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EXCEL - IDEA: XBRL DOCUMENT - VISHAY INTERTECHNOLOGY INCFinancial_Report.xls
EX-10.2 - EXHIBIT 10.2 - VISHAY INTERTECHNOLOGY INCexhibit10-2.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - VISHAY INTERTECHNOLOGY INCexhibit31-1.htm
EX-10.3 - EXHIBIT 10.3 - VISHAY INTERTECHNOLOGY INCexhibit10-3.htm
EX-10.4 - EXHIBIT 10.4 - VISHAY INTERTECHNOLOGY INCexhibit10-4.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-1.htm
EX-10.5 - EXHIBIT 10.5 - VISHAY INTERTECHNOLOGY INCexhibit10-5.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-2.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - VISHAY INTERTECHNOLOGY INCexhibit31-2.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended           April 4, 2015

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 Incorporation)
 
(I.R.S. Employer Identification Number)
     
63 Lancaster Avenue
Malvern, PA  19355-2143
 
610-644-1300
(Address of Principal Executive Offices)
 
(Registrant's Area Code and Telephone Number)

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. ý Yes  No

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 (section 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.
ýYes  No

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

 
Large accelerated filer ý
Accelerated filer
 
Non-accelerated filer (Do not check if smaller reporting company)
Smaller reporting company

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

As of May 1, 2015, the registrant had 135,440,811 shares of its common stock and 12,129,227 shares of its Class B common stock outstanding.
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2


VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
April 4, 2015
CONTENTS

       
Page Number
   
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
     
3



PART I  - FINANCIAL INFORMATION

Item 1.           Financial Statements

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

   
April 4,
2015
   
December 31,
2014
 
   
(Unaudited)
     
Assets
       
Current assets:
       
Cash and cash equivalents
 
$
517,002
   
$
592,172
 
Short-term investments
   
539,046
     
514,776
 
Accounts receivable, net
   
288,273
     
271,554
 
Inventories:
               
Finished goods
   
115,547
     
113,361
 
Work in process
   
186,758
     
185,769
 
Raw materials
   
124,799
     
125,464
 
Total inventories
   
427,104
     
424,594
 
                 
Deferred income taxes
   
20,415
     
17,815
 
Prepaid expenses and other current assets
   
103,149
     
105,539
 
Total current assets
   
1,894,989
     
1,926,450
 
                 
Property and equipment, at cost:
               
Land
   
89,594
     
91,844
 
Buildings and improvements
   
547,523
     
560,926
 
Machinery and equipment
   
2,330,646
     
2,368,046
 
Construction in progress
   
65,321
     
82,684
 
Allowance for depreciation
   
(2,180,926
)
   
(2,205,405
)
     
852,158
     
898,095
 
                 
Goodwill
   
143,617
     
144,359
 
                 
Other intangible assets, net
   
177,979
     
186,613
 
                 
Other assets
   
143,023
     
143,256
 
Total assets
 
$
3,211,766
   
$
3,298,773
 

Continues on following page.
4


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

   
April 4,
2015
   
December 31,
2014
 
   
(Unaudited)
     
Liabilities and equity
       
Current liabilities:
       
Notes payable to banks
 
$
12
   
$
18
 
Trade accounts payable
   
156,114
     
174,451
 
Payroll and related expenses
   
115,346
     
120,023
 
Other accrued expenses
   
139,821
     
137,576
 
Income taxes
   
29,927
     
24,671
 
Total current liabilities
   
441,220
     
456,739
 
                 
Long-term debt less current portion
   
470,905
     
454,922
 
Deferred income taxes
   
177,903
     
178,900
 
Other liabilities
   
66,086
     
76,811
 
Accrued pension and other postretirement costs
   
276,626
     
300,524
 
Total liabilities
   
1,432,740
     
1,467,896
 
                 
Stockholders' equity:
               
Vishay stockholders' equity
               
Common stock
   
13,544
     
13,532
 
Class B convertible common stock
   
1,213
     
1,213
 
Capital in excess of par value
   
2,055,679
     
2,055,246
 
(Accumulated deficit) retained earnings
   
(153,648
)
   
(175,485
)
Accumulated other comprehensive income (loss)
   
(143,499
)
   
(69,140
)
Total Vishay stockholders' equity
   
1,773,289
     
1,825,366
 
Noncontrolling interests
   
5,737
     
5,511
 
Total equity
   
1,779,026
     
1,830,877
 
Total liabilities and equity
 
$
3,211,766
   
$
3,298,773
 

See accompanying notes.
5



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

   
Fiscal quarters ended
 
   
April 4,
2015
   
March 29,
2014
 
         
Net revenues
 
$
593,436
   
$
602,378
 
Costs of products sold
   
448,398
     
457,095
 
Gross profit
   
145,038
     
145,283
 
                 
Selling, general, and administrative expenses
   
96,070
     
96,307
 
Restructuring and severance costs
   
1,410
     
6,404
 
Operating income
   
47,558
     
42,572
 
                 
Other income (expense):
               
Interest expense
   
(6,361
)
   
(5,980
)
Other
   
3,460
     
1,312
 
     
(2,901
)
   
(4,668
)
                 
Income before taxes
   
44,657
     
37,904
 
                 
Income tax expense
   
13,732
     
11,940
 
                 
Net earnings
   
30,925
     
25,964
 
                 
Less: net earnings attributable to noncontrolling interests
   
226
     
154
 
                 
Net earnings attributable to Vishay stockholders
 
$
30,699
   
$
25,810
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.21
   
$
0.17
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.20
   
$
0.17
 
                 
Weighted average shares outstanding - basic
   
147,698
     
147,557
 
                 
Weighted average shares outstanding - diluted
   
152,666
     
152,556
 
                 
Cash dividends per share
 
$
0.06
   
$
0.06
 

See accompanying notes.
6



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

   
Fiscal quarters ended
 
   
April 4,
2015
   
March 29,
2014
 
         
Net earnings
 
$
30,925
   
$
25,964
 
                 
Other comprehensive income (loss), net of tax
               
                 
Foreign currency translation adjustment
   
(76,318
)
   
(960
)
                 
Pension and other  post-retirement actuarial items
   
2,113
     
1,503
 
                 
Unrealized gain (loss) on available-for-sale securities
   
(154
)
   
528
 
                 
Other comprehensive income (loss)
   
(74,359
)
   
1,071
 
                 
Comprehensive income (loss)
   
(43,434
)
   
27,035
 
                 
Less: comprehensive income attributable to noncontrolling interests
   
226
     
154
 
                 
Comprehensive income (loss) attributable to Vishay stockholders
 
$
(43,660
)
 
$
26,881
 

See accompanying notes.
7


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

   
Fiscal quarters ended
 
   
April 4,
2015
   
March 29,
2014
 
Operating activities
       
Net earnings
 
$
30,925
   
$
25,964
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
   
45,410
     
43,355
 
(Gain) loss on disposal of property and equipment
   
(83
)
   
