
%
    
23.9
%
    
22.2
%
    
24.0
%
                                         
Operating margin(2)
    
14.5
%
    
11.6
%
    
8.1
%
    
4.0
%
    
7.7
%
                                         
End-of-period backlog
  
$
1,331,800
    
$
1,126,700
    
$
935,400
    
$
911,300
    
$
1,005,200
  
                                         
Book-to-bill ratio
    
0.79
      
0.69
      
0.72
      
0.94
      
1.17
  
                                         
Inventory turnover
    
4.3
      
4.3
      
4.1
      
4.3
      
4.2
  
                                         
Change in ASP vs. prior quarter
    
(0.4
)%
    
(0.9
)%
    
(1.1
)%
    
(0.8
)%
    
(1.1
)%
_________________________________________
(1) Gross margin for the first fiscal quarter of 2020 includes $3.1 million of expenses directly related to the COVID-19 outbreak (see Note 2 to our consolidated condensed financial statements).
(2) Operating margin for the third and fourth fiscal quarters of 2019 includes $7.3 million and $16.9 million, respectively, of restructuring and severance expenses (see Note 4 to our consolidated condensed financial statements).  Operating margin for the first fiscal quarter of 2020 also includes in total $3.4 million of expenses directly related to the COVID-19 outbreak (see Note 2 to our consolidated condensed financial statements).

See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment.

Revenues increased versus the prior fiscal quarter, but decreased versus the first fiscal quarter of 2019.  After a period of relatively high levels of inventory in the supply chain, inventory levels are now at widely normalized levels.  Strong orders, particularly from global distributor customers, and from Asia in general, increased the book-to-bill ratio and the backlog.  Average selling prices in total decreased consistent with historical performance, while the decrease for our commodity semiconductor products is accelerating.

Gross profit margin increased versus the prior fiscal quarter, but decreased versus the first fiscal quarter of 2019.  The fluctuations are primarily volume-driven.

The book-to-bill ratio in the first fiscal quarter of 2020 increased to 1.17 versus 0.94 in the fourth fiscal quarter of 2019.  The book-to-bill ratios in the first fiscal quarter of 2020 for distributors and original equipment manufacturers ("OEM") were 1.30 and 1.04, respectively, versus ratios of 0.94 and 0.95, respectively, during the fourth fiscal quarter of 2019.

For the second fiscal quarter of 2020, despite substantial uncertainties, we anticipate revenues between $540 million and $580 million and gross margins of 21% plus/minus 90 basis points at the exchange rates of the first fiscal quarter of 2020.
33



Financial Metrics by Segment

The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the first fiscal quarter of 2019 through the first fiscal quarter of 2020 (dollars in thousands):

   
1st Quarter 2019
    
2nd Quarter 2019
    
3rd Quarter 2019
    
4th Quarter 2019
    
1st Quarter 2020
  
MOSFETs
                              
Net revenues
  
$
137,341
    
$
128,842
    
$
126,747
    
$
116,215
    
$
116,893
  
                                         
Book-to-bill ratio
    
0.84
      
0.54
      
0.54
      
0.94
      
1.12
  
                                         
Gross profit margin
    
26.3
%
    
24.8
%
    
24.1
%
    
23.7
%
    
24.1
%
                                         
Segment operating margin
    
19.4
%
    
17.5
%
    
16.6
%
    
16.1
%
    
16.0
%
                                         
Diodes
                                        
Net revenues
  
$
167,840
    
$
142,042
    
$
123,879
    
$
123,382
    
$
115,343
  
                                         
Book-to-bill ratio
    
0.63
      
0.52
      
0.57
      
0.88
      
1.36
  
                                         
Gross profit margin
    
25.9
%
    
20.3
%
    
17.1
%
    
16.3
%
    
16.9
%
                                         
Segment operating margin
    
22.7
%
    
16.9
%
    
13.3
%
    
12.6
%
    
12.5
%
                                         
Optoelectronic Components
                                        
Net revenues
  
$
60,562
    
$
60,675
    
$
50,702
    
$
51,047
    
$
54,179
  
                                         
Book-to-bill ratio
    
0.83
      
0.70
      
0.86
      
1.11
      
1.40
  
                                         
Gross profit margin
    
26.4
%
    
26.8
%
    
21.5
%
    
20.2
%
    
26.9
%
                                         
Segment operating margin
    
19.3
%
    
19.8
%
    
13.7
%
    
12.7
%
    
19.7
%
                                         
Resistors
                                        
Net revenues
  
$
188,831
    
$
165,359
    
$
155,119
    
$
147,883
    
$
159,208
  
                                         
Book-to-bill ratio
    
0.89
      
0.81
      
0.82
      
0.95
      
1.05
  
                                         
Gross profit margin
    
33.1
%
    
28.3
%
    
27.4
%
    
23.5
%
    
28.1
%
                                         
Segment operating margin
    
29.8
%
    
25.2
%
    
23.8
%
    
19.0
%
    
24.4
%
                                         
Inductors
                                        
Net revenues
  
$
71,640
    
$
77,024
    
$
73,458
    
$
76,520
    
$
73,785
  
                                         
Book-to-bill ratio
    
0.97
      
1.01
      
0.95
      
1.05
      
0.98
  
                                         
Gross profit margin
    
32.5
%
    
31.9
%
    
31.9
%
    
33.5
%
    
31.2
%
                                         
Segment operating margin
    
28.8
%
    
28.3
%
    
28.3
%
    
30.3
%
    
27.5
%
                                         
Capacitors
                                        
Net revenues
  
$
118,945
    
$
111,298
    
$
98,424
    
$
94,530
    
$
93,433
  
                                         
Book-to-bill ratio
    
0.67
      
0.68
      
0.76
      
0.84
      
1.20
  
                                         
Gross profit margin
    
25.0
%
    
23.5
%
    
22.0
%
    
17.9
%
    
21.8
%
                                         
Segment operating margin
    
20.7
%
    
19.0
%
    
16.9
%
    
12.3
%
    
16.1
%

34



Cost Management

We place a strong emphasis on controlling our costs, and use various measures and metrics to evaluate our cost structure.

