UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 1-7416
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Vishay Intertechnology, Inc. |
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(Exact name of registrant as specified in its charter) |
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Delaware |
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38-1686453 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS employer identification no.) |
63 Lincoln Highway
Malvern, Pennsylvania 19355-2143
(Address of principal executive offices)
(610) 644-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.10 par value
(Title of Class)
New York Stock Exchange
(Exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
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No o |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
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No o |
The aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter ($17.28 on July 3, 2004), assuming conversion of all of its Class B common stock held by non-affiliates into common stock of the registrant, was $2,608,643,000. There is no non-voting stock outstanding.
As of March 9, 2005, registrant had 151,429,179 shares of its common stock and 14,679,440 shares of its Class B common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, which will be filed within 120 days of December 31, 2004, are incorporated by reference into Part III.
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Vishay Intertechnology, Inc.
Form 10-K for the year ended December 31, 2004
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Item 1. |
General
Vishay Intertechnology, Inc. is a leading international manufacturer and supplier of passive and active electronic components. Passive components include resistors, capacitors, transducers and inductors. Active components include diodes, transistors, rectifiers, power integrated circuits (ICs), infrared (IR) transceivers, IR sensors and optocouplers. Passive electronic components and discrete active electronic components are the primary elements of almost every electronic circuit. We offer our customers “one-stop” access to one of the most comprehensive electronic component lines of any manufacturer in the United States, Europe and Asia.
Our components are used in virtually every type of product that contains electronic circuitry, including:
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computer-related products, |
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automotive applications, |
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power management products, |
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process control systems, |
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telecommunications equipment, |
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military and aerospace applications, |
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measuring instruments, |
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consumer electronics and appliances, |
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industrial equipment, |
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medical instruments, and |
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electronic scales. |
Since 1985, we have pursued a business strategy that principally consists of the following elements:
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1. expanding within the electronic components industry, primarily through the acquisition of other manufacturers of electronic components that have established positions in major markets, reputations for product quality and reliability, and product lines with which we have substantial marketing and technical expertise; |
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2. reducing selling, general and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies; |
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3. achieving significant production cost savings through the transfer and expansion of manufacturing operations to countries such as the Czech Republic, Hungary, India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines, where we can take advantage of lower labor costs and available tax and other government-sponsored incentives; |
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4. maintaining significant production facilities in those regions where we market the bulk of our products in order to enhance the service and responsiveness that we provide to our customers; |
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5. consistently rolling out new and innovative products; and |
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6. strengthening our relationships with customers and strategic partners. |
As a result of this strategy, we have grown from a small manufacturer of precision resistors and resistance strain gages to one of the world’s largest manufacturers and suppliers of a broad line of electronic components.
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Our significant acquisitions in the last several years include:
Siliconix and Telefunken. We acquired an 80.4% interest in Siliconix incorporated (NASDAQ: SILI) in March 1998 from Daimler-Benz A.G. Siliconix is a publicly-traded chip maker, based in Santa Clara, California, which designs, markets and manufactures power and analog semiconductor products, such as metal-oxide-semiconductor field-effect transistors (MOSFETs), junction field-effect transistors (JFETs), bipolar switches, signal processing ICs and power ICs for computers, cell phones, fixed communications networks, automobiles and other electronic systems. Siliconix has manufacturing facilities in Santa Clara, California and Itzehoe, Germany, maintains assembly and testing facilities in the Republic of China (Taiwan), is party to a joint venture in Shanghai, the People’s Republic of China and has subcontractors in the Philippines, the People’s Republic of China, and the United States.
In the same transaction, we acquired from Daimler-Benz the semiconductor business unit of TEMIC Telefunken Microelectronic GmbH headquartered in Heilbronn, Germany, but promptly disposed of its integrated circuits division. This business, renamed Vishay Semiconductor GmbH, offers a product line of diodes, RF transistors, optoelectronic semiconductors, infrared data transceivers (IRDCs) and light-emitting diodes (LEDs).
Electro-Films, Cera-Mite and Spectrol. In May 2000, we acquired Electro-Films, Inc., a manufacturer of thin film components and networks on ceramic and silicon. In August 2000, we acquired Cera-Mite Corporation, a worldwide supplier of ceramic capacitors, used in power supplies, electronic lighting and other applications, and thermistors (temperature-sensitive resistors) used in refrigeration, HVAC, telecommunications and other electronic applications. Separately, in August 2000, we acquired Spectrol, a manufacturer of sensing potentiometers used primarily in the automotive industry and trimmer potentiometers used in various kinds of electronic circuitry.
Tansitor and Mallory. In January 2001, we acquired Tansitor, a leading manufacturer of wet tantalum electrolytic capacitors and miniature conformal coated solid tantalum capacitors. These components have power management applications in the military, aerospace and medical industries. In November 2001, we acquired Yosemite Investment, Inc. d/b/a the North American Capacitor Company, known as Mallory, a manufacturer and distributor of wet tantalum capacitors and other products. As a result of these two acquisitions, we have become the number one manufacturer of wet tantalum capacitors worldwide.
