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

FORM 10-Q/A (Amendment No. 1)

(Mark One)

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

For the quarterly period ended           June 29, 2019

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 July 26, 2019, the registrant had 132,348,357 shares of its common stock and 12,097,409 shares of its Class B common stock outstanding.





EXPLANATORY NOTE

This amendment is being filed to furnish Exhibit 101, Interactive Data File (Quarterly Report on Form 10-Q, for the quarterly period ended June 29, 2019, furnished in iXBRL (Inline eXtensible Business Reporting Language)), which had been inadvertently omitted from the original filing.  For the convenience of the reader, this report on Form 10-Q/A refiles in its entirety our Form 10-Q.  Additionally, this filing includes updated CEO and CFO certifications filed as Exhibits 31.1, 31.2, 32.1, and 32.2.  No other changes have been made to the original filing.







































2


VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
June 29, 2019
CONTENTS

     
Page Number
PART I.
FINANCIAL INFORMATION
   
         
 
Item 1.
Financial Statements
   
         
   
Consolidated Condensed Balance Sheets (Unaudited) – June 29, 2019 and December 31, 2018
 
4
         
   
Consolidated Condensed Statements of Operations (Unaudited) – Fiscal Quarters Ended June 29, 2019 and June 30, 2018
 
6
         
   
Consolidated Condensed Statements of Comprehensive Income (Unaudited) – Fiscal Quarters Ended June 29, 2019 and June 30, 2018
 
7
         
   
Consolidated Condensed Statements of Operations (Unaudited) – Six Fiscal Months Ended June 29, 2019 and June 30, 2018
 
8
         
   
Consolidated Condensed Statements of Comprehensive Income (Unaudited) – Six Fiscal Months Ended June 29, 2019 and June 30, 2018
 
9
         
   
Consolidated Condensed Statements of Cash Flows (Unaudited) – Six Fiscal Months Ended June 29, 2019 and June 30, 2018
 
10
         
   
Consolidated Condensed Statements of Equity (Unaudited)
 
11
         
   
Notes to the Consolidated Condensed Financial Statements (Unaudited)
 
12
         
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
35
         
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
56
         
 
Item 4.
Controls and Procedures
 
56
         
PART II.
OTHER INFORMATION
   
         
 
Item 1.
Legal Proceedings
 
57
         
 
Item 1A.
Risk Factors
 
57
         
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
57
         
 
Item 3.
Defaults Upon Senior Securities
 
57
         
 
Item 4.
Mine Safety Disclosures
 
57
         
 
Item 5.
Other Information
 
57
         
 
Item 6.
Exhibits
 
57
         
   
SIGNATURES
 
58
3


PART I  - FINANCIAL INFORMATION

Item 1. Financial Statements

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

   
June 29, 2019
   
December 31, 2018
 
   
(Unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
790,906
   
$
686,032
 
Short-term investments
   
163
     
78,286
 
Accounts receivable, net
   
365,728
     
397,020
 
Inventories:
               
Finished goods
   
132,794
     
138,112
 
Work in process
   
191,552
     
190,982
 
Raw materials
   
139,150
     
150,566
 
Total inventories
   
463,496
     
479,660
 
                 
Prepaid expenses and other current assets
   
125,104
     
142,888
 
Total current assets
   
1,745,397
     
1,783,886
 
                 
Property and equipment, at cost:
               
Land
   
74,701
     
87,622
 
Buildings and improvements
   
579,304
     
619,445
 
Machinery and equipment
   
2,559,473
     
2,510,001
 
Construction in progress
   
115,288
     
125,109
 
Allowance for depreciation
   
(2,380,546
)
   
(2,373,176
)
Property and equipment, net
   
948,220
     
969,001
 
                 
Right of use assets
   
96,136
     
-
 
                 
Goodwill
   
150,735
     
147,480
 
                 
Other intangible assets, net
   
64,883
     
65,688
 
                 
Other assets
   
150,759
     
140,143
 
Total assets
 
$
3,156,130
   
$
3,106,198
 

Continues on following page.
4


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

   
June 29, 2019
   
December 31, 2018
 
   
(Unaudited)
       
Liabilities and equity
           
Current liabilities:
           
