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EX-21 - SUBSIDIARIES OF THE REGISTRANT - VISHAY INTERTECHNOLOGY INCexhibit21.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-1.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-2.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULES 13A-15(E) OR 15D-15(E) - VISHAY INTERTECHNOLOGY INCexhibit31-1.htm
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - VISHAY INTERTECHNOLOGY INCexhibit23-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULES 13A-15(E) OR 15D-15(E) - VISHAY INTERTECHNOLOGY INCexhibit31-2.htm

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, 2009
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
 
Vishay Intertechnology, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 38-1686453
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
 
63 Lancaster Avenue
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 New York Stock Exchange
(Title of class) (Exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x  No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x
Note – Checking the box above will not relieve any registrant required to file reports under Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  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.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):
Large accelerated filer x Non-accelerated filer o
Accelerated filer o Smaller reporting company o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o  No x
 
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 ($6.83 on June 27, 2009), assuming conversion of all of its Class B common stock held by non-affiliates into common stock of the registrant, was $1,176,000,000. There is no non-voting stock outstanding.
 
As of February 25, 2010, registrant had 172,288,582 shares of its common stock and 14,352,839 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, 2009, are incorporated by reference into Part III.
 


 
 
 
 
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Vishay Intertechnology, Inc.
Form 10-K for the year ended December 31, 2009
 
CONTENTS
 
PART I
 
Item 1. Business 5
Item 1A. Risk Factors 17
Item 1B. Unresolved Staff Comments 24
Item 2. Properties 25
Item 3. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of Security Holders 28
Executive Officers of the Registrant 28
 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 29
Item 6. Selected Financial Data 31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 64
Item 8. Financial Statements and Supplementary Data 66
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 66
Item 9A.  Controls and Procedures 67
Item 9B. Other Information 67
 
PART III
 
Item 10. Directors, Executive Officers, and Corporate Governance 68
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 68
Item 13. Certain Relationships and Related Transactions, and Director Independence 68
Item 14. Principal Accounting Fees and Services 68
 
PART IV
 
Item 15. Exhibits, Financial Statement Schedules 69
 
SIGNATURES 73
 
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2009 and 2008 F-4
Consolidated Statements of Operations for the years ended December 31, 2009, 2008, and 2007 F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007 F-7
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009, 2008, and 2007 F-8
Notes to Consolidated Financial Statements F-10

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PART I
 
Item 1. BUSINESS
 
General
 
Vishay Intertechnology, Inc. (“Vishay,” the “Company, “we,” “us,” or “our”) is a leading international manufacturer and supplier of semiconductors and passive electronic components. Semiconductors include rectifiers; diodes; transistors; integrated circuits (“ICs”) such as power ICs, and analog switches; modules that contain several different types of semiconductors in a single package; and optoelectronic products such as infrared (“IR”) emitters and detectors, IR receiver modules, optocouplers, optical sensors, light-emitting diodes (“LEDs”), and IR data transceiver modules. Passive electronic components include resistive products, capacitors, inductors, strain gages, load cells / transducers, and stress analysis instruments, weigh modules, and systems. Discrete semiconductors and passive electronic components are essential elements of virtually every type of electronic circuit. They support the microprocessor chips and other ICs that coordinate and control the functions of electronic devices and equipment. We offer our customers “one-stop shop” access to one of the most comprehensive electronic component product lines of any manufacturer in the United States, Europe, and Asia.
 
Our semiconductor components are used for a wide variety of functions, including power control, power conversion, power management, signal switching, signal routing, signal blocking, signal amplification, two-way data transfer, one-way remote control, and circuit isolation. Our passive components are used to restrict current flow, suppress voltage increases, store and discharge energy, control alternating current (“AC”) and voltage, filter out unwanted electrical signals, detect stress and other physical forces, measure weight, and perform other functions. Our components are used in virtually every type of product that contains electronic circuitry, in the industrial, computing, automotive, consumer, telecommunications, military, aerospace, and medical markets.
 
On October 27, 2009, we announced our intention to spin-off, in a tax free stock dividend to our stockholders, our measurements and foil resistor businesses into an independent, publicly-traded company to be named Vishay Precision Group, Inc. (“Vishay Precision Group” or “VPG”.) Vishay Precision Group is a leading designer, manufacturer and marketer of sensors/components (strain gages, ultra-precision foil resistors and current sensors) and process control modules (load cell/transducers, instruments, weigh modules, and systems).
 
Since our first acquisition in 1985, we have pursued a business strategy that principally consists of the following elements:
 
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 innovation, quality, and reliability, strong customer bases, and product lines with which we have substantial marketing and technical expertise;
 
2. reducing selling, general, and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies;
 
3. achieving significant production cost savings and synergies through the transfer and expansion of manufacturing operations to countries such as the Czech Republic, India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines, where we can benefit from lower labor costs and available tax and other government-sponsored incentives;
 
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;
 
5. using our research and development (“R&D”), engineering, and product marketing resources to continually roll out new and innovative products; and
 
6. strengthening our relationships with customers and strategic partners by providing broader product lines and superior service.
 
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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.
 
The Vishay Story
 
In the 1950’s, Dr. Felix Zandman was issued patents for his PhotoStress® coatings and instruments, used to reveal and measure the distribution of stresses in structures such as airplanes and cars under live load conditions. His research in this area led him to develop Bulk Metal® foil resistors – ultra-precise, ultra-stable resistors with performance far beyond any other resistor available to date.
 
In 1962, Dr. Zandman, with the financial help of the late Alfred P. Slaner, founded Vishay to develop and manufacture Bulk Metal® foil resistors. Concurrently, J.E. Starr developed foil resistance strain gages, which also became part of Vishay. Throughout the 1960’s and 1970’s, Vishay established itself as a technical and market leader in foil resistors, PhotoStress® products, and strain gages.
 
In 1985, Vishay began to expand its product line through various strategic acquisitions, including the resistor companies Dale Electronics, Draloric Electronic, and Sfernice. In the early 1990’s, Vishay applied its acquisition strategy to the capacitor market, with the major acquisitions of Sprague Electric, Roederstein, and Vitramon. In 2002, Vishay acquired BCcomponents, the former passive components business of Philips Electronics and Beyschlag, which greatly enhanced Vishay’s global market position in passive components. Over the years, we have made several smaller passive components acquisitions to gain market share, effectively penetrate different geographic markets, enhance new product development, round out our product lines, or grow our high margin niche businesses. These include Electro-Films, Cera-Mite, and Spectrol in 2000; Tansitor and North American Capacitor Company (Mallory) in 2001; the thin film interconnect business of Aeroflex in 2004; Alpha Electronics K.K. in 2005; Phoenix do Brasil in 2006; and the wet tantalum capacitor business of KEMET Corporation and Powertron GmbH in 2008.
 
In the late 1990’s, Vishay began expanding its product lines to include discrete semiconductors. In 1998, Vishay acquired the Semiconductor Business Group of TEMIC, which included Telefunken and an 80.4% interest in Siliconix, producers of MOSFETs, RF transistors, diodes, optoelectronics, and power and analog switching integrated circuits. Vishay’s next semiconductor acquisition came in 2001, with the purchase of the infrared components business of Infineon Technologies, which was followed the same year by Vishay’s acquisition of General Semiconductor, a leading global manufacturer of rectifiers and diodes. In 2005, Vishay made a successful tender offer for the minority interest in Siliconix. In 2007, Vishay acquired the Power Control Systems business of International Rectifier, further enhancing our product offerings. These acquisitions propelled Vishay into the top ranks of discrete semiconductor manufacturers.
 
During 2002, we made several acquisitions as part of our Measurements Group’s strategy of vertical market integration, including the Sensortronics, Tedea-Huntleigh, BLH, Nobel, and Celtron businesses. In 2005, we acquired SI Technologies; in 2007, we acquired the on-board weighing systems business of PM Group; and in 2008, we acquired our partner’s 51% interest in a transducer joint venture in India. As a result of these acquisitions, the product portfolio of our Measurements Group has been greatly expanded and now includes apart from resistance strain gages (in which Vishay is the worldwide leader), transducers (the metallic structures to which strain gages are cemented), electronic instruments that measure and control output of the transducers, and complete systems for process control and on-board weighing applications. On October 27, 2009, Vishay announced that it intends to spinoff its measurements and foil resistors businesses.
 
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 this regard, we:
 
(i)   closed or consolidated several manufacturing facilities, R&D centers, and administrative offices;
(ii)   reduced our headcount, particularly in high-labor-cost countries; and
      (iii)       integrated our acquisitions within our existing management and operational infrastructure.
 
Vishay was incorporated in Delaware in 1962 and maintains its principal executive offices at 63 Lancaster Avenue, 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 functions and technologies. Our product portfolio includes:
 
  • power MOSFETs,
  • rectifiers,
  • diodes and thyristors,
  • IR emitters and detectors,
  • IR receiver modules,
  • optocouplers and solid-state relays,
  • optical sensors,
  • LEDs and 7-segment displays,
  • infrared data transceiver modules,
  • power ICs,
  • analog switches,
  • RF transmitter and receiver modules,
  • ICs for optoelectronics,
  • power modules (contain power diodes, thyristors, MOSFETs, IGBTs),
  • dc-to-dc converters,
  • chip fuses,
  • discrete resistors,
  • variable resistors (attenuators, dials, motion transducers, potentiometers, rheostats, trimmers),
  • foil resistors*,
  • resistor networks and arrays,
  • thermistors,
  • varistors,
  • inductors,
  • transformers,
  • tantalum capacitors,
  • ceramic capacitors,
  • film capacitors,
  • power capacitors,
  • heavy-current capacitors,
  • aluminum capacitors,
  • displays (IR touch panel, LCD, plasma),
  • connectors,
  • PhotoStress® products*,
  • strain gages*,
  • load cells / transducers*,
  • weighing systems*, and
  • instruments, weigh modules, and systems for process control*.

* Indicates products within Vishay Precision Group that we intend to spin-off.
 
We aim to use this broad portfolio to increase opportunities to have our components selected and “designed in” to new end products by customers in all relevant market segments. We also promote our ability to provide “one-stop shop” service to customers, whereby they can streamline their design and purchasing processes by ordering multiple types of products from Vishay. Our technical sales force consisting of field application engineers offers customers the complete breadth of the Vishay portfolio for their applications. The spin-off of Vishay Precision Group, if completed, will remove from our portfolio the products of our foil resistor and measurements businesses, but our core product line will remain one of the broadest lines of discrete electronic components of any manufacturer.
 
Product Segments
 
Our products can be divided into two general classes: semiconductors and passive components. These broad categories are also the basis used to determine our operating segments for financial reporting purposes. See Note 15 to our consolidated financial statements for additional information on revenues, income, and total assets by segment.
 
Semiconductors
 
Our Semiconductors segment includes discrete devices, integrated circuits (“ICs”), and modules. Semiconductors are sometimes referred to as “active components” because they require power to function. Discrete semiconductors are single components or arrangements of components that typically perform a single function, such as switching, amplifying, rectifying, or transmitting electrical signals. IC products from Vishay are focused on analog signal switching and routing, power conversion, and power management. Our modules combine several components into a single package. Examples include our power modules that contain power diodes, thyristors, MOSFETs, IGBTs, and our smart MOSFETs. Our discrete semiconductors and ICs are manufactured and marketed primarily through our Siliconix subsidiary, our Vishay Semiconductor GmbH subsidiary, and our General Semiconductor business. The product lines acquired as part of the PCS acquisition have been integrated into our Siliconix subsidiary and our Vishay Semiconductor GmbH subsidiary.
 
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We also include in the category of semiconductors our lines of optoelectronic components, in particular infrared components, manufactured and marketed by our subsidiary Vishay Semiconductor GmbH.
 
Discrete Semiconductors
 
Rectifiers convert AC to DC, a unidirectional current required for operation of many electronic systems. Vishay rectifier innovations include Trench MOS barrier Schottky (“TMBS®”) rectifier technology, which reduces power losses and improves the efficiency of end products. Diodes and thyristors allow voltage to be conducted in only one direction. They are used to route, switch, and block radio frequency (“RF”), analog, and power signals. Vishay’s range of diodes includes components for transient voltage suppression (“TVS”), electrostatic discharge (“ESD”) protection, and electromagnetic interference (“EMI”) filtering. We offer a broad line of rectifiers and diodes with differing power, speed, cost, and packaging characteristics.
 
Vishay’s range of transistor products includes low-voltage TrenchFET® metal-oxide-semiconductor field-effect transistors (“MOSFETs”), high-voltage TrenchFET MOSFETs, high-voltage planar MOSFETs, and junction field-effect transistors (“JFETs”). MOSFETs function as solid-state switches to control power in mobile phones, notebook computers, and other end products. Vishay’s innovative TrenchFET power MOSFET technology extends battery life and prevents components from overheating. Vishay has a tradition of innovation in MOSFET packaging and performance, the latest of which is PolarPAK®, which uses double-side cooling to create a more efficient, faster switching MOSFET. Vishay RF transistors, which amplify analog or digital signals, are designed for use in radios, televisions, mobile phones, and other end products.
 
Integrated Circuits
 
Our power ICs include power conversion, low-dropout regulator, power interface, and motor control ICs. Our power conversion and power interface ICs are based on low-voltage, mixed-signal silicon processes. They are used in end products, such as mobile phones, where an input voltage from a battery or other source must be converted to a level that is compatible with logic signals used by power amplifiers, digital signal processors (“DSPs”), and other sub-circuits. Our motor control ICs are used to control motion in data storage devices, such as optical and hard disk drives, and to control the speed of small motors in printers, photocopy machines, and other office equipment. We also offer a line of power conversion ICs for higher-power applications in fixed telecommunications systems.
 
Our signal processing ICs (analog switches and multiplexers) have long been used in instrumentation and industrial equipment that receives analog signals, outputs analog signals, or does both. More recent applications for our signal processing ICs include broadband communication devices such as xDSL modems.
 
Optoelectronics
 
Optoelectronic components emit light, detect light, or do both. Our broad range of optoelectronic components includes infrared (“IR”) emitters and detectors, IR receiver modules, optocouplers and solid-state relays, optical sensors, light-emitting diodes (“LEDs”) and 7-segment displays, and IR data transceiver modules. Our IR receiver modules are designed for use in infrared remote control, data transmission, and light barrier applications in end products including notebook computers, audio and video systems, and navigation equipment. Vishay is a leading manufacturer of IR receiver modules. Our optocouplers electrically isolate input and output signals. Uses include computer monitors, consumer electronics, telecommunications equipment, and industrial systems. Our IR data transceiver modules are used for short range, two-way, wireless data transfer between electronic devices such as mobile phones and notebook computers. Our LEDs are designed for backlighting and illumination in automotive and transport, consumer, signage and graphics, and other applications. Vishay LEDs include ultra-bright and very small surface-mount packages, with products available in all standard colors including white.
 
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Passive Components
 
Passive Components include resistors, capacitors, and magnetics such as inductors and transformers. They are referred to as “passive” because they do not require a power supply to handle the signals that pass through them. Passive components are used to store electrical charges, to limit or resist electrical current, and to help in filtering, surge suppression, measurement, timing, and tuning applications. We also include in this category the products of our Measurements Group that employ passive components in electro-mechanical measurements.
 
Resistors and Inductors
 
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 thermistors, which are heat-sensitive resistors. Another type of resistive sensor is strain gages for measurement of mechanical stress. See “Measurements Group” below.
 
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 a primary factor.
 
Vishay resistor innovations include Bulk Metal® foil technology and Power Metal Strip® technology. Bulk Metal foil resistors are the most precise and stable type of resistors available. They are used in precision amplifiers; high-precision instrumentation; medical and automatic test equipment; high-end stereo equipment; electron beam scanning and recording equipment; and military, aerospace, and down-hole equipment and instrumentation. Power Metal Strip resistors, which feature very low resistance values, are used to measure changes in current flow (current sensing) or divert current flow (shunting). They are used in a very wide range of end products.
 
Inductors use an internal magnetic field to change AC current phase and resist AC current. Inductor applications include controlling AC current and voltage, and filtering out unwanted electrical signals. Vishay inductor innovations include low-profile, high-current inductor technology with industry-leading specifications. Our low-profile, high-current inductors save circuit board space and power in voltage regulator module (“VRM”) and dc-to-dc converter applications. They are designed for use in end products including mobile devices, notebook and desktop computers, servers, graphic cards, personal navigation systems, personal multimedia devices, LCD televisions, and automotive systems.
 
Capacitors
 
Capacitors are used in almost all electronic circuits. They store energy and discharge it when needed. Important applications for capacitors include electronic filtering for linear and switching power supplies; decoupling and bypass of electronic signals for integrated circuits and circuit boards; and frequency control, timing and conditioning of electronic signals for a broad range of applications.
 
Types of capacitors manufactured by Vishay include tantalum (molded chip tantalum, coated chip tantalum, solid through-hole tantalum, and wet tantalum), ceramic (multilayer chip and ceramic disc), film, power, heavy-current, aluminum, and silicon RF. Vishay capacitors range from tiny surface-mount devices for hearing aids and mobile phones to large power correction capacitors used in heavy industry. Our capacitor portfolio includes several types of capacitors for military systems and a broad selection of devices used in radio frequency interference (“RFI”) suppression applications.
 
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Measurements Group
 
Vishay Measurements Group is a leading manufacturer of products for precision measurement of mechanical strains. The Measurement Group portfolio of products includes resistance strain gages (in which Vishay is the worldwide leader), load cells / transducers (a combination of strain gages and metallic structures to which they are bonded), electronic instruments that measure and control output of load cells / transducers, modules (a combination of load cells / transducers, instrumentation and software), and complete systems for process and force measurement control and on-board weighing.
 
Vishay Measurements Group develops, manufactures, and markets components, instruments, weigh modules, and systems for a wide variety of test and measurement applications. Vishay strain gage products include electrical resistance strain gages for both stress analysis testing and transducer manufacturing applications, as well as strain gage instrumentation. Vishay PhotoStress® coatings and instruments use a unique optical process to detect stress and other physical forces. We also manufacture, install, and service systems for weighing and force measurement and control. These include systems with transducers and instruments to control process weighing in food, chemical, and pharmaceutical plants; force measurement systems to control web tension in paper mills, roller force in steel mills, and cable tension in winch controls; on-board weighing systems that are installed in logging and waste-handling trucks; and special scale systems for aircraft weighing and portable truck weighing.
 
On October 27, 2009, we announced that we intend to spin-off our measurements and foil resistors businesses into an independent, publicly-traded company to be named Vishay Precision Group, Inc.
 
Packaging
 
We have taken advantage of the growth of the surface-mount component market, and we are an industry leader in designing and marketing surface mount devices. Surface-mount devices adhere to the surface of a circuit board rather than being secured by leads that pass through holes to the back side of the board.
 
We believe that we are a market leader in the development and production of a wide range of surface mount devices, including:
 
  • thick film resistor networks and arrays,
  • metal film leadless resistors (“MELFs”),
  • molded tantalum chip capacitors,
  • coated tantalum chip capacitors,
  • thin film chip resistors,
  • thin film networks,
  • certain diodes and transistor products,
  • power MOSFETs,
  • wirewound chip resistors,
  • Power Metal Strip® resistors,
  • Bulk Metal® foil resistors*,
  • current sensing chips,
  • chip inductors,
  • NTC chip thermistors, and
  • strain gages*.

*Indicates products within Vishay Precision Group that we intend to spin-off.
 
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 of our 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 the 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. During the time that the DESC classification level is reduced for a product with military application, net revenues and earnings attributable to that product may be adversely affected.
 
Manufacturing Operations
 
In order to better serve our customers, we maintain production facilities in locations where we market the bulk of our products, such as the United States, Germany, and Asia. To maximize production efficiencies, we seek whenever practicable to establish manufacturing facilities in countries, such as the Czech Republic, India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines, where we can benefit from lower labor and tax costs and also benefit from 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.
 
In the United States, our manufacturing facilities are located in California, Connecticut, Nebraska, New York, North Carolina, Rhode Island, South Dakota, Vermont, and Wisconsin. In Asia, our main manufacturing facilities are located in the People’s Republic of China, the Republic of China (Taiwan), India, and Malaysia. In Europe, our main manufacturing facilities are located in Germany and the Czech Republic. We also have manufacturing facilities in Israel (see “Israeli Government Incentives” below), Austria, Costa Rica, France, Hungary, Italy, Japan, Mexico, the Netherlands, Portugal, the Philippines, Sweden, and the United Kingdom. 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.
 
The majority of our manufacturing operations have received ISO 9001 approval and others are actively pursuing such approval. ISO 9001 is a comprehensive set of quality program standards developed by the International Standards Organization.
 
To maintain our cost competitiveness, we continue to pursue a strategy to shift manufacturing emphasis to more advanced automation in higher-labor-cost regions and to relocate a fair amount of production to regions with skilled workforces and relatively lower labor costs. See Note 4 to our consolidated financial statements for further information related to our restructuring efforts, as well as additional information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cost Management.”
 
See Note 15 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 are available only from a relatively limited number of suppliers or are subject to significant price volatility.
 
We are a major consumer of the world’s annual production of tantalum, a metal used in the manufacturing of tantalum capacitors. There are few suppliers that process tantalum ore into capacitor grade tantalum powder. We acquire tantalum raw material from all of them under short-term commitments.
 
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South Africa and Russia. Palladium is a commodity metal that is subject to price volatility. We periodically enter into short-term commitments to purchase palladium.
 
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility. Our policy is to enter into short-term commitments to purchase defined portions of annual consumption of these metals if market prices decline below budget. For much of 2008, these metals were trading near all-time record-high prices. During the fourth fiscal quarter of 2008, as metals prices declined significantly from these record-high prices, we entered into commitments to purchase a portion of our estimated 2009 metals needs, principally for copper and palladium. After entering into these commitments, the market prices for these metals continued to decline. As a result, we recorded losses on these adverse purchase commitments during the fourth fiscal quarter of 2008. Metals prices generally increased throughout 2009.
 
Israeli Government Incentives
 
We have substantial manufacturing operations in Israel, where we benefit from the government’s grant and tax incentive programs. These programs have contributed substantially, predominantly in previous years, to our growth and profitability. For the year ended December 31, 2009, net revenues from products manufactured in Israel accounted for 20% of our net revenues.
 