Infineon infrared components business. In July 2001, we acquired the infrared components business of Infineon A.G. As a result, we added several new device types to our optoelectronics portfolio. We also became the largest supplier outside Japan of optocouplers and the largest supplier worldwide of IRDCs.
General Semiconductor. On November 2, 2001, we completed the acquisition of General Semiconductor, Inc., a leader in the design, manufacture and distribution of semiconductors for the power management market. General Semiconductor manufactures and distributes a broad range of power management products, including rectifiers, transient voltage suppressors, small-signal transistors, diodes, MOSFETs and analog ICs. As a result of this acquisition, we became the number one manufacturer of diodes and rectifiers worldwide.
Sensortronics, Tedea-Huntleigh, BLH and Nobel, and Celtron. In January 2002, we acquired the transducer and strain gage business of Sensortronics, Inc. In June 2002, we acquired Tedea-Huntleigh BV, a leading manufacturer of load cells used in digital scales by the weighing industry. In July 2002, we purchased the BLH and Nobel businesses from Thermo Electron Corporation. BLH and Nobel are engaged in the production and sale of load cell based process weighing systems, weighing and batching instruments, web tension instruments, weighing scales, servo control systems, and components relating to load cells, including strain gages, foil gages and transducers. In October 2002, we acquired Celtron Technologies, another company engaged in the production and sale of load cells used in digital scales for the weighing industry. As a result of these acquisitions, the product portfolio of our Measurements Group has been expanded and we are now a world leader in stress analysis products and transducers used in the weighing industry (load cells).
BCcomponents. In December 2002, we completed the acquisition of BCcomponents Holdings B.V., a leading manufacturer of passive components with operations in Europe, India and the People’s Republic of China. The product lines of BCcomponents include linear and non-linear resistors; ceramic, film and aluminum electrolytic capacitors; and trimming potentiometers. This major acquisition has significantly enhanced our global market position in passive components.
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Aeroflex thin film interconnect business. In September 2004, we acquired all of the outstanding shares of Aeroflex Pearl River Inc. (renamed Vishay MIC Technology Inc.), the former thin film interconnect subsidiary of Aeroflex, Incorporated. This business has significant synergies with our existing Electro-Films business.
SI Technologies. On December 22, 2004, we signed a definitive merger agreement pursuant to which Vishay will acquire all of the outstanding capital stock of SI Technologies, Inc., a designer, manufactuer, and marketer of high-performance industrial sensors and controls, weighing and automotive systems, and related products. Completion of the merger is subject to certain closing conditions, including the approval of the stockholders of SI Technologies. The parties currently anticipate that the merger will be completed in the first half of 2005.
Siliconix. As further described in Note 19 to our consolidated financial statements, on March 3, 2005, we announced our intention to commence a tender offer for all outstanding shares of Siliconix not owned by Vishay.
We continue to explore opportunities to acquire electronic component manufacturers that have established positions in major markets, reputations for product quality and reliability, and product lines with which we have substantial marketing and technical expertise.
We also seek to explore opportunities with privately held developers of electronic components, or “start-ups,” whether through acquisition, investment in non-controlling interests, or strategic alliances. We made the first such investment in August 2004, when we acquired substantially all of the assets of RFWaves, Ltd., a fab-less integrated circuit design house located in Israel.
In addition to our acquisition activity in recent years, we have taken steps to assure our competitiveness, enhance our operating efficiency and strengthen our liquidity in the face of the economic downturn which broadly impacted the electronics industry from 2001 to 2003. In this regard, we:
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closed or consolidated several manufacturing facilities and administrative offices; |
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reduced our headcount, particularly in high-labor-cost countries; |
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integrated our acquisitions within our existing management and operational infrastructure; and |
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relying on the strength of our balance sheet, continued our search for suitable acquisition candidates. |
Vishay was incorporated in Delaware in 1962 and maintains its principal executive offices at 63 Lincoln Highway, Malvern, Pennsylvania 19355-2143. Our telephone number is (610) 644-1300.
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Products
We design, manufacture and market electronic components that cover a wide range of products and technologies. Our products primarily consist of:
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resistors, |
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signal processing ICs, |
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tantalum capacitors, |
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transistors, |
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multi-layer and disc ceramic capacitors (MLCCs), |
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voltage suppressors, |
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aluminum and specialty ceramic capacitors, |
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infrared data transceivers (IRDCs), |
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film capacitors, |
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optocouplers, |
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power MOSFETs, |
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IR sensors, |
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power ICs, |
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strain gages and load cells, and |
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inductors, |
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diodes and rectifiers |
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and, to a lesser extent: |
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connectors, |
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plasma displays, |
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transformers, |
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thermistors, and |
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potentiometers. |
We believe that we produce one of the broadest lines of discrete electronic components available from any single manufacturer.
Product Segments
Our products can be divided into two general classes: passive components and active components. These broad categories are also the basis used to determine our operating segments for financial reporting purposes. See Note 16 to our consolidated financial statements for additional information on revenues, income, and total assets by segment.