(60
)
Accretion of interest on convertible debentures
   
1,036
     
958
 
Inventory write-offs for obsolescence
   
4,854
     
4,516
 
Other
   
(7,080
)
   
1,804
 
Net change in operating assets and liabilities, net of effects of businesses acquired
   
(61,564
)
   
(46,583
)
Net cash provided by operating activities
   
13,498
     
29,954
 
                 
Investing activities
               
Capital expenditures
   
(19,782
)
   
(19,347
)
Proceeds from sale of property and equipment
   
719
     
1,197
 
Purchase of short-term investments
   
(78,905
)
   
(28,423
)
Maturity of short-term investments
   
17,414
     
50,400
 
Sale of short-term investments
   
503
     
-
 
Sale of other investments
   
400
     
-
 
Other investing activities
   
977
     
459
 
Net cash provided by (used in) investing activities
   
(78,674
)
   
4,286
 
                 
Financing activities
               
Principal payments on long-term debt and capital leases
   
-
     
(7
)
Net proceeds on revolving credit lines
   
15,000
     
(4,000
)
Net changes in short-term borrowings
   
(6
)
   
20
 
Dividends paid to common stockholders
   
(8,126
)
   
(8,119
)
Dividends paid to Class B common stockholders
   
(728
)
   
(728
)
Excess tax benefit from RSUs vested
   
21
     
-
 
Distributions to noncontrolling interests
   
-
     
(300
)
Net cash provided by (used in) financing activities
   
6,161
     
(13,134
)
Effect of exchange rate changes on cash and cash equivalents
   
(16,155
)
   
3
 
                 
Net increase (decrease) in cash and cash equivalents
   
(75,170
)
   
21,109
 
                 
Cash and cash equivalents at beginning of period
   
592,172
     
640,348
 
Cash and cash equivalents at end of period
 
$
517,002
   
$
661,457
 

See accompanying notes.
8



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

   
Common Stock
   
Class B Convertible Common Stock
   
Capital in Excess of Par Value
   
Retained Earnings (Accumulated Deficit)
   
Accumulated Other Comprehensive Income (Loss)
   
Total Vishay Stockholders' Equity
   
Noncontrolling Interests
   
Total Equity
 
Balance at January 1, 2015
 
$
13,532
   
$
1,213
   
$
2,055,246
   
$
(175,485
)
 
$
(69,140
)
 
$
1,825,366
   
$
5,511
   
$
1,830,877
 
Net earnings
   
-
     
-
     
-
     
30,699
     
-
     
30,699
     
226
     
30,925
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
(74,359
)
   
(74,359
)
   
-
     
(74,359
)
Restricted stock issuances (116,498 shares)
   
12
     
-
     
(651
)
   
-
     
-
     
(639
)
   
-
     
(639
)
Dividends declared ($ 0.06 per share)
   
-
     
-
     
8
     
(8,862
)
   
-
     
(8,854
)
   
-
     
(8,854
)
Stock compensation expense
   
-
     
-
     
1,055
     
-
     
-
     
1,055
     
-
     
1,055
 
Tax effects of stock plan
   
-
     
-
     
21
     
-
     
-
     
21
     
-
     
21
 
Balance at April 4, 2015
 
$
13,544
   
$
1,213
   
$
2,055,679
   
$
(153,648
)
 
$
(143,499
)
 
$
1,773,289
   
$
5,737
   
$
1,779,026
 

See accompanying notes.
9

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
Note 1 – Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Vishay Intertechnology, Inc. ("Vishay" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented.  The financial statements should be read in conjunction with the consolidated financial statements filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2014.  The results of operations for the fiscal quarter ended April 4, 2015 are not necessarily indicative of the results to be expected for the full year.

The Company reports interim financial information for 13-week periods beginning on a Sunday and ending on a Saturday, except for the first fiscal quarter, which always begins on January 1, and the fourth fiscal quarter, which always ends on December 31.  The four fiscal quarters in 2015 end on April 4, 2015, July 4, 2015, October 3, 2015, and December 31, 2015, respectively.  The four fiscal quarters in 2014 ended on March 29, 2014, June 28, 2014, September 27, 2014, and December 31, 2014, respectively.

Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606).  The ASU is the result of a convergence project between the FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards.  The ASU removes inconsistencies and weaknesses in revenue requirements; provides a more robust framework for addressing revenue issues; improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; provides more useful information to users of financial statements through expanded disclosure requirements; and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer.  The ASU is effective for the Company for interim and annual periods beginning after January 1, 2017, although a deferral has been recommended by the FASB Staff.  Vishay is currently evaluating the effect of the ASU on its revenue contracts and its adoption alternatives.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.  The ASU is the result of the FASB's simplification initiative intended to improve U.S. GAAP by reducing costs and complexity while maintaining or enhancing the usefulness of related financial statement information.  The ASU specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct reduction from the face amount of the note.  The ASU is effective for the Company for interim and annual periods beginning after January 1, 2016.  The ASU will require the Company to reclassify its capitalized debt issuance costs currently recorded as assets on the consolidated condensed balance sheets.  The ASU will have no effect on the Company's results of operations or liquidity.
10

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

Note 2 – Restructuring and Related Activities

The Company places a strong emphasis on controlling its costs.

Historically, the Company's primary cost reduction technique was through the transfer of production to the extent possible from high-labor-cost countries, such as the United States and Western Europe, to lower-labor-cost countries, such as the Czech Republic, Hungary, Israel, India, Malaysia, Mexico, the People's Republic of China, and the Philippines. Between 2001 and 2009, the Company recorded, in the consolidated statements of operations, restructuring and severance costs and related asset write-downs in order to reduce its cost structure going forward.

The Company also incurred significant costs to restructure and integrate acquired businesses, which were included in the cost of the acquisitions under then-applicable GAAP.

The Company did not initiate any new restructuring projects in the years ended December 31, 2012, 2011, or 2010.

On October 28, 2013, the Company announced various cost reduction programs as part of its continuous efforts to improve efficiency and operating performance. The cash costs of these programs, primarily severance, are expected to be approximately $32,000.  Complete implementation of all of the programs is expected to occur before the end of the first fiscal quarter of 2016.  Many of the severance costs will be recognized ratably over the required stay periods.

The following table summarizes restructuring and related expenses which were recognized and reported on a separate line in the accompanying consolidated statements of operations:

   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
MOSFETs Enhanced Competitiveness Program
 
$
1,353
   
$
1,727
 
Voluntary Separation / Retirement Program
   
57
     
4,677
 
Modules Production Transfer Program
   
-
     
-
 
Total
 
$
1,410
   
$
6,404
 

MOSFETs Enhanced Competitiveness Program

Over a period of approximately 2 years and in a series of discrete steps, the manufacture of wafers for a substantial share of products will be transferred into a more cost-efficient fab. As a consequence, certain other manufacturing currently occurring in-house will be transferred to third-party foundries.

