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EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - VISHAY INTERTECHNOLOGY INCexhibit31-2.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 RULE 13A-14(A) OR 15D-14(A) - VISHAY INTERTECHNOLOGY INCexhibit31-1.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 2, 2016

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 April 29, 2016, the registrant had 135,564,729 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 2, 2016
CONTENTS

       
Page Number
PART I.
FINANCIAL INFORMATION
   
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
     
3

 
PART I  - FINANCIAL INFORMATION

Item 1. Financial Statements

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

   
April 2, 2016
   
December 31, 2015
 
   
(Unaudited)
       
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
531,296
   
$
475,507
 
Short-term investments
   
544,328
     
619,040
 
Accounts receivable, net
   
286,996
     
272,559
 
Inventories:
               
Finished goods
   
118,276
     
108,869
 
Work in process
   
201,133
     
201,045
 
Raw materials
   
106,836
     
110,657
 
Total inventories
   
426,245
     
420,571
 
                 
Prepaid expenses and other current assets
   
99,753
     
99,815
 
Total current assets
   
1,888,618
     
1,887,492
 
                 
Property and equipment, at cost:
               
Land
   
91,351
     
89,593
 
Buildings and improvements
   
575,447
     
562,171
 
Machinery and equipment
   
2,424,312
     
2,380,299
 
Construction in progress
   
68,514
     
79,910
 
Allowance for depreciation
   
(2,299,172
)
   
(2,246,677
)
     
860,452
     
865,296
 
                 
Goodwill
   
142,183
     
138,244
 
                 
Other intangible assets, net
   
100,541
     
103,258
 
                 
Other assets
   
154,830
     
158,696
 
Total assets
 
$
3,146,624
   
$
3,152,986
 

Continues on following page.
4


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

   
April 2, 2016
   
December 31, 2015
 
   
(Unaudited)
       
Liabilities and equity
           
Current liabilities:
           
Notes payable to banks
 
$
3
   
$
4
 
Trade accounts payable
   
143,375
     
157,210
 
Payroll and related expenses
   
112,114
     
113,976
 
Other accrued expenses
   
160,902
     
164,336
 
Income taxes
   
21,633
     
22,198
 
Total current liabilities
   
438,027
     
457,724
 
                 
Long-term debt less current portion
   
400,124
     
436,738
 
Deferred income taxes
   
306,333
     
305,413
 
Other liabilities
   
63,964
     
60,450
 
Accrued pension and other postretirement costs
   
255,447
     
264,618
 
Total liabilities
   
1,463,895
     
1,524,943
 
                 
Stockholders' equity:
               
Vishay stockholders' equity
               
Common stock
   
13,556
     
13,546
 
Class B convertible common stock
   
1,213
     
1,213
 
Capital in excess of par value
   
2,059,228
     
2,058,492
 
(Accumulated deficit) retained earnings
   
(300,673
)
   
(319,448
)
Accumulated other comprehensive income (loss)
   
(96,300
)
   
(131,327
)
Total Vishay stockholders' equity
   
1,677,024
     
1,622,476
 
Noncontrolling interests
   
5,705
     
5,567
 
Total equity
   
1,682,729
     
1,628,043
 
Total liabilities and equity
 
$
3,146,624
   
$
3,152,986
 

See accompanying notes.
5

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

   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
             
Net revenues
 
$
570,606
   
$
593,436
 
Costs of products sold
   
433,297
     
448,398
 
Gross profit
   
137,309
     
145,038
 
                 
Selling, general, and administrative expenses
   
90,286
     
96,070
 
Restructuring and severance costs
   
6,475
     
1,410
 
Operating income
   
40,548
     
47,558
 
                 
Other income (expense):
               
Interest expense
   
(6,466
)
   
(6,361
)
Other
   
779
     
3,460
 
Gain on early extinguishment of debt
   
3,611
     
-
 
     
(2,076
)
   
(2,901
)
                 