We define variable costs as expenses that vary with respect to quantity produced.  Fixed costs do not vary with respect to quantity produced over the relevant time period.  Contributive margin is calculated as net revenue less variable costs.  It may be expressed in dollars or as a percentage of net revenue. Management uses this measure to determine the amount of profit to be expected for any change in revenues.  While these measures are typical cost accounting measures, none of these measures are recognized in accordance with GAAP.  The classification of expenses as either variable or fixed is judgmental and other companies might classify such expenses differently.  These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies.

We closely monitor variable costs and seek to achieve the contributive margin in our business model.  Over a period of many years, we have generally maintained a contributive margin of between 45% - 47% of revenues.  The erosion of average selling prices, particularly of our semiconductor products, that is typical of our industry and inflation negatively impact contributive margin and drive us to continually seek ways to reduce our variable costs.  Our variable cost reduction efforts include increasing the efficiency in our production facilities by expending capital for automation, reducing materials costs, materials substitution, increasing wafer size and shrinking dies to maximize efficiency in our semiconductor production processes, and other yield improvement activities.

Our cost management strategy also includes a focus on controlling fixed costs recorded as costs of products sold or selling, general, and administrative expenses and maintaining our break-even point (adjusted for acquisitions).  We seek to limit increases in selling, general, and administrative expenses to the rate of inflation, excluding foreign currency exchange effects and substantially independent of sales volume changes. At constant fixed costs, we would expect each $1 million increase in revenues to increase our operating income by approximately $450,000 to $470,000.  Sudden changes in the business conditions, such as the current COVID-19 situation, may not allow us to quickly adapt our manufacturing capacity and cost structure.

Occasionally, our ongoing cost containment activities are not adequate and we must take actions to maintain our cost competitiveness.  We incurred significant restructuring expenses in our past to reduce our cost structure.  Historically, our primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost countries to lower-labor-cost countries.  We believe that our manufacturing footprint is suitable to serve our customers and end markets, while maintaining lower manufacturing costs.  Since 2013, our cost reduction programs have primarily focused on reducing fixed costs, including selling, general, and administrative expenses.

We continue to monitor the economic environment and its potential effects on our customers and the end markets that we serve, especially in light of the ongoing COVID-19 situation.

In the third fiscal quarter of 2019, we announced global cost reduction and management rejuvenation programs as part of our continuous efforts to improve efficiency and operating performance.  We incurred restructuring expense of $24.1 million since the inception of the programs.  We did not incur any restructuring expenses during the three fiscal months ended April 4, 2020.

The programs are primarily designed to reduce manufacturing fixed costs and selling, general, and administrative ("SG&A") costs company-wide, and provide management rejuvenation.  The programs in total are expected to lower costs by approximately $15 million annually when fully implemented, of which approximately 50% is expected to be realized as reduced manufacturing fixed costs and 50% is expected to be realized as reduced SG&A expenses.  We expect to incur costs (primarily cash severance expenses) of approximately $25 million related to the programs.  The implementation of these programs will not impact planned research and development activities.

We first solicited volunteers to accept a voluntary separation / early retirement offer, which was generally successful.  The voluntary separation benefits vary by country and job classification, but generally offer a cash loyalty bonus.  A limited number of involuntary terminations are necessary to achieve the cost reduction targets. We expect these cost reductions to be fully achieved by December 2020.

No manufacturing facility closures are currently expected pursuant to these programs. Except for these programs, we do not anticipate any other material restructuring activities in 2020.  However, a continued sluggish business environment for the electronics industry, a prolonged impact of the COVID-19 outbreak, or a significant economic downturn may require us to implement additional restructuring initiatives.

In uncertain times, we focus on managing our production capacities in accordance with customer requirements, and maintain discipline in terms of our fixed costs and capital expenditures. Even as we seek to manage our costs, we remain cognizant of the future requirements of our demanding markets. We continue to pursue our growth plans through investing in capacities for strategic product lines, and through increasing our resources for R&D, technical marketing, and field application engineering; supplemented by opportunistic acquisitions of specialty businesses.

Our long-term strategy includes growth through the integration of acquired businesses, and GAAP requires plant closure and employee termination costs that we incur in connection with our acquisition activities to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred.  We have not incurred any material plant closure or employee termination costs related to any of the businesses acquired since 2011, but we expect to have some level of future restructuring expenses due to acquisitions.
35



Foreign Currency Translation

We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries.  We occasionally use forward exchange contracts to economically hedge a portion of these exposures.

GAAP requires that we identify the “functional currency” of each of our subsidiaries and measure all elements of the financial statements in that functional currency.  A subsidiary’s functional currency is the currency of the primary economic environment in which it operates.  In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency.  However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency.  We have both situations among our subsidiaries.

Foreign Subsidiaries which use the Local Currency as the Functional Currency

We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency.  For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated condensed balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity.

For those subsidiaries where the local currency is the functional currency, revenues and expenses incurred in the local currency are translated at the average exchange rate for the year.  While the translation of revenues and expenses incurred in the local currency into U.S. dollars does not directly impact the statements of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies.  The dollar generally was stronger during the first fiscal quarter of 2020 compared to the prior fiscal quarter and prior year period, with the translation of foreign currency revenues and expenses into U.S. dollars decreasing reported revenues and expenses versus the prior fiscal quarter and prior year period.

Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency

Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency.  For those 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.  While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. The cost of products sold for the first fiscal quarter of 2020 have been slightly favorably impacted compared to the prior fiscal quarter and prior year period by local currency transactions of subsidiaries which use the U.S. dollar as their functional currency.
36



Results of Operations

Statements of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:

  
Fiscal quarters ended
  
   
April 4, 2020
    
December 31, 2019
    
March 30, 2019
  
Cost of products sold
    
76.0
%
    
77.8
%
    
71.7
%
Gross profit
    
24.0
%
    
22.2
%
    
28.3
%
Selling, general & administrative expenses
    
16.3
%
    
15.5
%
    
13.9
%
Operating income (loss)
    
7.7
%
    
4.0
%
    
14.5
%
Income (loss) before taxes and noncontrolling interest
    
5.9
%
    
1.9
%
    
13.4
%
Net earnings (loss) attributable to Vishay stockholders
    
4.4
%
    
2.3
%
    
10.1
%
________
                        
Effective tax rate
    
24.2
%
    
-25.4
%
    
24.3
%

Net Revenues

Net revenues were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
612,841
    
$
609,577
    
$
745,159
  

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
3,264
      
0.5
%
March 30, 2019
  
$
(132,318
)
    
-17.8
%

Changes in net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Change in volume
    
1.6
%
    
-15.0
%
Decrease in average selling prices
    
-1.1
%
    
-2.9
%
Foreign currency effects
    
-0.1
%
    
-0.8
%
Other
    
0.1
%
    
0.9
%
Net change
    
0.5
%
    
-17.8
%

We experienced a substantial, broad-based increase in demand for our products beginning in 2017 that continued through the third fiscal quarter of 2018.  Demand started to decrease in the fourth fiscal quarter of 2018 and the decrease accelerated through 2019 as customers, particularly distributors, reduced orders as they decreased their inventory.  The decrease in demand resulted in decreased net revenues compared to the fiscal quarter ended March 30, 2019.  Net revenues began to increase in the first fiscal quarter of 2020, but have been impacted by the COVID-19 outbreak.

Gross Profit Margins

Gross profit margins for the fiscal quarter ended April 4, 2020 were 24.0%, versus 22.2% and 28.3% for the comparable prior fiscal quarter and prior year period, respectively.  The increase versus the prior fiscal quarter is primarily due to increased volume, manufacturing efficiencies, and changes in tariffs.  The decrease versus the prior year quarter is primarily due to decreased sales volume and average selling prices.  We were able to offset the negative impacts of inflation and average selling price decline and maintain our contributive margin.
37



Segments

Analysis of revenues and gross profit margins for our segments is provided below.

MOSFETs

Net revenues and gross profit margin of the MOSFETs segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
116,893
    
$
116,215
    
$
137,341
  
Gross profit margin
    
24.1
%
    
23.7
%
    
26.3
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended
April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
678
      
0.6
%
March 30, 2019
  
$
(20,448
)
    
-14.9
%

Changes in MOSFETs segment net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Change in volume
    
0.9
%
    
-9.8
%
Decrease in average selling prices
    
-0.2
%
    
-5.8
%
Foreign currency effects
    
-0.1
%
    
-0.4
%
Other
    
0.0
%
    
1.1
%
Net change
    
0.6
%
    
-14.9
%

The MOSFETs segment net revenues increased slightly versus the prior fiscal quarter, but decreased significantly versus the prior year quarter.  The slight increase versus the prior fiscal quarter was the net result from significant increases in the Asia and Americas regions, partially offset by a significant decrease in the Europe region primarily due to a singularity of a last-time-buy in the prior fiscal quarter.  The decrease versus the prior year quarter was primarily due to distributor inventory reductions and the temporary closure of our main manufacturing facility in China due to the COVID-19 outbreak.  The decrease was partially offset by significant growth in revenues from automotive customers as well as with our IC product business particularly in Europe and Asia.

Gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year quarter.  The increase versus the prior fiscal quarter is due to cost reduction measures.  The decrease versus the prior year quarter is primarily due to lower average selling prices and significantly lower volume, partially offset by cost reduction measures.

We experienced a slight decrease in average selling prices versus the prior fiscal quarter.  The reduced customer demand versus the prior year quarter significantly increased pricing pressure and resulted in a significant decrease in average selling prices. 

We continue to invest to expand mid- and long-term manufacturing capacity for strategic product lines.
38



Diodes

Net revenues and gross profit margins of the Diodes segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
115,343
    
$
123,382
    
$
167,840
  
Gross profit margin
    
16.9
%
    
16.3
%
    
25.9
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended
April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
(8,039
)
    
-6.5
%
March 30, 2019
  
$
(52,497
)
    
-31.3
%

Changes in Diodes segment net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Decrease in volume
    
-4.2
%
    
-28.1
%
Decrease in average selling prices
    
-2.5
%
    
-5.6
%
Foreign currency effects
    
-0.1
%
    
-0.5
%
Other
    
0.3
%
    
2.9
%
Net change
    
-6.5
%
    
-31.3
%

Net revenues of the Diodes segment decreased significantly versus the prior fiscal quarter and the prior year quarter.  Inventory reductions by distributors continue to burden our business.  The first fiscal quarter of 2020 was also impacted by the temporary closure of our main manufacturing facility in China due to the COVID-19 outbreak.  The decrease versus the prior fiscal quarter was primarily due to decreased revenue from distribution customers, partially offset by significant growth with end customers in the Americas and Europe regions.  The decrease versus the prior year quarter was in all regions and sales channels, particularly distributor customers.

Gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year quarter.  The increase versus the prior fiscal quarter was primarily due to a change in the impact of U.S. tariffs on goods imported from China.  Gross profit margin decreased versus the prior year quarter due to decreased sales volume and lower average selling prices.

Average selling prices decreased moderately versus the prior fiscal quarter and significantly versus the prior year quarter.  Unfavorable product mix contributed to the decreases in average selling prices.


39



Optoelectronic Components

Net revenues and gross profit margins of the Optoelectronic Components segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
54,179
    
$
51,047
    
$
60,562
  
Gross profit margin
    
26.9
%
    
20.2
%
    
26.4
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended
April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
3,132
      
6.1
%
March 30, 2019
  
$
(6,383
)
    
-10.5
%

Changes in Optoelectronic Components segment net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Change in volume
    
5.6
%
    
-7.9
%
Decrease in average selling prices
    
-0.8
%
    
-2.2
%
Foreign currency effects
    
-0.2
%
    
-1.2
%
Other
    
1.5
%
    
0.8
%
Net change
    
6.1
%
    
-10.5
%

Net revenues of our Optoelectronic Components segment  increased significantly versus the prior fiscal quarter, but decreased significantly versus the prior year quarter.  The increase versus the prior fiscal quarter is primarily due to significant growth in the Americas and Europe regions, particularly with distributor customers.  The increase was partially offset by significant decrease in revenues from the Asia region.  The decrease versus the prior year quarter was in all regions and sales channels, particularly in the Americas and Asia regions.

The gross profit margin increased versus the prior fiscal quarter and the prior year quarter.  The increase versus the prior fiscal quarter is primarily due to increased sales volume, which led to manufacturing efficiencies, and an increase in inventory, partially offset by lower average selling prices and cost inflation.  The increase versus the prior year quarter is primarily due to cost reductions, partially offset by lower average selling prices and cost inflation.

Average selling prices decreased slightly versus the prior fiscal quarter and prior year quarter.
40



Resistors

Net revenues and gross profit margins of the Resistors segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
159,208
    
$
147,883
    
$
188,831
  
Gross profit margin
    
28.1
%
    
23.5
%
    
33.1
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended
April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
11,325
      
7.7
%
March 30, 2019
  
$
(29,623
)
    
-15.7
%

Changes in Resistors segment net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Change in volume
    
8.9
%
    
-12.0
%
Decrease in average selling prices
    
-0.6
%
    
-1.0
%
Foreign currency effects
    
-0.3
%
    
-1.2
%
Other
    
-0.3
%
    
-1.5
%
Net change
    
7.7
%
    
-15.7
%

Net revenues of the Resistors segment increased significantly versus the prior fiscal quarter, but decreased significantly versus the prior year period.  The increase versus the prior fiscal quarter is primarily attributable to the Europe and Americas regions and distributor, industrial, and automotive customers.  The decrease versus the prior year quarter is due to all regions and primarily distributor and industrial customers.

The gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year period.  The increase versus the prior fiscal quarter is primarily due to increased sales volume and manufacturing efficiencies, partially offset by lower average selling prices.  The decrease versus the prior year quarter is due to decreased sales volume, decreased average selling prices, labor and materials cost increases, and negative impact of exchange rates.

Average selling prices decreased slightly versus the prior fiscal quarter and prior year quarter.

41



Inductors

Net revenues and gross profit margins of the Inductors segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
73,785
    
$
76,520
    
$
71,640
  
Gross profit margin
    
31.2
%
    
33.5
%
    
32.5
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
(2,735
)
    
-3.6
%
March 30, 2019
  
$
2,145
      
3.0
%

Changes in Inductors segment net revenues were attributable to the following:

  
vs. Prior Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Change in volume
    
-0.9
%
    
6.5
%
Decrease in average selling prices
    
-2.6
%
    
-2.7
%
Foreign currency effects
    
0.0
%
    
-0.6
%
Other
    
-0.1
%
    
-0.2
%
Net change
    
-3.6
%
    
3.0
%

Net revenues of the Inductors segment decreased versus the prior fiscal quarter, but increased versus the prior year quarter.  The decrease versus the prior fiscal quarter is primarily due to the Asia region and distributor and automotive customers.  The increase versus the prior year quarter is primarily due to the Americas and Asia regions and medical and military and aerospace customers.

The gross profit margin decreased versus the prior fiscal quarter and the prior year quarter.  The decrease versus the prior fiscal quarter is primarily due to decreased volume and average selling prices.  The decrease versus the prior year quarter is primarily due to decreased average selling prices and inventory obsolescence.

Average selling prices decreased slightly versus the prior fiscal quarter and prior year quarter.

We expect long-term growth in this segment, and are positioned to capitalize on future market upturns.
42



Capacitors

Net revenues and gross profit margins of the Capacitors segment were as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Net revenues
  
$
93,433
    
$
94,530
    
$
118,945
  
Gross profit margin
    
21.8
%
    
17.9
%
    
25.0
%

The change in net revenues versus the comparable prior periods was as follows (dollars in thousands):

 
Fiscal quarter ended April 4, 2020
  
 
Change in net revenues
  
% change
  
December 31, 2019
  
$
(1,097
)
    
-1.2
%
March 30, 2019
  
$
(25,512
)
    
-21.4
%

Changes in Capacitors segment net revenues were attributable to the following:

  
vs. Prior
Quarter
    
vs. Prior Year Quarter
  
Change attributable to:
            
Decrease in volume
    
-0.5
%
    
-21.1
%
Change in average selling prices
    
-0.6
%
    
0.8
%
Foreign currency effects
    
-0.2
%
    
-1.1
%
Other
    
0.1
%
    
0.0
%
Net change
    
-1.2
%
    
-21.4
%

Net revenues of the Capacitors segment decreased slightly versus the prior fiscal quarter and significantly versus the prior year quarter.  Net revenues decreased versus the prior fiscal quarter primarily in the Asia region, which was partially offset by increases in the Americas and Europe regions and increased revenues from automotive customers.  The decrease in net revenues versus the prior year quarter is due to all regions and primarily distributor and industrial customers.