The total severance costs associated with these initiatives are expected to be approximately $16,000. Employees generally must remain with the Company during the production transfer period. Accordingly, the Company will accrue these severance costs ratably over the respective employees' remaining service periods.

The following table summarizes the activity to date related to this program:

Expense recorded in 2013
 
$
2,328
 
Cash paid
   
(267
)
Balance at December 31, 2013
 
$
2,061
 
Expense recorded in 2014
   
6,025
 
Cash paid
   
(856
)
Balance at December 31, 2014
 
$
7,230
 
Expense recorded in 2015
   
1,353
 
Cash paid
   
(388
)
Balance at April 4, 2015
 
$
8,195
 

Severance benefits are generally paid in a lump sum at cessation of employment.  The entire amount of the liability is considered current and is included in other accrued expenses in the accompanying consolidated condensed balance sheets.
11

NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
Voluntary Separation / Retirement Program

The voluntary separation / early retirement program was offered to employees worldwide who were eligible because they met job classification, age, and years-of-service criteria as of October 31, 2013. The program benefits vary by country and job classification, but generally include a cash loyalty bonus based on years of service. All employees eligible for the program have been identified, and have left or will leave the Company after the expiration of their respective transition periods.

These employees generally were not aligned with any particular segment. The effective separation / retirement date for most employees who accepted the offer was June 30, 2014 or earlier, with a few exceptions to allow for a transition period.

The following table summarizes the activity to date related to this program:

Expense recorded in 2013
 
$
486
 
Cash paid
   
(98
)
Foreign currency translation
   
3
 
Balance at December 31, 2013
 
$
391
 
Expense recorded in 2014
   
12,792
 
Cash paid
   
(8,054
)
Foreign currency translation
   
(455
)
Balance at December 31, 2014
 
$
4,674
 
Expense recorded in 2015
   
57
 
Cash paid
   
(1,216
)
Foreign currency translation
   
(286
)
Balance at April 4, 2015
 
$
3,229
 

The payment terms vary by country, but generally are paid in a lump sum at cessation of employment. Certain participants are being paid in installments.  The entire amount of the liability is considered current and is included in other accrued expenses in the accompanying consolidated balance sheets.

Modules Production Transfer

In an effort to reduce costs and streamline production of its module products within its Diodes segment, the Company committed to two smaller cost reduction programs related to the transferring of production of certain of its products.

The following table summarizes the activity to date related to this program:

Expense recorded in 2014
 
$
2,080
 
Cash paid
   
(464
)
Foreign currency translation
   
(121
)
Balance at December 31, 2014
 
$
1,495
 
Cash paid
   
(525
)
Foreign currency translation
   
(128
)
Balance at April 4, 2015
 
$
842
 

Severance benefits are generally paid in a lump sum at cessation of employment.  The entire amount of the liability is considered current and is included in other accrued expenses in the accompanying consolidated condensed balance sheets.
12

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

Note 3 – Income Taxes

The provision for income taxes consists of provisions for federal, state, and foreign income taxes.  The effective tax rates for the periods ended April 4, 2015 and March 29, 2014 reflect the Company's expected tax rate on reported income from continuing operations before income tax and tax adjustments. The Company operates in a global environment with significant operations in various jurisdictions outside the United States.  Accordingly, the consolidated income tax rate is a composite rate reflecting the Company's earnings and the applicable tax rates in the various jurisdictions where the Company operates.

During the three fiscal months ended April 4, 2015, the liabilities for unrecognized tax benefits decreased by $754 on a net basis, principally due to currency effects.

During 2014, the Company borrowed $53,000 on its revolving credit facility to achieve future flexibility given the legal entity and the financial structure utilized for the Capella Microsystems Inc. ("Capella") acquisition.  Subsequent to the acquisition of the noncontrolling interests in Capella on December 31, 2014, the Company expects to repatriate cash from the 2014 earnings of non-U.S. subsidiaries to the United States primarily to repay those borrowings on the revolving credit facility, and also to realign the acquired entity structure to have Capella's U.S. subsidiary directly owned by Vishay Intertechnology, Inc. The tax provision for the year ended December 31, 2014 included all U.S. federal and state income taxes, incremental foreign income taxes, and withholding taxes payable related to that anticipated repatriation transaction.  The repatriation is anticipated in the second fiscal quarter of 2015, pending completion of statutory audits of certain subsidiaries required to distribute earnings.
13

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

Note 4 – Long-Term Debt

Long-term debt consists of the following:

   
April 4, 2015
   
December 31, 2014
 
         
Credit facility
 
$
215,000
   
$
200,000
 
Exchangeable unsecured notes, due 2102
   
38,642
     
38,642
 
Convertible senior debentures, due 2040
   
104,297
     
103,841
 
Convertible senior debentures, due 2041
   
53,523
     
53,249
 
Convertible senior debentures, due 2042
   
59,443
     
59,190
 
     
470,905
     
454,922
 
Less current portion
   
-
     
-
 
   
$
470,905
   
$
454,922
 

Convertible Senior Debentures

Vishay currently has three issuances of convertible senior debentures outstanding with generally congruent terms.  The quarterly cash dividend program of the Company results in adjustments to the conversion rate and effective conversion price for each issuance of the Company's convertible senior debentures effective as of the ex-dividend date of each cash dividend.

The following table summarizes some key facts and terms regarding the three series of outstanding convertible senior debentures following the adjustment made to the conversion rate of the debentures on the ex-dividend date of the March 25, 2015 dividend payment:

   
Due 2040
   
Due 2041
   
Due 2042
 
Issuance date
 
November 9, 2010
   
May 13, 2011
   
May 31, 2012
 
Maturity date
 
November 15, 2040
   
May 15, 2041
   
June 1, 2042
 
Principal amount
 
$
275,000
   
$
150,000
   
$
150,000
 
Cash coupon rate (per annum)
   
2.25
%
   
2.25
%
   
2.25
%
Nonconvertible debt borrowing rate at issuance (per annum)
   
8.00
%
   
8.375
%
   
7.50
%
Conversion rate effective March 10, 2015 (per $1 principal amount)
   
73.5289
     
53.6575
     
86.4524
 
Effective conversion price effective March 10, 2015 (per share)
 
$
13.60
   
$
18.64
   
$
11.57
 
130% of the conversion price (per share)
 
$
17.68
   
$
24.23
   
$
15.04
 
Call date
 
November 20, 2020
   
May 20, 2021
   
June 7, 2022
 

Prior to three months before the maturity date, the holders may only convert their debentures under the following circumstances: (1) during any fiscal quarter after the first full quarter subsequent to issuance, if the sale price of Vishay common stock reaches 130% of the conversion price for a specified period; (2) the trading price of the debentures falls below 98% of the product of the sale price of Vishay's common stock and the conversion rate for a specified period; (3) Vishay calls any or all of the debentures for redemption, at any time prior to the close of business on the third scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.