Income before taxes
   
38,472
     
44,657
 
                 
Income tax expense
   
10,320
     
13,732
 
                 
Net earnings
   
28,152
     
30,925
 
                 
Less: net earnings attributable to noncontrolling interests
   
138
     
226
 
                 
Net earnings attributable to Vishay stockholders
 
$
28,014
   
$
30,699
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.19
   
$
0.21
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.19
   
$
0.20
 
                 
Weighted average shares outstanding - basic
   
147,833
     
147,698
 
                 
Weighted average shares outstanding - diluted
   
150,628
     
152,666
 
                 
Cash dividends per share
 
$
0.0625
   
$
0.0600
 

See accompanying notes.
6

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

   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
             
Net earnings
 
$
28,152
   
$
30,925
 
                 
Other comprehensive income (loss), net of tax
               
                 
Pension and other  post-retirement actuarial items
   
1,868
     
2,113
 
                 
Foreign currency translation adjustment
   
32,532
     
(76,318
)
                 
Unrealized gain (loss) on available-for-sale securities
   
627
     
(154
)
                 
Other comprehensive income (loss)
   
35,027
     
(74,359
)
                 
Comprehensive income (loss)
   
63,179
     
(43,434
)
                 
Less: comprehensive income attributable to noncontrolling interests
   
138
     
226
 
                 
Comprehensive income (loss) attributable to Vishay stockholders
 
$
63,041
   
$
(43,660
)

See accompanying notes.
7


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

   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
Operating activities
           
Net earnings
 
$
28,152
   
$
30,925
 
Adjustments to reconcile net earnings to net cash provided by operating activities:
               
Depreciation and amortization
   
40,017
     
45,410
 
(Gain) loss on disposal of property and equipment
   
(22
)
   
(83
)
Accretion of interest on convertible debentures
   
1,120
     
1,036
 
Inventory write-offs for obsolescence
   
5,816
     
4,854
 
Gain on early extinguishment of debt
   
(3,611
)
   
-
 
Other
   
(13,950
)
   
(7,080
)
Net change in operating assets and liabilities, net of effects of businesses acquired
   
(37,264
)
   
(61,564
)
Net cash provided by operating activities
   
20,258
     
13,498
 
                 
Investing activities
               
Capital expenditures
   
(19,756
)
   
(19,782
)
Proceeds from sale of property and equipment
   
64
     
719
 
Purchase of short-term investments
   
(24,588
)
   
(78,905
)
Maturity of short-term investments
   
117,676
     
17,414
 
Sale of short-term investments
   
-
     
503
 
Sale of other investments
   
-
     
400
 
Other investing activities
   
2,975
     
977
 
Net cash provided by (used in) investing activities
   
76,371
     
(78,674
)
                 
Financing activities
               
Principal payments on long-term debt and capital leases
   
(22,595
)
   
-
 
Net proceeds (payments) on revolving credit lines
   
(12,000
)
   
15,000
 
Net changes in short-term borrowings
   
(719
)
   
(6
)
Dividends paid to common stockholders
   
(8,473
)
   
(8,126
)
Dividends paid to Class B common stockholders
   
(758
)
   
(728
)
Excess tax benefit from RSUs vested
   
-
     
21
 
Net cash provided by (used in) financing activities
   
(44,545
)
   
6,161
 
Effect of exchange rate changes on cash and cash equivalents
   
3,705
     
(16,155
)
                 
Net increase (decrease) in cash and cash equivalents
   
55,789
     
(75,170
)
                 
Cash and cash equivalents at beginning of period
   
475,507
     
592,172
 
Cash and cash equivalents at end of period
 
$
531,296
   
$
517,002
 

See accompanying notes.
8

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

   
Common Stock
   
Class B Convertible Common Stock
   
Capital in Excess of Par Value
   
Retained Earnings (Accumulated Deficit)
   
Accumulated Other Comprehensive Income (Loss)
   