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, and we have already received approval for a majority of the projects contemplated by our capital expenditure program. 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 receive such benefits. 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 could be materially adversely affected if events were to occur in the Middle East that interfered with our operations in Israel. However, we have not experienced any material interruption in our Israeli operations during our 39 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 and monitor the backlog of outstanding orders for our products.
 
We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. Many of 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 included in our backlog, in many instances without the payment of any penalty. Therefore, our 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 and EMS companies. During 2009, approximately 47% of our sales were to OEMs, approximately 9% of our sales were to EMS companies, and approximately 44% of our sales were to distributors.
 
We work with our customers so that our products are incorporated into the design of electronic equipment at the earliest stages of development. In addition to our staff of direct field sales personnel, independent manufacturers’ representatives, and distributors, we employ a team of field application and product engineers to assist our customers in solving technical problems and in developing products to meet specific customer application needs using our entire product portfolio.
 
Our sales organizations are regionally based. While our sales and support procedures are typically similar across all regions, we remain flexible in our ability to offer programs tailored to our customers’ specific support requirements in each local area. The aim of our sales organizations is supporting our customers across all product lines, developing new design wins, negotiating pricing and contracts, and providing general commercial support as would normally be expected of a large multi-national sales force.
 
We have an established Strategic Global Account program, which provides each of our top customers with a dedicated Strategic Global Account Manager. Our Strategic Global Account Managers are typically highly experienced salesmen or saleswomen who are capable of providing key customers with the coordination and management visibility required in a complex multi-product business relationship. They typically coordinate the sales, pricing, contract, logistic, quality, and other aspects of the customer’s business requirements. The Strategic Global Account Manager normally is the focal point of communication between Vishay and our main customers. We maintain a similar program for our strategic distributors as well.
 
We also seek to meet the needs of our customers for technical and applications support. Our Business Development group maintains teams of dedicated Field Application Engineers (“FAEs”) in the field for the exclusive support of our customers’ engineering needs. Organized by market segment, our Business Development FAEs bring specific knowledge of component applications in their areas of expertise in the automotive, telecommunications, computer, consumer/entertainment, industrial, peripherals, digital consumer, and other market segments. With the ultimate goal of a Vishay “design-in” – the process by which our customers specify a Vishay component in their products – this program offers our customers enhanced access to all Vishay technologies while at the same time increasing design wins, and ultimately sales, for us. Most importantly, the process is closely monitored via a proprietary database developed by our Business Development group. Our database captures very specific design activity and allows for real-time measurement of new business potential for our management team.
 
Our top 30 customers have been quite stable despite not having long-term commitments to purchase our products. With selected customers, we have signed longer term (greater than one year) contracts for specific products. Net revenues from our top 30 customers represent approximately 60% of our total net revenues. No single customer comprises more than 10% of our total net revenues.
 
During 2009, approximately 25% of our net revenues were attributable to customers in the Americas, approximately 37% were attributable to customers in Europe, and approximately 38% were attributable to customers in Asia. During 2009, the share of net revenues by end-use market was as follows: Industrial, 38%; Computer, 17%; Automotive, 15%; Consumer Products, 10%; Telecommunications, 13%; Military and Aerospace, 5%; Medical, 2%.
 
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Competition
 
We face strong competition in various product lines from both domestic and foreign manufacturers that produce products using technologies similar to ours. Our primary competitors by product type include:
  • Discrete Semiconductors: Fairchild Semiconductor, International Rectifier, Infineon, ON Semiconductor, NXP Semiconductors, Rohm, STMicroelectronics, Toshiba. 
  • Integrated Circuits: Fairchild Semiconductor, International Rectifier, Infineon, Maxim, ON Semiconductor, STMicroelectronics. 
  • Optoelectronics: Avago, Fairchild Semiconductor, Sharp, Toshiba. 
  • Resistors and Inductors: KOA, Rohm, Yageo. 
  • Capacitors: AVX, KEMET, Murata, TDK, Yageo. 
  • Measurements Group: various niche competitors.
There are many other companies that produce products in the markets in which we compete.
 
Our competitive position depends on our ability to maintain a competitive advantage on the basis of product quality, know-how, proprietary data, market knowledge, service capability, business reputation, and price competitiveness. Our sales and marketing programs aim to compete by offering our customers a broad range of world-class technologies and products, superior global sales and distribution support, and a secure and multi-location source of product supply.
 
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 the United Kingdom.
 
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 product development at individual manufacturing facilities that occasionally has applications at other facilities. Our research and development efforts over the past few years have been largely focused on our Semiconductors segment, principally for the development of new power products and power ICs. We also have research and development programs that should enhance our efforts in vertical integration of certain of our product lines, combining Vishay components in packages. Examples of these packages include combinations of our sensors and our radio frequency technology to create wireless transducers, wireless precision potentiometers, and other new products.
 
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 of our technical, research and development, sales and marketing, and management 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. Substantially all of our technical, research and development, sales and marketing, and management 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 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 involved in environmental remediation programs at various sites currently or formerly owned by us and our subsidiaries, in addition to involvement as a potentially responsible party (“PRP”) at four Superfund sites. Certain obligations as a PRP have arisen in connection with business acquisitions. The remediation programs are on-going at four currently operating U.S. facilities, five currently operating non-U.S. facilities, six formerly owned U.S. sites, and four U.S. Superfund sites. 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. See Item 3, “Legal Proceedings.”
 
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.
 
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.
 
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Employees
 
As of December 31, 2009, we employed approximately 22,300 full time employees, of whom approximately 89% were located outside the United States. Our future success is substantially dependent on our ability to attract and retain 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 generally 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 will not occur.
 
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 public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at Station Place, 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov.
 
In addition, our company website can be found on the Internet at www.vishay.com. The website contains information about us and our operations. Copies of each of our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. To view the reports, access ir.vishay.com and click on “SEC Filings.”
 
The following corporate governance related documents are also available on our website:
  • Corporate Governance Principles
  • Code of Business Conduct and Ethics
  • Code of Ethics Applicable to the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller and Financial Managers
  • Audit Committee Charter
  • Nominating and Corporate Governance Committee Charter
  • Compensation Committee Charter
  • Strategic Affairs Committee Charter
  • Policy on Director Attendance at Annual Meetings
  • Nominating and Corporate Governance Committee Policy Regarding Qualification of Directors
  • Procedures for Securityholders’ Submissions of Nominating Recommendations
  • Securityholder Communications with Directors and Interested Party Communication with Non-Management Directors
  • Whistleblower and Ethics Hotline Procedures
  • Related Party Transaction Policy.
To view these documents, access ir.vishay.com and click on “Corporate Governance.”
 
Any of the above documents can also be obtained in print by any stockholder upon request to our Investor Relations Department at the following address:
 
          Corporate Investor Relations
          Vishay Intertechnology, Inc.
          63 Lancaster Avenue
          Malvern, PA 19355-2143
 
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Item 1A. RISK FACTORS
 
From time to time, information provided by us, including but not limited to statements in this report, or other statements made by or on our behalf, may contain “forward-looking” information within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks, uncertainties, and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those anticipated. Set forth below are important factors that could cause our results, performance, or achievements to differ materially from those in any forward-looking statements made by us or on our behalf:
 
Factors relating to our business generally
 
Our business is cyclical and the periods of decline we experienced in the recent past may resume and may become more pronounced.
 
The electronic component and semiconductor industries are highly cyclical and experience periods of decline from time to time. We and others in the electronic component and semiconductor industries have experienced these conditions in the recent past and cannot predict when we may experience such downturns in the future. While we believe that a recovery from the recent global downturn is underway, there is no assurance that the recovery will continue at its current pace or at all, or that the conditions that contributed to the recent recessionary environment have in fact abated. A decline in product demand on a global basis could result in order cancellations and deferrals, lower average selling prices, and a material and adverse impact on our results of operations. These declines in demand are driven by market conditions in the end-use markets for our products. Changes in the demand mix, needed technologies, and these end-use markets may adversely affect our ability to match our products, inventory, and capacity to meet customer demand and could adversely affect our operating results and financial condition. A slowdown in demand or recessionary trends in the global economy makes it more difficult for us to predict our future sales and manage our operations, and could adversely impact our results of operations.
 
We have incurred and may continue to incur restructuring costs and associated asset write-downs.
 
To remain competitive, particularly when business conditions are difficult, we attempt to reduce our cost structure through restructuring activities. This includes acquisition-related restructuring, where we attempt to streamline the operations of companies we acquire and achieve synergies between our acquisitions and our existing businesses. It also includes restructuring our existing businesses, where we seek to eliminate redundant facilities and staff positions and move operations, where possible, to jurisdictions with lower labor costs. We recorded restructuring and severance costs, plus related asset write-downs, in each year since 2001 and expect to incur additional restructuring costs in 2010.
 
As a result of our restructuring activities initiated during the global economic recession, which began in the latter half of 2008 and continued into 2009, we may have difficulty expanding our manufacturing to satisfy demand when the economy rebounds, due to factors such as delays in procurement of manufacturing equipment and shortages of skilled personnel during an economic recovery. Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. If we are unable to meet our customers’ requirements and our competitors sufficiently expand production, we could lose customers and/or market share. These losses could have an adverse effect on our operations, financial condition, and results of operations.
 
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In the past we have grown through successful integration of acquired businesses, but this may not continue.
 
Our long-term historical growth in revenues and net earnings has resulted in large part from our strategy of expansion through acquisitions. In response to the uncertain economic conditions, we did not actively pursue acquisitions during the first nine months of the year. This failure to pursue acquisitions could impede our growth. Due to improving economic conditions, our strong liquidity and cash position, and our ability to generate free cash in every quarter of 2009, we returned to our strategy of exploring synergistic acquisition opportunities in the fourth fiscal quarter of 2009, but we may be unable to identify, have the financial capabilities to acquire, or successfully complete transactions with suitable acquisition candidates. If an acquired business fails to operate as anticipated or cannot be successfully integrated with our other businesses, our results of operations, enterprise value, market value, and prospects could all be materially adversely affected.
 
Significant fluctuations in interest rates could adversely affect our results of operations and financial position.
 
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. Our credit facility and our exchangeable unsecured notes due 2102 bear interest at variable rates based on LIBOR. A significant increase in LIBOR would significantly increase our interest expense. A general increase in interest rates would be largely offset by an increase in interest income earned on our cash balances, which are currently greater than our debt balances. However, there can be no assurance that the interest rate earned on cash balances will move in tandem with the interest rate paid on our variable rate debt.
 
We may not be able to access capital markets to obtain financing
 
In the United States, we presently have a revolving credit facility with approximately $117 million of unused borrowing capacity at December 31, 2009. We also have other committed and uncommitted lines of credit available on a short-term basis in various countries around the world. In light of the current economic environment, credit markets are functioning differently than in the past, with key interest rate spreads increasing substantially, and banks tightening lending standards. If we were to require additional capital, either to sustain normal operations, fund debt maturities, repay the credit facility in the event of default, or to pursue a strategic acquisition, we may be unable to obtain financing on terms which we consider acceptable, if at all.
 
We may need to renegotiate the terms of our credit facility to complete the intended spin-off of the Vishay Precision Group. The terms of our renegotiated credit facility may be less favorable than the current terms of our credit facility.
 
Future acquisitions could require us to issue additional indebtedness or equity.
 
If we were to undertake a substantial acquisition for cash, the acquisition would likely need to be financed in part through bank borrowings or the issuance of public or private debt. This acquisition financing would likely decrease our ratio of earnings to fixed charges and adversely affect other leverage criteria. Under our existing credit facility, we are required to obtain the lenders’ consent for certain additional debt financing and to comply with other covenants including the application of specific financial ratios. We are also restricted from paying cash dividends on our capital stock. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required. If we were to undertake an acquisition for equity, the acquisition may have a dilutive effect on the interests of the holders of our common stock.
 
To remain successful, we must continue to innovate, and our investments in new technologies may not prove successful.
 
Our future operating results are dependent on our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change, and to customize certain products to meet customer requirements. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands. If this occurs, we could lose customers and experience adverse effects on our financial condition and results of operations.
 
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In addition to our own research and development initiatives, we periodically invest in technology start-up enterprises, in which we may acquire a controlling or noncontrolling interest but whose technology would be available to be commercialized by us. There are numerous risks in investments of this nature including the limited operating history of such start-up entities, their need for capital, and their limited or absence of production experience, as well as the risk that their technologies may prove ineffective or fail to gain acceptance in the marketplace. Certain of our historical investments in start-up companies have not succeeded, and there can be no assurance that our current and future investments in start-up enterprises will prove successful.
 
Our ability to compete effectively with other companies depends, in part, on our ability to maintain the proprietary nature of our technology.
 
Protection of intellectual property often involves complex legal and factual issues. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We have applied, and will continue to apply, for patents covering our technologies and products, as we deem appropriate. However, our applications may not result in issued patents. Also, our existing patents and any future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies, design around our patented technologies, or may challenge or seek to invalidate our patents.
 
Litigation regarding patent and other intellectual property rights is prevalent in the electronic components industry, particularly the discrete semiconductor sector. We have on occasion been notified that we may be infringing on patent and other intellectual property rights of others. In addition, customers purchasing components from us have rights to indemnification under certain circumstances if such components violate the intellectual property rights of others. Further, we have observed that in the current business environment, electronic component and semiconductor companies have become more aggressive in asserting and defending patent claims against competitors. We will continue to vigorously defend our intellectual property rights, and may become party to disputes regarding patent licensing and cross patent licensing. Although licenses are generally offered in such situations and we have successfully resolved these situations in the past, there can be no assurance that we will not be subject to future litigation alleging intellectual property rights infringement, or that we will be able to obtain licenses on acceptable terms. An unfavorable outcome regarding one of these matters could have a material adverse effect on our business and operating results.
 
Our results are sensitive to raw material availability, quality, and cost.
 
Many of our products require the use of raw materials that are produced in only a limited number of regions around the world or are available from only a limited number of suppliers. Our results of operations may be materially adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price increases for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers, which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, because we record our inventory at the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings.
 
From time to time there have been short-term market shortages of raw materials. While these shortages have not historically adversely affected our ability to increase production of products containing these materials, they have historically resulted in higher raw material costs for us. We cannot assure you that any of these market shortages in the future would not adversely affect our ability to increase production, particularly during periods of growing demand for our products. Also, to assure availability of raw materials in times of shortage, we may enter into long-term supply contracts for these materials, which may prove costly, unnecessary, and burdensome when the shortage abates.
 
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Our backlog is subject to customer cancellation.
 
Many of the orders that comprise our backlog may be canceled by our customers without penalty. Our customers may on occasion double and triple order components from multiple sources to ensure timely delivery when backlog is particularly long. They often cancel orders when business is weak and inventories are excessive, a situation that we experienced during the global economic recession. Therefore, we cannot be certain that the amount of our backlog does not exceed the level of orders that will ultimately be delivered. Our results of operations could be adversely impacted if customers cancel a material portion of orders in our backlog.
 
We face intense competition in our business, and we market our products to an increasingly concentrated group of customers.
 
Our business is highly competitive worldwide, with low transportation costs and few import barriers. We compete principally on the bases of product quality and reliability, availability, customer service, technological innovation, timely delivery, and price. The electronic component industry has become increasingly concentrated and globalized in recent years and our major competitors, some of which are larger than us, have significant financial resources and technological capabilities.
 
Our customers have become increasingly concentrated in recent years, and as a result, their buying power has increased and they have had greater ability to negotiate favorable pricing and terms. This trend has adversely affected our average selling prices, particularly for commodity components.
 
We may not have adequate facilities to satisfy future increases in demand for our products.
 
Our business is cyclical and in periods of a rising economy, we may experience intense demand for our products. During such periods, we may have difficulty expanding our manufacturing to satisfy demand. Factors which could limit such expansion include delays in procurement of manufacturing equipment, shortages of skilled personnel, and physical constraints on expansion at our facilities. If we are unable to meet our customers’ requirements and our competitors sufficiently expand production, we could lose customers and/or market share. These losses could have an adverse effect on our financial condition and results of operations. Also, capacity that we add during upturns in the business cycle may result in excess capacity during periods when demand for our products recede, resulting in inefficient use of capital which could also adversely affect us.
 
Future changes in our environmental liability and compliance obligations may harm our ability to operate or increase our costs.
 
Our manufacturing operations, products and/or product packaging are subject to environmental laws and regulations governing air emissions, wastewater discharges, the handling, disposal and remediation of hazardous substances, wastes and certain chemicals used or generated in our manufacturing processes, employee health and safety labeling or other notifications with respect to the content or other aspects of our processes, products or packaging, restrictions on the use of certain materials in or on design aspects of our products or product packaging, and responsibility for disposal of products or product packaging. We establish reserves for specifically identified potential environmental liabilities which we believe are adequate. Nevertheless, we often unavoidably inherit certain pre-existing environmental liabilities, generally based on successor liability doctrines. Although we have never been involved in any environmental matter that has had a material adverse impact on our overall operations, there can be no assurance that in connection with any past or future acquisition or otherwise, we will not be obligated to address environmental matters that could have a material adverse impact on our operations. In addition, more stringent environmental regulations may be enacted in the future, and we cannot presently determine the modifications, if any, in our operations that any such future regulations might require, or the cost of compliance with these regulations. In order to resolve liabilities at various sites, we have entered into various administrative orders and consent decrees, some of which may be, under certain conditions, reopened or subject to renegotiation.
 
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Our products may experience a reduction in product classification levels under various military specifications.
 
We have qualified certain of our products under various military specifications approved and monitored by the United States Defense Electronic Supply Center and under certain European military specifications. These products are assigned certain classification levels. In order to maintain the classification level of a product, we must continuously perform tests on the product and the results of these tests must be reported to governmental agencies. If any of our products fails to meet the requirements of the applicable classification level, that product’s classification may be reduced to a lower level. A decrease in the classification level for any of our products with a military application could have an adverse impact on the net revenues and earnings attributable to that product.
 
Our future success is substantially dependent on our ability to attract and retain highly qualified technical, managerial, marketing, finance, and administrative personnel.
 
Rapid changes in technologies, frequent new product introductions, and declining average selling prices over product life cycles require us to attract and retain highly qualified personnel to develop and manufacture technological innovations and bring them to market on a timely basis. Our complex operations also require us to attract and retain highly qualified administrative personnel in functions such as legal, tax, accounting, financial reporting, auditing, and treasury. The market for personnel with such qualifications is highly competitive. While we have employment agreements with certain of our executives, we have not entered into employment agreements with all of our key personnel.
 
The loss of the services of or the failure to effectively recruit qualified personnel could have a material adverse effect on our business.
 
Factors relating to Vishay’s operations outside the United States
 
We obtain substantial benefits by operating in Israel, but these benefits may not continue.
 
We have increased our operations in Israel over the past several years. The low tax rates in Israel applicable to earnings of our operations in that country, compared to the rates in the United States, have had the general effect of increasing our net earnings. Also, we have benefited from employment incentive grants made by the Israeli government. There can also be no assurance that in the future the Israeli government will continue to offer new grant and tax incentive programs applicable to us or that, if it does, such programs will provide the same level of benefits we have historically received or that we will continue to be eligible to benefit from them. Any significant increase in the Israeli tax rates or reduction or elimination of the Israeli grant programs that have benefited us could have an adverse impact on our results of operations.
 
We attempt to improve profitability by operating in countries in which labor costs are low, but the shift of operations to these regions may entail considerable expense.
 
Our strategy is aimed at achieving significant production cost savings through the transfer and expansion of manufacturing operations to and in countries with lower production costs, such as the Czech Republic, India, Israel, Malaysia, Mexico, the People’s Republic of China, and the Philippines. During this process, we may experience under-utilization of certain plants and factories in high-labor-cost regions and capacity constraints in plants and factories located in low-labor-cost regions. This under-utilization may result initially in production inefficiencies and higher costs. These costs include those associated with compensation in connection with work force reductions and plant closings in the higher-labor-cost regions, and start-up expenses, manufacturing and construction delays, and increased depreciation costs in connection with the initiation or expansion of production in lower-labor-cost regions. In addition, as we implement transfers of certain of our operations we may experience strikes or other types of labor unrest as a result of lay-offs or termination of our employees in high-labor-cost countries.
 
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We are subject to the risks of political, economic, and military instability in countries outside the United States in which we operate.
 
We have operations outside the United States, and approximately 75% of our revenues during 2009 were derived from sales to customers outside the United States. Some of our products are produced in countries which are subject to risks of political, economic, and military instability. This instability could result in wars, riots, nationalization of industry, currency fluctuation, and labor unrest. These conditions could have an adverse impact on our ability to operate in these regions and, depending on the extent and severity of these conditions, could materially and adversely affect our overall financial condition and operating results.
 
Our business has been in operation in Israel for 39 years. We have never experienced any material interruption in our operations attributable to these factors, in spite of several Middle East crises, including wars. However, we might be adversely affected if events were to occur in the Middle East that interfered with our operations in Israel.
 
We are subject to foreign currency exchange rate risks which may impact our results of operations.
 
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries. From time to time, we utilize forward contracts to hedge a portion of projected cash flows from these exposures. As of December 31, 2009, we did not have any outstanding foreign currency forward exchange contracts.
 
Our significant foreign subsidiaries are located in Germany, Israel, and Asia. We finance our operations in Europe and certain locations in Asia in local currencies. Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the revenues earned in a particular currency offset one another. Our exposure to foreign currency risk is more pronounced in situations where, for example, production labor costs are predominantly paid in local currencies while the sales revenue for those products is denominated in U.S. dollars. This is particularly the case for products produced in Israel, the Czech Republic, and China.
 
A change in the mix of the currencies in which we transact our business could have a material effect on results of operations. Furthermore, the timing of cash receipts and disbursements could have a material effect on our results of operations, particularly if there are significant changes in exchange rates in a short period of time.
 
Factors related to Vishay’s capital structure
 
The holders of Class B common stock have effective voting control of Vishay.
 
Vishay has two classes of common stock: common stock and Class B common stock. The holders of common stock are entitled to one vote for each share held, while the holders of Class B common stock are entitled to 10 votes for each share held. Currently, the holders of Class B common stock hold approximately 45% of the voting power of Vishay. Directly, through family trusts, and as voting trustee under a voting trust agreement, Dr. Felix Zandman, Executive Chairman and Chief Technical and Business Development Officer of Vishay, has sole or shared voting power over substantially all of the outstanding Class B common stock. As a result, the holders of Class B common stock effectively can cause the election of directors and approve other actions as stockholders without the approval of other stockholders of Vishay.
 