Based on an evaluation of the conversion criteria at April 4, 2015 and December 31, 2014, none of the convertible senior debentures due 2040, due 2041, or due 2042 were convertible.  The conversion criteria of the debentures will continue to be evaluated and the debentures may become convertible in the future.  At the direction of the Company's Board of Directors, the Company intends, upon conversion, to repay the principal amount of the convertible debentures in cash and settle any additional amounts in shares of the Company's common stock.  The Company intends to finance the principal amount of any converted debentures using borrowings under its credit facility.
14

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

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

The carrying values of the liability and equity components of the convertible debentures are reflected in the Company's consolidated condensed balance sheets as follows:

   
Principal amount of
the debentures
   
Unamortized discount
   
Embedded derivative
   
Carrying value of liability component
   
Equity component - net carrying value
 
April 4, 2015
                   
Due 2040
 
$
275,000
     
(171,170
)
   
467
   
$
104,297
   
$
110,094
 
Due 2041
 
$
150,000
     
(96,831
)
   
354
   
$
53,523
   
$
62,246
 
Due 2042
 
$
150,000
     
(90,788
)
   
231
   
$
59,443
   
$
57,874
 
Total
 
$
575,000
   
$
(358,789
)
 
$
1,052
   
$
217,263
   
$
230,214
 
                                         
December 31, 2014
                                       
Due 2040
 
$
275,000
     
(171,685
)
   
526
   
$
103,841
   
$
110,094
 
Due 2041
 
$
150,000
     
(97,092
)
   
341
   
$
53,249
   
$
62,246
 
Due 2042
 
$
150,000
     
(91,048
)
   
238
   
$
59,190
   
$
57,874
 
Total
 
$
575,000
   
$
(359,825
)
 
$
1,105
   
$
216,280
   
$
230,214
 

Interest is payable on the debentures semi-annually at the cash coupon rate; however, the remaining debt discount is being amortized as additional non-cash interest expense using an effective annual interest rate equal to the Company's estimated nonconvertible debt borrowing rate at the time of issuance.  In addition to ordinary interest, contingent interest will accrue in certain circumstances relating to the trading price of the debentures and under certain other circumstances beginning ten years subsequent to issuance.

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

   
Contractual
coupon interest
   
Non-cash amortization of debt discount
   
Non-cash amortization of deferred financing costs
   
Non-cash change in value of derivative liability
   
Total interest expense related to the debentures
 
April 4, 2015
                   
Due 2040
 
$
1,547
     
515
     
22
     
(59
)
 
$
2,025
 
Due 2041
 
$
844
     
261
     
12
     
13
   
$
1,130
 
Due 2042
 
$
844
     
260
     
13
     
(7
)
 
$
1,110
 
Total
 
$
3,235
   
$
1,036
   
$
47
   
$
(53
)
 
$
4,265
 
                                         
March 29, 2014
                                       
Due 2040
 
$
1,547
     
476
     
22
     
45
   
$
2,090
 
Due 2041
 
$
844
     
241
     
11
     
14
   
$
1,110
 
Due 2042
 
$
844
     
241
     
13
     
20
   
$
1,118
 
Total
 
$
3,235
   
$
958
   
$
46
   
$
79
   
$
4,318
 
15

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

Note 5 – Accumulated Other Comprehensive Income (Loss)

The cumulative balance of each component of other comprehensive income (loss) and the income tax effects allocated to each component are as follows:

   
Pension and other post-retirement actuarial items
   
Currency translation adjustment
   
Unrealized gain (loss) on available-for-sale securities
   
Total
 
Balance at January 1, 2015
 
$
(155,760
)
 
$
84,703
    $
1,917
   
$
(69,140
)
Other comprehensive income (loss) before reclassifications
   
-
     
(76,318
)
   
443
   
$
(75,875
)
Tax effect
   
-
     
-
     
(155
)
 
$
(155
)
Other comprehensive income (loss) before reclassifications, net of tax
   
-
     
(76,318
)
   
288
   
$
(76,030
)
Amounts reclassified out of AOCI
   
3,169
     
-
     
(680
)
 
$
2,489
 
Tax effect
   
(1,056
)
   
-
     
238
   
$
(818
)
Amounts reclassified out of AOCI, net of tax
   
2,113
     
-
     
(442
)
 
$
1,671
 
Net other comprehensive income (loss)
 
$
2,113
   
$
(76,318
)
 
$
(154
)
 
$
(74,359
)
Balance at April 4, 2015
 
$
(153,647
)
 
$
8,385
   
$
1,763
   
$
(143,499
)

Reclassifications of pension and other post-retirement actuarial items out of AOCI are included in the computation of net periodic benefit cost.  (See Note 6 for further information).  The amount of unrealized gains (losses) on available-for-sale securities reclassified out of AOCI as a result of sales of securities held by the Company's rabbi trust used to fund a deferred compensation plan was $680 for the fiscal quarter ended April 4, 2015. These reclassifications are recorded as a component of compensation expense within Selling, General, and Administrative expenses on our consolidated condensed statements of operations.

Other comprehensive income (loss) includes Vishay's proportionate share of other comprehensive income (loss) of nonconsolidated subsidiaries accounted for under the equity method.
16

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

Note 6 – Pensions and Other Postretirement Benefits

The Company maintains various retirement benefit plans.

The following table shows the components of the net periodic pension cost for the first fiscal quarters of 2015 and 2014 for the Company's defined benefit pension plans:

   
Fiscal quarter ended
April 4, 2015
   
Fiscal quarter ended
March 29, 2014
 
   
U.S. Plans
   
Non-U.S. Plans
   
U.S. Plans
   
Non-U.S. Plans
 
                 
Net service cost
 
$
-
   
$
829
   
$
-
   
$
824
 
Interest cost
   
2,943
     
1,432
     
3,834
     
2,181
 
Expected return on plan assets
   
(3,385
)
   
(454
)
   
(4,058
)
   
(525
)
Amortization of prior service cost (credit)
   
16
     
-
     
(23
)
   
1
 
Amortization of losses
   
2,022
     
1,299
     
1,810
     
687
 
Net periodic benefit cost
 
$
1,596
   
$
3,106
   
$
1,563
   
$
3,168
 

The following table shows the components of the net periodic benefit cost for the first fiscal quarters of 2015 and 2014 for the Company's other postretirement benefit plans:

   
Fiscal quarter ended
April 4, 2015
   
Fiscal quarter ended
March 29, 2014
 
   
U.S. Plans
   
Non-U.S. Plans
   
U.S. Plans
   
Non-U.S. Plans
 
                 
Service cost
 
$
30
   
$
69
   
$
29
   
$
79
 
Interest cost
   
83
     
37
     
88
     
63
 
Amortization of prior service (credit)
   