Notes payable to banks
 
$
40
   
$
18
 
Trade accounts payable
   
160,222
     
218,322
 
Payroll and related expenses
   
129,095
     
141,670
 
Lease liabilities
   
15,323
     
-
 
Other accrued expenses
   
162,937
     
229,660
 
Income taxes
   
43,979
     
54,436
 
Total current liabilities
   
511,596
     
644,106
 
                 
Long-term debt less current portion
   
519,863
     
494,509
 
U.S. transition tax payable
   
140,196
     
154,953
 
Deferred income taxes
   
64,878
     
85,471
 
Long-term lease liabilities
   
86,086
     
-
 
Other liabilities
   
84,628
     
79,489
 
Accrued pension and other postretirement costs
   
256,805
     
260,984
 
Total liabilities
   
1,664,052
     
1,719,512
 
                 
Redeemable convertible debentures
   
-
     
2,016
 
                 
Equity:
               
Vishay stockholders' equity
               
Common stock
   
13,235
     
13,212
 
Class B convertible common stock
   
1,210
     
1,210
 
Capital in excess of par value
   
1,426,164
     
1,436,011
 
Retained earnings (accumulated deficit)
   
55,659
     
(61,258
)
Accumulated other comprehensive income (loss)
   
(6,316
)
   
(6,791
)
Total Vishay stockholders' equity
   
1,489,952
     
1,382,384
 
Noncontrolling interests
   
2,126
     
2,286
 
Total equity
   
1,492,078
     
1,384,670
 
Total liabilities, temporary equity, and equity
 
$
3,156,130
   
$
3,106,198
 

See accompanying notes.
5


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

   
Fiscal quarters ended
 
   
June 29, 2019
   
June 30, 2018
 
             
Net revenues
 
$
685,240
   
$
761,030
 
Costs of products sold
   
510,639
     
533,792
 
Gross profit
   
174,601
     
227,238
 
                 
Selling, general, and administrative expenses
   
95,112
     
103,945
 
Operating income
   
79,489
     
123,293
 
                 
Other income (expense):
               
Interest expense
   
(8,204
)
   
(8,372
)
Other components of net periodic pension cost
   
(3,367
)
   
(3,450
)
Other
   
2,970
     
3,397
 
Loss on early extinguishment of debt
   
-
     
(17,309
)
Total other income (expense)
   
(8,601
)
   
(25,734
)
                 
Income before taxes
   
70,888
     
97,559
 
                 
Income tax expense (benefit)
   
26,153
     
(5,703
)
                 
Net earnings
   
44,735
     
103,262
 
                 
Less: net earnings attributable to noncontrolling interests
   
258
     
165
 
                 
Net earnings attributable to Vishay stockholders
 
$
44,477
   
$
103,097
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.31
   
$
0.71
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.31
   
$
0.65
 
                 
Weighted average shares outstanding - basic
   
144,621
     
144,382
 
                 
Weighted average shares outstanding - diluted
   
145,023
     
157,657
 
                 
Cash dividends per share
 
$
0.0950
   
$
0.0850
 

See accompanying notes.
6


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

   
Fiscal quarters ended
 
   
June 29, 2019
   
June 30, 2018
 
             
Net earnings
 
$
44,735
   
$
103,262
 
                 
Other comprehensive income (loss), net of tax
               
                 
Pension and other  post-retirement actuarial items
   
1,623
     
1,575
 
                 
Foreign currency translation adjustment
   
7,384
     
(61,537
)
                 
Other comprehensive income (loss)
   
9,007
     
(59,962
)
                 
Comprehensive income
   
53,742
     
43,300
 
                 
Less: comprehensive income attributable to noncontrolling interests
   
258
     
165
 
                 
Comprehensive income attributable to Vishay stockholders
 
$
53,484
   
$
43,135
 

See accompanying notes.
7


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

   
Six fiscal months ended
 
   
June 29, 2019
   
June 30, 2018
 
             
Net revenues
 
$
1,430,399
   
$
1,477,825
 
Costs of products sold
   
1,044,639
     
1,045,287
 
Gross profit
   
385,760
     
432,538
 
                 
Selling, general, and administrative expenses
   
198,536
     
205,183
 
Operating income
   
187,224
     
227,355
 
                 
Other income (expense):
               