The gross profit margin increased versus the prior fiscal quarter, but decreased versus the prior year quarter.  The increase versus the prior fiscal quarter is primarily due to a more profitable product mix and manufacturing efficiencies.  The decrease versus the prior year quarter is primarily due to lower sales volume.

Despite the significantly lower sales volume, average selling prices increased slightly versus the prior year quarter primarily due to increased prices for certain materials that were passed through to our customers.  Average selling prices decreased slightly versus the prior fiscal quarter.
43



Selling, General, and Administrative Expenses

Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):

 
Fiscal quarters ended
  
 
April 4, 2020
  
December 31, 2019
  
March 30, 2019
  
Total SG&A expenses
  
$
99,832
    
$
94,299
    
$
103,424
  
as a percentage of revenues
    
16.3
%
    
15.5
%
    
13.9
%

SG&A expenses for the fiscal quarter ended April 4, 2020 include $0.3 million of incremental costs separable from normal operations directly attributable to the COVID-19 outbreak.  SG&A expenses increased versus the prior fiscal quarter primarily due to incentive compensation, but were below expectations due to reduced travel and other discretionary spending due to the COVID-19 outbreak.

Other Income (Expense)

Interest expense for the fiscal quarter ended April 4, 2020 was unchanged versus the fiscal quarter ended December 31, 2019 and increased by $0.2 million versus the fiscal quarter ended March 30, 2019.  The increase is primarily due to borrowings on the revolving credit facility, partially offset by reduced interest expense on the convertible senior debentures as a result of  repurchases in 2019 and 2020.

We repurchased $14.3 million principal amount of convertible senior debentures in 2020.  We recognized a $2.9 million loss on early extinguishment of the repurchased convertible debentures.

The following tables analyze the components of the line “Other” on the consolidated condensed statements of operations (in thousands):

   
Fiscal quarters ended
        
   
April 4, 2020
    
December 31, 2019
    
Change
  
Foreign exchange gain (loss)
  
$
1,864
    
$
(1,576
)
  
$
3,440
  
Interest income
    
1,854
      
1,734
      
120
  
Other components of other periodic pension cost
    
(3,068
)
    
(3,848
)
    
780
  
Investment income (expense)
    
(437
)
    
(97
)
    
(340
)
Other
    
(15
)
    
135
      
(150
)
   
$
198
    
$
(3,652
)
  
$
3,850
  

   
Fiscal quarters ended
        
   
April 4, 2020
    
March 30, 2019
    
Change
  
Foreign exchange gain (loss)
  
$
1,864
    
$
(470
)
  
$
2,334
  
Interest income
    
1,854
      
2,199
      
(345
)
Other components of other periodic pension cost
    
(3,068
)
    
(3,396
)
    
328
  
Investment income (expense)
    
(437
)
    
3,590
      
(4,027
)
Other
    
(15
)
    
(11
)
    
(4
)
   
$
198
    
$
1,912
    
$
(1,714
)

44



Income Taxes

For the fiscal quarter ended April 4, 2020, our effective tax rate was 24.2%, as compared to -25.4% and 24.3% for the fiscal quarters ended December 31, 2019 and March 30, 2019, respectively.  With the reduction in the U.S. statutory rate to 21% beginning January 1, 2018, we expect that our effective tax rate will now be higher than the U.S. statutory rate, excluding unusual transactions.  Historically, the effective tax rates were generally less than the U.S. statutory rate primarily because of earnings in foreign jurisdictions.  Discrete tax items impacted our effective tax rate for each fiscal quarter presented.   
 
We recorded additional tax benefits of $0.6 million in the first fiscal quarter 2019 due to the remeasurement of the deferred tax liability related to our cash repatriation program, primarily due to foreign currency effects.  These types of remeasurement adjustments will continue until the amounts are repatriated.

The effective tax rates for the fiscal quarters ended April 4, 2020, December 31, 2019, and March 30, 2019 were also impacted by the effect of the repurchase of convertible senior debentures.  We recognized tax benefits of $1.3 million, $0.3 million, and $1.3 million in the fiscal quarters ended April 4, 2020, December 31, 2019, and March 30, 2019, respectively, resulting from the extinguishments, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures. 

During the three fiscal months ended April 4, 2020, the liabilities for unrecognized tax benefits decreased by $1.3 million on a net basis, primarily due to currency translation adjustments and the expiration of a statute, partially offset by interest.

We operate in a global environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our historical strategy has been to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives.  Accordingly, our effective tax rate has historically been less than the U.S. statutory rate, except in years where there are material discrete items.

Additional information about income taxes is included in Note 5 to our consolidated condensed financial statements.

45



Financial Condition, Liquidity, and Capital Resources

We focus on our ability to generate cash flows from operations. The cash generated from operations is used to fund our capital expenditure plans, and cash in excess of our capital expenditure needs is available to fund our acquisition strategy, to reduce debt levels, and to pay dividends and repurchase stock.  We have generated cash flows from operations in excess of $200 million in each of the last 18 years, and cash flows from operations in excess of $100 million in each of the last 25 years.