(209
)
   
-
     
(206
)
   
-
 
Amortization of losses (gains)
   
22
     
19
     
(35
)
   
10
 
Net periodic benefit cost
 
$
(74
)
 
$
125
   
$
(124
)
 
$
152
 
17

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

Note 7 – Stock-Based Compensation

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

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

The following table summarizes stock-based compensation expense recognized:

   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
         
Restricted stock units
 
$
914
   
$
810
 
Phantom stock units
   
141
     
131
 
Stock options
   
-
     
-
 
Total
 
$
1,055
   
$
941
 

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

The following table summarizes unrecognized compensation cost and the weighted average remaining amortization periods at April 4, 2015 (amortization periods in years):

   
Unrecognized Compensation Cost
   
Weighted Average Remaining Amortization Periods
 
         
Stock options
 
$
-
     
0.0
 
Restricted stock units
   
10,404
     
1.7
 
Phantom stock units
   
-
     
0.0
 
Total
 
$
10,404
         

Unrecognized compensation cost presented in the table above includes $2,935 of unrecognized compensation cost for performance-based RSUs that are not currently expected to vest and for which no compensation cost is currently being recognized.
18

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

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

Restricted Stock Units

RSU activity under the 2007 Program as of April 4, 2015 and changes during the three fiscal months then ended are presented below (number of RSUs in thousands):

   
Number of RSUs
   
Weighted Average Grant-date Fair Value per Unit
 
Outstanding:
       
January 1, 2015
   
1,147
   
$
12.75
 
Granted
   
349
     
13.60
 
Vested*
   
(162
)
   
11.34
 
Cancelled or forfeited
   
(276
)
   
12.88
 
Outstanding at April 4, 2015
   
1,058
   
$
13.21
 
                 
Expected to vest at April 4, 2015
   
836
         

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

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

Vesting Date
 
Expected to Vest
   
Not Expected to Vest
   
Total
 
January 1, 2016
   
-
     
222
     
222
 
January 1, 2017
   
192
     
-
     
192
 
January 1, 2018
   
202
     
-
     
202
 

Phantom Stock Units

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

Phantom stock unit activity under the phantom stock plan as of April 4, 2015 and changes during the three fiscal months then ended are presented below (number of phantom stock units in thousands):

   
Number of Units
   
Grant-date Fair Value per Unit
 
Outstanding:
       
January 1, 2015
   
119
     
Granted
   
10
   
$
14.09
 
Dividend equivalents issued
   
1
         
Redeemed for common stock
   
-
         
Outstanding at April 4, 2015
   
130
         
19

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

Stock Options

In addition to stock options outstanding pursuant to the 2007 Program, during the periods presented, the Company had stock options outstanding under previous stockholder-approved stock option programs.  These programs are more fully described in Note 12 to the Company's consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2014.  No additional options may be granted pursuant to these programs.

At December 31, 2014 and April 4, 2015, there were 105 options outstanding with a weighted average exercise price of $15.38.  At April 4, 2015, the weighted average remaining contractual life of all outstanding options was 2.08 years.

At April 4, 2015, there were no unvested options outstanding.

The pretax aggregate intrinsic value (the difference between the closing stock price on the last trading day of the first fiscal quarter of 2015 of $13.87 per share and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on April 4, 2015 was $27.  This amount changes based on changes in the market value of the Company's common stock.  During the three fiscal months ended April 4, 2015, no options were exercised.
20

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

Note 8 – Segment Information

Vishay operates, and its chief operating decision maker makes strategic and operating decisions with regards to assessing performance and allocating resources based on, five reporting segments: MOSFETs, Diodes, Optoelectronic Components, Resistors & Inductors, and Capacitors.

The Company evaluates business segment performance on operating income, exclusive of certain items ("segment operating income").  Only dedicated, direct selling, general, and administrative expenses of the segments are included in the calculation of segment operating income.  The Company's calculation of segment operating income excludes such selling, general, and administrative costs as global operations, sales and marketing, information systems, finance and administration groups, as well as restructuring and severance costs, executive compensation charges (credits), material gains and losses on sales of property, and other items.  Management believes that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the Company.  These items represent reconciling items between segment operating income and consolidated operating income.  Business segment assets are the owned or allocated assets used by each business.

The following tables set forth business segment information:

   
MOSFETs
   
Diodes
   
Optoelectronic Components
   
Resistors & Inductors
   
Capacitors
   
Total
 
Fiscal quarter ended April 4, 2015:
                       
Product Sales
 
$
106,759
   
$
136,511
   
$
68,625
   
$
186,392
   
$
94,036
   
$
592,323
 
Royalty Revenues
   
11
     
-
     
-
     
1,102
     
-
   
$
1,113
 
Total Revenue
 
$
106,770
   
$
136,511
   
$
68,625
   
$
187,494
   
$
94,036
   
$
593,436
 
                                                 
Gross Margin
 
$
13,758
   
$
29,890
   
$
22,183
   
$
58,849
   
$
20,358
   
$
145,038
 
                                                 
Fiscal quarter ended March 29, 2014:
                                               
Product Sales
 
$
113,113
   
$
136,929
   
$
57,498
   
$
187,989
   
$
105,511
   
$
601,040
 
Royalty Revenues
   
28
     
-
     
-
     
1,310
     
-
   
$
1,338
 
Total Revenue
 
$
113,141
   
$
136,929
   
$
57,498
   
$
189,299
   
$
105,511
   
$
602,378
 
                                                 
Gross Margin
 
$
12,617
   
$
29,765
   
$
21,237
   
$
60,120
   
$
21,544
   
$
145,283
 
                                                 
21

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


   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
Operating margin reconciliation:
       
MOSFETs
 
$
4,527
   
$
2,487
 
Diodes
   
23,485
     
23,058
 
Optoelectronic Components
   
17,087
     
17,404
 
Resistors & Inductors
   
49,525
     
50,336
 
Capacitors
   
14,564
     
15,341
 
Restructuring and Severance Costs
   
(1,410
)
   
(6,404
)
Unallocated Selling, General, and Administrative Expenses
   
(60,220
)
   
(59,650
)
Consolidated Operating Income
  $ 
47,558
   
$
42,572
 
22

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

Note 9 – Earnings Per Share

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

   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
         
Numerator:
       
Numerator for basic earnings per share:
       
Net earnings
 
$
30,699
   
$
25,810
 
                 
Adjustment to the numerator for continuing operations and net earnings:
               
Interest savings assuming conversion of dilutive convertible and exchangeable notes, net of tax
   
16
     
16
 
                 
Numerator for diluted earnings per share:
               
Net earnings
 
$
30,715
   
$
25,826
 
                 
Denominator:
               
Denominator for basic earnings per share:
               