Interest expense
   
(16,596
)
   
(16,049
)
Other components of net periodic pension cost
   
(6,763
)
   
(6,969
)
Other
   
8,278
     
2,550
 
Loss on early extinguishment of debt
   
(1,307
)
   
(17,309
)
Total other income (expense)
   
(16,388
)
   
(37,777
)
                 
Income before taxes
   
170,836
     
189,578
 
                 
Income tax expense
   
50,460
     
23,771
 
                 
Net earnings
   
120,376
     
165,807
 
                 
Less: net earnings attributable to noncontrolling interests
   
440
     
344
 
                 
Net earnings attributable to Vishay stockholders
 
$
119,936
   
$
165,463
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.83
   
$
1.15
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.83
   
$
1.04
 
                 
Weighted average shares outstanding - basic
   
144,589
     
144,355
 
                 
Weighted average shares outstanding - diluted
   
145,158
     
158,580
 
                 
Cash dividends per share
 
$
0.1800
   
$
0.1525
 

See accompanying notes.

8


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

   
Six fiscal months ended
 
   
June 29, 2019
   
June 30, 2018
 
             
Net earnings
 
$
120,376
   
$
165,807
 
                 
Other comprehensive income (loss), net of tax
               
                 
Pension and other  post-retirement actuarial items
   
3,080
     
3,182
 
                 
Foreign currency translation adjustment
   
(2,605
)
   
(34,513
)
                 
Other comprehensive income (loss)
   
475
     
(31,331
)
                 
Comprehensive income
   
120,851
     
134,476
 
                 
Less: comprehensive income attributable to noncontrolling interests
   
440
     
344
 
                 
Comprehensive income attributable to Vishay stockholders
 
$
120,411
   
$
134,132
 

See accompanying notes.
9


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

   
Six fiscal months ended
 
   
June 29, 2019
   
June 30, 2018
 
             
Operating activities
           
Net earnings
 
$
120,376
   
$
165,807
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
   
81,346
     
81,174
 
(Gain) loss on disposal of property and equipment
   
(162
)
   
(2,242
)
Accretion of interest on convertible debt instruments
   
6,985
     
2,964
 
Inventory write-offs for obsolescence
   
12,643
     
11,799
 
Deferred income taxes
   
(5,601
)
   
(25,669
)
Loss on extinguishment of debt
   
1,307
     
17,309
 
Other
   
4,283
     
4,148
 
Change in U.S. transition tax liability
   
(14,757
)
   
(14,400
)
Change in repatriation tax liability
   
(20,479
)
   
(92,093
)
Net change in operating assets and liabilities, net of effects of businesses acquired
   
(50,122
)
   
(110,627
)
Net cash provided by operating activities
   
135,819
     
38,170
 
                 
Investing activities
               
Capital expenditures
   
(70,148
)
   
(76,646
)
Proceeds from sale of property and equipment
   
464
     
8,378
 
Purchase of businesses, net of cash received
   
(11,862
)
   
(14,880
)
Purchase of short-term investments
   
(1,970
)
   
(50,193
)
Maturity of short-term investments
   
79,694
     
447,359
 
Other investing activities
   
2,893
     
(935
)
Net cash provided by (used in) investing activities
   
(929
)
   
313,083
 
                 
Financing activities
               
Proceeds from long-term borrowings
   
-
     
600,000
 
Issuance costs
   
(5,394
)
   
(15,621
)
Repurchase of convertible debentures
   
(22,695
)
   
(584,991
)
Net proceeds (payments) on revolving credit lines
   
28,000
     
(54,000
)
Net changes in short-term borrowings
   
22
     
119
 
Dividends paid to common stockholders
   
(23,822
)
   
(20,148
)
Dividends paid to Class B common stockholders
   
(2,178
)
   
(1,845
)
Distributions to noncontrolling interests
   
(600
)
   
(525
)
Cash withholding taxes paid when shares withheld for vested equity awards
   
(2,708
)
   
(2,297
)
Net cash used in financing activities
   
(29,375
)
   
(79,308
)
Effect of exchange rate changes on cash and cash equivalents
   
(641
)
   
(12,921
)
                 