Vishay has a staggered board of directors which could make a takeover of Vishay difficult.
 
Vishay’s staggered board of directors might discourage, delay, or prevent a change in control of Vishay by a third party and could discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions. Also, as a consequence of Vishay’s staggered board, directors may not be removed without cause, even though a majority of stockholders may wish to do so.
 
-22-
 


Our reluctance to issue substantial additional shares in order not to dilute the interests of our existing stockholders could impede growth.
 
Our overall long-term business strategy has historically included a strong focus on acquisitions financed alternatively through cash on hand, the incurrence of indebtedness, and the issuance of equity, directly or indirectly by refinancing acquisition debt. We may in the future be presented with attractive investment or strategic opportunities that, because of their size and the financial condition of Vishay at the time, would require the issuance of substantial additional amounts of our common stock. If such opportunities were to arise, our Board of Directors would need to consider the potentially dilutive effect on the interests and voting power of our existing stockholders. In particular, our Board of Directors believes that it is in our best interest to ensure the continued vision and influence of our founder, Dr. Felix Zandman, over our corporate affairs. Dr. Zandman currently has effective voting control over Vishay through our Class B common stock, by direct ownership, family trusts, and a voting trust agreement, such that he has approximately 45% of our outstanding voting power. The reluctance to issue additional shares could impede our future growth.
 
Factors related to the intended spin-off of the Vishay Precision Group
 
We may not be able to complete the intended spin-off of the Vishay Precision Group.
 
On October 27, 2009, we announced that we intend to spin-off our measurements and foil resistors businesses into an independent, publicly-traded company to be named Vishay Precision Group, Inc. Our board and management team, in consultation with independent financial and legal advisors, are working on the requirements to finalize and execute the spin-off in the second quarter of 2010. The spin-off will be subject to a number of conditions, including, among other things: favorable market conditions, receipt of U.S. and Israeli tax rulings or opinions, compliance with applicable rules and regulations of the SEC and other customary conditions. If we are unable to satisfy any of the conditions or favorable market conditions are not present, we may not be able to complete the intended spin-off. If we are unable to complete the intended spin-off, we will have incurred unnecessary costs that have resulted in no value to us or our stockholders.
 
Completion of the intended spin-off of the Vishay Precision Group may not result in the intended increase in stockholder value.
 
Our board and management team, after consultation with independent financial and legal advisors, believe that the spin-off of the Vishay Precision Group as currently planned maximizes stockholder value. There can be no assurance, however, that the combined trading prices of our common stock and the common stock of Vishay Precision Group will equal or exceed what the trading price of our common stock would have been in the absence of a spin-off, either immediately following the spin-off or in the longer term. The combined price of the common stock of the two companies following the spin-off could be lower than anticipated for a variety of reasons, including, among others, the inability of Vishay Precision Group to compete effectively as an independent company, realignment of the stockholder population of Vishay Precision Group in the period following the spin-off, and changes in market perception of the prospects of Vishay and Vishay Precision Group as a consequence of the spinoff.
 
Vishay Precision Group will be using the Vishay name under license from us, which could result in product and market confusion.
 
If the spin-off is completed, Vishay Precision Group will have a worldwide, perpetual and royalty-free license from us to use the “Vishay” mark as part of its corporate name and in connection with the manufacture, sale, and marketing of the products and services that comprise its measurements and foil resistors businesses. The license of the Vishay name to Vishay Precision Group is important because we anticipate that the success of Vishay Precision Group will depend in no small measure on the reputation of the Vishay brand for these products and services built over many years. Nonetheless, there exists the risk that the use by Vishay Precision Group could cause confusion in the marketplace over the products of the two companies, and that any negative publicity associated with a product or service of Vishay Precision Group following the spin-off could be mistakenly attributed to our company.
 
-23-
 


General Economic and Business Factors
 
In addition to the factors relating specifically to our business, a variety of other factors relating to general conditions could cause actual results, performance, or achievements to differ materially from those expressed in any of our forward-looking statements. These factors include:
  • overall economic and business conditions;
  • competitive factors in the industries in which we conduct our business;
  • changes in governmental regulation;
  • changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations;
  • changes in generally accepted accounting principles or interpretations of those principles by governmental agencies and self-regulatory groups;
  • interest rate fluctuations, foreign currency rate fluctuations, and other capital market conditions; and
  • economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders.
Our common stock, traded on the New York Stock Exchange, has in the past experienced, and may continue to experience, significant fluctuations in price and volume. We believe that the financial performance and activities of other publicly traded companies in the electronic component and semiconductor industries could cause the price of our common stock to fluctuate substantially without regard to our operating performance.
 
We operate in a continually changing business environment, and new factors emerge from time to time. Other unknown and unpredictable factors also could have a material adverse effect on our future results, performance, or financial condition.
 
Item 1B. UNRESOLVED STAFF COMMENTS
 
None.
 
-24-
 


Item 2. PROPERTIES
 
Our business has approximately 61 manufacturing locations. Our manufacturing facilities include owned and leased locations. Some locations include both owned and leased facilities in the same location. The list of manufacturing facilities below excludes manufacturing facilities that are presently idle due to our restructuring activities. See Note 4 to our consolidated financial statements for further information related to our restructuring efforts, as well as additional information in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cost Management.”
 
In the opinion of management, our properties and equipment generally are in good operating condition and are adequate for our present needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.
 
The principal locations of our owned manufacturing facilities, along with available space including administrative offices, are as follows:
 
Approx. Available
Owned Locations Business Segment Space (Square Feet)
            United States
Santa Clara, CA Semiconductors 227,000
Columbus, NE Passive Components 158,000
Monroe, CT Passive Components 110,000
Wendell, NC* Passive Components 106,000
Grafton, WI Passive Components 102,000
Yankton, SD Passive Components 58,000
Warwick, RI Passive Components 55,000
Bennington, VT Passive Components 54,000
Niagara Falls, NY Passive Components 38,000
 
           Non-U.S.
Israel (5 locations)* Passive Components 1,143,000
People’s Republic of China (3 locations)* Semiconductors and Passive Components 704,000
Germany (4 locations) Semiconductors and Passive Components 539,000
Czech Republic (4 locations) Passive Components 499,000
Malaysia Semiconductors 480,000
Republic of China (Taiwan) (2 locations)* Semiconductors and Passive Components 418,000
India Passive Components 296,000
France (3 locations)* Passive Components 291,000
Netherlands Passive Components 283,000
Portugal Passive Components 167,000
Austria Semiconductors 153,000
Philippines Passive Components 150,000
Italy Semiconductors 127,000
Hungary Semiconductors 116,000
United Kingdom (2 locations)* Passive Components 97,000
Mexico Passive Components 57,000
Japan* Passive Components 45,000
Costa Rica* Passive Components 4,000

-25-
 


The principal locations of our leased manufacturing facilities, along with available space including administrative offices, are as follows:
 
Approx. Available
Leased Locations Business Segment Space (Square Feet)
           United States
City of Industry and Ontario, CA* Passive Components 124,000
Westbury, NY Semiconductors 17,000
 
           Non-U.S.
People’s Republic of China (5 locations)* Semiconductors and Passive Components 989,000
Austria Passive Components 130,000
Mexico Passive Components 128,000
India (2 locations)* Semiconductors and Passive Components 69,000
Israel Passive Components 24,000
Germany (3 locations)* Semiconductors and Passive Components 32,000
Sweden* Passive Components 30,000
Czech Republic Passive Components 13,000
Republic of China (Taiwan)* Passive Components 8,000
____________________
 
*   Includes a location that is included in the intended spin-off. Details of the locations are as follows:
 
Approx. Available
Owned Locations Space (Square Feet)
Holon, Israel 118,000
Wendell, North Carolina U.S.A. 106,000
Carmiel, Israel 90,000
Bradford, United Kingdom 86,000
Akita, Japan 45,000
Chartres, France 11,000
Basingstoke, United Kingdom 11,000
Alajuela, Costa Rica 4,000
 
Approx. Available
Leased Locations Space (Square Feet)
City of Industry, California U.S.A. 78,000
Beijing, People’s Republic of China 46,000
Chennai, India 35,000
Degerfors, Sweden 30,000
Netanya, Israel 24,000
Tianjin, People’s Republic of China 17,000
Taipei, Republic of China (Taiwan) 8,000
Teltow, Germany 5,000

-26-
 


Item 3. LEGAL PROCEEDINGS
 
From time to time we are involved in routine litigation incidental to our business. Management believes that such matters, either individually or in the aggregate, should not have a material adverse effect on our business or financial condition.
 
Intellectual Property Matters
 
We are engaged in discussions with various parties regarding patent licensing and cross patent licensing issues. In addition, we have observed that in the current business environment, electronic component and semiconductor companies have become more aggressive in asserting and defending patent claims against competitors. We will continue to vigorously defend our intellectual property rights, and we may become party to disputes regarding patent licensing and cross patent licensing. An unfavorable outcome regarding one of these intellectual property matters could have a material adverse effect on our business and operating results.
 
When we believe other companies are misappropriating our intellectual property rights, we vigorously enforce those rights through legal action, and we intend to continue to do so. During the past few years, we settled several suits which we had initiated to enforce our intellectual property rights. We are receiving royalties on sales of these companies’ products which use our technology. We presently have other pending legal actions that we have initiated against companies which we believe are misappropriating our intellectual property rights.
 
Siliconix Stockholder Matters
 
Proctor Litigation
 
In January 2005, an amended class action complaint was filed in the Superior Court of California on behalf of all non-Vishay stockholders of Siliconix against Vishay, Ernst & Young LLP (the independent registered public accounting firm that audits the Company’s financial statements), Dr. Felix Zandman, Executive Chairman and Chief Technical and Business Development Officer of Vishay, and as a nominal defendant, Siliconix. The suit made various claims against Vishay and the other defendants for actions allegedly taken in respect of Siliconix during the period when Vishay owned an 80.4% interest in Siliconix. The action, which we refer to as the Proctor litigation on account of the lead plaintiff, sought injunctive relief and unspecified damages.
 
In May 2005, Vishay successfully completed a tender offer to acquire all shares of Siliconix that were not already owned by Vishay. Following the announcement of Vishay’s intent to make this tender offer, several purported class-action complaints were filed in the Delaware Court of Chancery. These actions were consolidated into a single class action and a settlement agreement was reached with the plaintiffs, who effectively represented all non-Vishay stockholders of Siliconix. The settlement agreement was approved by the Delaware Court of Chancery in October 2005.
 
The plaintiffs in the Proctor litigation filed an amended complaint in the Superior Court of California in November 2005. In June 2006, the Delaware Court of Chancery issued a permanent injunction restraining the Proctor plaintiffs from prosecuting the Proctor action. An appeal of the injunction order brought by a former stockholder of Siliconix was dismissed by the Delaware Supreme Court in January 2007.
 
Also in June 2006, the Proctor litigation was removed from the Superior Court of California to federal District Court there. The District Court granted a motion by Ernst & Young to dismiss the complaint and a motion by Vishay for summary judgment, effective October 15, 2007. The Proctor plaintiffs thereafter filed a Notice of Appeal to the Ninth Circuit Court of Appeals. On October 9, 2009, the Court of Appeals issued a decision affirming the dismissal of Proctor’s class action claim and remanded the remaining two claims to state court. Vishay plans to move in state court for summary judgment against the remaining claims.
 
-27-
 


Environmental Matters
 
Vishay is involved in environmental remediation programs at various sites currently or formerly owned by Vishay and its subsidiaries, in addition to involvement as a potentially responsible party (“PRP”) at four Superfund sites. Certain obligations as a PRP have arisen in connection with business acquisitions. The remediation programs are on-going at four currently operating U.S. facilities, five currently operating non-U.S. facilities, six formerly owned U.S. sites, and four Superfund sites. 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. See also Note 13 to our consolidated financial statements.
 
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
The following table sets forth certain information regarding our executive officers as of February 26, 2010:
 
Name           Age           Positions Held
Dr. Felix Zandman* 81   Executive Chairman of the Board, Chief
         Technical and Business Development
             Officer
Dr. Gerald Paul* 61 Chief Executive Officer, President, and
       Director
Marc Zandman* 48 Vice-Chairman of the Board, Chief
       Administration Officer, and President-
       Vishay Israel Ltd.
Dr. Lior E. Yahalomi 51 Executive Vice President and Chief Financial
       Officer
Ziv Shoshani* 43 Executive Vice President-Vishay Precision
       Group, and Director
____________________
 
*   Member of the Executive Committee of the Board of Directors.

Dr. Felix Zandman, a founder of the Company, has been Chairman of the Board since 1989, and has been a Director of the Company since its inception in 1962. Dr. Zandman became Chief Technical and Business Development Officer on January 1, 2005. Dr. Zandman was Chief Executive Officer of the Company from its inception in 1962 through December 31, 2004, when Dr. Gerald Paul was appointed Chief Executive Officer. Dr. Zandman had been President of the Company from its inception through March 1998.
 
Dr. Gerald Paul was appointed Chief Executive Officer effective January 1, 2005. Dr. Paul has served as a Director of the Company since 1993, and has been President of the Company since March 1998. Dr. Paul also was Chief Operating Officer from 1996 to 2006. Dr. Paul previously was an Executive Vice President of the Company from 1996 to 1998, and President of Vishay Electronic Components, Europe from 1994 to 1996. Dr. Paul has been Managing Director of Vishay Electronic GmbH, a subsidiary of the Company, since 1991. Dr. Paul has been employed by Vishay and a predecessor company since 1978.
 
Marc Zandman was appointed Chief Administration Officer as of January 1, 2007. Mr. Zandman has been Vice-Chairman of the Board since 2003, a Director of the Company since 2001, and President of Vishay Israel Ltd. since 1998. Mr. Zandman was Group Vice President of Vishay Measurements Group from 2002 to 2004. He is expected to serve as non-executive Chairman of the Board of Vishay Precision Group if we complete the intended spin-off. Mr. Zandman has served in various other capacities with the Company since 1984. He is the son of Dr. Felix Zandman, the Company’s Executive Chairman and Chief Technical and Business Development Officer.
 
-28-
 


Dr. Lior E. Yahalomi was appointed Executive Vice President and Chief Financial Officer effective September 1, 2008. Dr. Yahalomi has been employed by the Company since 2006 and was Sr. Vice President – Mergers and Acquisitions, from June 2006 to September 2008. Dr. Yahalomi has held several executive positions in the technology, financial services, and venture capital industries, including Managing Partner of CMGI’s @Ventures Technology Fund, Vice President for New Ventures of Gateway, and Senior Vice President for Global Business Development of a business unit of GE Capital. He is also an adjunct professor of marketing at the Wharton School at the University of Pennsylvania and a Leadership Board Member of the Global Consulting Practicum at the Wharton School.
 
Ziv Shoshani has been Executive Vice President – Vishay Precision Group since November 1, 2009. He was the Chief Operating Officer of the Company from January 1, 2007 to November 1, 2009. During 2006, he was the Deputy Chief Operating Officer. Mr. Shoshani had served as an Executive Vice President of the Company since 2000 with various areas of responsibility, including Executive Vice President of the Measurements Group Division and Foil Resistors Division. Mr. Shoshani had been employed by Vishay Intertechnology since 1995. Mr. Shoshani is expected to serve as the Chief Executive Officer and President, and will also serve on the Board of Directors of Vishay Precision Group if the intended spin-off is completed. He will also resign his positions with Vishay, including his membership on our board of directors, at that time. Mr. Shoshani is the nephew of Dr. Felix Zandman, the Company’s Executive Chairman and Chief Technical and Business Development Officer.
 
PART II
 
Item 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the symbol VSH. The following table sets forth the high and low sales prices for our common stock as reported on the New York Stock Exchange composite tape for the indicated fiscal quarters. We do not currently pay cash dividends on our capital stock. Our policy is to retain earnings to support the growth of our business and we do not intend to change this policy at the present time. In addition, we are restricted from paying cash dividends under the terms of our revolving credit agreement. See Note 6 to our consolidated financial statements. Holders of record of our common stock totaled approximately 1,500 at February 25, 2010.
 
2009
     High           Low
Fourth quarter $     8.66 $     6.20
Third quarter $ 8.49   $ 6.08
Second quarter $ 7.18 $ 3.45
First quarter $ 3.80 $ 2.21
2008
     High           Low
Fourth quarter   $     6.85 $     3.17
Third quarter $ 10.27 $ 6.32
Second quarter $ 10.66   $ 8.62
First quarter $ 11.60 $ 8.43


At February 25, 2010, we had outstanding 14,352,839 shares of Class B common stock, par value $.10 per share, each of which entitles the holder to ten votes. The Class B common stock generally is not transferable except in certain very limited instances, and there is no market for those shares. The Class B common stock is convertible, at the option of the holder, into common stock on a share for share basis. Substantially all of the Class B common stock is owned by Dr. Felix Zandman, our Executive Chairman and Chief Technical and Business Development Officer; family trusts controlled by Dr. Zandman and Mrs. Ruta Zandman, a director; the estate of Mrs. Luella B. Slaner, a former director; the children of Mrs. Slaner; and trusts for the benefit of the grandchildren of Mrs. Slaner, either directly or beneficially. Directly, through family trusts, and as voting trustee under a voting trust agreement, Dr. Zandman has sole or shared voting power over substantially all of the outstanding Class B common stock.
 
-29-
 


Stock Performance Graph
 
The line graph below compares the cumulative total stockholder return on Vishay’s common stock over a 5-year period with the returns on the Standard & Poor’s MidCap 400 Stock Index (of which Vishay is a component), the Standard & Poor’s 500 Stock Index, and a peer group of companies selected by our management. The peer group is made up of five publicly-held manufacturers of semiconductors, resistors, capacitors, and other electronic components.* Management believes that the product offerings of the companies contained in the peer group are more similar to our product offerings than those of the companies contained in any published industry index. The return of each peer issuer has been weighted according to the respective issuer’s stock market capitalization. The line graph assumes that $100 had been invested at December 31, 2004 and assumes that all dividends were reinvested.
 
Years Ended December 31,
Base Period
Company Name/Index        2004      2005      2006      2007      2008      2009
Vishay Intertechnology, Inc. 100.0   91.61   90.15   75.97 22.77 55.59
S&P 500 Index   100.0 104.91 121.48 128.16 80.74 102.11
S&P MidCap 400 Index 100.0 112.56 124.17 134.08   85.50 117.46
Peer Group* 100.0 96.42 108.21 103.40 42.43 85.26
____________________
 
*   AVX Corporation, Fairchild Semiconductor International Inc., International Rectifier Corporation, KEMET Corporation, and ON Semiconductor Corporation.

 
-30-
 


Item 6. SELECTED FINANCIAL DATA
 
The following table sets forth selected consolidated financial information as of and for the fiscal years ended December 31, 2009, 2008, 2007, 2006, and 2005. This table should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K (in thousands, except per share amounts):
 
As of and for the years ended December 31,
                  (1)       (1)
2009 (2) 2008 (3) 2007 (4) 2006 (5)   2005 (6)
Statement of Operations Data:
Net revenues $ 2,042,033   $ 2,822,211 $ 2,833,266 $ 2,581,477 $ 2,296,521
Interest expense 10,321 38,668 51,976 32,215 33,590  
Income (loss) from continuing operations
              before taxes and noncontrolling interest (39,715 ) (1,672,488 ) 182,340 191,550 77,772
Income taxes   16,800 11,187   64,133     50,836 11,737
Income (loss) from continuing operations (56,515 ) (1,683,675 ) 118,207 140,714 66,035
Loss from discontinued operations, net of tax -     (47,826 )   (9,587 )   -   -
Net earnings (loss) (56,515 ) (1,731,501 ) 108,620 140,714   66,035
Noncontrolling interest 673 718   1,180 978 3,761
Net earnings (loss) attributable
              to Vishay stockholders (57,188 ) (1,732,219 ) 107,440 139,736 62,274
Income (loss) from continuing operations
              attributable to Vishay stockholders, net of tax (57,188 ) (1,684,393 ) 117,027 139,736 62,274
 
Basic earnings (loss) per share attributable to Vishay stockholders:*
       Continuing operations $ (0.31 ) $ (9.04 ) $ 0.63 $ 0.76 $ 0.35
       Discontinued operations $ - $ (0.26 ) $ (0.05 ) $ - $ -
       Net earnings (loss) $ (0.31 ) $ (9.29 ) $ 0.58 $ 0.76 $ 0.35
 
Diluted earnings (loss) per share attributable to Vishay stockholders:*
       Continuing operations $ (0.31 ) $ (9.04 ) $ 0.63 $ 0.73 $ 0.34
       Discontinued operations $ - $ (0.26 ) $ (0.05 ) $ - $ -
       Net earnings (loss) $ (0.31 ) $ (9.29 ) $ 0.58 $ 0.73 $ 0.34
 
Weighted average shares outstanding – basic 186,605 186,403 185,646 184,400 177,606
Weighted average shares outstanding – diluted 186,605 186,403 192,351 210,316 189,321
 
Balance Sheet Data:
Total assets $ 2,719,546   $ 2,815,960 $ 4,995,235 4,691,896 $ 4,527,591
Long-term debt, less current portion 320,052 333,631 607,237 608,434 751,553
Working capital 1,000,042 866,405 1,145,873 1,192,833 1,136,466
Total Vishay stockholders’ equity      1,516,446      1,544,858      3,356,775      3,080,813      2,855,852
____________________
 
* May not add due to rounding.
-31-
 


(1)   Does not include an adjustment to reflect the retrospective adoption of Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (including partial cash settlement) (Accounting Standards Codification (“ASC”) Topic 470-20). As described in Note 1 to our consolidated financial statements, effective January 1, 2009, we adopted two accounting standards that required retrospective adoption to previously issued financial statements. We used a financial statement approach when adopting the standards and recorded a cumulative effect adjustment as of the beginning of the periods presented in the audited financial statements (January 1, 2007). Periods prior to January 1, 2007 have not been adjusted to reflect the retrospective adoption of the standard.
 
(2) Includes net pretax charges of $96,379,000 for restructuring and severance costs, asset write-downs, and executive compensation charges. These charges were partially offset by a $28,195,000 settlement agreement gain. These items, net of their related tax consequences, had a negative $0.33 effect on earnings per share from continuing operations attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements.
 