Weighted average shares
   
147,569
     
147,440
 
Outstanding phantom stock units
   
129
     
117
 
Adjusted weighted average shares
   
147,698
     
147,557
 
                 
Effect of dilutive securities:
               
Convertible and exchangeable debt instruments
   
4,778
     
4,782
 
Restricted stock units
   
184
     
210
 
Other
   
6
     
7
 
Dilutive potential common shares
   
4,968
     
4,999
 
                 
Denominator for diluted earnings per share:
               
Adjusted weighted average shares
   
152,666
     
152,556
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.21
   
$
0.17
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.20
   
$
0.17
 
23

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

Diluted earnings per share for the periods presented do not reflect the following weighted average potential common shares that would have an antidilutive effect or have unsatisfied performance conditions (in thousands):

   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
Convertible and exchangeable notes:
       
Convertible Senior Debentures, due 2041
   
8,024
     
7,897
 
Weighted average employee stock options
   
77
     
77
 
Weighted average other
   
620
     
710
 

In periods in which they are dilutive, if the potential common shares related to the exchangeable notes are included in the computation, the related interest savings, net of tax, assuming conversion/exchange is added to the net earnings used to compute earnings per share.

The Company's convertible debt instruments are only convertible for specified periods upon the occurrence of certain events.  None of the conversion criteria were met for the periods presented.  In periods that the debentures are not convertible, the certain conditions which could trigger conversion of the remaining debentures have been deemed to be non-substantive, and accordingly, the Company has always assumed the conversion of these instruments in its diluted earnings per share computation during periods in which they are dilutive.

At the direction of its Board of Directors, the Company intends, upon conversion, to repay the principal amounts of the convertible senior debentures, due 2040, due 2041, and due 2042, in cash and settle any additional amounts in shares of Vishay common stock. Accordingly, the debentures are included in the diluted earnings per share computation using the "treasury stock method" (similar to options and warrants) rather than the "if converted method" otherwise required for convertible debt.  Under the "treasury stock method," Vishay calculates the number of shares issuable under the terms of the debentures based on the average market price of Vishay common stock during the period, and that number is included in the total diluted shares figure for the period.  If the average market price is less than $13.60, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2040, if the average market price is less than $18.64, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2041, and if the average market price is less than $11.57, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2042.
24

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

Note 10 – Fair Value Measurements

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

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

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

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

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

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

   
Total
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
April 4, 2015:
               
Assets:
               
Assets held in rabbi trusts
 
$
40,411
   
$
26,737
   
$
13,674
   
$
-
 
Available for sale securities
 
$
5,680
     
4,003
     
1,677
     
-
 
   
$
46,091
   
$
30,740
   
$
15,351
   
$
-
 
Liabilities:
                               
Embedded derivative - convertible debentures due 2040
 
$
(467
)
 
$
-
   
$
-
   
$
(467
)
Embedded derivative - convertible debentures due 2041
 
$
(354
)
   
-
     
-
     
(354
)
Embedded derivative - convertible debentures due 2042
 
$
(231
)
   
-
     
-
     
(231
)
   
$
(1,052
)
 
$
-
   
$
-
   
$
(1,052
)
                                 
December 31, 2014:
                               
Assets:
                               
Assets held in rabbi trusts
 
$
40,270
   
$
26,853
   
13,417
   
$
-
 
Available for sale securities
 
$
15,432
     
4,439
     
10,993
     
-
 
   
$
55,702
   
$
31,292
   
$
24,410
   
$
-
 
Liabilities:
                               
Embedded derivative - convertible debentures due 2040
 
$
(526
)
 
$
-
   
$
-
   
$
(526
)
Embedded derivative - convertible debentures due 2041
 
$
(341
)
   
-
     
-
     
(341
)
Embedded derivative - convertible debentures due 2042
 
$
(238
)
   
-
     
-
     
(238
)
   
$
(1,105
)
 
$
-
   
$
-
   
$
(1,105
)

The Company maintains non-qualified trusts, referred to as "rabbi" trusts, to fund payments under deferred compensation and non-qualified pension plans. Rabbi trust assets consist primarily of marketable securities, classified as available-for-sale and company-owned life insurance assets.  The marketable securities held in the rabbi trusts are valued using quoted market prices on the last business day of the period. The company-owned life insurance assets are valued in consultation with the Company's insurance brokers using the value of underlying assets of the insurance contracts.  The fair value measurement of the marketable securities held in the rabbi trust is considered a Level 1 measurement and the measurement of the company-owned life insurance assets is considered a Level 2 measurement within the fair value hierarchy.
25

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

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

The convertible senior debentures, due 2040, due 2041, and due 2042, issued by the Company on November 9, 2010, May 13, 2011, and May 31, 2012, respectively, contain embedded derivative features that GAAP requires to be bifurcated and remeasured each reporting period.  Each quarter, the change in the fair value of the embedded derivative features, if any, is recorded in the consolidated condensed statements of operations.  The Company uses a derivative valuation model to derive the value of the embedded derivative features.  Key inputs into this valuation model are the Company's current stock price, risk-free interest rates, the stock dividend yield, the stock volatility, and the debentures' credit spread over LIBOR. The first three aforementioned inputs are based on observable market data and are considered Level 2 inputs while the last two aforementioned inputs are unobservable and thus require management's judgment and are considered Level 3 inputs.  The fair value measurement is considered a Level 3 measurement within the fair value hierarchy.

In the third fiscal quarter of 2014, the Company entered into forward contracts with a highly-rated financial institution to mitigate the foreign currency risk associated with an intercompany loan denominated in a currency other than the legal entity's functional currency.  The notional amount of the forward contract was $14,000 as of April 4, 2015.  The intercompany loan was used to finance a portion of the purchase price for Capella.  The forward contracts settle monthly and are expected to be renewed at the Company's discretion on a monthly basis until the intercompany loan is repaid.  The forward contract was renewed on the last day of the first fiscal quarter.  We have not designated the forward contract as a hedge for accounting purposes, and as such the change in the fair value of the contract is recognized in the consolidated condensed statements of operations as a component of other income (expense).  The Company estimates the fair value of the forward contract based on applicable and commonly used pricing models using current market information and is considered a Level 2 measurement within the fair value hierachy.  Due to the timing of the renewal of the forward contract, the value of the forward contract was immaterial as of April 4, 2015.  The Company does not utilize derivatives or other financial instruments for trading or other speculative purposes.

The fair value of the long-term debt, excluding the derivative liabilities, at April 4, 2015 and December 31, 2014 is approximately $860,400 and $853,500, respectively, compared to its carrying value, excluding the derivative liabilities, of $469,853, and $453,817, respectively.  The Company estimates the fair value of its long-term debt using a combination of quoted market prices for similar financing arrangements and expected future payments discounted at risk-adjusted rates, which are considered Level 2 inputs.