Total Vishay Stockholders' Equity
   
Noncontrolling Interests
   
Total Equity
 
Balance at January 1, 2016
 
$
13,546
   
$
1,213
   
$
2,058,492
   
$
(319,448
)
 
$
(131,327
)
 
$
1,622,476
   
$
5,567
   
$
1,628,043
 
Net earnings
   
-
     
-
     
-
     
28,014
     
-
     
28,014
     
138
     
28,152
 
Other comprehensive income
   
-
     
-
     
-
     
-
     
35,027
     
35,027
     
-
     
35,027
 
Restricted stock issuances (103,918 shares)
   
10
     
-
     
(452
)
   
-
     
-
     
(442
)
   
-
     
(442
)
Dividends declared ($ 0.0625 per share)
   
-
     
-
     
8
     
(9,239
)
   
-
     
(9,231
)
   
-
     
(9,231
)
Stock compensation expense
   
-
     
-
     
1,201
     
-
     
-
     
1,201
     
-
     
1,201
 
Tax effects of stock plan
   
-
     
-
     
(21
)
   
-
     
-
     
(21
)
   
-
     
(21
)
Balance at April 2, 2016
 
$
13,556
   
$
1,213
   
$
2,059,228
   
$
(300,673
)
 
$
(96,300
)
 
$
1,677,024
   
$
5,705
   
$
1,682,729
 

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, 2015.  The results of operations for the fiscal quarter ended April 2, 2016 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 2016 end on April 2, 2016, July 2, 2016, October 1, 2016, and December 31, 2016, respectively.  The four fiscal quarters in 2015 ended on April 4, 2015, July 4, 2015, October 3, 2015, and December 31, 2015, 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 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 on or after January 1, 2018, with the ability to early adopt on January 1, 2017.  The Company is currently evaluating the effect of the ASU on its revenue contracts and its adoption alternatives.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.  The ASU is the result of the FASB's simplification initiative intended to improve GAAP by reducing costs and complexity while maintaining or enhancing the usefulness of related financial statement information.  The ASU eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively, and to instead recognize measurement-period adjustments during the period in which the acquirer determines the amount, including the effect on earnings of any amounts which would have been recorded in previous periods if the accounting had been completed at the acquisition date.  The Company adopted the ASU effective January 1, 2016.  The ASU had no effect on the Company's results of operations or liquidity.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).  The ASU is the result of a project between the FASB and the International Accounting Standards Board to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  Upon adoption of the ASU, the Company will recognize lease assets and liabilities for its operating leases which are not currently reported on its consolidated balance sheets.  The ASU is effective for the Company for interim and annual periods beginning on or after January 1, 2019, with the ability to early adopt.  The Company is currently evaluating the effect of the ASU on its lease contracts.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  The ASU is the result of the FASB's simplification initiative intended to improve GAAP by reducing costs and complexity while maintaining or enhancing the usefulness of related financial statement information.  The ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.  The ASU is effective for the Company for interim and annual periods beginning on or after January 1, 2017, with the ability to early adopt.  The Company is currently evaluating the effect of the ASU on its employee share-based payment accounting.
 
Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statements presentation.
10

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

Note 2 – Acquisition Activities

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

In the fourth fiscal quarter of 2015, the Company deposited the $6,750 purchase price of Sonntag Electronic GmbH ("Sonntag").  The purchase price, net of cash acquired was $5,450.  The acquisition was effective January 1, 2016.  Sonntag is a distributor of electronic components in Germany.  The inclusion of this business did not have a material impact on the Company's consolidated results for the fiscal quarter ended April 2, 2016.  After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $3,485 related to this acquisition. The goodwill related to this acquisition is included in the Resistors & Inductors reporting unit for goodwill impairment testing.

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

The remaining fluctuation in the goodwill account balance is due to foreign currency translation.
11

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

Note 3 – Restructuring and Related Activities

The Company places a strong emphasis on controlling its costs and combats general price inflation by continuously improving its efficiency and operating performance.  When the ongoing cost containment activities are not adequate, the Company takes actions to maintain its cost competitiveness.