Passive Components
Passive components include resistors, capacitors and inductors. They are referred to as “passive” because they do not require power to operate. These components adjust and regulate voltage and current, store energy and filter frequencies. We also include in this category the products and services of our Measurements Group that employ passive components in electro-mechanical measurements.
Resistors
Resistors are basic components used in all forms of electronic circuitry to adjust and regulate levels of voltage and current. They vary widely in precision and cost, and are manufactured from numerous materials and in many forms. Linear resistive components are classified as variable or fixed, depending on whether or not their resistance is adjustable. Non-linear resistors can also be used as measuring devices. We manufacture a line of thermistors, which are heat sensitive resistors. Other types of resistive sensors are strain gages for measurement of mechanical stress. See “Measurements Group” below.
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We manufacture virtually all types of fixed resistors, both in discrete and network forms, as well as many variable types. These resistors are produced for virtually every segment of the resistive product market, from resistors used in the highest quality precision instruments for which the performance of the resistor is the most important requirement, to low-cost resistors for which price is the most important factor.
Capacitors
Capacitors perform energy storage, frequency control, discharge, coupling, timing and filtering functions. The more important applications for capacitors are:
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electronic filtering for linear and switching power supplies; |
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decoupling and bypass of electronic signals for integrated circuits and circuit boards; and |
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frequency control, timing and conditioning of electronic signals for a broad range of applications. |
Our capacitor products include solid tantalum surface mount chip capacitors, solid tantalum leaded capacitors, wet/foil tantalum capacitors, MLCC capacitors, disc ceramic capacitors, aluminum and specialty ceramic capacitors, and film capacitors. Each capacitor product has unique physical and electrical performance characteristics that make that type of capacitor useful for specific applications. Tantalum and MLCC capacitors are generally used in conjunction with integrated circuits in applications requiring low to medium capacitance values, “capacitance” being the measure of the capacitor’s ability to store energy. The tantalum capacitor is the smallest type of capacitor for its range of capacitance. MLCC capacitors, on the other hand, are more cost-effective for applications requiring lower capacitance. Disc ceramic capacitors are used for high voltage applications. Aluminum capacitors are used for high capacitance applications. Film capacitors are suitable for general use in telecommunications, automotive, consumer and industrial products. They are the most stable capacitors.
Inductors
Inductors use an internal magnetic field to change the phase of electric current. They are utilized in electronic circuitry to control alternating current and voltage, and to filter out unwanted electronic signals. They are also used in transformers to change voltage levels.
Measurements Group
Vishay Measurements Group is a leading manufacturer of products for precision measurement of mechanical strains. Our products include strain gages, load cells, force measurement sensors, displacement sensors, and photoelastic sensors. These products are used in experimental stress analysis systems, as well as in the electronic measurement of loads (electronic scales), acceleration and fluid pressure. The Measurements Group also provides installation accessories for its products, instrumentation to sample and record measurement output, and training seminars in stress analysis testing and transducer development and manufacture.
As a result of Vishay’s acquisitions in 2002, the Measurements Group has implemented a strategy of vertical market integration, with a product range from resistance strain gages, to transducers (the metallic structures to which strain gages are cemented), to the electronic instruments and systems that measure and control output of the transducers. Vishay Measurements Group now has two operating divisions: Vishay Micro-Measurements (for strain gages, instruments and PhotoStress® products) and Vishay Transducers (for load cells, weigh modules, instruments and weighing systems).
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Active Components
Our active electronic components include both discrete devices and integrated circuits (ICs). They are referred to as “active” because they require power to function. Discrete devices are single components or an arrangement of components that generate, control, regulate and amplify or switch electronic signals or energy. Examples of our discrete active components include diodes, rectifiers, transient voltage suppressors, transistors and power MOSFETs. These devices are interconnected with passive components or other active components to create an electronic circuit. Our IC devices consist of a number of active and passive components interconnected on a single chip to perform a specific function. Examples of our integrated circuits include power ICs, motor control ICs and signal processing ICs. Our discrete active components and ICs are manufactured and marketed primarily through our majority owned Siliconix subsidiary, our European subsidiary Vishay Semiconductor GmbH, and our General Semiconductor business.
We also include in the category of active components our line of optoelectronic components, manufactured and marketed by our European subsidiary Vishay Semiconductor GmbH, our infrared components business, and our radio frequency products business.
Discrete Devices
Diodes and rectifiers are used to convert electrical currents from alternating current (AC) into direct current (DC) by conducting electricity in one direction and blocking it in the reverse direction. Because electrical outlets carry AC while the vast majority of electronic devices use DC, rectifiers are used in a wide variety of applications. We offer a broad line of diodes and rectifiers with differing power, speed, cost, packaging and conversion (half wave or full wave) characteristics. Our rectifiers include a series of high voltage devices that have been optimized for power correction circuits.
Transient voltage suppressors protect electronic circuits by limiting voltage to a safe level. Examples of transient events that could damage unprotected circuits include static electricity charges and natural or induced lightning. Voltage suppressors protect circuits by absorbing large amounts of energy for short periods of time. We offer a broad range of state-of-the-art transient voltage suppressors for use in most modern electronic equipment.