(3) Includes the results of Vishay Transducers India Limited from June 30, 2008, of Powertron GmbH from July 23, 2008, and of the wet tantalum business of KEMET Corporation from September 15, 2008. Also includes net pretax charges of $1,796,298,000 for impairment of goodwill and indefinite-lived intangible assets, restructuring and severance costs, asset write-downs, terminated tender offer expenses, and losses on adverse purchase commitments, partially offset by a gain on sale of a building. Also includes additional tax expenses for one-time tax items totaling $36,935,000. These items, net of their related tax consequences, had a negative $9.49 effect on earnings per share from continuing operations attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements.
 
(4) Includes the results of the Power Control Systems business from April 1, 2007 and PM Group from April 19, 2007. Also includes net pretax charges of $34,325,000 for restructuring and severance costs, asset write-downs, and a contract termination charge. These charges were partially offset by a gain on sale of a building. These items and their related tax consequences, net of additional tax expenses for changes in uncertain tax positions and valuation allowances, had a negative $0.22 effect on earnings per share attributable to Vishay stockholders. These items are more fully described in the notes to the consolidated financial statements.
 
(5) Includes the results of Phoenix do Brasil from July 31, 2006. Also includes net charges of $71,532,000 for restructuring and severance costs, asset write-downs, inventory write-downs and write-offs, losses on adjustments to purchase commitments, a loss on extinguishment of debt, charges to increase environmental liabilities assumed from the 2001 General Semiconductor acquisition, and charges to resolve past quality claims. These items and their related tax consequences had a negative $0.26 effect on earnings per share attributable to Vishay stockholders.
 
(6) Includes the results of SI Technologies from April 28, 2005, of Alpha Electronics K.K. from November 30, 2005, and reflects the acquisition of the minority interest in Siliconix in May 2005 and the assets of CyOptics Israel in October 2005. Also includes net charges of $51,550,000 for restructuring and severance costs, asset write-downs, and write-offs of purchased in-process research and development. These charges were partially offset by a gain on a sale of land and gains on adjustments to purchase commitments. In addition, tax expense includes an $8,977,000 benefit, primarily due to favorable foreign tax rulings. These items and their related tax consequences had a negative $0.17 effect on earnings per share attributable to Vishay stockholders.
 
Management believes that stating the impact on net earnings of items such as goodwill and indefinite-lived intangible asset impairment charges, restructuring and severance costs, asset write-downs, inventory write-downs and write-offs, gains or losses on purchase commitments, contract termination charges, gains on insurance proceeds, charges for in-process research and development, special tax items, and other items is meaningful to investors because it provides insight with respect to intrinsic operating results of the Company.
 
-32-
 


Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview
 
Vishay Intertechnology, Inc. is an international manufacturer and supplier of discrete semiconductors and passive electronic components, including power MOSFETs, power integrated circuits, transistors, diodes, optoelectronic components, resistors, capacitors, inductors, strain gages, load cells / transducers, stress analysis instrumentation, weigh modules, and systems. Discrete semiconductors and passive electronic components manufactured by Vishay are used in virtually all types of electronic products, including those in the industrial, computer, automotive, consumer electronic products, telecommunications, military/aerospace, and medical industries.
 
We operate in two product segments, Semiconductors and Passive Components. Semiconductors segment products include transistors, diodes, rectifiers, certain types of integrated circuits, and optoelectronic products. Passive Components segment products include resistors, capacitors, and inductors. We include in the Passive Components segment our Measurements Group, which manufactures and markets strain gages, load cells / transducers, stress analysis instrumentation, weighing modules, and systems whose core components are resistors that are sensitive to various types of mechanical stress. On October 27, 2009, we announced that we intend to spin-off our measurements and foil resistors businesses into an independent, publicly-traded company to be named Vishay Precision Group, Inc.
 
As described in Note 1 to our consolidated financial statements, effective January 1, 2009, we adopted two accounting standards that require retrospective adjustment to previously issued financial statements. The results of operations for the years ended December 31, 2008 and December 31, 2007 have been recast to include the retrospective effects of Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (including partial cash settlement) (Accounting Standards Codification (“ASC”) Topic 470-20). We have published unaudited selected financial data reflecting the retrospective adoption of these accounting standards, which was filed with the U.S. Securities and Exchange Commission as Exhibit 99 to our current report on Form 8-K dated April 13, 2009. The retrospective application of this guidance increased the reported loss from continuing operations attributable to Vishay stockholders by $0.8 million, or $0.00 per share, for the year ended December 31, 2008 and decreased the reported income from continuing operations attributable to Vishay stockholders by $23.3 million, or $0.11 per share, for the year ended December 31, 2007.
 
Net revenues for the year ended December 31, 2009 were $2.042 billion, compared to net revenues of $2.822 billion and $2.833 billion for the years ended December 31, 2008 and 2007, respectively.
 
The net loss attributable to Vishay stockholders for the years ended December 31, 2009, 2008, and 2007 include various items affecting comparability as listed in the reconciliation schedule below. The schedule below includes certain financial measures which are not recognized in accordance with generally accepted accounting principles (“GAAP”), including adjusted net earnings (loss) and adjusted net earnings (loss) per share. These non-GAAP measures should not be viewed as an alternative to GAAP measures of performance. Non-GAAP measures such as adjusted net earnings (loss) and adjusted net earnings (loss) per share do not have uniform definitions. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies. Management believes that these measures are meaningful because they provide insight with respect to our intrinsic operating results. Reconciling items to arrive at adjusted net earnings represent significant charges or credits that are important to understanding our intrinsic operations.
 
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The items affecting comparability are (dollars in thousands):
 
Year ended
December 31, December 31, December 31,
2009       2008       2007
GAAP net earnings (loss) attributable to Vishay stockholders $        (57,188 ) $      (1,732,219 ) $        107,440
 
Reconciling items affecting gross margin:
Loss on purchase commitment $ - $ 6,024 $ -  
 
Reconciling items affecting operating margin:
Restructuring and severance costs $ 37,874 $ 62,537 $ 14,681  
Asset write-downs 681 5,073 3,869
Impairment of goodwill and indefinite-lived intangibles - 1,723,174 -
Terminated tender offer expenses - 4,000 -
Settlement agreement gain (28,195 ) - -
Executive employment agreement charge   57,824     - -
Gain on sale of building -   (4,510 )   (3,118 )
Contract termination charge - -     18,893
 
Reconciling items affecting tax expense (benefit):
Tax effects of items above and other one-time tax expense (benefit) $ (7,737 ) $ (26,341 ) $ 7,999
 
Loss from discontinued operations - 47,826 9,587
 
Adjusted net earnings $ 3,259 $ 85,564 $ 159,351
 
Adjusted weighted average diluted shares outstanding 186,778 192,754 192,352
 
Adjusted earnings per diluted share * $ 0.02 $ 0.45 $ 0.85  
____________________
 
* Includes add-back of interest on exchangeable notes in periods where the notes are dilutive.
 
On April 7, 2008, we sold the automotive modules and subsystems business unit (“ASBU”) acquired on April 1, 2007 as part of the acquisition of the PCS business of International Rectifier. The operations of ASBU have been classified as discontinued operations for the entire period of ownership. Including the loss from discontinued operations, the net loss attributable to Vishay stockholders for the year ended December 31, 2008 was $1,732.2 million.
 
Our results for years ended December 31, 2009 and 2008 were substantially impacted by the global economic recession. Due to our quick reaction to the recession, we have mitigated the loss of sales volume that we experienced through significant reductions of fixed costs and inventories, we have continued to generate positive cash flows from operations, and following several quarters of experiencing losses we began to recover from the global economic recession and once again showed positive net earnings beginning in the third fiscal quarter of 2009.
 
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Financial Metrics
 
We utilize several financial metrics to evaluate the performance and assess the future direction of our business. These key financial measures and metrics include net revenues, gross profit margin, end-of-period backlog, and the book-to-bill ratio. We also monitor changes in inventory turnover and average selling prices (“ASP”).
 
Gross profit margin is computed as gross profit as a percentage of net revenues. Gross profit is generally net revenues less costs of products sold, but also deducts certain other period costs, particularly losses on purchase commitments and inventory write-downs. Losses on purchase commitments and inventory write-downs have the impact of reducing gross profit margin in the period of the charge, but result in improved gross profit margins in subsequent periods by reducing costs of products sold as inventory is used. Gross profit margin is clearly a function of net revenues, but also reflects our cost management programs and our ability to contain fixed costs.
 
End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that have been released by the customer for shipment in the next twelve months. If demand falls below customers’ forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty. Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.
 
An important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues.
 
We focus on our inventory turnover as a measure of how well we are managing our inventory. We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period. The inventory balance used for computation of this ratio includes tantalum inventories in excess of a one year supply, which are classified as other assets in the consolidated balance sheet. See Note 14 to our consolidated financial statements. A higher level of inventory turnover reflects more efficient use of our capital.
 
Pricing in our industry can be volatile. We analyze trends and changes in average selling prices to evaluate likely future pricing. The erosion of average selling prices of established products is typical for the Semiconductors industry. We attempt to offset this deterioration with ongoing cost reduction activities and new product introductions. Our specialty Passive Components are more resistant to average selling price erosion.
 
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The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, the end-of-period backlog, the book-to-bill ratio, the inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the fourth fiscal quarter of 2008 and through the fourth fiscal quarter of 2009 (dollars in thousands):
 
4th Quarter       1st Quarter       2nd Quarter       3rd Quarter       4th Quarter
2008 2009 2009 2009 2009
Net revenues $        575,442   $        449,511 $        460,258 $        525,304   $        606,960
 
Gross profit margin* 14.8%   15.1%   17.1%     19.9%   22.6%
 
End-of-period backlog $ 459,700 $ 400,400 $ 432,800 $ 502,200 $ 630,100
 
Book-to-bill ratio 0.74 0.89 1.06   1.11 1.22
 
Inventory turnover 3.40   2.84 3.02 3.53 4.12
 
Change in ASP vs. prior quarter 0.0%   -1.0%   -1.1%   -0.8%   -0.1%
____________________
 
* Gross profit margin for the fourth fiscal quarter of 2008 includes losses on adverse purchase commitments of $6.0 million.
 
See “Financial Metrics by Segment” below for net revenues, book-to-bill ratio, and gross profit margin broken out by segment.
 
The recovery of our business continued in the fourth fiscal quarter of 2009. Net revenues for the fourth fiscal quarter increased more than expected on a sequential basis due to a dramatic increase in demand for electronic components across all geographies, markets, and sales channels in the quarter. Gross margins also increased sequentially due to increased volume and the benefits of our past restructuring and other cost cutting initiatives.
 
The book-to-bill ratio continued to improve in the fourth fiscal quarter. Due to exceptionally strong orders from distributors, the book-to-bill ratio improved to 1.22 from 1.11 in the third fiscal quarter of 2009. The book-to-bill ratio for distributors and original equipment manufacturers (“OEM”) were 1.37 and 1.06, respectively, versus ratios of 1.17 and 1.06, respectively, during the third fiscal quarter of 2009.
 
Average selling prices remained relatively consistent versus the third fiscal quarter and have declined at a continually slower pace versus the previous year. We expect less pronounced pricing pressure in 2010.
 
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Financial Metrics by Segment
 
The following table shows net revenues, book-to-bill ratio, and gross profit margin broken out by segment for the five fiscal quarters beginning with the fourth fiscal quarter of 2008 through the fourth fiscal quarter of 2009 (dollars in thousands):
 
4th Quarter       1st Quarter       2nd Quarter       3rd Quarter       4th Quarter
2008 2009 2009 2009 2009
Semiconductors
Net revenues $        272,669   $        198,995 $        227,347 $        276,745 $        301,839
 
Book-to-bill ratio 0.59 0.96 1.14     1.13 1.32
 
Gross profit margin(1) 11.5%   6.6%   14.4%   16.5%   18.0%
 
Passive Components        
Net revenues $ 302,773 $ 250,516 $ 232,911 $ 248,559 $ 305,121
 
Book-to-bill ratio 0.88 0.84   0.97 1.09 1.12
 
Gross profit margin(2) 17.8%   21.9%   19.7%   23.6%   27.1%
____________________
 
(1) Gross profit margin for the Semiconductors segment for the fourth fiscal quarter of 2008 includes losses on adverse purchase commitments of $3.7 million.
 
(2) Gross profit margin for the Passive Components segment for the fourth fiscal quarter of 2008 includes losses on adverse purchase commitments of $2.3 million.
 
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Acquisition and Divestiture Activity
 
As part of our growth strategy, we seek to expand through targeted and synergistic 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 we have substantial marketing and technical expertise. This includes exploring opportunities to acquire smaller targets to gain market share, effectively penetrate different geographic markets, enhance new product development, round out our product lines, or grow our high margin niche market businesses. Acquisitions of passive components businesses would likely be made to strengthen and broaden our position as a specialty product supplier; acquisitions of discrete semiconductor businesses would be made to increase market share and to exploit synergies.
 
Due to deteriorating economic conditions that began in the fourth quarter of 2008, we did not actively pursue acquisitions in the fourth fiscal quarter of 2008 and continuing into the third fiscal quarter of 2009. Due to improving economic conditions, our strong liquidity and cash position, and our ability to generate free cash in every quarter of 2009, we returned to our strategy of exploring synergistic acquisition opportunities in the fourth fiscal quarter of 2009, but did not announce or complete any acquisitions in 2009.
 
We completed three strategic acquisitions in 2008 and two strategic acquisitions in 2007. We also divested certain non-core businesses acquired in these transactions.
 
2009 Activities
 
On October 27, 2009, we announced that we intend to spin-off our measurements and foil resistors businesses into an independent, publicly-traded company to be named Vishay Precision Group, Inc. The spin-off is expected to take the form of a tax-free stock dividend to Vishay’s stockholders and it is anticipated that holders of Vishay common stock will receive common stock of Vishay Precision Group and holders of Vishay Class B common stock will receive Class B common stock of Vishay Precision Group. We have not yet finalized details of the spin-off.
 
The product lines which will comprise Vishay Precision Group are included in the Passive Components segment. Revenues for the years ended December 31, 2009, 2008, and 2007 were approximately $172 million, $242 million, and $239 million, respectively. The spin-off would enable the management teams of both companies to better focus on the unique issues facing their respective businesses and permit each company to pursue its own business plan, resource allocation and growth strategies, as well as attract the best personnel through compensation that is more closely tied to the performance of each company. If the spin-off is completed, we expect to be a more competitive, pure-play discrete electronic components company.
 
Our Board and management team, in consultation with independent financial and legal advisors, are working on the requirements to finalize and execute the spin-off and expect the spin-off to occur in the second quarter of 2010. The spin-off will be subject to a number of conditions, including, among other things: final approval of Vishay’s Board of Directors, favorable market conditions, receipt of U.S. and Israeli tax rulings or opinions, compliance with applicable rules and regulations of the SEC and other customary conditions.
 
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2008 Activities
 
During 2008, we made three acquisitions. On June 30, 2008, we acquired our partner’s 51% interest in a transducer manufacturing joint venture in India for approximately $9.6 million. On July 23, 2008, we acquired Powertron GmbH, a manufacturer of specialty precision resistors, for approximately $14.3 million, including the repayment of certain debt of Powertron. On September 15, 2008, we acquired the wet tantalum capacitor business of KEMET Corporation for $35.2 million and other consideration in the form of a three-year term loan of $15 million. Terms of the secured loan of $15 million to KEMET from Vishay include a three-year non-amortizing maturity, an interest rate of LIBOR plus four percent, and security consisting of accounts receivable.
 
As further described in Note 2 to our consolidated financial statements, during 2008, we made an unsolicited offer to acquire all outstanding shares of International Rectifier Corporation (“International Rectifier”). This tender offer was terminated on October 13, 2008. We incurred $4 million of costs associated with the International Rectifier tender offer, which are presented as a separate line item in the consolidated statements of operations. As described below, in April 2007, we acquired the PCS business of International Rectifier. On April 7, 2008, we sold the automotive modules and subsystems business unit (“ASBU”) we had acquired as part of the acquisition of the PCS business. During the first fiscal quarter of 2008, we recorded an impairment charge of $32.3 million to reduce the carrying value of the net assets of ASBU to the selling price. We recorded an additional after tax loss of $5.7 million during the fourth fiscal quarter of 2008 subsequent to the resolution of a net working capital adjustment and the resolution of certain disputes with the buyer.
 
2007 Activities
 
On April 1, 2007, we acquired the PCS business of International Rectifier for approximately $285.6 million in cash, net of cash acquired. The acquired product lines, which complemented our existing product portfolio, consist of planar high-voltage MOSFETs, Schottky diodes, diode rectifiers, fast-recovery diodes, high-power diodes and thyristors, power modules (a combination of power diodes, thyristors, MOSFETs, and IGBTs), and automotive modules and subsystems. As further described above, we sold the automotive modules and subsystems business unit on April 7, 2008.
 
On June 25, 2009, Vishay and International Rectifier entered into a settlement agreement with respect to the acquisition.
 
Under the settlement, International Rectifier refunded $30.0 million of the purchase price associated with the acquisition, and we released International Rectifier from claims relating to certain outstanding disputes regarding the acquisition.
 
In addition, Vishay and International Rectifier clarified and revised the covenant-not-to-compete associated with the acquisition to permit International Rectifier to, under certain conditions, develop, design, manufacture and sell certain additional products that incorporate technologies sold or licensed to us in the acquisition. As part of the settlement, we will continue as a supplier of certain products to International Rectifier and will receive a license to certain additional technology developed in the future by International Rectifier.
 
As part of the goodwill impairment charges recorded during 2008 (see Note 3), all goodwill associated with the PCS business was written off. We recorded a gain of $28.2 million during the second quarter of 2009, equal to the amount received pursuant to the settlement agreement less certain related expenses.
 
On April 19, 2007, we declared our cash tender offer for all shares of PM Group PLC wholly unconditional, and assumed ownership of PM Group. PM Group is an advanced designer and manufacturer of systems used in the weighing and process control industries, located in the United Kingdom. The aggregate cash paid for all shares of PM Group was approximately $45.7 million. The transaction was funded using cash on-hand. We immediately sold PM Group’s electrical contracting subsidiary for approximately $16.1 million. No gain or loss was recognized on the sale of the electrical contracting business.
 
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Cost Management
 
We place a strong emphasis on reducing our costs. Since 2001, we have been implementing aggressive cost reduction programs to enhance our competitiveness, particularly in light of the erosion of average selling prices of established products that is typical of the industry.
 
Historically, our primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost markets, such as the United States and Western Europe, to lower-labor-cost markets, such as the Czech Republic, Israel, India, Malaysia, Mexico, the People’s Republic of China, and the Philippines. The percentage of our total headcount in lower-labor-cost countries is a measure of the extent to which we are successful in implementing this program. This percentage was 74.6% at the end of 2009, 74.6% at the end of 2008, 74.0% at the end of 2007, and 57% when this program began in 2001. Our long-term target is to have between 75% and 80% of our headcount in lower-labor-cost countries. As we approach, and then maintain, this target headcount allocation, our cost reduction efforts are more directed towards consolidating facilities and other cost cutting measures to control fixed costs, rather than transfers of production to lower-labor-cost markets.
 
These production transfers and other long-term cost cutting measures require us to initially incur significant severance and other exit costs and to record losses on excess buildings and equipment. We anticipate that we will realize the benefits of our restructuring through lower labor costs and other operating expenses in future periods. Between 2001 and 2009, we recorded, in the consolidated statements of operations, restructuring and severance costs totaling $323 million and related asset write-downs totaling $87 million in order to reduce our cost structure going forward. We have realized, and expect to continue to realize, significant annual net cost savings associated with these restructuring activities.
 
A primary tenet of our business strategy is the expansion within the electronic components industry through acquisitions. In addition to the objectives of broadening our product portfolio and increasing our market reach, our acquisition strategy includes a focus on reducing selling, general, and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies, and achieving significant production cost savings through the transfer and expansion of manufacturing operations to countries where we can benefit from lower labor costs and available tax and other government-sponsored incentives. These plant closure and employee termination costs subsequent to acquisitions are also integral to our cost reduction programs, although these amounts were not significant in the years ended December 31, 2009, 2008 and 2007.
 
We evaluate potential restructuring projects based on an expected payback period. The payback period represents the number of years of annual cost savings necessary to recover the initial cash outlay for severance and other exit costs plus the noncash expenses recognized for asset write-downs. In general, a restructuring project must have a payback period of less than 3 years to be considered beneficial. On average, our restructuring projects have a payback period of between 1 and 1.5 years.
 
The perpetual erosion of average selling prices of established products that is typical of our industry makes it imperative that we continually seek ways to reduce our costs. Furthermore, our long-term strategy is to grow through the integration of acquired businesses. Under previous accounting guidance, plant closure and employee termination costs that we incurred in connection with our acquisition activities were included in the costs of our acquisitions and did not affect earnings or losses on our consolidated statement of operations. Statement of Financial Accounting Standards (“SFAS”) No. 141-R, Business Combinations (ASC Topic 805), which Vishay adopted effective January 1, 2009, requires such costs to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred. For these reasons, we expect to have some level of restructuring expenses each period for the foreseeable future.
 
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We expect these restructuring programs to result in higher profitability through better gross margins and lower selling, general, and administrative expenses. However, these programs to improve our profitability also involve certain risks that could materially impact our future operating results, as further detailed in Item 1A, “Risk Factors.”
 
We expanded our restructuring programs in 2008 to further reduce costs. Most of the costs related to our planned 2008 restructuring projects were recorded in the first quarter of 2008. These projects include the transfer of production of resistor products from Brazil to India and the Czech Republic and the transfer of certain processes in Belgium and the United States to third party subcontractors. We also transferred certain production from the Netherlands and the United States to Israel in 2008. We expect the planned restructuring projects initiated in 2008 to generate approximately $25 million of annual cost savings, of which approximately 60% of the savings would reduce costs of products sold, and approximately 40% of the savings would result in reduced selling, general, and administrative costs. We began to realize some of these savings in the second half of 2008.
 
In response to the economic downturn during the latter half of 2008, we undertook significant measures to cut costs. This included a strict adaptation of manufacturing capacity to sellable volume, limiting the building of product for inventory. It also included permanent employee terminations, temporary layoffs and shutdowns, and minimizing the use of foundries and subcontractors in order to maximize the load of our owned facilities.
 
We incurred restructuring and severance costs of $28.6 million during the fourth quarter of 2008, and incurred additional restructuring and severance costs of $37.9 million during the year ended December 31, 2009. These costs were incurred as part of our goal to reduce manufacturing and SG&A fixed costs in 2009 by $200 million compared to the year ended December 31, 2008. Our fixed costs for the year ended December 31, 2009 decreased by $176 million versus the comparable prior year. Of these amounts, approximately 45% reduced costs of products sold and approximately 55% reduced SG&A expenses.
 