At April 4, 2015 and December 31, 2014, the Company's short-term investments were comprised of time deposits with financial institutions that have maturities that exceed 90 days from the date of acquisition; however they all mature within one year from the respective balance sheet dates.  The short-term investments acquired in the 2014 Capella acquisition are accounted for as available for sale instruments, at fair value.  The Company's remaining short-term investments are accounted for as held-to-maturity debt instruments, at amortized cost, which approximates their fair value.  The investments are funded with excess cash not expected to be needed for operations prior to maturity; therefore, the Company believes it has the intent and ability to hold the short-term investments until maturity.  At each reporting date, the Company performs an evaluation to determine if any unrealized losses are other-than-temporary.  No other-than-temporary impairments have been recognized on these securities, and there are no unrecognized holding gains or losses for these securities during the periods presented.  There have been no transfers to or from the held-to-maturity classification.  All decreases in the account balance are due to returns of principal at the securities' maturity dates.  Interest on the securities is recognized as interest income when earned.

At April 4, 2015 and December 31, 2014, the Company's cash and cash equivalents were comprised of demand deposits, time deposits with maturities of three months or less when purchased, and money market funds.  The Company estimates the fair value of its cash, cash equivalents, and short-term investments using level 2 inputs.  Based on the current interest rates for similar investments with comparable credit risk and time to maturity, the fair value of the Company's cash, cash equivalents, and held-to-maturity short-term investments approximate the carrying amounts reported in the consolidated condensed balance sheets.

The Company's financial instruments also include accounts receivable, short-term notes payable, and accounts payable.  The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values.
26


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

Overview

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

We operate in five product segments: MOSFETs; Diodes; Optoelectronic Components; Resistors & Inductors; and Capacitors.

Since 1985, we have pursued a business strategy of growth through focused research and development and acquisitions.  Through this strategy, we have grown to become one of the world's largest manufacturers of discrete semiconductors and passive components.  We expect to continue our strategy of acquisitions while also maintaining a prudent capital structure.

We are focused on enhancing stockholder value and improving earnings per share.  We plan to grow our business through intensified internal growth supplemented by opportunistic acquisitions, while at the same time maintaining a prudent capital structure. To foster intensified internal growth, we have increased our R&D and engineering technical staff and plan to further increase it; we are expanding critical manufacturing capacities; we are increasing our technical field sales force in Asia to increase our market access to the industrial segment and increase the design-in of our products in local markets; and we are directing increased funding and focus on developing products to capitalize on the connectivity, mobility, and sustainability growth drivers of our business.  In 2014, our Board of Directors instituted a quarterly dividend payment program.  We also have opportunistically repurchased our stock.  The permitted capacity to repurchase shares of stock or pay dividends under our credit facility increases each quarter by an amount equal to 20% of net income.  At April 4, 2015, our total permitted capacity to repurchase shares of stock or pay dividends under our credit facility is $190.0 million.  Although we have no current plans, we will continue to evaluate attractive stock repurchase opportunities.

Our business and operating results have been and will continue to be impacted by worldwide economic conditions.  Our revenues are dependent on end markets that are impacted by consumer and industrial demand, and our operating results can be adversely affected by reduced demand in those global markets.  For several years, we implemented aggressive cost reduction programs.  We continue to monitor the current economic environment and its potential effects on our customers and the end markets that we serve.  Additionally, we continue to closely monitor our costs, inventory, and capital resources to respond to changing conditions and to ensure we have the management, business processes, and resources to meet our future needs.  In response to the economic environment, we began implementing a targeted cost reduction program in the fourth fiscal quarter of 2013 to support our profitability without jeopardizing our growth plan.  Complete implementation of the targeted cost reduction programs is expected to occur before the end of the first fiscal quarter of 2016.  See additional information regarding our competitive strengths and key challenges as disclosed in Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (the "SEC") on February 19, 2015.

We utilize several financial metrics, including net revenues, gross profit margin, segment operating income, end-of-period backlog, book-to-bill ratio, inventory turnover, change in average selling prices, net cash and short-term investments (debt), and free cash generation to evaluate the performance and assess the future direction of our business.  (See further discussion in "Financial Metrics" and "Financial Condition, Liquidity, and Capital Resources.")  Revenues were negatively impacted by foreign currency exchange rates in the first fiscal quarter of 2015.  Excluding the foreign currency exchange rate impact, revenues in the first fiscal quarter of 2015 increased slightly versus the prior fiscal quarter and the first fiscal quarter of 2014.  Operating results met our expectations at this relatively low revenue level. An increase in orders resulted in an increase in key financial metrics compared to the prior fiscal quarter and the first fiscal quarter of 2014.
27

 
Net revenues for the fiscal quarter ended April 4, 2015 were $593.4 million, compared to $602.4 million for the fiscal quarter ended March 29, 2014.  The net earnings attributable to Vishay stockholders for the fiscal quarter ended April 4, 2015 were $30.7 million, or $0.20 per diluted share, compared to $25.8 million, or $0.17 per diluted share for the fiscal quarter ended March 29, 2014.

Net earnings attributable to Vishay stockholders for the fiscal quarters ended April 4, 2015 and March 29, 2014 include items affecting comparability.  The reconciliation below includes certain financial measures which are not recognized in accordance with GAAP, including adjusted net earnings and adjusted earnings 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 and adjusted earnings 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.


The items affecting comparability are (in thousands, except per share amounts):

   
Fiscal quarters ended
 
   
April 4, 2015
   
March 29, 2014
 
         
GAAP net earnings attributable to Vishay stockholders
 
$
30,699
   
$
25,810
 
                 
Reconciling items affecting operating margin:
               
Restructuring and severance costs
 
$
1,410
   
$
6,404
 
                 
Reconciling items affecting tax expense:
               
Tax effects of items above and other one-time tax expense (benefit)
 
$
(508
)
 
$
(2,097
)
                 
Adjusted net earnings
 
$
31,601
   
$
30,117
 
                 
Adjusted weighted average diluted shares outstanding
   
152,666
     
152,556
 
                 
Adjusted earnings per diluted share *
 
$
0.21
   
$
0.20
 

* Includes add-back of interest on exchangeable notes in periods where the notes are dilutive.

Our results for the fiscal quarters ended April 4, 2015 and March 29, 2014 represent the effects of an improving business environment, increasing order activity, our cost reduction programs, and our organic growth initiatives.  Our revenue results for the fiscal quarter ended ended April 4, 2015 were negatively affected by foreign currency effects, especially from the euro.  Despite the negative foreign currency effect on revenues, we were able to maintain our profitability.  Our percentage of euro-based sales approximates our percentage of euro-based expenses so the negative foreign currency impact on revenues was substantially offset by the positive impact on expenses.  Despite revenues below our expected run-rate, our pre-tax results were as we would expect based on our business model.
28


Financial Metrics

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

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

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

End-of-period backlog is one indicator of future revenues. We include in our backlog only open orders that we expect to ship in the next twelve months.  If demand falls below customers' forecasts, or if customers do not control their inventory effectively, they may cancel or reschedule the shipments that are included in our backlog, in many instances without the payment of any penalty.  Therefore, the backlog is not necessarily indicative of the results to be expected for future periods.