Small signal diodes and transistors perform amplification, signal blocking, routing and switching functions at lower current levels. Our small-signal transistors range from the older junction field-effect transistors (JFETs), to newer products such as those based upon double-diffused metal oxide semiconductor (DMOS) technology.
Discrete power MOSFETs are specialized field-effect transistors used to switch and manage power in a broad range of electronic devices. They are used in particularly low-voltage applications such as cell phones, portable and desktop computers, automobiles, instrumentation and industrial applications. Our innovative TrenchFET® power MOSFET technology offers very high cell density, very low on-resistance and optimized switching parameters for high frequency DC-DC power conversion. Power MOSFETs conserve power and help prevent components from over-heating.
Integrated Circuits
Power ICs are used in applications such as cell phones, where an input voltage from a battery or other supply source must be switched, interfaced or converted to a level that is compatible with logic signals used by microprocessors and other digital components. Our ICs are designed to operate at higher frequencies without compromising efficiencies. Often our power MOSFETs and power ICs can be used together as chip sets with complementary performance characteristics optimized for a specific application.
Motor control ICs control the starting, speed or position of electric motors, such as the head positioning and spindle motors in hard disk drives.
Signal processing ICs are used for analog switching and multiplexing in devices that either receive or output analog (non-digital) signals. A recent application of this technology is in broadband communications devices such as DSL modems.
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Optoelectronics
Our line of optoelectronic components includes light emitting diodes (LEDs), infrared emitters (IREDs) and photo detectors, infrared receiver modules, optocouplers, solid-state relays (SSRs), optical sensors, and infrared transceivers (IRDCs).
Our photo detectors are light-sensitive semiconductor devices, and include linear photo diodes for light measurement, photo-transistors for light switching applications in printers, copiers, facsimile machines, vending machines and automobiles, and high speed photo PIN diodes specially designed for infrared data transfer. Our photo detector products are available in a wide variety of sensitivity angles, light sensitivities, daylight filters and packaging shapes. Our infrared emitters are used for optical switching and data transfer applications, often in conjunction with our photo detectors, and in devices like infrared remote controls for televisions.
An optocoupler consists of an infrared emitting diode and a receiver facing each other through an insulation medium inside a light-isolated housing. The receiver may either be a photodetector or a pair of MOSFETs, and in the latter case the device is referred to as a solid-state relay (SSR). The function of an optocoupler is to electrically isolate input and output signals. Our optocouplers are used in switch mode power supplies, safety circuitry and programmable controllers for computer monitors, consumer electronics, telecommunications equipment and industrial systems.
IRDCs consist of a detector photo diode, an infrared light emitting diode and a control IC. IRDCs are used for short range, two-way wireless, infrared data transfer between electronic devices such as mobile phones and other telecommunications equipment, computers and personal digital assistants (PDAs). LEDs are light emitting diodes used as light indicators in a broad range of electronic devices.
Packaging
We have taken advantage of the growth of the surface mount component market, and we are an industry leader in designing and marketing surface mount devices. Surface mount devices adhere to the surface of a circuit board rather than being secured by leads that pass through holes to the back side of the board.
We believe that we are a market leader in the development and production of a wide range of surface mount devices, including:
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thick film chip resistors, |
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wirewound chip resistors, |
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thick film resistor networks and arrays, |
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power strip resistors, |
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metal film leadless resistors (MELFs), |
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bulk metal foil chip resistors, |
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molded tantalum chip capacitors, |
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current sensing chips, |
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coated tantalum chip capacitors, |
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chip inductors, |
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multi-layer ceramic chip capacitors, |
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chip transformers, |
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thin film chip resistors, |
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chip trimmers, |
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thin film networks, |
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NTC chip thermistors, |
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certain diodes and transistor products, |
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PTC chip thermistors, and |
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power MOSFETs, |
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strain gages. |
We also provide a number of component packaging styles to facilitate automated product assembly by our customers.
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Military Qualifications
We have qualified certain products under various military specifications, approved and monitored by the United States Defense Electronic Supply Center (DESC), and under certain European military specifications. DESC qualification levels are based in part upon the rate of failure of products. In order to maintain the classification level of a product, we must continuously perform tests on the product and the results of these tests must be reported to DESC. If the product fails to meet the requirements for the applicable classification level, the product’s classification may be reduced to a lower level. Products from some of our United States manufacturing facilities experience a reduction in product classification levels from time to time. During the time that the DESC classification level is reduced for a product with military application, net sales and earnings attributable to that product may be adversely affected.
Manufacturing Operations
We strive to balance the location of our manufacturing facilities. In order to better serve our customers, we maintain production facilities in regions where we market the bulk of our products, such as the United States, Germany, France, the United Kingdom, and Asia. To maximize production efficiencies, we seek whenever practicable to establish manufacturing facilities in countries, such as the Czech Republic, Hungary, India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines, where we can take advantage of lower labor and tax costs and, in the case of Israel, to take advantage of various government incentives, including grants and tax relief.