Net increase in cash and cash equivalents
   
104,874
     
259,024
 
                 
Cash and cash equivalents at beginning of period
   
686,032
     
748,032
 
Cash and cash equivalents at end of period
 
$
790,906
   
$
1,007,056
 

See accompanying notes.
10


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, 2017
 
$
13,188
   
$
1,213
   
$
1,752,506
   
$
(362,254
)
 
$
25,714
   
$
1,430,367
   
$
2,032
   
$
1,432,399
 
Cumulative effect of accounting change for adoption of ASU 2016-01
   
-
     
-
     
-
     
1,801
     
(1,801
)
   
-
     
-
     
-
 
Net earnings
   
-
     
-
     
-
     
62,366
     
-
     
62,366
     
179
     
62,545
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
28,631
     
28,631
     
-
     
28,631
 
Distributions to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Conversion of Class B shares (31,800 shares)
   
3
     
(3
)
   
-
     
-
     
-
     
-
     
-
     
-
 
Temporary equity reclassification
   
-
     
-
     
1,080
     
-
     
-
     
1,080
     
-
     
1,080
 
Issuance of stock and related tax withholdings for vested restricted stock units (211,328 shares)
   
21
     
-
     
(2,318
)
   
-
     
-
     
(2,297
)
   
-
     
(2,297
)
Dividends declared ($0.0675 per share)
   
-
     
-
     
11
     
(9,746
)
   
-
     
(9,735
)
   
-
     
(9,735
)
Stock compensation expense
   
-
     
-
     
2,483
     
-
     
-
     
2,483
     
-
     
2,483
 
Balance at March 31, 2018
 
$
13,212
   
$
1,210
   
$
1,753,762
   
$
(307,833
)
 
$
52,544
   
$
1,512,895
   
$
2,211
   
$
1,515,106
 
Net earnings
   
-
     
-
     
-
     
103,097
     
-
     
103,097
     
165
     
103,262
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
(59,962
)
   
(59,962
)
   
-
     
(59,962
)
Distributions to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
(525
)
   
(525
)
Temporary equity reclassification
   
-
     
-
     
699
     
-
     
-
     
699
     
-
     
699
 
Dividends declared ($0.0850 per share)
   
-
     
-
     
14
     
(12,272
)
   
-
     
(12,258
)
   
-
     
(12,258
)
Stock compensation expense
   
-
     
-
     
778
     
-
     
-
     
778
     
-
     
778
 
Issuance of convertible notes due 2025
   
-
     
-
     
85,262
     
-
     
-
     
85,262
     
-
     
85,262
 
Repurchase of convertible debentures due 2040 and due 2042
   
-
     
-
     
(246,573
)
   
-
     
-
     
(246,573
)
   
-
     
(246,573
)
Balance at June 30, 2018
 
$
13,212
   
$
1,210
   
$
1,593,942
   
$
(217,008
)
 
$
(7,418
)
 
$
1,383,938
   
$
1,851
   
$
1,385,789
 
                                                                 
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
   
-
     
-
     
-
     
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 ($0.0850 per share)
   
-
     
-
     
15
     
(12,292
)
   
-
     
(12,277
)
   
-
     
(12,277
)
Stock compensation expense
   
-
     
-
     
3,536
     
-
     
-
     
3,536
     
-
     
3,536
 
Repurchase of convertible senior debentures
   
-
     
-
     
(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
 
Net earnings
   
-
     
-
     
-
     
44,477
     
-
     
44,477
     
258
     
44,735
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
9,007
     
9,007
     
-
     
9,007
 
Distributions to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
(600
)
   
(600
)
Temporary equity reclassification
   
-
     
-
     
206
     
-
     
-
     
206
     
-
     
206
 
Issuance of stock and related tax withholdings for vested restricted stock units (9,906 shares)
   
1
     
-
     
(50
)
   
-
     
-
     
(49
)
   
-
     
(49
)
Dividends declared ($0.0950 per share)
   
-
     
-
     
17
     
(13,740
)
   
-
     
(13,723
)
   
-
     
(13,723
)
Stock compensation expense
   
-
     
-
     
890
     
-
     
-
     
890
     
-
     
890
 
Balance at June 29, 2019
 
$
13,235
   
$
1,210
   
$
1,426,164
   
$
55,659
   
$
(6,316
)
 
$
1,489,952
   
$
2,126
   
$
1,492,078
 

See accompanying notes.
11

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, 2018.  The results of operations for the fiscal quarter and six fiscal months ended June 29, 2019 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 2019 end on March 30, 2019, June 29, 2019, September 28, 2019, and December 31, 2019, respectively.  The four fiscal quarters in 2018 ended on March 31, 2018, June 30, 2018, September 29, 2018, and December 31, 2018, respectively.