Certain components of our costs, while fixed in that they do not vary with changes in volume, are subject to volatility. This would include, for example, the effect of certain assets that are marked-to-market through the statement of operations, and certain transactions in foreign currencies. Furthermore, as described above, some of our cost reductions realized in 2009 are the result of temporary measures, which we intend to replace with more permanent actions. Accordingly, there is no assurance that all of the fixed cost reductions achieved in 2009 will be maintained in 2010.
 
Our 2009 restructuring programs included headcount reductions in virtually every facility and every country in which we operate, as well as selected plant closures. We closed two facilities in the United States and consolidated manufacturing for these product lines into other facilities. We also consolidated our optoelectronics packaging facilities in Asia. We also successfully closed a film capacitor plant in Shanghai and increased production on existing equipment in Loni, India to replace the production volume of the closed plant.
 
Since the beginning of the economic downturn, we have drastically reduced our fixed costs lowering our break-even point permanently by approximately $500 million. Our defined restructuring programs have been implemented or announced, which will result in low restructuring charges going forward.
 
While streamlining and reducing fixed overhead, we are exercising caution so that we will not negatively impact our customer service or our ability to further develop products and processes. Our cost management plans also include expansion of certain critical capacities, which we hope will reduce average materials and processing costs.
 
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Israeli Government Incentives
 
We have substantial manufacturing operations in Israel, where we benefit from the government’s grants and tax incentive programs. These benefits take the form of government grants and reduced tax rates that are lower than those in the United States.
 
Israeli government grants are awarded to specific projects. These grants are intended to promote employment in Israel’s industrial sector and are conditioned on the recipient maintaining certain prescribed employment levels. Grants are paid when the related projects are approved by the Israeli government and become operational. Israeli government grants, recorded as a reduction in the costs of products sold, were $0.7 million, $1.4 million, and $4.8 million, in 2009, 2008, and 2007, respectively. At December 31, 2009, our consolidated balance sheet reflected $2.5 million in deferred grant income.
 
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, and we have already received approval for a majority of the projects contemplated by our capital expenditure program. 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 receive such benefits. 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.
 
Metals Purchase Commitments
 
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility. Our policy is to enter into short-term commitments to purchase defined portions of annual consumption of these metals if market prices decline below budget. For much of 2008, these metals were trading near all-time record-high prices. During the fourth quarter of 2008, as metals prices declined significantly from these record-high prices, we entered into commitments to purchase a portion of our estimated 2009 metals needs, principally for copper and palladium. After entering into these commitments, the market prices for these metals continued to decline. As a result, we recorded losses on these adverse purchase commitments during the fourth quarter of 2008 totaling $6.0 million.
 
Tower Semiconductor Foundry Agreement
 
Our Siliconix subsidiary maintains long-term foundry agreements with subcontractors to ensure access to external front-end capacity.
 
In 2004, Siliconix signed a definitive long-term foundry agreement for semiconductor manufacturing with Tower Semiconductor (the “2004 agreement”), pursuant to which Siliconix would purchase semiconductor wafers from and transfer certain technologies to Tower Semiconductor. Pursuant to the 2004 agreement, Siliconix was required to place orders valued at approximately $200 million for the purchase of semiconductor wafers to be manufactured in Tower’s Fab 1 facility over a seven to ten year period. The 2004 agreement specified minimum quantities per month and a fixed quantity for the term of the agreement. Siliconix was required to pay for any short-fall in minimum order quantities specified under the agreement through the payment of penalties equal to unavoidable fixed costs.
 
Pursuant to the 2004 agreement, Siliconix advanced $20 million to Tower in 2004, to be used for the purchase of additional equipment required to satisfy Siliconix’s orders. This advance was considered a prepayment on future wafer purchases, reducing the per wafer cost to Siliconix over the term of the agreement.
 
During 2007, Siliconix was committed to purchase approximately $22 million of semiconductor wafers, but did not meet its commitments due to changing market demand for products manufactured using wafers supplied by Tower. Siliconix was required to pay penalties of approximately $1.7 million, which were recorded as a component of cost of products sold.
 
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In January 2008, Siliconix reached an agreement in principle to revise the 2004 agreement to more accurately reflect market demand. Based on the penalties paid in 2007 and the agreement in principle, during the fourth quarter of 2007, the Company recorded a write-off of the balance of the 2004 advance to Tower in the amount of $16.4 million, and accrued an additional $2.5 million based on its best estimate of additional contract termination charges related to the original agreement.
 
At December 31, 2007, the remaining future purchase commitments under the 2004 agreement were approximately $160 million.
 
In March 2008, Siliconix and Tower entered into an amended and restated foundry agreement (the “2008 agreement”). Pursuant to the 2008 agreement, Tower continued to manufacture wafers covered by the 2004 agreement, but at lower quantities and at lower prices, through 2009. Tower also manufactures wafers for other product lines acquired as part of the PCS acquisition through 2012. Siliconix must pay for any short-fall in the reduced minimum order quantities specified under the 2008 agreement through the payment of penalties equal to unavoidable fixed costs. Additionally, as contemplated, Siliconix agreed to forgive the balance of the 2004 advance and paid a $2.5 million contract termination charge.
 
The foundry agreement with Tower was further amended in March 2009, further reducing the quantity of commitments. As consideration, Siliconix paid $3,000,000 to Tower, which was recorded as a component of cost of products sold. A portion of this payment may be refunded if orders exceed the minimum order commitment.
 
Foreign Currency Translation
 
We are exposed to foreign currency exchange rate risks, particularly due to transactions in currencies other than the functional currencies of certain subsidiaries. While we have in the past used forward exchange contracts to hedge a portion of our projected cash flows from these exposures, we generally have not done so in recent periods.
 
Statement of Financial Accounting Standards (“SFAS”) No. 52 (ASC Topic 830) requires that entities identify the “functional currency” of each of their subsidiaries and measure all elements of the financial statements in that functional currency. A subsidiary’s functional currency is the currency of the primary economic environment in which it operates. In cases where a subsidiary is relatively self-contained within a particular country, the local currency is generally deemed to be the functional currency. However, a foreign subsidiary that is a direct and integral component or extension of the parent company’s operations generally would have the parent company’s currency as its functional currency. We have both situations among our subsidiaries.
 
Foreign Subsidiaries which use the Local Currency as the Functional Currency
 
We finance our operations in Europe and certain locations in Asia in local currencies, and accordingly, these subsidiaries utilize the local currency as their functional currency. For those subsidiaries where the local currency is the functional currency, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange as of the balance sheet date. Translation adjustments do not impact the results of operations and are reported as a separate component of stockholders’ equity.
 
For those subsidiaries where the local currency is the functional currency, revenues and expenses are translated at the average exchange rate for the year. While the translation of revenues and expenses into U.S. dollars does not directly impact the consolidated statement of operations, the translation effectively increases or decreases the U.S. dollar equivalent of revenues generated and expenses incurred in those foreign currencies. The dollar generally was stronger in the year ended December 31, 2009 compared to the prior year, with the translation of foreign currency revenues and expenses into U.S. dollars decreasing reported revenues and expenses versus the comparable prior year periods.
 
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Foreign Subsidiaries which use the U.S. Dollar as the Functional Currency
 
Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, and accordingly, these subsidiaries utilize the U.S. dollar as their functional currency. For those foreign subsidiaries where the U.S. dollar is the functional currency, all foreign currency financial statement amounts are remeasured into U.S. dollars. Exchange gains and losses arising from remeasurement of foreign currency-denominated monetary assets and liabilities are included in the results of operations. While these subsidiaries transact most business in U.S. dollars, they may have significant costs, particularly payroll-related, which are incurred in the local currency. The cost of products sold and selling, general, and administrative expense for the year ended December 31, 2009 have been favorably impacted (compared to the prior year) by local currency transactions of subsidiaries which use the U.S. dollar as their functional currency, particularly our subsidiaries in Israel. However, most of the favorable impact was realized during the first fiscal quarter of 2009.
 
See Item 7A for additional discussion of foreign currency exchange risk.
 
Off-Balance Sheet Arrangements
 
At December 31, 2009 and 2008, we do not have any off-balance sheet arrangements.
 
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Critical Accounting Policies and Estimates
 
Our significant accounting policies are summarized in Note 1 to our consolidated financial statements. We identify here a number of policies that entail significant judgments or estimates.
 
Revenue Recognition
 
We recognize revenue on product sales during the period when the sales process is complete. This generally occurs when products are shipped to the customer in accordance with terms of an agreement of sale, title and risk of loss have been transferred, collectibility is reasonably assured, and pricing is fixed or determinable. For a small percentage of sales where title and risk of loss passes at point of delivery, we recognize revenue upon delivery to the customer, assuming all other criteria for revenue recognition are met. We historically have had agreements with distributors that provided limited rights of product return. We have modified these arrangements to allow distributors a limited credit for unsaleable products, which we term a “scrap allowance.” Consistent with industry practice, we also have a “stock, ship and debit” program whereby we consider, and grant at our discretion, requests by distributors for credits on previously purchased products that remain in distributors’ inventory, to enable the distributors to offer more competitive pricing. In addition, we have contractual arrangements whereby we provide distributors with protection against price reductions that we initiate after the sale of product to the distributor and prior to resale by the distributor.
 
We record end of period accruals for each of the programs based upon our estimate of future credits under the programs that will be attributable to sales recorded through the end of the period. We calculate reductions of revenue attributable to each of the programs during any period by computing the change in the accruals from the prior period and adding the credits actually given to distributors during the period under the programs. These procedures require the exercise of significant judgments, but we believe they enable us to reasonably estimate future credits under the programs.
 
Recording and monitoring of these accruals takes place at our subsidiaries and divisions, with input from sales and marketing personnel and review, assessment, and, if necessary, adjustment by corporate management. While our subsidiaries and divisions utilize different methodologies based on their individual experiences, all of the methodologies take into account certain elements that management considers relevant, such as sales to distributors during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. In our judgment, the different methodologies provide us with equally reliable estimates upon which to base our accruals. We do not track the credits that we record against specific products sold from distributor inventories, so as to directly compare revenue reduction for credits recorded during any period with credits ultimately awarded in respect of products sold during that period. Nevertheless, we believe that we have an adequate basis to assess the reasonableness and reliability of our estimates.
 
We recognize royalty revenue in accordance with agreed upon terms when performance obligations are satisfied, the amount is fixed or determinable, and collectibility is reasonably assured. We earn royalties at the point of sale of products which incorporate licensed intellectual property. The amount of royalties recognized is determined based on our licensees’ periodic reporting to us and judgments and estimates by Vishay management that we believe are reasonable. However, it is possible that actual results may differ from our estimates.
 
Accounts Receivable
 
Our accounts receivable represent a significant portion of our current assets. We are required to estimate the collectibility of our receivables and to establish allowances for the amount of receivables that will prove uncollectible. We base these allowances on our historical collection experience, the length of time our receivables are outstanding, the financial circumstances of individual customers, and general business and economic conditions. Due to Vishay’s large number of customers and their dispersion across many countries and industries, we have limited exposure to concentrations of credit risk.
 
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Inventories
 
We value our inventories at the lower of cost or market, with cost determined under the first-in, first-out method and market based upon net realizable value. The valuation of our inventories requires our management to make market estimates. For work in process goods, we are required to estimate the cost to completion of the products and the prices at which we will be able to sell the products. For finished goods, we must assess the prices at which we believe the inventory can be sold. Inventories are also adjusted for estimated obsolescence and written down to net realizable value based upon estimates of future demand, technology developments and market conditions.
 
Loss on Purchase Commitments
 
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility. Our policy is to enter into short-term commitments to purchase defined portions of annual consumption of these metals if market prices decline below budget. For much of 2008, these metals were trading near all-time record-high prices. During the fourth quarter of 2008, as metals prices declined significantly from these record-high prices, we entered into commitments to purchase a portion of our estimated 2009 metals needs, principally for copper and palladium. After entering into these commitments, the market prices for these metals continued to decline. As a result, we recorded losses on these adverse purchase commitments during the fourth quarter of 2008. These losses, which aggregate to $6.0 million, are recorded on a separate line in the consolidated statement of operations.
 
The losses on these metals purchase commitments and the related liability that was recorded on our consolidated balance sheet were based on our contractually obligated purchase prices and quoted market prices in active commodities markets.
 
Estimates of Restructuring and Severance Costs and Purchase-Related Restructuring Costs
 
Our restructuring activities are designed to reduce both fixed and variable costs in our existing and acquired entities. Restructuring costs, including acquisition-related restructuring costs, are expensed during the period in which we determine that we will incur those costs, and all of the requirements for accrual are met. In 2009, 2008, and 2007, we recorded restructuring and severance costs of approximately $37.9 million, $62.5 million, and $14.7 million, respectively.
 
Because these costs are recorded based upon estimates, our actual expenditures for the restructuring activities may differ from the initially recorded costs. If this happens, we will have to adjust our estimates in future periods, either by recording additional expenses in future periods, if our initial estimates were too low, or by reversing part of the charges that we recorded initially, if our initial estimates were too high.
 
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Goodwill
 
Goodwill represents the excess of the cost of a business acquired over the fair value of the related net assets at the date of acquisition. Goodwill is not amortized but rather tested for impairment at least annually. These impairment tests must be performed more frequently whenever events or changes in circumstances indicate that the asset might be impaired.
 
SFAS No. 142, Goodwill and Other Intangible Assets (ASC Topic 350), prescribes a two-step method for determining goodwill impairment. In the first step, we determine the fair value of the reporting unit and compare the fair value to the net book value of the reporting unit. The fair value of the reporting unit is determined using various valuation techniques, including a comparable companies market multiple approach and a discounted cash flow analysis (an income approach). The comparable companies utilized in our evaluation are generally the members of our peer group included in the presentation of our stock performance graph in Item 5 of our Annual Report on Form 10-K.
 
In step two, we determine the implied fair value of goodwill in the same manner as if we had acquired those business units. Specifically, we must allocate the fair value of the reporting unit to all of the assets of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. The impairment loss is measured as the difference between the book value of the goodwill and the implied fair value of the goodwill computed in step two.
 
The Passive Components segment goodwill is allocated to two reporting units for goodwill impairment evaluation purposes, namely Other Passives and Measurements Group. The Semiconductors segment represents a single reporting unit for goodwill impairment evaluation purposes.
 
Fair value of reporting units, and the underlying assets and liabilities of those reporting units, is measured at a point in time, and reflects specific market conditions as of the measurement date. In light of a sustained decline in market capitalization that we and our peer group companies experienced in each successive quarter of 2008, and other factors, we determined that impairment tests were necessary as of the end of the second, third, and fourth fiscal quarters of 2008.
 
After completing step one of the impairment test as of June 28, 2008 (the end of our second fiscal quarter), we determined that the estimated fair value of our Semiconductors and Other Passives reporting units was less than the net book value of those reporting units, requiring the completion of the second step of the impairment evaluation. Upon completion of a preliminary step two analysis, we recorded our best estimate of the impairment loss as of June 28, 2008, which was refined during the third fiscal quarter of 2008. The estimated fair value of the Measurements Group reporting unit was greater than the net book value of that unit, and accordingly, no second step was required for the Measurement Group reporting unit as of June 28, 2008.
 
Given the further deterioration of market conditions in the third fiscal quarter of 2008, an additional impairment test was performed as of September 27, 2008 (the end of our third fiscal quarter). After completing step one of the impairment test as of September 27, 2008, we determined that the estimated fair value of our Other Passives reporting unit was less than the net book value of this reporting unit. This required the completion of the second step of the impairment evaluation. Upon completion of our step two analysis as of September 27, 2008, we recorded an additional goodwill impairment charge. Subsequent to recording this impairment charge, the Other Passives reporting unit had no remaining goodwill recorded on the consolidated balance sheet. The estimated fair value of the Semiconductors and Measurements Group reporting units was greater than the net book value of the respective reporting units as of September 27, 2008, and accordingly, no second step was required for the Semiconductors and Measurement Group reporting units at September 27, 2008.
 
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Given the further deterioration of market conditions in the fourth fiscal quarter of 2008, an additional impairment test was performed as of December 31, 2008 (the end of our fourth fiscal quarter). After completing step one of the impairment test as of December 31, 2008, we determined that the estimated fair value of our Semiconductors and Measurements Group reporting units were less than the net book value of those reporting units. This required the completion of the second step of the impairment evaluation. Upon completion of our step two analysis as of December 31, 2008, we recorded additional goodwill impairment charges. Subsequent to recording these impairment charges, there was no remaining goodwill recorded on the consolidated balance sheet.
 
In total, we recorded goodwill impairment charges aggregating $1,696.2 million in year ended December 31, 2008.
 
The determination of the fair value of the reporting units and the allocation of that value to individual assets and liabilities within those reporting units requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the selection of appropriate peer group companies; control premiums appropriate for acquisitions in the industries in which we compete; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures. The allocation requires several analyses to determine fair value of assets and liabilities including, among others, completed technology, tradenames, in-process research and development, customer relationships, and certain property and equipment (valued at replacement costs).
 
Due to the inherent uncertainty involved in making these estimates, actual financial results could differ from those estimates. In addition, changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
 
The goodwill impairment charge is noncash in nature and does not affect our liquidity, cash flows from operating activities, or debt covenants, and will not have a material impact on future operations.
 
We perform our annual impairment test as of the first day of the fiscal fourth quarter. The interim impairment test performed as of September 27, 2008, the last day of our fiscal third quarter, was effectively our annual impairment test for 2008. There was no impairment identified through the annual impairment test completed in 2007.
 
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Impairment of Long-Lived Assets and Indefinite-Lived Intangible Assets
 
We assess the impairment of our long-lived assets, other than goodwill and tradenames, including property and equipment, long-term prepaid assets, and identifiable intangible assets subject to amortization, whenever events or changes in circumstances indicate the carrying value may not be recoverable. Long-lived assets are grouped at the lowest level of independent cash flows and evaluated as a group. Factors we consider important, which could trigger an impairment review, include significant changes in the manner of our use of the assets, changes in historical or projected operating performance, and significant negative economic trends. The carrying value of a long-lived asset group is considered impaired when the total projected undiscounted cash flows from such asset group are separately identifiable and are less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset group, primarily determined using discounted future cash flows.
 
Indefinite-lived intangible assets (which for Vishay are comprised entirely of tradenames) are not amortized, but similar to goodwill, are tested for impairment at least annually. These tests are performed more frequently if there are triggering events. The fair value of the tradenames is measured as the discounted cash flow savings realized from owning such tradenames and not having to pay a royalty for their use.
 
Prior to completing the interim assessment of goodwill for impairment during the second, third, and fourth fiscal quarters of 2008, we performed a recoverability test of certain long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (ASC Topic 360), and certain indefinite-lived intangible assets in accordance with SFAS No. 142 (ASC Topic 350). As a result of those assessments, we recorded indefinite-lived intangible asset impairment charges totaling $27 million during the third fiscal quarter of 2008.
 
During the years ended December 31, 2009, 2008, and 2007, we recorded asset write-downs of $0.7 million, $5.1 million, and $3.9 million, respectively. Fixed asset write-downs included amounts to reduce the carrying value of certain buildings which had been vacated as part of our restructuring activities, based on expected future selling prices or the present value of expected rental receipts. Fixed asset write-downs also included charges to write down certain equipment to salvage value after we determined that it would not be used at other Vishay locations subsequent to the completion of our restructuring plans. The asset write-downs for 2008 also included definite-lived intangible write-downs of $0.8 million, as a result of our decision to close our facility in Brazil.
 
During the year ended December 31, 2007, we recorded a write-off of prepaid assets associated with our Tower Semiconductor foundry agreement.
 
The evaluation of the recoverability of long-lived assets, and the determination of their fair value, requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the identification of the asset group at the lowest level of independent cash flows and the principal asset of the group; the discount rate; terminal growth rates; and forecasts of revenue, operating income, depreciation and amortization, and capital expenditures.
 
The evaluation of the fair value of indefinite-lived trademarks also requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: the assumed market-royalty rate; the discount rate; terminal growth rates; and forecasts of revenue.
 
Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions would have a significant impact on the conclusion that an asset group’s carrying value is recoverable, that an indefinite-lived asset is not impaired, or the determination of any impairment charge if it was determined that the asset values were indeed impaired.
 
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Pension and Other Postretirement Benefits
 
Accounting for defined benefit pension and other postretirement plans involves numerous assumptions and estimates. The discount rate at which obligations could effectively be settled and the expected long-term rate of return on plan assets are two critical assumptions in measuring the cost and benefit obligations of our pension and other postretirement benefit plans. Other important assumptions include the anticipated rate of future increases in compensation levels, estimated mortality, and for postretirement medical plans, increases or trends in health care costs. Management reviews these assumptions at least annually. We use independent actuaries to assist us in formulating assumptions and making estimates. These assumptions are updated periodically to reflect the actual experience and expectations on a plan specific basis as appropriate.
 
Our defined benefit plans are concentrated in the United States, Germany, and the Republic of China (Taiwan). Plans in these countries comprise approximately 93% of our retirement obligations at December 31, 2009. In the U.S., we utilize published long-term high quality bond indices to determine the discount rate at the measurement date. In Germany and the Republic of China (Taiwan), we utilize published long-term government bond rates to determine the discount rate at the measurement date. We utilize bond yields at various maturity dates to reflect the timing of expected future benefit payments. We believe the discount rates selected are the rates at which these obligations could effectively be settled.
 
Within the U.S., we establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Many of our non-U.S. plans are unfunded based on local laws and customs. For those non-U.S. plans that do maintain investments, their asset holdings are primarily cash and fixed income securities, based on local laws and customs. We set the expected long-term rate of return based on the expected long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this rate, we consider historical and expected returns for the asset classes in which the plans are invested, advice from pension consultants and investment advisors, and current economic and capital market conditions. The expected return on plan assets is incorporated into the computation of pension expense. The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset losses (gains) affects the calculated value of plan assets and, ultimately, future pension expense (income).
 
We expect a decrease in net periodic pension cost in 2010 as a result of a reduction in the amortization of past losses on plan assets. The estimated actuarial items for defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2010 is $9.6 million, compared to approximately $11.5 million in 2009. We also expect a decrease in net periodic pension cost in 2010 as a result of an increase in the expected return on plan assets in 2010.
 