One of our most sophisticated manufacturing operations is the production of power semiconductor components. This manufacturing process involves two phases of production: wafer fabrication and assembly (or packaging). Wafer fabrication subjects silicon wafers to various thermal, metallurgical and chemical process steps that change their electrical and physical properties. These process steps define cells or circuits within numerous individual devices (termed “dies” or “chips”) on each wafer. Assembly is the sequence of production steps that divides the wafer into individual chips and encloses the chips in structures (termed “packages”) that make them usable in a circuit. Both wafer fabrication and assembly phases incorporate wafer level and device level electrical testing to ensure that device design integrity has been achieved.
At December 31, 2004, approximately 16% of our fixed assets were located in the United States, approximately 31% were located in Europe, approximately 23% were located in Israel, and approximately 30% were located in Asia. In the United States, our manufacturing facilities are located in California, Connecticut, Maine, Maryland, New York, Nebraska, North Carolina, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin. In Europe, our main manufacturing facilities are located in Germany, France, Hungary, and the Czech Republic, with other facilities in Austria, Belgium, Portugal, the Netherlands, and the United Kingdom. We also have manufacturing facilities in India, Israel, Malaysia, Mexico, the People’s Republic of China, the Philippines, and the Republic of China (Taiwan). Over the past several years, we have invested substantial resources to increase capacity and to maximize automation in our plants, which we believe will further reduce production costs.
We are aggressively undertaking to have the quality systems at most of our major manufacturing facilities approved under the ISO 9001 international quality control standard. ISO 9001 is a comprehensive set of quality program standards developed by the International Standards Organization. A majority of our manufacturing operations have already received ISO 9001 approval and others are actively pursuing such approval.
In 2004, we continued the implementation of our strategy to shift manufacturing emphasis to higher automation in higher labor cost regions and to relocate a fair amount of production to regions with skilled workforces and relatively lower labor costs. As a result, we incurred restructuring costs in the year ended December 31, 2004 associated with the downsizing of manufacturing facilities in Europe and the United States. We may continue to incur such expenses in 2005.
See Note 16 to our consolidated financial statements for financial information by geographic area.
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Sources of Supplies
Although most materials incorporated in our products are available from a number of sources, certain materials, particularly tantalum and palladium, are available only from a relatively limited number of suppliers.
Tantalum
We are a major consumer of the world’s annual production of tantalum. Tantalum, a metal purchased in powder or wire form, is the principal material used in the manufacture of tantalum capacitors. There are currently three major suppliers that process tantalum ore into capacitor grade tantalum powder. Due to the strong demand for our tantalum capacitors and difficulty in obtaining sufficient quantities of tantalum powder from our suppliers, we stockpiled tantalum in 2000 and early 2001. From 2001 to 2003, we and our competitors experienced a significant decline in the tantalum capacitor business as well as significant decreases in the market prices for tantalum. As a result, we recorded in costs of products sold write-downs of $5.4 million and $25.7 million on tantalum inventories during the years ended December 31, 2003 and 2002, respectively.
We have two agreements with Cabot Corporation for the supply of tantalum powder, a July 2000 agreement (which expires in 2005) and a November 2000 agreement (which expires in 2006). With the decline in market demand and prices for tantalum during 2001, we began the process of negotiating modifications to the agreements with Cabot. Our major competitors in the tantalum capacitor business were also seeking modifications to their contracts with Cabot. In June 2002, following the prior initiation of legal proceedings by Cabot, we and Cabot agreed to make certain modifications to the supply agreements. These included price reductions, the extension of the term of one of the contracts, and the regular scheduling of our purchase commitments. The contracts with Cabot commit us to minimum purchases of tantalum powder and wire at fixed prices through 2006. One of these contracts provides for price reductions in 2006 if certain conditions are met.
In addition to the raw material write-downs described above, we also recorded losses on purchase commitments of $16.2 million, $11.4 million and $106.0 million for the years ended December 31, 2004, 2003 and 2002, respectively. Our purchase commitments were entered into at a time when market demand for tantalum capacitors was high and tantalum powder was in short supply. Our liability for purchase commitments is estimated based on our contractually obligated purchase prices, expected market prices and the mix of tantalum-grades expected to be purchased. The mix of tantalum-grades expected to be purchased is within a range specified by the contracts. The pricing trend for tantalum has been relatively stable since 2003. The mix of our purchases of tantalum grades during 2004 was significantly different than initially expected, which resulted in additional losses on purchase commitments being recorded in 2004. If the downward pricing trend were to resume, we could again be required to write down the carrying value of our tantalum inventory and record additional losses on our purchase commitments. Changes in our mix of tantalum-grade purchases could also require us to record additional losses on our purchase commitments. Our estimates of losses on purchase commitments are based on the assumption that we will not receive certain conditional price reductions in 2006 pursuant to one of our contracts with Cabot. We may be required to reverse a portion of these recorded losses if we meet all conditions to receive these price reductions.