Recently Adopted Accounting Guidance

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842).  The ASU is the result of a project between the FASB and the International Accounting Standards Board to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The guidance in ASU No. 2016-02 and all related ASUs is codified in Accounting Standard Codification (“ASC”) Topic 842, Leases.  The Company adopted ASC Topic 842 effective January 1, 2019.  Upon adoption at January 1, 2019, the Company recognized right of use assets of $91,462 and lease liabilities of $95,784 on the consolidated balance sheet.  The difference between the initial right of use asset and lease liability balances recognized upon adoption of ASC Topic 842 is primarily due to accrued lease incentive balances at December 31, 2018.

On December 20, 2018, the Company received sale proceeds of $45,500 and concurrently leased-back its former manufacturing site in Santa Clara, California, under a short-term arrangement, to raze the buildings.  Upon adoption of ASC Topic 842, the Company was required to reassess the accounting for these transactions.  The transactions did not qualify as a completed sale and leaseback under previous GAAP.  However, pursuant to ASC Topic 842’s sale and leaseback guidance, the transaction would qualify as a completed sale.  The Company recognized a cumulative-effect adjustment to retained earnings (accumulated deficit) of $23,013, to recognize the sale as of the date of adoption, and derecognized the land, building, and related deferred proceeds, which had been recorded in other accrued expenses.

The adoption of the ASU did not have a material impact on the Company's results of operations or cash flows.  See Note 3.

Recently Issued Accounting Guidance

In June 2016, the 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 ASU is effective for the Company for interim and annual periods beginning on or after January 1, 2020, with the ability to early adopt for interim and annual periods beginning on or after January 1, 2019.  The Company is currently evaluating the effect of the ASU on its financial assets measured at amortized cost.

Reclassifications

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

12

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

Note 2 – Revenue Recognition

Sales returns and allowances accrual activity is shown below:


 
Fiscal quarters ended
   
Six fiscal months ended
 
   
June 29, 2019
   
June 30, 2018
   
June 29, 2019
   
June 30, 2018
 
Beginning balance
 
$
37,577
   
$
32,706
   
$
42,663
   
$
36,680
 
Sales allowances
   
28,903
     
25,365
     
57,114
     
49,553
 
Credits issued
   
(22,270
)
   
(19,348
)
   
(55,332
)
   
(47,798
)
Foreign currency
   
172
     
(691
)
   
(63
)
   
(403
)
Ending balance
 
$
44,382
   
$
38,032
   
$
44,382
   
$
38,032
 

13

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.  Substantially all of the Company’s leases are structured and classified as operating leases.  As of January 1, 2019, the Company accounts for its leases in accordance with ASC Topic 842.

The Company leases assets in each region in which it operates.  The Company’s leases are generally denominated in the currency of the leased assets' location, which may not be the functional currency of the subsidiary lessee.  Accordingly, the Company remeasures its lease liability and recognizes a transactional gain/loss for leases denominated in currencies other than the functional currency of the subsidiary lessee.

The Company recognizes right of use assets and lease liabilities for leases greater than twelve months in duration based on the contract consideration for lease components through the term of the lease and the applicable discount rate.  Leases with a duration less than or equal to twelve months are considered short-term leases.  The Company does not recognize right of use assets or lease liabilities for short-term leases and classifies the expense as short-term lease expense.  Variable lease payments based on an index or rate are included in the right of use assets and lease liabilities based on the effective rates at lease commencement.  Changes in the rates or indices do not impact the right of use asset or lease liability and are recognized as a component of lease expense in the statement of operations.  Variable lease payments not based on an index or rate are not included in the initial right of use asset and lease liability and are recognized when incurred as a component of lease expense in the statement of operations.