During the fourth fiscal quarter of 2008, we adopted amendments to our principal U.S. defined benefit pension plans, such that effective January 1, 2009, the plans were frozen. Pursuant to these amendments, no new employees may participate in the plans, no further participant contributions will be required or permitted, and no further benefits shall accrue after December 31, 2008. As a result of these amendments, net periodic pension cost for 2009 did not include any service cost, thus partially offsetting the increases due to increased amortization of actuarial losses and lower expected returns on plan assets. To mitigate the loss in benefits of these employees, effective January 1, 2009, we increased the company-match portion of our 401(k) defined contribution savings plan for employees impacted by the pension freeze.
 
We believe that the current assumptions used to estimate plan obligations and annual expenses are appropriate. However, if economic conditions change or if our investment strategy changes, we may be inclined to change some of our assumptions, and the resulting change could have a material impact on the consolidated statements of operations and on the consolidated balance sheet.
 
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Income Taxes
 
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances and the provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
 
These accruals are based on management’s best estimate of potential tax exposures. When particular matters arise, a number of years may elapse before such matters are audited and finally resolved. Favorable resolution of such matters could be recognized as a reduction to our effective tax rate in the year of resolution. Unfavorable resolution of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.
 
We file U.S. federal income tax returns, as well as income tax returns in multiple U.S. state and foreign jurisdictions. The U.S. Internal Revenue Service concluded its examinations of Vishay’s U.S. federal tax returns for all tax years through 2002. Because of net operating losses, our U.S. federal tax returns for 2003 and later years will remain subject to examination until the losses are utilized. Examinations of principal subsidiaries in Germany through the 2004 tax year were concluded in 2008. The tax returns of significant consolidated subsidiaries are currently under examination, including Israel (2004 and later years) and Republic of China (Taiwan) (1996 and later years). We are also subject to income taxes in other taxing jurisdictions in the U.S. and around the world, many of which are still open to tax examinations.
 
We account for uncertainty in income tax positions using the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements as prescribed in GAAP. For a tax benefit to be recognized, a tax position must be “more likely than not” to be sustained upon examination by taxing authorities.
 
We have recorded deferred tax assets representing future tax benefits, but may not be able to realize these future tax benefits in certain jurisdictions. Significant judgment is required in determining the expected future realizability of these deferred tax assets. We periodically evaluate the realizability of our deferred tax assets by assessing the valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization include our forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets.
 
Based on our anticipated U.S. cash requirements, we expected that we would need to repatriate additional cash to repay the term loan outstanding under our credit facility, and recorded additional tax expense in 2008 on this expected transaction because such earnings were not deemed to be indefinitely reinvested outside of the United States.
 
Except as described above, earnings generated by our non-U.S. subsidiaries are deemed to be reinvested outside of the United States indefinitely. Accordingly, no provision has been made for U.S. federal and state income taxes on these foreign earnings. Upon distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, incremental foreign income taxes, and withholding taxes payable to various foreign countries.
 
The determination of our U.S. cash needs requires us to make significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to: forecasts of revenue, operating income, capital expenditures, interest rates, and the timing of significant transactions. Due to the inherent uncertainty involved in making these estimates and assumptions, actual financial results could differ from those estimates and assumptions, which may require us to repatriate additional cash and incur additional tax expense.
 
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Results of Operations
 
Statement of operations’ captions as a percentage of net revenues and the effective tax rates were as follows:
 
Years ended December 31,
2009       2008       2007
Costs of products sold 81.0 % 78.6 % 75.5 %
Gross profit 19.0 % 21.2 % 24.5 %
Selling, general, and administrative expenses 17.6 % 16.0 % 15.5 %
Operating income (loss) -1.9 % -58.4 % 7.7 %
Income (loss) from continuing operations  
       before taxes and noncontrolling interest -1.9 % -59.3 % 6.4 %
Income (loss) from continuing operations -2.8 %   -59.7 %   4.2 %
Net earnings (loss) -2.8 %      -61.4 % 3.8 %
__________
Effective tax rate      -42.3 % -0.7 %      35.2 %

Net Revenues
 
Net revenues were as follows (dollars in thousands):
 
Years ended December 31,
2009       2008       2007
Net revenues $      2,042,033   $      2,822,211   $      2,833,266
Change versus prior year $ (780,178 ) $ (11,055 )
Percentage change versus prior year -27.6%   -0.4%  

Changes in net revenues were attributable to the following:
 
2009 vs. 2008       2008 vs. 2007
Change attributable to:
Change in volume -25.6 % -2.6 %
Decrease in average selling prices -2.5 % -3.0 %
Foreign currency effects -1.1 %   2.6 %
Acquisitions 0.2 % 2.5 %
Other 1.4 % 0.1 %
Net change -27.6 % -0.4 %
 

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All regions and virtually all of our end-use markets were heavily impacted by the global economic recession, which was seen in the decline in sales of our Semiconductors and Passive Components segment products in 2009 compared to the prior year periods. The relatively stronger U.S. dollar further decreased the amount reported for revenues for the year ended December 31, 2009 versus the year ended December 31, 2008. During the second half of 2009, we experienced the beginning of the world economic and electronics market recovery across all geographies, all markets, and all sales channels with orders approaching pre-recession levels in the fourth fiscal quarter. We experienced a substantial upturn in Asia driven by orders and sales for end-uses in consumer products such as netbooks and power supplies. Orders and sales for end-uses in industrial applications in the U.S. and Europe appeared to bottom out in the second fiscal quarter of 2009 and steadily recovered in the second half of 2009. We experienced a substantial turnaround in orders and sales of our products utilized in automotive applications in Europe and the U.S., which was driven by demand for small cars. Sales of products for use in military and medical applications, while generally a smaller component of Vishay’s overall business, have also been strong.
 
The markets for our products were relatively stable during the first half of 2008. Beginning in the third quarter of 2008, we experienced a substantial slow down in our order rate, as the markets for our products began to be impacted by the economic downturn. The automotive industry was most heavily impacted, but sales of products for virtually all end-uses were below expectations. The decrease in volumes and average selling prices were largely offset by acquisitions and foreign currency effects. The weakening U.S. dollar effectively increased the amount reported for revenues for the year ended December 31, 2008 versus the prior year.
 
We deduct, from the sales that we record to distributors, allowances for future credits that we expect to provide for returns, scrapped product, and price adjustments under various programs made available to the distributors. We make deductions corresponding to particular sales in the period in which the sales are made, although the corresponding credits may not be issued until future periods. We estimate the deductions based on sales levels to distributors, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. We recorded deductions from gross sales under our distributor incentive programs of $59.6 million, $77.2 million, and $81.9 million, for the years ended December 31, 2009, 2008, and 2007, respectively, or, as a percentage of gross sales 2.8%, 2.7%, and 2.8%, respectively. We also assumed $5.6 million of liabilities for distributor incentive programs as part of our acquisitions in 2007. Actual credits issued under the programs for the years ended December 31, 2009, 2008, and 2007 were approximately $67.5 million, $79.9 million, and $79.6 million, respectively. Increases and decreases in these incentives are largely attributable to the then-current business climate.
 
As a result of a concentrated effort to defend our intellectual property and generate additional licensing income, we began receiving royalties in the fourth quarter of 2004. Royalty revenues, included in net revenues on the consolidated statements of operations, were $5.7 million, $3.0 million, and $7.8 million, for the years ended December 31, 2009, 2008, and 2007, respectively.
 
Gross Profit and Margins
 
Gross profit margins for the year ended December 31, 2009 were 19.0%, as compared to 21.2% for year ended December 31, 2008. This decrease in gross profit margin reflects significantly lower volume, lower average selling prices, and a less favorable product mix, which was partially offset by fixed cost reductions, positive foreign currency effects, and generally lower precious metals and raw materials costs.
 
Gross profit margins for the year ended December 31, 2008 were 21.2%, as compared to 24.5% for the year ended December 31, 2007. This decrease in gross profit margin reflects lower average selling prices, negative foreign currency effects, generally higher precious metals and raw materials costs, and a less favorable product mix. Gross profit margins for the year ended December 31, 2008 reflect losses on adverse purchase commitments of $6.0 million. Gross profit margins for 2007 were also negatively impacted by the acquisition of the PCS business, which has lower gross profit margins than legacy Vishay products.
 
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Segments
 
Analysis of revenues and gross profit margins for our Semiconductors and Passive Components segments is provided below.
 
Semiconductors
 
Net revenues of the Semiconductors segment were as follows (dollars in thousands):
 
Years ended December 31,
2009       2008       2007
Net revenues $      1,004,926 $      1,460,826   $     1,489,600
Change versus prior year $ (455,900 )   $ (28,774 )  
Percentage change versus prior year -31.2%     -1.9%  

Changes in Semiconductors segment net revenues were attributable to the following:
 
2009 vs. 2008       2008 vs. 2007
Change attributable to:
Change in volume -28.0 %   -3.4 %
Decrease in average selling prices -5.6 % -4.7 %
Foreign currency effects -0.5 % 2.1 %
Acquisitions 0.0 % 4.0 %
Other 2.9 % 0.1 %
Net change -31.2 % -1.9 %
 

Gross profit as a percentage of net revenues for the Semiconductors segment was as follows:
 
Years ended December 31,
2009       2008       2007
Gross margin percentage      14.5%        20.2%        23.8%

Changes in gross margin are largely driven by changes in net revenues, but also reflect the offsetting effects of our continuing cost cutting efforts.
 
Our Semiconductors segment has suffered significantly from the global economic recession. Profitability has suffered in an unprecedented manner due to the low sales volume in 2009 compared to 2008. The decrease in gross profit margins in 2009 versus 2008 reflects significantly lower volume and lower average selling prices, partially offset by our fixed cost reduction programs and favorable currency impacts. The decrease in gross profit margins in 2008 versus 2007 reflects lower average selling prices, higher precious metals and raw materials costs, a less favorable product sales mix, and some production inefficiencies. Gross profit margins for 2008 and 2007 were negatively impacted by the acquisition of the PCS business, which has lower gross profit margins than legacy Vishay products. Gross profit margin for 2008 also includes losses on purchase commitments of $3.7 million.
 
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Passive Components
 
Net revenues of the Passive Components segment were as follows (dollars in thousands):
 
Years ended December 31,
2009       2008       2007
Net revenues $      1,037,107 $      1,361,385 $      1,343,666
Change versus prior year $ (324,278 )   $ 17,719  
Percentage change versus prior year -23.8%   1.3%  

Changes in Passive Components segment net revenues were attributable to the following:
 
2009 vs. 2008       2008 vs. 2007
Change attributable to:
Change in volume -23.2 % -1.7 %
Change in average selling prices 0.7 % -1.1 %
Foreign currency effects -1.9 %   3.2 %
Acquisitions 0.4 % 0.9 %
Other 0.2 % 0.0 %
Net change -23.8 % 1.3 %
 

Gross profit as a percentage of net revenues for the Passive Components segment was as follows:
 
Years ended December 31,
2009       2008       2007
Gross margin percentage      23.4%        22.1%        25.4%

In light of the economic challenges, our Passive Components segment has maintained a respectable gross margin percentage. Average selling prices have been generally stable. In the second half of 2009, we experienced a recovery in all of our passive component products, which was driven by strong demand from European automotive products.
 
The increase in gross margin for 2009 compared to 2008 is due to lower fixed costs and slightly higher average selling prices, partially offset by lower volume. The decrease in gross margin for 2008 compared to 2007 reflects lower average selling prices, negative foreign currency effects, generally higher precious metals and raw materials costs, and a less favorable product mix. Gross profit margin for 2008 also includes losses on purchase commitments of $2.3 million.
 
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Selling, General, and Administrative Expenses
 
Selling, general, and administrative (“SG&A”) expenses are summarized as follows (dollars in thousands):
 
Years ended December 31,
2009       2008       2007
Total SG&A expenses $      359,162   $      450,879   $      439,017
       as a percentage of sales 17.6%   16.0%   15.5%

The overall decrease in total SG&A expenses in the year ended December 31, 2009 versus the year ended December 31, 2008 is primarily attributable to lower sales and our cost containment initiatives. The increase in SG&A as a percentage of revenues is primarily due to the decrease in revenues. The increase in total SG&A expenses in the year ended December 31, 2008 versus the year ended December 31, 2007 is generally attributable to a weaker U.S. dollar. Several items included in SG&A expenses impact the comparability of these amounts, as summarized below (in thousands):
 
Years ended December 31,
2009       2008       2007
Amortization of intangible assets $      22,731 $      20,798 $      16,566
Patent infringement case   -   6,600   -
Transition services agreements - 1,600 5,200
Net losses (gains) on sales of assets 460 (7,584 ) (3,490 )
Costs associated with intended spin-off
   4,500            

The increases in amortization expense are principally due to the acquisitions of our partner’s 51% interest in the Indian transducers joint venture, Powertron GmbH, and the wet tantalum capacitor business of KEMET Corporation in 2008 and the acquisition of the PCS business in 2007. Amortization expense also increased in 2008 and 2009 due to the initiation of amortization of certain tradenames after determining that these intangible assets were impaired and no longer should be considered indefinite-lived during the third fiscal quarter of 2008.
 
The transition services agreements were associated with our acquisition of the PCS business.
 
Of the $7.6 million net gains on sales of assets in 2008, approximately $4.5 million was realized in a single transaction. Of the $3.5 million net gains on sales of assets in 2007, approximately $3.1 million was realized in a single transaction.
 
Restructuring and Severance Costs and Related Asset Write-Downs
 
Our restructuring programs have been on-going since 2001. Our restructuring activities have been designed to reduce both fixed and variable costs. These activities include the closing of facilities and the termination of employees. Because costs are recorded based upon estimates, actual expenditures for the restructuring activities may differ from the initially recorded costs. If the initial estimates are too low or too high, we could be required either to record additional expenses in future periods or to reverse previously recorded expenses. We anticipate that we will realize the benefits of our restructuring through lower labor costs and other operating expenses in future periods. We continued our restructuring activities in 2009, recording restructuring and severance costs of $37.9 million and related asset write-downs of $0.7 million. We expect to continue to incur restructuring expenses to reduce our costs as explained in “Cost Management” above and in Note 4 to our consolidated financial statements.
 
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Other Income (Expense)
 
Interest expense for the years ended December 31, 2008 and December 31, 2007 has been recast for the retrospective adoption of FSP APB 14-1 (ASC Subtopic 470-20), which increased the reported loss from continuing operations attributable to Vishay stockholders by $0.8 million ($0.00 per share) for the year ended December 31, 2008 and decreased the reported income from continuing operations attributable to Vishay stockholders by $23.3 million ($0.11 per share) for the year ended December 31, 2007.
 
2009 Compared to 2008
 
Interest expense for the year ended December 31, 2009 decreased by $28.3 million compared to the year ended December 31, 2008. The decrease is primarily due to the repayment of the convertible subordinated notes on August 1, 2008 and lower interest rates on our variable rate debt.
 
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
 
Years ended December 31,
2009       2008       Change
Foreign exchange gain (loss) $ 5,039 $ (609 ) $      5,648
Interest income   3,917 12,642 (8,725 )
Dividend income 4   96   (92 )
Incentive from Chinese government - 800     (800 )
Other 831   1,947 (1,116 )
$         9,791 $         14,876 $ (5,085 )
 

2008 Compared to 2007
 
Interest expense for the year ended December 31, 2008 decreased by $13.3 million compared to the year ended December 31, 2007. This decrease is primarily due to the repayment of the convertible subordinated notes on August 1, 2008 and lower interest rates on our variable rate debt.
 
On August 1, 2008, the holders of our convertible subordinated notes had the option to require us to repurchase the notes for the principal amount of the notes. Substantially all (99.6%) of the holders of the notes exercised their option.
 
The following table analyzes the components of the line “Other” on the consolidated statements of operations (in thousands):
 
Years ended December 31,  
2008       2007       Change
Foreign exchange loss $        (609 ) $        (5,164 ) $      4,555
Interest income 12,642 19,419 (6,777 )
Dividend income 96   470   (374 )
Incentive from Chinese government 800     1,238   (438 )
Other   1,947 (15 )   1,962
$ 14,876 $ 15,948 $ (1,072 )
 

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Income Taxes
 
For the years ended December 31, 2009 and December 31, 2008, we recorded a negative effective tax rate, tax expense on a pre-tax loss, primarily because we recorded tax expense on earnings in certain jurisdictions while realizing losses in other jurisdictions without recording tax benefits. The effective tax rates for the years ended December 31, 2009 and December 31, 2008 were -42.3% and -0.7%, respectively as compared to 35.2% for the year ended December 31, 2007.
 
For the year ended December 31, 2009, we recognized no tax benefit associated with the executive employment agreement charge of $57.8 million discussed in Note 13 to our consolidated financial statements. We recorded no tax expense associated with the gain of $28.2 million recognized upon reimbursement of purchase price described in Note 2 to our consolidated financial statements.
 
Income tax expense for the years ended December 31, 2009, 2008 and 2007 include certain discrete tax items for changes in uncertain tax positions, valuation allowances, tax rates, actual and anticipated repatriation of cash to the United States, and other related items. These items total $2.0 million, $36.9 million and $8.3 million in 2009, 2008 and 2007, respectively.
 
Additionally, the relatively low effective tax rate for the year ended December 31, 2008 was principally attributable to the goodwill and indefinite-lived intangible asset impairment charges recorded in 2008. The vast majority of our goodwill was not deductible for income tax purposes. We recognized tax benefits of $55.2 million during 2008, associated with the goodwill and indefinite-lived intangible asset impairment charges.
 
In connection with the repurchase of the convertible subordinated notes on August 1, 2008, we repatriated approximately $250 million of cash from non-U.S. subsidiaries, incurring additional tax expense. We expected that we would need to repatriate additional cash to repay the term loan outstanding under our credit facility, and recorded additional tax expense in 2008 on this expected transaction because such earnings were not deemed to be indefinitely reinvested outside of the United States. Except for this expected cash need, cash and profits generated by foreign subsidiaries are expected to be reinvested outside of the United States indefinitely.
 
We operate in an international environment with significant operations in various locations outside the United States. Accordingly, the consolidated income tax rate is a composite rate reflecting our earnings and the applicable tax rates in the various locations where we operate. Part of our strategy is to achieve cost savings through the transfer and expansion of manufacturing operations to countries where we can take advantage of lower labor costs and available tax and other government-sponsored incentives. Accordingly, our effective tax rate is generally less than the U.S. statutory tax rate. Changes in the effective tax rate are largely attributable to changes in the mix of pretax income among our various taxing jurisdictions.
 
The effective tax rates reflect the fact that we could not recognize for accounting purposes the tax benefit of losses incurred in certain jurisdictions, although these losses may be available to offset future taxable income. Under applicable accounting principles, we may not recognize deferred tax assets for loss carryforwards in jurisdictions where there is a recent history of cumulative losses, where there is no taxable income in the carryback period, where there is insufficient evidence of future earnings to overcome the loss history and where there is no other positive evidence, such as the likely reversal of taxable temporary differences, that would result in the utilization of loss carryforwards for tax purposes.
 
Additional information about income taxes is included in Note 5 to our consolidated financial statements.
 
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Financial Condition, Liquidity, and Capital Resources
 
A worldwide financial crisis intensified significantly in the latter half of 2008 and continued into 2009. Although we experienced indicators of a recovery during the second half of 2009, the financial crisis has resulted in significant volatility in capital and commodities markets, decreased access to credit markets, and produced recessionary pressures through most of the world’s economies. We believe that we have adequate financial resources to weather another sudden decline in economic activity, and we remain confident for the long-term prospects for the electronics industry.
 
We focus on our ability to generate cash flows from operations. The cash generated from operations is used to fund our capital expenditure plans, and cash in excess of our capital expenditure needs is available to fund our acquisition strategy and to reduce debt levels. We have generated cash flows from operations in excess of $200 million in each of the past 8 years, and cash flows from operations in excess of $100 million in each of the past 15 years. A portion of the cash flows from operations was generated by the Vishay Precision Group which we intend to spin-off.
 
We refer to the amount of cash generated from operations in excess of our capital expenditure needs and net of proceeds from the sale of assets as “free cash,” a measure which management uses to evaluate our ability to fund acquisitions and repay debt. Vishay has generated positive “free cash” in each of the past 13 years, and “free cash” in excess of $80 million in each of the past 8 years. In this volatile economic environment, we continue to focus on the generation of free cash, including an emphasis on cost controls.
 
We continued to generate strong cash flows from operations and free cash during the year ended December 31, 2009 despite the challenging economic environment. There is no assurance, however, that we will be able to continue to generate cash flows from operations and free cash going forward if the current recovery stalls or does not continue as expected.
 
We utilized some of the cash generated from operations in prior years to reduce our debt levels in 2008 and 2009. Substantially all of the cash used in 2008 was repatriated to the United States from our non-U.S. subsidiaries. As more fully described in Note 6 to our consolidated financial statements, on August 1, 2008, Vishay repurchased substantially all of the convertible subordinated notes due 2023 for an aggregate purchase price of $498.1 million. The purchase price was paid in cash and funded from approximately $250 million of cash on-hand, $125 million of borrowings under the revolving credit facility, and $125 million from a new term loan. We made $25 million of payments on our term loan in 2009 and converted short-term notes into a $15 million debt payable over five years.
 
The following table summarizes the components of net debt (cash) at December 31, 2009 and December 31, 2008 (in thousands):
 
December 31, December 31,
2009       2008
Credit facility - revolving debt $      125,000 $      125,000
Credit facility - term loan 87,500 112,500
Exchangeable unsecured notes, due 2102 105,000 105,000
Convertible subordinated notes, due 2023   1,870   1,870
Other debt 16,736   2,305
Total debt 336,106 346,675
             
Cash and cash equivalents 579,189 324,164
Net debt (cash) $ (243,083 ) $ 22,511
 

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Measurements such as “free cash” and “net debt” do not have uniform definitions and are not recognized in accordance with GAAP. Such measures should not be viewed as alternatives to GAAP measures of performance or liquidity. However, management believes that “free cash” is a meaningful measure of our ability to fund acquisitions and repay debt, and that an analysis of “net debt” assists investors in understanding aspects of our cash and debt management. These measures, as calculated by Vishay, may not be comparable to similarly titled measures used by other companies.
 