An important indicator of demand in our industry is the book-to-bill ratio, which is the ratio of the amount of product ordered during a period as compared with the product that we ship during that period. A book-to-bill ratio that is greater than one indicates that our backlog is building and that we are likely to see increasing revenues in future periods. Conversely, a book-to-bill ratio that is less than one is an indicator of declining demand and may foretell declining revenues.

We focus on our inventory turnover as a measure of how well we are managing our inventory.  We define inventory turnover for a financial reporting period as our costs of products sold for the four fiscal quarters ending on the last day of the reporting period divided by our average inventory (computed using each fiscal quarter-end balance) for this same period.  A higher level of inventory turnover reflects more efficient use of our capital.

Pricing in our industry can be volatile.  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 semiconductor products.  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.
29

 
The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the first fiscal quarter of 2014 through the first fiscal quarter of 2015 (dollars in thousands):

   
1st Quarter 2014
   
2nd Quarter 2014
   
3rd Quarter 2014
   
4th Quarter 2014
   
1st Quarter 2015
 
                     
Net revenues
 
$
602,378
   
$
641,929
   
$
638,211
   
$
610,764
   
$
593,436
 
                                         
Gross profit margin
   
24.1
%
   
25.6
%
   
24.8
%
   
23.5
%
   
24.4
%
                                         
Operating margin (1)
   
7.1
%
   
9.0
%
   
7.1
%
   
7.1
%
   
8.0
%
                                         
End-of-period backlog (2)
 
$
664,200
   
$
663,800
   
$
598,000
   
$
554,700
   
$
559,600
 
                                         
Book-to-bill ratio
   
1.09
     
1.00
     
0.91
     
0.95
     
1.05
 
                                         
Inventory turnover
   
4.12
     
4.19
     
4.18
     
4.21
     
4.20
 
                                         
Change in ASP vs. prior quarter
   
-1.0
%
   
-0.6
%
   
-0.9
%
   
-0.9
%
   
-0.9
%

(1)  Operating margin for the first, second, third, and fourth fiscal quarters of 2014 and the first fiscal quarter of 2015 includes $6.4 million, $9.0 million, $3.5 million, $2.0 million, and $1.4 million, respectively, of restructuring and severance expenses (see Note 2 to our consolidated condensed financial statements).  Operating margin for the third fiscal quarter of 2014 includes $15.6 million of U.S. pension settlement charges.
(2)  End of period backlog for the second fiscal quarter of 2014 reflects a total of $1.3 million related to the backlog of Holy Stone Polytech Co., Ltd. as of the date of acquisition.  End of period backlog for the third fiscal quarter of 2014 reflects a total of $8.2 million related to the backlog of Capella as of the date of acquisition.

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

Revenues were within our expected range, but decreased slightly versus the prior fiscal quarters.  Foreign currency exchange rates negatively impacted revenues.  Excluding the foreign currency exchange rate impact, revenues increased slightly versus the prior fiscal quarter and the first fiscal quarter of 2014.  We experienced a broad increase in order level in the first fiscal quarter of 2015.  Average selling prices continue to decline primarily due to our commodity semiconductor products and the effects of growing our Resistors & Inductors business in Asia.

Gross margins increased versus the prior fiscal quarter and first fiscal quarter of 2014.  The increases are primarily due to volume increases and fixed cost savings.  Gross margins have been negatively impacted by additional depreciation associated with our cost reduction programs beginning with the fourth fiscal quarter of 2013 and will continue to be negatively impacted until the complete implementation of our cost reduction programs.

The book-to-bill ratio in the first fiscal quarter of 2015 increased to 1.05 from 0.95 in the fourth fiscal quarter of 2014.  The book-to-bill ratios for distributors and original equipment manufacturers ("OEM") were 1.04 and 1.06, respectively, versus ratios of 0.93 and 0.96, respectively, during the fourth fiscal quarter of 2014.

For the second fiscal quarter of 2015, we anticipate revenues between $600 million and $640 million (assuming a 1.10 U.S. dollar to euro exchange rate) and gross margins between 24% and 26%.
30

 
Financial Metrics by Segment

The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the first fiscal quarter of 2014 through the first fiscal quarter of 2015 (dollars in thousands):

   
1st Quarter 2014
   
2nd Quarter 2014
   
3rd Quarter 2014
   
4th Quarter 2014
   
1st Quarter 2015
 
MOSFETs
                   
Net revenues
 
$
113,141
   
$
124,042
   
$
121,659
   
$
111,695
   
$
106,770
 
                                         
Book-to-bill ratio
   
1.13
     
1.05
     
0.83
     
0.95
     
0.99
 
                                         
Gross profit margin
   
11.2
%
   
15.2
%
   
14.3
%
   
9.6
%
   
12.9
%
                                         
Segment operating margin
   
2.2
%
   
7.7
%
   
6.4
%
   
1.2
%
   
4.2
%
                                         
Diodes
                                       
Net revenues
 
$
136,929
   
$
149,571
   
$
151,444
   
$
141,344
   
$
136,511
 
                                         
Book-to-bill ratio
   
1.09
     
1.07
     
0.89
     
0.83
     
1.01
 
                                         
Gross profit margin
   
21.7
%
   
23.2
%
   
23.9
%
   
22.2
%
   
21.9
%
                                         
Segment operating margin
   
16.8
%
   
18.8
%
   
19.6
%
   
17.8
%
   
17.2
%
                                         
Optoelectronic Components
                                       
Net revenues
 
$
57,498
   
$
63,258
   
$
67,549
   
$
69,943
   
$
68,625
 
                                         
Book-to-bill ratio
   
1.16
     
1.04
     
0.96
     
0.99
     
1.09
 
                                         
Gross profit margin
   
36.9
%
   
36.0
%
   
36.4
%
   
32.2
%
   
32.3
%
                                         
Segment operating margin
   
30.3
%
   
29.9
%
   
30.5
%
   
23.7
%
   
24.9
%
                                         
Resistors & Inductors
                                       
Net revenues
 
$
189,299
   
$
193,314
   
$
190,454
   
$
186,549
   
$
187,494
 
                                         
Book-to-bill ratio
   
1.04
     
0.98
     
0.98
     
1.02
     
1.05
 
                                         
Gross profit margin
   
31.8
%
   
31.8
%
   
31.3
%
   
32.2
%
   
31.4
%
                                         
Segment operating margin
   
26.6
%
   
26.9
%
   
26.4
%
   
27.3
%
   
26.4
%
                                         
Capacitors
                                       
Net revenues
 
$
105,511
   
$
111,744