Management uses a non-GAAP measure, "free cash," to evaluate our ability to fund acquisitions, repay debt, and otherwise enhance stockholder value through stock repurchases or dividends.  See "Overview" above for "free cash" definition and reconciliation to GAAP.  Vishay has generated positive "free cash" in each of the past 23 years, and "free cash" in excess of $80 million in each of the last 18 years. In this volatile economic environment, we continue to focus on the generation of free cash, including an emphasis on cost controls.

During 2019, we repatriated $188.7 million to the United States, and paid cash taxes of $38.8 million related to the repatriations.  The payment of these cash taxes was recorded as an operating cash flow and any future cash taxes associated with the TCJA transition tax and related foreign taxes on repatriated cash will generally be recorded as operating cash flows.  The payment of these cash taxes significantly impacted cash flows from operations and free cash for the year ended December 31, 2019.  We expect our business to continue to be a reliable generator of free cash, partially offset by such tax payments.  There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash at the same levels, or at all, going forward if the current economic environment worsens.

We maintain a revolving credit facility, which provides an aggregate commitment of $750 million of revolving loans available until June 5, 2024.  The maximum amount available on the revolving credit facility is restricted by the financial covenants described below.  The credit facility also provides us the ability to request up to $300 million of incremental facilities, subject to the satisfaction of certain conditions, which could take the form of additional revolving commitments, incremental “term loan A” or “term loan B” facilities, or incremental equivalent debt. 

At April 4, 2020, we had $54 million outstanding on our revolving credit facility.  We had no amounts outstanding at December 31, 2019. We borrowed $57 million and repaid $3 million on the revolving credit facility during the three fiscal months ended April 4, 2020.  The average outstanding balance on our revolving credit facility calculated at fiscal month-ends was $34.3 million and the highest amount outstanding on our revolving credit facility at a fiscal month end was $54 million during the three fiscal months ended April 4, 2020.

The revolving credit facility limits or restricts us from, among other things, incurring indebtedness, incurring liens on its respective assets, making investments and acquisitions (assuming our pro forma leverage ratio is greater than 2.75 to 1.00), making asset sales, and paying cash dividends and making other restricted payments (assuming our pro forma leverage ratio is greater than 2.50 to 1.00), and requires us to comply with other covenants, including the maintenance of specific financial ratios.

The financial maintenance covenants include (a) an interest coverage ratio of not less than 2.00 to 1; and (b) a leverage ratio of not more than 3.25 to 1 (and a pro forma ratio of 3.00 to 1 on the date of incurrence of additional debt). The computation of these ratios is prescribed in Article VI of the Credit Agreement between Vishay Intertechnology, Inc. and JPMorgan Chase Bank, N.A., which has been filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed June 5, 2019.

We were in compliance with all financial covenants under the credit facility at April 4, 2020.  Our interest coverage ratio and leverage ratio were 15.44 to 1 and  1.67 to 1, respectively.  We expect to continue to be in compliance with these covenants based on current projections.  Based on our current EBITDA and outstanding revolver balance, the usable capacity on the revolving credit facility is approximately $619 million.

If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and any amounts then outstanding pursuant to the credit facility could become immediately payable. Additionally, our convertible senior debentures due 2040 and due 2041 and our convertible senior notes due 2025 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
46



The credit facility allows an unlimited amount of defined “Investments,” which include certain intercompany transactions and acquisitions, provided our pro forma leverage ratio is equal to or less than 2.75 to 1.00.  If our pro forma leverage ratio is greater than 2.75 to 1.00, such Investments are subject to certain limitations.

The credit facility also allows an unlimited amount of defined "Restricted Payments," which include cash dividends and share repurchases, provided our pro forma leverage ratio is equal to or less than 2.50 to 1.00.  If our pro forma leverage ratio is greater than 2.50 to 1.00, the credit facility allows such payments up to $100 million per annum (subject to a cap of $300 million for the term of the facility, with up to $25 million of any unused amount of the $100 million per annum base available for use in the next succeeding calendar year).

Borrowings under the credit facility bear interest at LIBOR plus an interest margin.  The applicable interest margin is based on our leverage ratio.  Based on our current leverage ratio, any new borrowings will bear interest at LIBOR plus 1.75%.  The interest rate on any borrowings decreases to LIBOR plus 1.50% if our leverage ratio is below 1.50 to 1 and increases to 2.00% if our leverage ratio equals or exceeds 2.50 to 1.

We also pay a commitment fee, also based on its leverage ratio, on undrawn amounts.   The undrawn commitment fee, based on Vishay's current leverage ratio, is 0.30% per annum.  Such undrawn commitment fee decreases to 0.25% per annum if our leverage ratio is below 1.50 to 1 and increases to 0.35% per annum if our leverage ratio equals or exceeds 2.50 to 1. 

The borrowings under the credit facility are secured by a lien on substantially all assets, including  accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate, intellectual property registered or licensed solely for use in, or arising solely under the laws of, any country other than the United States, assets located solely outside of the United States and deposit and securities accounts), of Vishay and certain significant subsidiaries located in the United States, and pledges of stock in certain significant domestic and foreign subsidiaries; and are guaranteed by certain significant subsidiaries.  

During the first fiscal quarter of 2020, we repurchased $14.3 million principal amount of convertible senior debentures due 2041 for $19.9 million.  We borrowed from our revolving credit facility to fund the repurchases.

We have approximately $100 million of unremitted foreign earnings that we have deemed not permanently reinvested and thus have accrued foreign withholding and other taxes.  We plan to repatriate the remaining amounts in the second fiscal quarter of 2020, but the current COVID-19 outbreak could cause us to defer these plans.  We also continue to evaluate the TCJA's provisions and may further adjust our financial and capital structure and business practices accordingly.