Substantially all of our December 31, 2009 cash and cash equivalents balance was held by our non-U.S. subsidiaries. We expect that we will need to repatriate additional cash to repay a portion of the term loan outstanding under our credit facility. At the present time, we expect the remaining cash and profits generated by foreign subsidiaries will continue to be reinvested outside of the United States indefinitely. If additional cash is needed to be repatriated to the United States, we would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits), state income taxes, incremental foreign income taxes, and withholding taxes payable to various foreign countries.
 
Our financial condition as of December 31, 2009 continued to be strong, with a current ratio (current assets to current liabilities) of 3.5 to 1, as compared to a ratio of 2.9 to 1 as of December 31, 2008. This increase is primarily due to an increase in cash at December 31, 2009. Our ratio of total debt to Vishay stockholders’ equity was 0.22 to 1 at December 31, 2009, the same ratio as of December 31, 2008.
 
Cash flows provided by continuing operating activities were $290.4 million for the year ended December 31, 2009, as compared to cash flows provided by operations of $268.5 million for the year ended December 31, 2008. This increase is principally due to favorable changes in net working capital during the year ended December 31, 2009 versus the prior year.
 
Cash paid for property and equipment for the year ended December 31, 2009 was $50.3 million, as compared to $152.0 million for the year ended December 31, 2008. To preserve cash, we significantly curtailed our capital spending in the latter half of 2008 and 2009 as a result of the economic uncertainty. This reduced level of annual capital spending was temporary and not sustainable. We expect capital spending to increase to $135 million in 2010.
 
Cash provided by investing activities for the year ended December 31, 2009 includes a net cash inflow of $28.2 million, representing a partial refund of purchase price, net of related expenses, subsequent to entering a settlement agreement with International Rectifier Corporation. This settlement is more fully described in Note 2 to our consolidated financial statements. Cash used for investing activities for the year ended December 31, 2008 included a total $74.2 million paid for the acquisitions of our partner’s 51% interest in a transducer manufacturing joint venture, Powertron GmbH, and the KEMET wet tantalum business. Included in the amount is a $15 million loan extended to KEMET as part of the wet tantalum business acquisition. Cash used for investing activities for the year ended December 31, 2007 included a total $331.8 million paid for the acquisitions of the PCS business and PM Group, net of cash acquired. Proceeds from sale of businesses of $18.7 million include approximately $16.1 million from the sale of PM Group’s electrical contracting business.
 
Cash used by discontinued operating activities of $3.2 million for year ended December 31, 2009 reflect payments to settle certain outstanding disputes with the buyer of the ASBU business. The expenses associated with these cash payments were accrued in the fourth quarter of 2008. Cash used by discontinued operating activities of $12.8 million for the year ended December 31, 2008 primarily reflects receivables collected by Vishay and remitted to the purchaser of the ASBU business pursuant to the transaction agreement. Cash provided by discontinued investing activities for the year ended December 31, 2008 reflects the proceeds of sale of the ASBU business, net of capital spending for information technology systems. Cash used by discontinued operating activities of $10.2 million for the year ended December 31, 2007 primarily reflects an increase in working capital of the ASBU business.
 
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We maintain a credit facility, which provides a revolving commitment of up to $250 million through April 20, 2012, and a term loan which requires semi-annual principal payments through 2011. At December 31, 2009 and December 31, 2008, the term loan balance was $87.5 million and $112.5 million, respectively. At both December 31, 2009 and 2008, $125.0 million was outstanding under the revolving credit facility. We made the installment payment on the term loan that was due on January 1, 2010 on December 31, 2009. We may be required to renegotiate the credit facility to complete the intended spin-off of the Vishay Precision Group.
 
Interest on the credit facility is payable at prime or other variable interest rate options. We are required to pay facility commitment fees. As a result of the amendment to the credit facility entered effective July 31, 2009, the interest rates applicable to amounts outstanding under the revolving credit commitment have increased by 40 basis points (to LIBOR plus 1.52% at the current leverage ratio). The interest rates applicable to amounts outstanding under the term loan arrangement have not changed (LIBOR plus 2.50% at the current leverage ratio).
 
The credit facility restricts us from paying cash dividends and requires us to comply with other covenants, including the maintenance of specific financial measures and ratios.
 
The financial maintenance covenants include (a) tangible net worth (as defined in the credit facility) of $1 billion plus 50% of net income (without offset for losses) and 75% of net proceeds of equity offerings since December 31, 2006; (b) a leverage ratio of not more than 3.50 to 1; (c) a fixed charge coverage ratio (“FCCR”) of not less than 2.50 to 1; and (d) a senior debt (as defined in the credit facility) to consolidated EBITDA ratio of not more than 2.00 to 1. The computation of these ratios is prescribed in Article 7 of the Vishay Intertechnology, Inc. Fourth Amended and Restated Credit Agreement, which has been filed with the SEC as Exhibit 10.1 to our current report on Form 8-K filed June 25, 2008.
 
We were in compliance with all covenants at December 31, 2009. Our tangible net worth, calculated pursuant to the terms of the credit facility, was $1,264 million, which is $183 million more than the minimum required under the related credit facility covenant. Our leverage ratio, fixed charge coverage ratio, and senior debt ratio were 1.29 to 1, 6.15 to 1, and 0.89 to 1, respectively.
 
We expect to continue to be in compliance with these covenants based on current projections. We also have mechanisms, including deferral of capital expenditures and other discretionary spending, to facilitate on-going compliance.
 
If we are not in compliance with all of the required financial covenants, the credit facility could be terminated by the lenders, and all amounts outstanding pursuant to the credit facility (including the term loan) could become immediately payable. Additionally, our exchangeable unsecured notes due 2102 have cross-default provisions that could accelerate repayment in the event the indebtedness under the credit facility is accelerated.
 
Borrowings under the credit facility are secured by accounts receivable, inventory, machinery and equipment, and general intangibles (but excluding real estate and bank accounts) of Vishay and subsidiaries located in the United States, accounts receivable of a German subsidiary, certain intercompany loans owed to a significant German subsidiary, pledges of stock in certain significant subsidiaries, and certain guarantees by significant subsidiaries. The subsidiaries would be required to perform under the guarantees in the event that Vishay failed to make principal or interest payments under the credit facility. Certain of our subsidiaries are permitted to borrow up to a limit of $125 million under the credit facility. Any borrowings by these subsidiaries under the credit facility are guaranteed by Vishay.
 
While the timing and location of scheduled payments for certain liabilities will require us to draw additional amounts on our credit facility from time to time, for the next twelve months, management expects that cash on-hand and cash flows from operations will be sufficient to meet our normal operating requirements, to meet our obligations under restructuring and acquisition integration programs, to fund scheduled debt maturities, and to fund our research and development and capital expenditure plans. Acquisition activity may require additional borrowing under our credit facility or may otherwise require us to incur additional debt.
 
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Contractual Commitments
 
As of December 31, 2009 we had contractual obligations as follows (in thousands):
 
Payments due by period
                  Years       Years       More than
  Total   Year 1   2-3   4-5 5
Long-term debt $ 336,106 $ 16,054 $ 204,500 $ 9,905 $ 105,647
Interest payments on long-term debt   35,005   4,670 5,606   1,112 23,617
Operating leases 109,580 23,402 32,828 22,677 30,673
Expected pension and
       postretirement plan funding 357,542 29,875 62,953 70,439 194,275
Estimated costs to complete
       construction in progress 20,900 20,900 - - -
Uncertain tax positions 54,463 - - - 54,463
Purchase commitments 65,140 28,693 36,447 - -
Executive employment agreement 50,000 10,000 20,000 20,000 -
Total contractual cash obligations $      1,028,736 $      133,594 $      362,334 $      124,133 $      408,675
 

Commitments for interest payments on long-term debt are based on the stated maturity dates of each agreement, one of which bears a maturity date of 2102. Various factors could have a material effect on the amount of future interest payments. Among other things, interest commitments are based on the rate prevailing at December 31, 2009, but actual rates are variable and are certain to change over time. Also, approximately $105 million of our outstanding debt is exchangeable for common stock at the option of the holder, although the price of our common stock is currently substantially below the level at which conversion would be economical to the holders. Commitments for interest payments on long-term debt also include commitment fees under our revolving credit facility, which expires in April 2012.
 
Our consolidated balance sheet at December 31, 2009 includes approximately $54.5 million of liabilities associated with uncertain tax positions in multiple taxing jurisdictions where we conduct business. Due to the uncertain and complex application of tax regulations, combined with the difficulty in predicting when tax audits throughout the world may be concluded, we cannot make reliable estimates of the timing of cash outflows relating to these liabilities. Accordingly, the uncertain tax positions are classified as payments due after five years, although actual timing of payments may be sooner.
 
We maintain long-term foundry agreements with subcontractors to ensure access to external front-end capacity for our semiconductor products. The purchase commitments in the table above include the estimated minimum commitments for silicon wafers under these agreements. Our actual purchases in future periods are expected to be greater than these minimum commitments.
 
GAAP requires that management evaluate if purchase commitments are at prices in excess of current market price. The purchase commitments for silicon wafers described above are for the manufacture of proprietary products using Vishay Siliconix-owned technology licensed to this subcontractor by Siliconix, and accordingly, management can only estimate the “market price” of the wafers which are the subject of these commitments. Management believes that these commitments are at prices which are not in excess of estimated current market prices.
 
As more fully described in Note 13 to our consolidated financial statements, on May 13, 2009, we entered into an amended and restated employment agreement with Dr. Felix Zandman, our Executive Chairman, Chief Technical and Business Development Office, and founder. Pursuant to the amended and restated employment agreement, Dr. Zandman received $10 million upon signing the agreement and will receive five additional annual payments of $10 million each.
 
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For a further discussion of our long-term debt, pensions and other postretirement benefits, leases, uncertain tax positions, executive employment agreements, and purchase commitments, see Notes 5, 6, 11, 13, and 14 to our consolidated financial statements.
 
Inflation
 
Normally, inflation does not have a significant impact on our operations as our products are not generally sold on long-term contracts. Consequently, we can adjust our selling prices, to the extent permitted by competition, to reflect cost increases caused by inflation.
 
See also Item 7A, “Quantitative and Qualitative Disclosures About Market Risk – Commodity Price Risk” for additional related information.
 
Recent Accounting Pronouncements
 
As more fully described in Note 1 to our consolidated financial statements, several new accounting pronouncements became effective in 2009 or will become effective in future periods.
 
In June 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles (ASC Topic 105), which establishes the FASB Accounting Standards Codification (“the Codification” or “ASC”) as the official single source of authoritative GAAP. All existing accounting standards were superseded. All other accounting guidance not included in the Codification is considered non-authoritative. The Codification also includes all relevant SEC guidance organized using the same topical structure in separate sections within the Codification.
 
Following the Codification, the Board does not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it issues Accounting Standards Updates (“ASU”) which serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification.
 
The Codification is not intended to change GAAP, but it changes the way GAAP is organized and presented. The Codification was effective beginning with the Company’s third fiscal quarter 2009 financial statements and the principal impact on the financial statements was limited to disclosures as all references to authoritative accounting literature are referenced in accordance with the Codification. In order to ease the transition to the Codification, the Company is providing the Codification cross-reference alongside the references to the standards issued and adopted prior to the adoption of the Codification.
 
The adoption of SFAS No. 141-R, Business Combinations (ASC Topic 805), effective January 1, 2009, changed the manner in which we account for acquisitions. While this new guidance impacted all companies that make acquisitions, certain aspects of the new guidance had and will continue to have a particular impact on Vishay.
 
A primary tenet of our business strategy has been the expansion within the electronic components industry 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. Our acquisition strategy relies upon reducing selling, general, and administrative expenses through the integration or elimination of redundant sales offices and administrative functions at acquired companies, and achieving significant production cost savings through the transfer and expansion of manufacturing operations to countries where we can benefit from lower labor costs and available tax and other government-sponsored incentives.
 
Under previous accounting guidance, plant closure and employee termination costs that we incurred in connection with our acquisition activities were included in the costs of our acquisitions and did not affect earnings or losses on our consolidated statement of operations. SFAS No. 141-R (ASC Topic 805) requires such costs to be recorded as expenses in our consolidated statement of operations, as such expenses are incurred.
 
Except as described above, the adoption of the new standards described in Note 1 to our consolidated financial statements is not expected to have a material effect on our financial position, results of operations, or liquidity.
 
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market Risk Disclosure
 
We are exposed to certain financial risks, including fluctuations in foreign currency exchange rates, interest rates, and commodity prices. We manage our exposure to these market risks through internally established policies and procedures and, when deemed appropriate, through the use of derivative financial instruments. Our policies do not allow speculation in derivative instruments for profit or execution of derivative instrument contracts for which there are no underlying exposures. We do not use financial instruments for trading purposes and we are not a party to any leveraged derivatives. We monitor our underlying market risk exposures on an ongoing basis and believe that we can modify or adapt our hedging strategies as needed.
 
Interest Rate Risk
 
We are exposed to changes in interest rates as a result of our borrowing activities and our cash balances. On a selective basis, we have in the past entered into interest rate swap or cap agreements to reduce the potential negative impact that increases in interest rates could have on our outstanding variable rate debt. As of December 31, 2009, 2008, and 2007 we did not have any outstanding interest rate swap or cap agreements.
 
We are exposed to changes in interest rates on substantially all of our outstanding debt. The exchangeable notes, of which $105 million are outstanding, bear interest at LIBOR (reset quarterly).
 
The interest paid on our credit facility is based on a LIBOR spread. At December 31, 2009, we had $125 million outstanding under the revolving credit facility and $87.5 million outstanding under the term loan facility. The present amounts outstanding under the revolving credit commitment bears interest at LIBOR plus 1.52%, and the term loan bears interest at LIBOR plus 2.50%.
 
At December 31, 2009, we have $579.2 million of cash and cash equivalents, which accrues interest at various variable rates.
 
Based on the debt and cash positions at December 31, 2009, we would expect a 50 basis point increase or decrease in interest rates to increase or decrease our annualized net earnings by approximately $0.9 million.
 
See Note 6 to our consolidated financial statements for additional information about our long-term debt. Also see “Economic Outlook and Impact on Operations and Future Financial Results” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional discussion of market risks.
 
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Foreign Exchange Risk
 
We are exposed to foreign currency exchange rate risks, particularly due to market values of transactions in currencies other than the functional currencies of certain subsidiaries. From time to time, we utilize forward contracts to hedge a portion of projected cash flows from these exposures. As of December 31, 2009, we did not have any outstanding foreign currency forward exchange contracts.
 
Our significant foreign subsidiaries are located in Germany, Israel, and Asia. We finance our operations in Europe and certain locations in Asia in local currencies. Our operations in Israel and most significant locations in Asia are largely financed in U.S. dollars, but these subsidiaries also have significant transactions in local currencies. Our exposure to foreign currency risk is mitigated to the extent that the costs incurred and the revenues earned in a particular currency offset one another. Our exposure to foreign currency risk is more pronounced in Israel, the Czech Republic, and China because the percentage of expenses denominated in Israeli shekels, Czech koruna, and Chinese renminbi to total expenses is much greater than the percentage of sales denominated in Israeli shekels, Czech koruna, and Chinese renminbi to total sales. Therefore, if the Israeli shekel, Czech koruna, and Chinese renminbi strengthen against all or most of our other major currencies, our operating profit is reduced. We also have a higher percentage of Euro-denominated sales than expenses. Therefore, when the Euro strengthens against all or most of our other major currencies, our operating profit is increased. Accordingly, we monitor several important cross-rates.
 
We have performed sensitivity analyses as of December 31, 2009 and 2008, using a model that measures the change in the values arising from a hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar, with all other variables held constant. The foreign currency exchange rates we used were based on market rates in effect at December 31, 2009 and 2008. The sensitivity analyses indicated that a hypothetical 10% adverse movement in foreign currency exchange rates would impact our net earnings by approximately $6.4 million and $3.7 million at December 31, 2009 and December 31, 2008, respectively, although individual line items in our consolidated statement of operations would be materially affected. For example, a 10% weakening in all foreign currencies would increase the U.S. dollar equivalent of operating income generated in foreign currencies, which would be offset by foreign exchange losses of our foreign subsidiaries that have significant transactions in U.S. dollars or have the U.S. dollar as their functional currency.
 
A change in the mix of the currencies in which we transact our business could have a material effect on the estimated impact of the hypothetical 10% movement in the value of the U.S. dollar. Furthermore, the timing of cash receipts and disbursements could result in materially different actual results versus the hypothetical 10% movement in the value of the U.S. dollar, particularly if there are significant changes in exchange rates in a short period of time.
 
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Commodity Price Risk
 
Although most materials incorporated in our products are available from a number of sources, certain materials are available only from a relatively limited number of suppliers or are subject to significant price volatility. Our results of operations may be materially and adversely affected if we have difficulty obtaining these raw materials, the quality of available raw materials deteriorates, or there are significant price changes for these raw materials. For periods in which the prices of these raw materials are rising, we may be unable to pass on the increased cost to our customers which would result in decreased margins for the products in which they are used. For periods in which the prices are declining, we may be required to write down our inventory carrying cost of these raw materials, since we record our inventory at the lower of cost or market. Depending on the extent of the difference between market price and our carrying cost, this write-down could have a material adverse effect on our net earnings. We also may need to record losses for adverse purchase commitments for these materials in periods of declining prices.
 
We are a major consumer of the world’s annual production of tantalum, a metal used in the manufacturing of tantalum capacitors. There are few suppliers that process tantalum ore into capacitor grade tantalum powder. We acquire tantalum raw material from all of them under short-term commitments. See Note 14 to our consolidated financial statements for information on our previous long-term tantalum purchase commitments, which expired in 2006.
 
Palladium, a metal used to produce multi-layer ceramic capacitors, is currently found primarily in South Africa and Russia. Palladium is a commodity metal that is subject to price volatility. We periodically enter into short-term commitments to purchase palladium.
 
Certain metals used in the manufacture of our products are traded on active markets, and can be subject to significant price volatility. Our policy is to enter into short-term commitments to purchase defined portions of annual consumption of these metals if market prices decline below budget. For much of 2008, these metals were trading near all-time record-high prices. During the fourth quarter of 2008, as metals prices declined significantly from these record-high prices, we entered into commitments to purchase a portion of our estimated 2009 metals needs, principally for copper and palladium. After entering into these commitments, the market prices for these metals continued to decline. As a result, we recorded losses on these adverse purchase commitments during the fourth quarter of 2008.
 
We estimate that a 10% increase or decrease in the costs of raw materials subject to commodity price risk would decrease or increase our net earnings by $7.5 million, assuming that such changes in our costs have no impact on the selling prices of our products and that we have no pending commitments to purchase metals at fixed prices.
 
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements required by this Item are included herein, commencing on page F-1 of this report.
 
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
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Item 9A. CONTROLS AND PROCEDURES
 
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are: (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms; and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.
 
Ernst & Young LLP has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated in their report which is included herein on page F-3.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Certifications
 
The certifications of our CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as Exhibits 31.1 and 31.2 to this Annual Report on Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.
 
Item 9B. OTHER INFORMATION
 
None.
 
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PART III
 
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 
We have a code of ethics applicable to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or Controller, and financial managers. The text of this code has been posted on our website. To view the code, go to our website at ir.vishay.com and click on Corporate Governance. You can obtain a printed copy of this code, free of charge, by contacting us at the following address:
 
     Corporate Investor Relations
     Vishay Intertechnology, Inc.
    
63 Lancaster Avenue
     Malvern, PA 19355-2143
 
It is our intention to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendment to, or any waiver from, a provision of this code by posting such information on our website, at the aforementioned address and location.
 
Certain information required under this Item with respect to our Executive Officers is set forth in Part I hereof under the caption “Executive Officers of the Registrant.”
 
Other information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2009, our most recent fiscal year end, and is incorporated herein by reference.
 
Item 11. EXECUTIVE COMPENSATION
 
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2009, our most recent fiscal year end, and is incorporated herein by reference.
 
Item 12.  
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2009, our most recent fiscal year end, and is incorporated herein by reference.
 
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2009, our most recent fiscal year end, and is incorporated herein by reference.
 
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Information required under this Item will be contained in our definitive proxy statement, which will be filed within 120 days of December 31, 2009, our most recent fiscal year end, and is incorporated herein by reference.
 
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PART IV
 
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a) Documents Filed as Part of Form 10-K
 
1.      
Financial Statements
 
 
The Consolidated Financial Statements for the year ended December 31, 2009 are filed herewith. See Index to the Consolidated Financial Statements on page F-1 of this report.
 
2.
Financial Statement Schedules
 
 
All financial statement schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
 
3.  
Exhibits
 
  2.1      
Master Purchase Agreement dated as of November 8, 2006, by and between Vishay Intertechnology, Inc. and International Rectifier Corporation with respect to all outstanding capital stock of International Rectifier Canada Limited, International Rectifier Electronic Motion Systems Ltd., IR Germany Holdings GmbH, International Rectifier (India) Limited, International Rectifier Corporation Italiana S.p.A. and Xi’an IR Micro-Electronics Co., Ltd. and certain of the assets of International Rectifier Corporation. Incorporated by reference to Exhibit 2.1 to International Rectifier Corporation’s current report on Form 8-K filed November 14, 2006.
 
  2.9*  
Amendment and Waiver Agreement, dated as of March 30, 2007, by and between Vishay Intertechnology, Inc., Siliconix inc., V.I.E.C., Ltd., Vishay Europe GmbH, Siliconix Semiconductor, Inc. (acting in its function as managing partner of the limited partnership, Siliconix Technology C.V.), Vishay Americas, Inc., Vishay Asia Logistics Pte. Ltd., and International Rectifier Corporation, International Rectifier Southeast Asia Pte, Ltd and IR International Holdings China, Inc. Incorporated by reference to Exhibit 2.1 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
  2.10  
Asset Purchase Agreement dated as of September 15, 2008, by and between KEMET Electronics Corporation (a wholly-owned subsidiary of KEMET Corporation) and Siliconix Technology C.V. (a wholly-owned subsidiary of Vishay Intertechnology, Inc.). Incorporated by reference to Exhibit 2.1 to our quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2008.
 
  3.1  
Amended and Restated Certificate of Incorporation of Vishay Intertechnology, Inc. dated May 28, 2008. Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed May 28, 2008.
 
  3.2  
Amended and Restated Bylaws dated May 28, 2008. Incorporated by reference to Exhibit 3.2 to our current report on Form 8-K filed May 28, 2008.
 