The Company incurred significant restructuring costs in its past to reduce its cost structure.  Historically, the Company's primary cost reduction technique was through the transfer of production from high-labor-cost countries to lower-labor-cost countries.  Since 2013, the Company's cost reduction programs have primarily focused on reducing fixed costs, including selling, general, and administrative expenses.

In 2013, the Company announced various cost reduction programs.  The cash costs of these programs, primarily severance, are expected to be approximately $34,000.  These programs were substantially implemented by the end of the first fiscal quarter of 2016.  Many of the severance costs were recognized ratably over the required stay periods.

In 2015, the Company announced additional global cost reduction programs.  These programs include a facility closure in the Netherlands.  The cash costs of these programs, primarily severance, are expected to aggregate to approximately $30,000.  Complete implementation of these programs is expected to occur before the end of 2017.

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

   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
MOSFETs Enhanced Competitiveness Program
 
$
3,915
   
$
1,353
 
Voluntary Separation / Retirement Program
   
-
     
57
 
Modules Production Transfer Program
   
-
     
-
 
Global Cost Reduction Programs
   
2,560
     
-
 
Total
 
$
6,475
   
$
1,410
 

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 was transferred into a more cost-efficient fab.  As a consequence, certain other manufacturing currently occurring in-house was transferred to third-party foundries.

The transfer of production was substantially completed by the end of the first fiscal quarter of 2016.  Employees generally were required to remain with the Company during the production transfer period.  Accordingly, the Company accrued these severance costs ratably over the respective employees' remaining service periods.  The Company has incurred and will continue to incur other exit costs associated with the production transfer, including certain contract termination costs.  The total costs associated with these initiatives, primarily severance, are expected to be approximately $18,000.

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
   
5,367
 
Cash paid
   
(426
)
Foreign currency translation
   
1
 
Balance at December 31, 2015
 
$
12,172
 
Expense recorded in 2016
   
3,915
 
Cash paid
   
(5,840
)
Foreign currency translation
   
6
 
Balance at April 2, 2016
 
$
10,253
 

Severance benefits are generally paid in a lump sum at cessation of employment.  Other exit costs of $3,925 are included in the expenses incurred in 2016 in the table above.  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)

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 varied by country and job classification, but generally included a cash loyalty bonus based on years of service. All employees eligible for the program have left the Company.

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
   
95
 
Cash paid
   
(3,166
)
Foreign currency translation
   
(258
)
Balance at December 31, 2015
 
$
1,345
 
Cash paid
   
(256
)
Foreign currency translation
   
34
 
Balance at April 2, 2016
 
$
1,123
 

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 condensed 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 transfer 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
   
(718
)
Foreign currency translation
   
(120
)
Balance at December 31, 2015
 
$
657
 
Cash paid
   
(5
)
Foreign currency translation
   
30
 
Balance at April 2, 2016
 
$
682
 

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.

13

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

The global cost reduction programs announced in 2015 include a plan to reduce selling, general, and administrative costs company-wide, and targeted streamlining and consolidation of production for certain product lines within its Capacitors and Resistors & Inductors segments.

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

Expense recorded in 2015
 
$
13,753
 
Cash paid
   
(986
)
Foreign currency translation
   
(150
)
Balance at December 31, 2015
 
$
12,617
 
Expense recorded in 2016
   
2,560
 
Cash paid
   
(4,072
)
Foreign currency translation
   
299
 
Balance at April 2, 2016
 
$
11,404
 

The following table summarizes the expense recognized in 2016 by segment related to this program:

Diodes
 
$
448
 
Optoelectronic Components
   
178
 
Resistors & Inductors
   
1,018
 
Capacitors
   
334
 
Unallocated Selling, General, and Administrative Expenses
   
582
 
Total
 
$
2,560
 

Severance benefits are generally paid in a lump sum at cessation of employment.  The current portion of the liability is $8,864 and is included in other accrued expenses in the accompanying consolidated condensed balance sheets.  The non-current portion of the liability is included in other liabilities in the accompanying consolidated balance sheets.
14

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

Note 4 – 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 2, 2016 and April 4, 2015 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.