Palladium
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South Africa and Russia. Palladium is a commodity product that is subject to price volatility. The price of palladium fluctuated in the range of approximately $148 to $435 per troy ounce during the three years ended December 31, 2004, and during 2001, the price was as high as $1,090 per troy ounce. As of December 31, 2004, the price of palladium was approximately $184 per troy ounce. During the years ended December 31, 2004, 2003 and 2002, we recorded in costs of products sold write-downs of palladium inventories to then-current market value of $0.4 million, $1.6 million and $1.7 million, respectively. At December 31, 2004, we had commitments to purchase palladium in 2005 at prices in excess of current market. Accordingly, we recorded a loss on purchase commitment of approximately $0.4 million during the year ended December 31, 2004.
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Israeli Government Incentives
We have substantial manufacturing operations in Israel, where we benefit from the government’s employment and tax incentive programs. These programs have contributed substantially to our growth and profitability. For the year ended December 31, 2004, sales of products manufactured in Israel accounted for approximately 19% of our net sales.
Under the terms of the Israeli government’s incentive programs, once a project is approved, the recipient is eligible to receive the benefits of the related grants for the life of the project, so long as the recipient continues to meet preset eligibility standards. None of our approved projects has ever been cancelled or modified, and we have already received approval for a majority of the projects contemplated by our capital expenditure program. However, as a result of the economic downturn beginning in 2001, we were forced to lay off a significant number of employees in Israel in 2001. In 2002, the Israeli government initially withheld certain grant monies claiming that we had not maintained employment at the required minimum levels; however, we were able to settle our dispute in the fourth quarter of 2002 and the government agreed to continue making grant payments to us, conditioned upon our agreement to employ a certain number of additional employees by December 31, 2005. Under certain circumstances, we would be able to delay the December 31, 2005 deadline by one year. While we expect the number of employees to satisfy the eligibility requirements for our Israeli government grants, economic circumstances could compel future additional layoffs. Also, over the past few years, the Israeli government has scaled back or discontinued some of its incentive programs. There can be no assurance that we will maintain our eligibility for existing projects or that in the future the Israeli government will continue to offer new incentive programs applicable to us or that, if it does, such programs will provide the same level of benefits we have historically received or that we will continue to be eligible to take advantage of them. Because we have received approvals for most projects currently contemplated, we do not anticipate that cutbacks in the incentive programs for new projects would have an adverse impact on our earnings and operations for at least several years.
We might be materially adversely affected if events were to occur in the Middle East that interfered with our operations in Israel. However, we have never experienced any material interruption in our Israeli operations in our 34 years of operations there, in spite of several Middle East crises, including wars.
Inventory and Backlog
We manufacture both standardized products and those designed and produced to meet customer specifications. We maintain an inventory of standardized components. Backlogs of outstanding orders for our products were $439.9 million, $532.0 million, and $407.6 million at December 31, 2004, 2003, and 2002, respectively.
We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. Our customers encounter uncertain and changing demand for their products. They typically order products from us based on their forecasts. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog at any point in time is not necessarily indicative of the results to be expected for future periods.
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Customers and Marketing
We sell our products to original equipment manufacturers (OEMs), electronic manufacturing services (EMS) companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large inventories of electronic components for resale to OEMs. During 2004, approximately 46% of our sales were to distributors, approximately 47% of our sales were to OEMs, and approximately 7% of our sales were to EMS companies.
To better serve our customers, we maintain production facilities in regions where we market the bulk of our products. We work with our customers so that our products are incorporated into the design of electronic equipment at the research and prototype stages. We also employ a staff of application and field engineers to assist our customers, independent manufacturers’ representatives and distributors in solving technical problems and developing products to meet specific needs.
The sales organizations are regionally based. The aim of our sales organizations is to unify the activities of all our divisions and subsidiaries, provide efficiencies by eliminating duplication of functions, and bring greater value to end customers by allowing them to deal with one entity for their active and passive electronic component purchasing needs. We market our products in different geographic areas as follows:
North America: Sales are made by our North American sales force, sales representative organizations and distributors. Sales representatives are compensated by commissions. Regional sales directors employed by Vishay coordinate these representatives and the North American sales force. Our North American sales headquarters are located in Shelton, Connecticut. Regional sales offices are located in or near Chicago, Illinois; Tampa, Florida; Irving, Texas; Santa Clara, California; Orange County, California; Hauppauge, New York; Juarez, Mexico; and Guadalajara, Mexico.
South America: Sales are made by our South American sales force, sales representative organizations, and distributors. Sales representatives are compensated by commissions. Regional sales directors employed by Vishay coordinate these representatives and the South American sales force. Vishay’s South American sales office is located in Campinas, Brazil.
Europe: Sales of our products in Europe are made by our European sales force, sales representative organizations and distributors. Our European headquarters are in Selb, Germany. Regional sales offices are in Heilbronn, Heide, and Selb, Germany; Sunderland and Bracknell, United Kingdom; Paris, Lyon, and Nice, France; Madrid, Spain; Stockholm, Sweden; Helsinki, Finland; Milan, Italy; Istanbul, Turkey; Warsaw, Poland; Moscow, Russia; Budapest, Hungary; Voecklabruck, Austria; and Eindhoven, the Netherlands.