  4.1  
Warrant Agreement between Vishay Intertechnology, Inc. and American Stock Transfer & Trust Co., dated December 13, 2002. Incorporated by reference to Exhibit 4.1 to our current report on Form 8-K filed December 23, 2002.
 
  4.2  
Note Instrument, dated as of December 13, 2002. Incorporated by reference to Exhibit 4.3 to our current report on Form 8-K filed December 23, 2002.
 
  4.3  
Indenture, dated as of August 6, 2003, by and between Vishay Intertechnology, Inc. and Wachovia Bank, National Association. Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-3 (No. 333-110259) filed on November 5, 2003.
 
  10.1  
Vishay Intertechnology Section 162(m) Cash Bonus Plan. Incorporated by reference to Annex B to our Proxy Statement, dated April 7, 2004, for our 2004 Annual Meeting of Stockholders.
 

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         10.2      
Vishay Intertechnology Senior Executive Phantom Stock Plan. Incorporated by reference to Annex C to our Proxy Statement, dated April 7, 2004, for our 2004 Annual Meeting of Stockholders.
 
10.3  
Vishay Intertechnology, Inc. Fourth Amended and Restated Credit Agreement, dated as of June 24, 2008. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed June 25, 2008.
 
10.4  
First Amendment to the Vishay Intertechnology, Inc. Fourth Amended and Restated Credit Agreement. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed December 16, 2008.
 
10.5  
Second Amendment to Vishay Intertechnology, Inc. Fourth Amended and Restated Credit Agreement. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed July 31, 2009.
 
10.6  
Vishay Intertechnology, Inc. 1998 Stock Option Program. Incorporated by reference to our Proxy Statement, dated April 16, 1998, for our 1998 Annual Meeting of Stockholders.
 
10.7  
Amendment to Section 4.1 of Vishay’s 1998 Stock Option Program. Incorporated by reference to Proposal Three, included in our Proxy Statement, dated April 16, 2007, for our 2007 Annual Meeting of Stockholders.
 
10.8  
General Semiconductor, Inc. Amended and Restated 1998 Long-Term Incentive Plan as amended on February 7, 2001. Incorporated by reference to Exhibit 10.9 to General Semiconductor’s annual report on Form 10-K for the year ended December 31, 2000.
 
10.9  
Vishay Intertechnology, Inc. 2007 Stock Incentive Program (as amended and restated effective April 2008). Incorporated by reference to Annex A to our Proxy Statement, dated April 16, 2008, for our 2008 Annual Meeting of Stockholders.
 
10.10  
Vishay Intertechnology, Inc. 2007 Stock Incentive Program (as amended and restated effective February 2009). Incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q filed on May 5, 2009.
 
10.11  
Money Purchase Plan Agreement of Measurements Group, Inc. Incorporated by reference to Exhibit 10(a)(6) to Amendment No. 1 to our Registration Statement on Form S-7 (No. 2-69970).
 
10.12  
Securities Investment and Registration Rights Agreement by and among Vishay Intertechnology, Inc. and the Original Holders (as defined), dated as of December 13, 2002. Incorporated by reference to Exhibit 4.4 to our current report on Form 8-K filed December 23, 2002.
 
10.13  
Note Purchase Agreement between Vishay Intertechnology, Inc. and Subscribers (as defined), dated as of December 13, 2002. Incorporated by reference to Exhibit 4.2 to our current report on Form 8-K filed December 23, 2002.
 
10.14  
Put and Call Agreement between Vishay Intertechnology, Inc. and the Initial Holders (as defined), dated as of December 13, 2002. Incorporated by reference to Exhibit 4.5 to our current report on Form 8-K filed December 23, 2002.
 
10.15  
Amended and Restated Employment Agreement between Vishay Intertechnology, Inc. and Dr. Felix Zandman. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K/A filed May 15, 2009.
 
10.16  
Employment agreement, between Vishay Israel Ltd. (a wholly owned subsidiary of Vishay Intertechnology, Inc.) and Marc Zandman. Incorporated by reference to Exhibit 10.2 to our quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
 
10.17  
Employment agreement, between Vishay Europe GmbH (an indirect wholly owned subsidiary of Vishay Intertechnology, Inc.) and Dr. Gerald Paul. Incorporated by reference to Exhibit 10.3 to our quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
 
10.19  
Consulting and Non-Competition Agreement between Vishay Intertechnology, Inc. and Richard N. Grubb. Incorporated by reference to Exhibit 10.17 to our 2008 annual report on Form 10-K.
 
10.20   Employment agreement, between Vishay Israel Ltd. (a wholly owned subsidiary of Vishay Intertechnology, Inc.) and Ziv Shoshani. Incorporated by reference to Exhibit 10.5 to our quarterly report on Form 10-Q for the fiscal quarter ended October 2, 2004.
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10.21
Employment agreement, between Vishay Intertechnology, Inc. and Dr. Lior E. Yahalomi. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K/A filed December 10, 2008.
 
         10.22      
Technology License Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.1 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.23
Technology License Back Agreement, dated as of April 1, 2007, by and between Vishay Intertechnology, Inc. and International Rectifier Corporation. Incorporated by reference to Exhibit 99.2 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.24
Trademark License Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.3 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.25
IR Trademark License Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.4 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.26  
Amended and Restated Transition Services Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.5 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.27*  
Transition Product Services Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation, International Rectifier Southeast Asia Pte. Ltd., Vishay Intertechnology, Inc., and Vishay Asia Logistics Pte. Ltd. Incorporated by reference to Exhibit 99.6 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.28
Transition Buy Back Die Supply Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.7 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.29
Transition IGBT/Auto Die Supply Agreement, dated as of April 1, 2007, by and between International Rectifier Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 99.8 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.30
Indemnification Escrow Agreement, dated as of April 1, 2007, by and among Vishay Intertechnology, Inc., International Rectifier Corporation and Union Bank of California, N.A., as escrow agent. Incorporated by reference to Exhibit 99.9 to International Rectifier Corporation’s current report on Form 8-K filed April 9, 2007.
 
10.31*  
Confidential Settlement Agreement and Release, Amendment No. 1 to Transition Buy Back Die Supply Agreement, Amendment No. 2 to Technology License Agreement, Amendment No. 7 to Master Purchase Agreement, and Amendment No. 3 to Asset Purchase Agreement, dated June 25, 2009, by and between Vishay Intertechnology, Inc. and International Rectifier Corporation. Incorporated by reference to Exhibit 10.1 to International Rectifier Corporation’s current report on Form 8-K/A filed July 29, 2009.
 
10.32
Loan Agreement dated as of September 15, 2008, between KEMET Electronics Corporation and Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2008.
 
10.33
Pledge and Security Agreement dated as of September 15, 2008 made by KEMET Electronics Corporation in favor of Vishay Intertechnology, Inc. Incorporated by reference to Exhibit 10.1 to our quarterly report on Form 10-Q for the fiscal quarter ended September 27, 2008.
 
21
Subsidiaries of the Registrant.
 
23.1
Consent of Independent Registered Public Accounting Firm.
 
31.1
Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.

-71-
 


31.2      
Certification pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
 
         32.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.
 
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
____________________
 
* International Rectifier Corporation has requested confidential treatment with respect to certain portions of this agreement, which have been omitted from the exhibit. The omitted portions have been filed separately by International Rectifier with the Securities and Exchange Commission. Certain schedules have been omitted in reliance upon Item 601(b)(2) of Regulation S-K. Vishay agrees to furnish the SEC, supplementally, a copy of any omitted schedule upon request.
 
-72-
 


SIGNATURES
 
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
VISHAY INTERTECHNOLOGY, INC.
 
By:     /s/ Gerald Paul
Dr. Gerald Paul
President and Chief Executive Officer  
 
February 26, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
 
Signature       Title       Date
Principal Executive Officer:
 
/s/ Gerald Paul President, Chief Executive Officer, February 26, 2010
Dr. Gerald Paul and Director
 
Principal Financial Officer:
 
/s/ Lior E. Yahalomi Executive Vice President and Chief February 26, 2010
Dr. Lior E. Yahalomi Financial Officer
 
Principal Accounting Officer:
 
/s/ Lori Lipcaman Executive Vice President and Chief February 26, 2010
Lori Lipcaman Accounting Officer
 
Board of Directors:
 
/s/ Felix Zandman Executive Chairman of February 26, 2010
Dr. Felix Zandman the Board of Directors
 
/s/ Marc Zandman Vice-Chairman of February 26, 2010
Marc Zandman the Board of Directors
 
/s/ Zvi Grinfas Director February 26, 2010
Zvi Grinfas
 
  Director February 26, 2010
Eli Hurvitz
 
/s/ Abraham Ludomirski Director February 26, 2010
Abraham Ludomirski  

-73-
 


/s/ Wayne M. Rogers       Director       February 26, 2010
Wayne M. Rogers
 
/s/ Ronald M. Ruzic Director February 26, 2010
Ronald M. Ruzic
 
/s/ Ziv Shoshani Director February 26, 2010
Ziv Shoshani
 
/s/ Thomas C. Wertheimer Director February 26, 2010
Thomas C. Wertheimer
 
/s/ Ruta Zandman Director February 26, 2010
Ruta Zandman

-74-
 


Vishay Intertechnology, Inc.
 
Index to Consolidated Financial Statements
 
Reports of Independent Registered Public Accounting Firm F-2
 
Audited Consolidated Financial Statements  
 
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-6
Consolidated Statements of Cash Flows F-7
Consolidated Statements of Stockholders’ Equity F-8
Notes to Consolidated Financial Statements F-10

F-1
 


Report of Independent Registered Public Accounting Firm
on the Consolidated Financial Statements
 
The Board of Directors and Stockholders of Vishay Intertechnology, Inc.:
 
We have audited the accompanying consolidated balance sheets of Vishay Intertechnology, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vishay Intertechnology, Inc. at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Vishay Intertechnology, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010 expressed an unqualified opinion thereon.
 
  /s/ Ernst & Young LLP
 
 
Philadelphia, Pennsylvania  
February 26, 2010  

F-2
 


Report of Independent Registered Public Accounting Firm
on Internal Control over Financial Reporting
 
The Board of Directors and Stockholders of Vishay Intertechnology, Inc.:
 
We have audited Vishay Intertechnology Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Vishay Intertechnology Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Vishay Intertechnology, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Vishay Intertechnology, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2009 of Vishay Intertechnology, Inc. and our report dated February 26, 2010 expressed an unqualified opinion thereon.
 
  /s/ Ernst & Young LLP
 
 
Philadelphia, Pennsylvania  
February 26, 2010  

F-3
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets
(In thousands, except share amounts)
 
December 31, December 31,
2009       2008
(recast - see Note 1)
Assets
Current assets:
       Cash and cash equivalents $ 579,189 $ 324,164
 
       Accounts receivable, net of allowances for doubtful    
              accounts of $9,253 and $3,310, respectively 284,295 311,197
 
       Inventories:  
              Finished goods 119,723 173,280
              Work in process 192,206     211,320
              Raw materials 122,940   153,419
       Total inventories 434,869 538,019
 
       Deferred income taxes 16,781 15,251
       Prepaid expenses and other current assets 92,409 139,903
Total current assets 1,407,543 1,328,534
 
Property and equipment, at cost:
       Land 98,623 98,827
       Buildings and improvements 528,438 508,579
       Machinery and equipment 2,126,226 2,091,124
       Construction in progress 36,193 80,857
       Allowance for depreciation        (1,779,224 )        (1,617,225 )
1,010,256 1,162,162
 
Intangible assets, net 153,623 177,782
 
Other assets 148,124 147,482
              Total assets $ 2,719,546 $ 2,815,960  

Continues on following page.
 
F-4
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Balance Sheets (continued)
(In thousands, except share amounts)
 
December 31, December 31,
2009       2008
(recast - see Note 1)
Liabilities and stockholders' equity  
Current liabilities:  
       Notes payable to banks $ 24   $ 11,293  
       Trade accounts payable 118,216 104,608
       Payroll and related expenses   87,566   117,197
       Other accrued expenses 162,083 191,086
       Income taxes 23,558 24,901
       Current portion of long-term debt 16,054 13,044
Total current liabilities 407,501 462,129
 
Long-term debt, less current portion 320,052 333,631
Deferred income taxes 13,062 18,842
Deferred grant income 2,526 3,143
Other liabilities 152,874 123,207
Accrued pension and other postretirement costs 301,930 325,112
Total liabilities 1,197,945 1,266,064
 
Commitments and contingencies
 
Stockholders' equity:
       Preferred stock, par value $1.00 per share:
              authorized - 1,000,000 shares; none issued
       Common stock, par value $0.10 per share:
              authorized - 300,000,000 shares; 172,283,533 and 172,200,536
              shares outstanding after deducting 274,173 shares in
              treasury 17,228 17,220
       Class B convertible common stock, par value $0.10 per share:
              authorized - 40,000,000 shares; 14,352,888 and 14,352,888
              shares outstanding after deducting 279,453 shares in
              treasury 1,435 1,435
       Capital in excess of par value 2,317,613 2,315,851
       (Accumulated deficit) retained earnings (922,805 ) (865,617 )
       Accumulated other comprehensive income (loss) 102,975 75,969
       Total Vishay stockholders' equity 1,516,446 1,544,858
Noncontrolling interests 5,155 5,038
Total equity 1,521,601 1,549,896
Total liabilities and equity $        2,719,546 $        2,815,960  

See accompanying notes.
 
F-5
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Operations
(In thousands, except for per share)
 
Years ended December 31,
2009       2008       2007
(recast - see Note 1) (recast - see Note 1)
Net revenues $        2,042,033 $        2,822,211 $        2,833,266
Costs of products sold 1,653,872 2,219,220 2,138,438
Loss on purchase commitments - 6,024 -  
Gross profit 388,161 596,967 694,828
 
Selling, general, and administrative expenses 359,162 450,879   439,017
Restructuring and severance costs 37,874 62,537 14,681
Asset write-downs 681 5,073   3,869
Impairment of goodwill and indefinite-lived intangibles -   1,723,174 -
Terminated tender offer expenses -   4,000   -
Contract termination charge   -   - 18,893
Settlement agreement gain (28,195 ) - -
Executive employment agreement charge 57,824 - -
Operating income (loss) (39,185 ) (1,648,696 ) 218,368
 
Other income (expense):
       Interest expense (10,321 ) (38,668 ) (51,976 )
       Other 9,791 14,876 15,948
  (530 ) (23,792 ) (36,028 )
Income (loss) from continuing operations before taxes (39,715 ) (1,672,488 ) 182,340
 
Income tax expense 16,800 11,187 64,133
 
Income (loss) from continuing operations, net of tax (56,515 ) (1,683,675 ) 118,207
 
Loss from discontinued operations, net of tax - (47,826 ) (9,587 )
Net earnings (loss) (56,515 ) (1,731,501 ) 108,620
Less: net earnings attributable to noncontrolling interests 673 718 1,180
Net earnings (loss) attributable to Vishay stockholders $ (57,188 ) $ (1,732,219 ) $ 107,440
 
Basic earnings (loss) per share attributable to
       Vishay stockholders:*
       Continuing operations $ (0.31 ) $ (9.04 ) $ 0.63
       Discontinued operations $ - $ (0.26 ) $ (0.05 )
       Net earnings (loss) $ (0.31 ) $ (9.29 ) $ 0.58
 
Diluted earnings (loss) per share attributable to
       Vishay stockholders:*
       Continuing operations $ (0.31 ) $ (9.04 ) $ 0.63
       Discontinued operations $ - $ (0.26 ) $ (0.05 )
       Net earnings (loss) $ (0.31 ) $ (9.29 ) $ 0.58
 
Weighted average shares outstanding - basic 186,605 186,403 185,646
 
Weighted average shares outstanding - diluted 186,605 186,403 192,351
 
Amounts attributable to Vishay stockholders:
       Income (loss) from continuing operations, net of tax $ (57,188 ) $ (1,684,393 ) $ 117,027
       Discontinued operations, net of tax - (47,826 ) (9,587 )
       Net earnings (loss) $ (57,188 ) $ (1,732,219 ) $ 107,440
 
See accompanying notes.  
____________________
 
* May not add due to rounding.
 
F-6
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Cash Flows
(In thousands)
 
Years ended December 31,
2009 2008 2007
Continuing operating activities           (recast - see Note 1)      (recast - see Note 1)
Net earnings (loss) $ (56,515 ) $ (1,731,501 ) $ 108,620
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
       Loss on discontinued operations, net of tax - 47,826 9,587
       Impairment of goodwill and indefinite-lived intangibles, net of tax - 1,668,036 -
       Depreciation and amortization 229,643 222,934 216,719
       Loss (gain) on disposal of property and equipment 460 (7,584 ) (3,490 )
       Accretion of interest on convertible debentures - 13,221 21,296
       Contract termination charge - - 18,893
       Inventory write-offs for obsolescence 31,908 38,478 25,766
       Loss on purchase commitments - 6,024 -
       Pensions and other postretirement benefits 27,146 24,017 20,981
       Asset write-downs 681 5,073 3,869
       Deferred grant income (688 ) (1,386 ) (4,837 )
       Deferred income taxes (12,957 ) (12,771 ) 17,202
       Other (39,058 ) 25,929 (2,658 )
Net change in operating assets and liabilities, net of effects of businesses acquired 109,797 (29,797 ) (77,326 )
Net cash provided by continuing operating activities 290,417 268,499 354,622
 
Continuing investing activities
Capital expenditures (50,340 ) (151,994 ) (200,027 )
Proceeds from sale of property and equipment 6,387 17,696 6,720
Purchase of businesses, net of cash acquired 28,195 (74,234 ) (331,784 )
Proceeds from sale of business - - 18,667
Other investing activities 1,438 450 (8,562 )
Net cash used in continuing investing activities (14,320 ) (208,082 ) (514,986 )
 
Continuing financing activities
Proceeds from long-term borrowings, net of issuance costs 15,000 123,379 -
Principal payments on long-term debt and capital leases (28,754 ) (514,053 ) (3,854 )
Net proceeds (payments) on revolving credit lines - 125,000 (1,356 )
Net changes in short-term borrowings (11,278 ) 10,635 (595 )
Distributions to noncontrolling interests (556 ) (1,044 ) (610 )
Proceeds from stock options exercised - 617 20,694
Net cash provided by (used in) continuing financing activities (25,588 ) (255,466 ) 14,279
Effect of exchange rate changes on cash and cash equivalents 7,703 (6,759 ) 23,306
(Decrease) increase in cash and cash equivalents from continuing activities 258,212 (201,808 ) (122,779 )
Net cash used by discontinued operating activities (3,187 ) (12,753 ) (10,179 )
Net cash provided (used) by discontinued investing activities - 1,430 (1,333 )
Net cash used by discontinued financing activities - - -
Net cash used by discontinued operations (3,187 ) (11,323 ) (11,512 )
Net (decrease) increase in cash and cash equivalents 255,025              (213,131 )              (134,291 )
Cash and cash equivalents at beginning of year 324,164 537,295 671,586
Cash and cash equivalents at end of year $              579,189 $ 324,164 $ 537,295
 

See accompanying notes.
 
F-7
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
 
Class B Retained Accumulated
Convertible Capital in Earnings Other Total
Common Common Excess of (Accumulated Comprehensive Stockholders' Noncontrolling Total
     Stock      Stock      Par Value      Deficit)      Income (Loss)      Equity      Interests      Equity
Balance at January 1, 2007 (recast - see Note 1) $ 17,010 $ 1,436 $ 2,289,748 $ 759,162 $ 35,493 $ 3,102,849 $ 4,794 $ 3,107,643
Net earnings - - - 107,440 - 107,440 1,180 108,620
Foreign currency translation adjustment - - - - 84,697 84,697 - 84,697
Pension and other
       post-retirement actuarial items - - - - 40,376 40,376 - 40,376
Unrealized gain (loss) on available-for-sale securities - - - - (296 ) (296 ) - (296 )
Comprehensive income 232,217 1,180 233,397
Distributions to noncontrolling interests - - - - - - (610 ) (610 )
Stock options exercised (1,879,107 shares) 188 - 20,505 - - 20,693 - 20,693
Stock compensation expense - - 1,819 - - 1,819 1,819
Conversions from Class B to common (5,473 shares) 1 (1 ) - - - - -
Balance at December 31, 2007 (recast - see Note 1) $ 17,199 $       1,435 $      2,312,072 $ 866,602 $ 160,270 $ 3,357,578 $ 5,364 $ 3,362,942
Net earnings - - -      (1,732,219 ) - (1,732,219 ) 718 (1,731,501 )
Foreign currency translation adjustment - - - - (16,673 ) (16,673 ) - (16,673 )
Pension and other
       post-retirement actuarial items - - - -          (67,171 ) (67,171 ) - (67,171 )
Unrealized gain (loss) on available-for-sale securities - - - - (457 ) (457 ) - (457 )
Comprehensive income       (1,816,520 ) 718      (1,815,802 )
Distributions to noncontrolling interests - - - - - -          (1,044 ) (1,044 )
Phanton and restricted stock issuances (100,999 shares) 10 - (10 ) - - - - -
Stock options exercised (110,145 shares) 11 - 605 - - 616 - 616
Stock compensation expense - - 3,184 - - 3,184 - 3,184
Balance at December 31, 2008 (recast - see Note 1) $      17,220 $ 1,435 $ 2,315,851 $ (865,617 ) $ 75,969 $ 1,544,858 $ 5,038 $ 1,549,896
 

Continues on following page.
 
F-8
 


VISHAY INTERTECHNOLOGY, INC.
Consolidated Statements of Stockholders' Equity (continued)
(In thousands, except share amounts)
 
Class B Retained Accumulated
Convertible Capital in Earnings Other Total
Common Common Excess of (Accumulated Comprehensive Stockholders' Noncontrolling Total
     Stock      Stock      Par Value      Deficit)      Income (Loss)      Equity      Interests      Equity
Balance at December 31, 2008 (recast - see Note 1) $ 17,220 $ 1,435 $ 2,315,851 $ (865,617 ) $ 75,969 $ 1,544,858 $ 5,038 $ 1,549,896
Net earnings (loss) - - - (57,188 ) - (57,188 ) 673 (56,515 )
Foreign currency translation adjustment - - - - 10,080 10,080 - 10,080
Pension and other
       post-retirement actuarial items - - - - 16,272 16,272 - 16,272
Unrealized gain (loss) on available-for-sale securities - - - - 654 654 - 654
Comprehensive income (loss) (30,182 ) 673 (29,509 )