The Company has elected to not separate contract consideration for lease and non-lease components for its building leases.  In addition to the noncancellable period of a lease, the Company includes periods covered by extension options it is reasonably certain to exercise, termination options that it is reasonably certain not to exercise, and extension and termination options controlled by the lessor in its determination of the lease term.  The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate.  When the implicit rate is not used, the Company employs a portfolio approach based on the duration of the lease.  The portfolio lease rates are calculated monthly.

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 sheet for the Company's operating leases as of June 29, 2019 and the net right of use assets and lease liabilities recognized upon the adoption of ASC Topic 842 on January 1, 2019 are presented below:


 
June 29, 2019
   
January 1, 2019
 
Right of use assets
           
Operating Leases
           
Buildings and improvements
 
$
90,989
   
$
86,058
 
Machinery and equipment
   
5,147
     
5,404
 
Total
 
$
96,136
   
$
91,462
 
Current lease liabilities
               
Operating Leases
               
Buildings and improvements
 
$
12,676
   
$
10,644
 
Machinery and equipment
   
2,647
     
3,317
 
Total
 
$
15,323
   
$
13,961
 
Long-term lease liabilities
               
Operating Leases
               
Buildings and improvements
 
$
83,604
   
$
79,000
 
Machinery and equipment
   
2,482
     
2,823
 
Total
 
$
86,086
   
$
81,823
 
Total lease liabilities
 
$
101,409
   
$
95,784
 

14

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

Lease expense is classified in the statements of operations based on asset use.  Total lease cost recognized on the consolidated condensed statements of operations is as follows:


 
Fiscal quarter
ended
June 29, 2019
   
Six fiscal months
ended
June 29, 2019
 
Lease expense
           
Operating lease expense
 
$
5,627
   
$
11,163
 
Short-term lease expense
   
819
     
1,652
 
Variable lease expense
   
9
     
21
 
Total lease expense
 
$
6,455
   
$
12,836
 

The Company paid $10,277 for its operating leases in the six fiscal months ended June 29, 2019, which are included in operating cash flows on the consolidated condensed statement of cash flows.  The weighted-average remaining lease term for the Company's operating leases is 9.2 years and the weighted-average discount rate is 6.1% as of June 29, 2019.

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


 
June 29, 2019
 
2019 (excluding the six fiscal months ended June 29, 2019)
 
$
11,095
 
2020
   
19,294
 
2021
   
16,198
 
2022
   
13,408
 
2023
   
12,387
 
Thereafter
   
61,246
 

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.

The Company elected to use the package of practical expedients available in ASC Topic 842; and accordingly, did not reassess existing contracts for leases, the classification of existing leases, or initial direct costs for any existing leases.  The Company also elected to use the practical expedient available in ASC Topic 842 for land easements.

The Company did not elect the practical expedient available in ASC Topic 842 to use hindsight in determining the lease term.  Accordingly, the remaining lease term as of January 1, 2019 was used to calculate the initial right of use asset and lease liability.

15

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

Note 4 – Acquisition Activities

As part of its growth strategy, the Company seeks to expand through targeted acquisitions of other manufacturers of electronic components that have established positions in major markets, reputations for product quality and reliability, and product lines with which the Company has substantial marketing and technical expertise.

On January 3, 2019, the Company acquired substantially all of the assets of Bi-Metallix, Inc. ("Bi-Metallix"), a U.S.-based, privately-held provider of electron beam continuous strip welding services for $11,862.  The Company was a major customer of Bi-Metallix, and the acquired business is being vertically integrated into the Company's Resistors & Inductors segment.  Based on an estimate of their fair values, the Company allocated $2,900 of the purchase price to definite-lived intangible assets.  After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $3,324 related to this acquisition.  The results and operations of this acquisition have been included in the Resistors & Inductors segment since January 3, 2019.  The inclusion of this acquisition did not have a material impact on the Company's consolidated results for the fiscal quarter and six fiscal months ended June 29, 2019.  The goodwill related to this acquisition is included in the Resistors & Inductors reporting unit for goodwill impairment testing.

Had this acquisition occurred as of the beginning of the periods presented in these consolidated condensed financial statements, the pro forma statements of operations would not be materially different than the consolidated condensed statements of operations presented.

The remaining fluctuation in the goodwill account balance is due to foreign currency translation.

16

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