Japan: Sales in Japan are made both by our Japan sales force and distributors. Sales representatives are compensated by commissions. Regional sales offices are located in Tokyo and Osaka.
Asia-Pacific: Sales are made in Hong Kong, Korea, the Republic of China (Taiwan), the People’s Republic of China and in Southeast Asia by our Asia-Pacific sales force, sales representative organizations and distributors. Our Asian sales headquarters are in Singapore. Regional sales offices are located in Singapore; Taipei, Taiwan; Beijing, Shanghai, Shenzhen and Hong Kong, China; Seoul and Gumi, Korea; New Delhi, Pune and Bangalore, India; Penang, Malaysia; and Bangkok, Thailand.
Sales in the rest of the world are made through sales representatives, stocking representatives and distributors.
We have established a Strategic Global Account program, which aligns our top customers with an identified Strategic Global Account manager, enabling our diverse product families to have “one face to the customer.” This Strategic Global Account manager coordinates sales, marketing, and contract administration for all Vishay products, providing “one-stop” access to one of the broadest selections of discrete electronic components available directly from a manufacturing source anywhere in the world.
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Our top 30 customers are quite stable despite not having long-term commitments to purchase our products. With selected customers, we have signed two to three year contracts for specific products. Sales to our top 30 customers comprise approximately 60% of our total sales.
During 2004, approximately 26% of our net sales were attributable to customers in the Americas, approximately 38% were attributable to customers in Europe, and approximately 36% were attributable to customers in Asia. During 2004, the share of net sales by end-use market was as follows: Industrial, 36%; Computer, 18%; Automotive, 16%; Consumer Products, 12%; Telecommunications, 12%; Aerospace and Military, 4%; Medical, 2%.
Competition
We face strong competition in various product lines from both domestic and foreign manufacturers that produce products using technologies similar to ours. Our main competitors for tantalum capacitors are KEMET Corporation, AVX Corporation and NEC Electronics, Inc. For MLCC capacitors, our principal competitors are KEMET, AVX, Murata and TDK Corp. For thick film chip resistors, our major competitors include Rohm Corp., Koa Speer Electronics Inc. and Yageo Corporation. For wirewound and metal film resistors, our principal competitors are I.R.C. Inc., Rohm Corp., Koa Speer Electronics Inc. and Ohmite Manufacturing Company. For active components, our main competitors include International Rectifier, Philips, N.V., ON Semiconductor, Rohm Corp., Motorola, Inc., Fairchild Semiconductor Corp., Maxim, Shindengen Electric Manufacturing Co. Ltd., Sanken Electric Co. Ltd., STMicroelectronics N.V. and Samsung Co., Ltd. There are many other companies that produce products in the markets in which we compete.
Our competitive position depends on our product quality, know-how, proprietary data, marketing and service capabilities and business reputation, as well as on price. We compete for sales of certain products on the basis of our marketing and distribution network, which provides a high level of customer service. For example, we work closely with our customers to have our components incorporated into their electronic equipment at the early stages of design and production and maintain redundant production sites for some of our products to ensure an uninterrupted supply of products. Additionally, our Strategic Global Accounts program, described above, provides us with a competitive advantage.
Research and Development
Many of our products and manufacturing techniques, technologies and packaging methods have been invented, designed and developed by our engineers and scientists. We maintain strategically placed design centers where proximity to customers enables us to more easily gauge and satisfy the needs of local markets. These design centers are located predominantly in the United States, Germany, Israel, the People’s Republic of China, France, the Republic of China (Taiwan) and South Korea.
We also maintain research and development staffs and promote programs at a number of our production facilities to develop new products and new applications of existing products, and to improve manufacturing techniques. This decentralized system encourages individual product development at individual manufacturing facilities that occasionally has applications at other facilities. Our research and development costs (exclusive of purchased in-process research and development) were approximately $51.0 million for 2004, $45.4 million for 2003, and $37.1 million for 2002. These amounts include expenditures of our Siliconix subsidiary of $21.2 million, $19.5 million, and $19.3 million in 2004, 2003, and 2002, respectively, principally for the development of new power products and power ICs. These amounts do not include substantial expenditures for the development and manufacturing of machinery and equipment for new processes and for cost reduction measures.
Patents and Licenses
We have made a significant investment in securing intellectual property protection for our technology and products. We seek to protect our technology by, among other things, filing patent applications for technology considered important to the development of our business. We also rely upon trade secrets, unpatented know-how, continuing technological innovation and the aggressive pursuit of licensing opportunities to help develop and maintain our competitive position.
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Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology. Although we have been awarded, have filed applications for, or have been licensed under numerous patents in the United States and other countries, there can be no assurance concerning the degree of protection afforded by these patents or the likelihood that pending patents will be issued.
We require all employees and most consultants and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the entity or individual during the course of the entity’s or individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. All of our employees have entered into agreements providing for the assignment to us of rights to inventions made by them while employed by us.
When we believe other companies are misappropriating our intellectual property rights, we vigorously enforce those rights through legal action, and we intend to continue to do so. See Item 3, “Legal Proceedings.”
Although we have numerous United States and foreign patents covering certain of our products and manufacturing processes, no particular patent is considered individually material to our business.