Income tax expense for the fiscal quarter ended April 2, 2016 includes a remeasurement of the deferred tax liability recorded for the cash repatriation program announced in the fourth fiscal quarter of 2015 of $769.

During the three fiscal months ended April 2, 2016, the liabilities for unrecognized tax benefits increased by $1,150 on a net basis, principally due to increases for tax positions taken in prior periods, interest, and foreign currency effects.
15

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

Note 5 – Long-Term Debt

Long-term debt consists of the following:

   
April 2, 2016
   
December 31, 2015
 
             
Credit facility
 
$
178,000
   
$
190,000
 
Exchangeable unsecured notes, due 2102
   
12,436
     
38,642
 
Convertible senior debentures, due 2040
   
106,573
     
106,011
 
Convertible senior debentures, due 2041
   
54,746
     
54,424
 
Convertible senior debentures, due 2042
   
60,583
     
60,320
 
Deferred financing costs
   
(12,214
)
   
(12,659
)
     
400,124
     
436,738
 
Less current portion
   
-
     
-
 
   
$
400,124
   
$
436,738
 

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 29, 2016 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 9, 2016 (per $1 principal amount)
   
75.1038
     
54.8068
     
88.3041
 
Effective conversion price effective March 9, 2016 (per share)
 
$
13.31
   
$
18.25
   
$
11.32
 
130% of the conversion price (per share)
 
$
17.30
   
$
23.73
   
$
14.72
 
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 2, 2016 and December 31, 2015, 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.
16

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 2, 2016
                             
Due 2040
 
$
275,000
     
(169,009
)
   
582
   
$
106,573
   
$
110,094
 
Due 2041
 
$
150,000
     
(95,730
)
   
476
   
$
54,746
   
$
62,246
 
Due 2042
 
$
150,000
     
(89,702
)
   
285
   
$
60,583
   
$
57,874
 
Total
 
$
575,000
   
$
(354,441
)
 
$
1,343
   
$
221,902
   
$
230,214
 
                                         
December 31, 2015
                                       
Due 2040
 
$
275,000
     
(169,565
)
   
576
   
$
106,011
   
$
110,094
 
Due 2041
 
$
150,000
     
(96,014
)
   
438
   
$
54,424
   
$
62,246
 
Due 2042
 
$
150,000
     
(89,982
)
   
302
   
$
60,320
   
$
57,874
 
Total
 
$
575,000
   
$
(355,561
)
 
$
1,316
   
$
220,755
   
$
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 2, 2016
                             
Due 2040
 
$
1,547
     
556
     
22
     
6
   
$
2,131
 
Due 2041
 
$
844
     
284
     
11
     
38
   
$
1,177
 
Due 2042
 
$
844
     
280
     
13
     
(17
)
 
$
1,120
 
Total
 
$
3,235
   
$
1,120
   
$
46
   
$
27
   
$
4,428
 
                                         
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
 
17

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

Exchangeable Unsecured Notes, due 2102

On March 31, 2016, pursuant to an agreement dated March 10, 2016, the Company acquired from a holder $26,206 principal amount of the Company's floating rate exchangeable unsecured notes due 2102.  The purchase price for this privately negotiated transaction was $22,595.  Vishay recognized a gain on early extinguishment of debt of $3,611 presented as a separate line item in the accompanying consolidated condensed statement of operations for the fiscal quarter ended April 2, 2016.