As of April 4, 2020, substantially all of our cash and cash equivalents and short-term investment were held in countries outside of the United States.  Our substantially undrawn credit facility provides us with significant operating liquidity in the United States.  We expect to fund any future repurchases of convertible debentures, as well as other obligations required to be paid by the U.S. parent company, Vishay Intertechnology, Inc., including cash dividends to stockholders, share repurchases, and principal and interest payments on our debt instruments by borrowing under our revolving credit facility.  Our U.S. subsidiaries also have operating cash needs.

Management expects to use the credit facility from time-to-time to meet certain short-term financing needs.  We expect that cash on-hand and cash flows from operations will be sufficient to meet our longer-term financing needs related to normal operating requirements, regular dividend payments, and our research and development and capital expenditure plans.  Additional acquisition activity, share repurchases, convertible debt repurchases, or conversion of our convertible debentures may require additional borrowing under our credit facility or may otherwise require us to incur additional debt.  No principal payments on our debt are due before the maturity of our revolving credit facility in June 2024.

Prior to three months before the maturity date, our convertible senior debentures are convertible by the holders under certain circumstances.  The convertible senior debentures due 2040 and due 2041 and the convertible senior notes due 2025 are not currently convertible.  At the direction of our Board of Directors, we intend, upon conversion, to repay the principal amount of the any convertible debt instruments in cash and settle any additional amounts in shares of our common stock.  We intend to finance the principal amount of any converted debentures using borrowings under our credit facility.  No conversions have occurred to date. 
47




We invest a portion of our excess cash in highly liquid, high-quality instruments with maturities greater than 90 days, but less than 1 year, which we classify as short-term investments on our consolidated balance sheets.  As these investments were funded using a portion of excess cash and represent a significant aspect of our cash management strategy, we include the investments in the calculation of net cash and short-term investments (debt).

The interest rates on our short-term investments vary by location, but can be up to 150 bps higher than the interest rates on our cash accounts.  The average interest rate on our short-term investments was 0.65% due to the low interest rate environment in Europe.  Transactions related to these investments are classified as investing activities on our consolidated condensed statements of cash flows.

The amount of short-term investments at April 4, 2020 is lower than normal due to 2018 and 2019 completed cash repatriation activity.

The following table summarizes the components of net cash and short-term investments (debt) at April 4, 2020 and December 31, 2019 (in thousands):

   
April 4, 2020
    
December 31, 2019
  
             
Credit facility
  
$
54,000
    
$
-
  
Convertible senior notes, due 2025*
    
512,745
      
509,128
  
Convertible senior debentures, due 2040*
    
127
      
126
  
Convertible senior debentures, due 2041*
    
1,050
      
6,677
  
Deferred financing costs
    
(15,826
)
    
(16,784
)
Total debt
    
552,096
      
499,147
  
                 
Cash and cash equivalents
    
680,703
      
694,133
  
Short-term investments
    
140,725
      
108,822
  
                 
Net cash and short-term investments (debt)
  
$
269,332
    
$
303,808
  

*Represents the carrying amount of the convertible instruments, which is comprised of the principal amount of the instruments, net of the unamortized discount and the associated embedded derivative liability, when applicable.

"Net cash and short-term investments (debt)" does not have a uniform definition and is not recognized in accordance with GAAP. This measure should not be viewed as an alternative to GAAP measures of performance or liquidity. However, management believes that an analysis of "net cash and short-term investments (debt)" assists investors in understanding aspects of our cash and debt management. The measure, as calculated by us, may not be comparable to similarly titled measures used by other companies.

Our financial condition as of April 4, 2020 continued to be strong, with a current ratio (current assets to current liabilities) of 3.5 to 1, as compared to 3.3 to 1 as of December 31, 2019.  The increase is primarily due to the decrease in accounts payable and other accrued expenses.  Our ratio of total debt to Vishay stockholders' equity was 0.38 to 1 at April 4, 2020, as compared to 0.34 to 1 at December 31, 2019.  The increase in the ratio is primarily due to borrowings on the revolving credit facility.

Cash flows provided by operating activities were $34.5 million for the three fiscal months ended April 4, 2020, as compared to cash flows provided by operations of $79.5 million for the three fiscal months ended March 30, 2019.

Cash paid for property and equipment for the three fiscal months ended April 4, 2020 was $24.3 million, as compared to $36.4 million for the three fiscal months ended March 30, 2019. We expect capital spending of approximately $110 million in 2020, in accordance with requirements of our markets.

Cash paid for dividends to our common and Class B common stockholders totalled $13.7 million and $12.3 million for the three fiscal months ended April 4, 2020 and March 30, 2019, respectively.  We expect dividend payments in 2020 to total approximately $55.0 million.  However, any future dividend declaration and payment remains subject to authorization by our Board of Directors.
48



Contractual Commitments and Off-Balance Sheet Arrangements

Our Annual Report on Form 10-K for the year ended December 31, 2019 filed on February 14, 2020, includes a table of contractual commitments.  There were no material changes to these commitments during the three fiscal months ended April 4, 2020.

Dividends

In 2014, our Board of Directors approved the initiation of a quarterly cash dividend program.  Quarterly cash dividends have been paid in each quarter since the first fiscal quarter of 2014.  We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors.

The following table summarizes the quarterly cash dividends declared (in thousands):

Fiscal Period
Amount
  
Month of Payment
Three fiscal months ended April 4, 2020
  
$
13,741
  
March

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.  Words such as “believe,” “estimate,” “will be,” “will,” “would,” “expect,” “anticipate,” “plan,” “project,” “intend,” “could,” “should,” or other similar words or expressions often identify forward-looking statements.