Environment, Health and Safety
We have adopted an Environmental Health and Safety Corporate Policy that commits us to achieve and maintain compliance with applicable environmental laws, to promote proper management of hazardous materials for the safety of our employees and the protection of the environment, and to minimize the hazardous materials generated in the course of our operations. This policy is implemented with accountability directly to the Chairman of the Board of Directors. In addition, our manufacturing operations are subject to various federal, state and local laws restricting discharge of materials into the environment.
We are not involved in any pending or threatened proceedings that would require curtailment of our operations. We continually expend funds to ensure that our facilities comply with applicable environmental regulations. While we believe that we are in material compliance with applicable environmental laws, we cannot accurately predict future developments and do not necessarily have knowledge of all past occurrences on sites that we currently occupy. More stringent environmental regulations may be enacted in the future, and we cannot determine the modifications, if any, in our operations that any such future regulations might require, or the cost of compliance with such regulations. Moreover, the risk of environmental liability and remediation costs is inherent in the nature of our business and, therefore, there can be no assurance that material environmental costs, including remediation costs, will not arise in the future.
We have been named a Potentially Responsible Party (PRP) at nine Superfund sites, including two Siliconix facilities, and have become responsible for certain obligations as a PRP in connection with our acquisition of General Semiconductor. We expend minimal amounts in connection with several of these sites and do not expect costs associated with the others to be material.
General Semiconductor has also been named as a defendant in three actions in the United States District Court for the Eastern District of New York in connection with its former operations at a facility in Hicksville, New York. The plaintiffs in these actions allege that they have suffered personal injury and property damage as a result of the facility’s operations.
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The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon our experience with the foregoing environmental matters, we have concluded that there is at least a reasonable possibility that we will incur remedial costs in the range of $30 million to $40 million. As of December 31, 2004, we concluded that the best estimate within this range is $37.6 million, of which $33.2 million is included in other noncurrent liabilities on the consolidated balance sheet, and $4.4 million is included in accrued expenses on the consolidated balance sheet. Of this accrual, approximately $19.4 million is due to the acquisition of General Semiconductor; approximately $7.8 million is due to the acquisition of BCcomponents; and approximately $10.4 million is reserved for other miscellaneous environmental liabilities, the most significant of which is related to our Vitramon subsidiary in the United States. In view of our financial position and provisions for environmental matters of $37.6 million, we have concluded that any potential payment of such estimated amounts will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.
With each acquisition, we attempt to identify potential environmental concerns and to minimize, or obtain indemnification for, the environmental matters we may be required to address. In addition, we establish reserves for specifically identified potential environmental liabilities. We believe that the reserves we have established are adequate. Nevertheless, we often unavoidably inherit certain pre-existing environmental liabilities, generally based on successor liability doctrines. Although we have never been involved in any environmental matter that has had a material adverse impact on our overall operations, there can be no assurance that in connection with any past or future acquisition we will not be obligated to address environmental matters that could have a material adverse impact on our operations.
Employees
As of December 31, 2004, we employed approximately 25,700 full time employees, of whom approximately 22,500 were located outside the United States. Our future success is substantially dependent on our ability to attract and retain these highly qualified technical and administrative personnel. Some of our employees outside the United States are members of trade unions, and employees at one small U.S. facility are represented by a union. Our relationship with our employees is good. However, no assurance can be given that, if we continue to restructure our operations in response to changing economic conditions, labor unrest or strikes, especially at European facilities, will not occur.
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Company Information and Website
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.
In addition, our company website can be found on the Internet at www.vishay.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. To view the reports, access ir.vishay.com and click on “SEC Filings”.
The following corporate governance related documents are also available on our website:
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Corporate Governance Principles |
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Code of Business Conduct and Ethics |
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Code of Ethics Applicable to the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller and Financial Managers |
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Audit Committee Charter |
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Nominating and Corporate Governance Committee Charter |
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Compensation Committee Charter |
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Policy on Director Attendance at Annual Meetings |
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Nominating and Corporate Governance Committee Policy Regarding Qualification of Directors |
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Procedures for Securityholders’ Submissions of Nominating Recommendations |
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Securityholder Communications with Directors and Interested Party Communication with Non-Management Directors |
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Whistleblower and Ethics Hotline Procedures. |
To review these documents, access ir.vishay.com and click on “Corporate Governance”.
Any of the above documents can also be obtained in print by any shareholder upon request to our Investor Relations Department at the following address:
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Corporate Investor Relations |
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Vishay Intertechnology, Inc. |
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63 Lincoln Highway |
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Malvern, PA 19355-2143 |
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Item 2. |
As of December 31, 2004, we maintained approximately 70 manufacturing facilities. The principal locations of such facilities, along with available space including administrative offices, are:
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Owned Locations |
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Business Segment |
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Approx. Available |
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United States |
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Columbus and Norfolk, NE |
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Passive components |
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298,000 |
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Sanford, ME |
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Passive components |
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225,000 |
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Santa Clara, CA |
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Active components |
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220,000 |
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Wendell and Statesville, NC |
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