Such statements are based on current expectations only, and are subject to certain risks, uncertainties, and assumptions, many of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements may vary materially from those anticipated, estimated, or projected.  Among the factors that could cause actual results to materially differ include: general business and economic conditions; delays or difficulties in implementing our cost reduction strategies; delays or difficulties in expanding our manufacturing capacities; manufacturing or supply chain interruptions or changes in customer demand because of COVID-19 or similar diseases; an inability to attract and retain highly qualified personnel; changes in foreign currency exchange rates; uncertainty related to the effects of changes in foreign currency exchange rates; competition and technological changes in our industries; difficulties in new product development; difficulties in identifying suitable acquisition candidates, consummating a transaction on terms which we consider acceptable, and integration and performance of acquired businesses; changes in applicable domestic and foreign tax regulations and uncertainty regarding the same; changes in U.S. and foreign trade regulations and tariffs and uncertainty regarding the same; changes in applicable accounting standards and other factors affecting our operations, markets, capacity to meet demand, products, services, and prices that are set forth in our filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Our 2019 Annual Report on Form 10-K listed various important factors that could cause actual results to differ materially from projected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995.  Readers can find them in Part I, Item 1A, of that filing under the heading “Risk Factors.” You should understand that it is not possible to predict or identify all such factors.  Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 14, 2020, describes our exposure to market risks.  There have been no material changes to our market risks since December 31, 2019.

Item 4.
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) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
49



PART II - OTHER INFORMATION

Item 1.
Legal Proceedings

Item 3 of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 14, 2020 describes certain of our legal proceedings.  Except as disclosed below, there have been no material developments to the legal proceedings previously disclosed.

Effective February 26, 2020 Holy Stone Enterprise Co., Ltd. (“Holy Stone”) entered into a settlement agreement on behalf of itself, Milestone Global Technology, Inc. and Vishay Polytech Co., Ltd. ("VPC"), formerly known as Holy Stone Polytech Co., Ltd. (the “Settlement Agreement”).  VPC was acquired from Holy Stone by a Vishay subsidiary in June 2014.  Under the Settlement Agreement, Holy Stone agreed to pay $28,000,000 as full settlement of the In Re Capacitors Antitrust Litigation Civil Action No. 3:14-cv-03264-JD filed in the United States District Court, Northern District of California (the “Complaint”).  According to the Settlement Agreement, VPC will be dismissed from the Complaint, and along with Vishay, Vishay Israel Ltd. and others, will be released from all future claims relating to the conduct alleged in the Complaint to the extent the conduct relates to the sale or manufacturing of aluminum, tantalum or film capacitors in the United States.  The purported wrongdoing attributable to VPC as described in the Complaint occurred prior to its acquisition by Vishay.  VPC expressly denies any allegations included in the Complaint.  The Settlement Agreement is subject to court approval and notice to the members of the plaintiff class.

Pursuant to the terms and conditions of the indemnification agreement between Vishay and Holy Stone related to Vishay’s acquisition of VPC in 2014, neither Vishay nor VPC will contribute any amount toward the settlement.

Item 1A.
Risk Factors

Except as described below, there have been no material changes to the risk factors we previously disclosed under Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 14, 2020.

Our business may be adversely affected by the widespread outbreak of diseases, including the recent COVID-19 outbreak and the mitigation efforts by governments worldwide to control its spread.

The widespread global outbreak of COVID-19 has adversely affected our business.  Impacts have included disruptions in our ability to manufacture products and disruptions in the operations of our customers and modes of shipping. While we are unable to accurately predict the full extent to which the COVID-19 outbreak and the mitigation efforts by governments to attempt to control its spread will have on our business due to numerous uncertainties, thus far the impacts have resulted in increased costs and a reduction in sales to certain regions and end-markets. We cannot predict when the impact of the COVID-19 outbreak will end or when future coronavirus outbreaks will occur.

The potential risks and effects of the COVID-19 outbreak and economic crisis, including potential global or regional recessions or depressions, that could have an adverse effect on our business include, but are not limited to:

•
Adverse impact on our customers and supply channels;
•
Decrease in sales, product demand and pricing and unfavorable economic and market conditions;
•
Increased costs, including higher shipping costs due to reduced shipping capacity;
•
Restrictions on our manufacturing, support operations or workforce, or similar limitations for our customers, vendors, and suppliers, that could limit our ability to meet customer demand;
•
Potential increased credit risk if customers, distributors, and resellers are unable to pay us, or must delay paying their obligations to us;
•
Restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures could result in delays; and
•
Impact on our workforce/employees due to the ease with which the virus spreads and the current shelter-in-place orders.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.
Defaults Upon Senior Securities

Not applicable.

Item 4.
Mine Safety Disclosures

Not applicable.

Item 5.
Other Information

Not applicable.

50



Item 6.
Exhibits

10.1
First Amendment to Employment Agreement, dated February 28, 2020, between Vishay Europe GmbH (an indirect wholly owned subsidiary of Vishay Intertechnology, Inc.), Vishay Intertechnology, Inc., and Lori Lipcaman.  Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K, filed February 28, 2020.
31.1
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Dr. Gerald Paul, Chief Executive Officer.
31.2
Certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Lori Lipcaman, Chief Financial Officer.
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Dr. Gerald Paul, Chief Executive Officer.
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Lori Lipcaman, Chief Financial Officer.
101
Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended April 4, 2020, furnished in iXBRL (Inline eXtensible Business Reporting Language)).
104
Cover Page Interactive Data File (formatted as Inline eXtensible Business Reporting Language and contained in Exhibit 101)
____________
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VISHAY INTERTECHNOLOGY, INC.
     
 
/s/ Lori Lipcaman
  
 
Lori Lipcaman
  
 
Executive Vice President and Chief Financial Officer
 
(as a duly authorized officer and principal financial and
 
accounting officer)

Date:  May 12, 2020

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