The exchangeable unsecured notes were issued in 2002 in connection with an acquisition, and are subject to a put and call agreement dated December 13, 2002.  Holders may at any time put the notes to Vishay in exchange for shares of common stock; and Vishay may call the notes in exchange for cash or for shares of its common stock at any time after January 2, 2018.  Subsequent to the spin-off of Vishay Precision Group in 2010, the put/call rate of the notes is $15.39 per share of common stock.  The notes bear interest at LIBOR, payable quarterly.

The notes that Vishay repurchased from a holder had been exchangeable for 1,702,813 shares of Vishay common stock.

Following this transaction, Vishay has outstanding exchangeable unsecured notes with a principal amount of approximately $12,436, which are exchangeable for an aggregate of approximately 808,000 shares of Vishay common stock.

18

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

Note 6 – Other Income (Expense)

On August 12, 2015, a major explosion occurred in the port of Tianjin, China.  Vishay owns and operates a diodes manufacturing facility in Tianjin near the port.  The shockwave of the explosion resulted in some damage to the facility and caused a temporary shutdown.  Full production resumed on September 8, 2015.  

As a result of this incident, through the end of the first fiscal quarter of 2016, the Company estimates that it has incurred $10,145 for inventory, property, and equipment damage (at net book value) and related repair and clean-up costs.  As of April 2, 2016, the Company has recorded a receivable of $4,795 for amounts which are probable of recovery under its insurance policies.  The Company recorded, as a separate line item, a loss related to these items in 2015, which represents the insurance deductible and certain costs which are potentially not recoverable.

The Company's insurance coverage generally provides for replacement cost of damaged items.  The insurance claims process continues as expected.  Any amount expected to be received in excess of the book value of the damaged item will be treated as a gain, but will not be recorded until contingencies are resolved.  The Company also believes that it has valid claims under its business interruption insurance policies, but those claims cannot be quantified at this time.  The Company will not record a receivable for business interruption claims until all contingencies have been resolved.
19

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

Note 7 – 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, 2016
 
$
(136,422
)
 
$
4,597
     
498
   
$
(131,327
)
Other comprehensive income (loss) before reclassifications
   
-
     
32,532
     
964
   
$
33,496
 
Tax effect
   
-
     
-
     
(337
)
 
$
(337
)
Other comprehensive income (loss) before reclassifications, net of tax
   
-
     
32,532
     
627
   
$
33,159
 
Amounts reclassified out of AOCI
   
2,669
     
-
     
-
   
$
2,669
 
Tax effect
   
(801
)
   
-
     
-
   
$
(801
)
Amounts reclassified out of AOCI, net of tax
   
1,868
     
-
     
-
   
$
1,868
 
Net other comprehensive income (loss)
 
$
1,868
   
$
32,532
   
$
627
   
$
35,027
 
Balance at April 2, 2016
 
$
(134,554
)
 
$
37,129
   
$
1,125
   
$
(96,300
)

Reclassifications of pension and other post-retirement actuarial items out of AOCI are included in the computation of net periodic benefit cost.  (See Note 8 for further information).

Other comprehensive income (loss) includes Vishay's proportionate share of other comprehensive income (loss) of nonconsolidated subsidiaries accounted for under the equity method.
20

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

Note 8 – Pensions and Other Postretirement Benefits

The Company maintains various retirement benefit plans.

Defined Benefit Pension Plans

The following table shows the components of the net periodic pension cost for the first fiscal quarters of 2016 and 2015 for the Company's defined benefit pension plans:

   
Fiscal quarter ended
April 2, 2016
   
Fiscal quarter ended
April 4, 2015
 
   
U.S. Plans
   
Non-U.S. Plans
   
U.S. Plans
   
Non-U.S. Plans
 
                         
Net service cost
 
$
-
   
$
774
   
$
-
   
$
829
 
Interest cost
   
3,000
     
1,353
     
2,943
     
1,432
 
Expected return on plan assets
   
(2,825
)
   
(534
)
   
(3,385
)
   
(454
)
Amortization of prior service cost (credit)
   
36
     
12
     
16
     
-
 
Amortization of losses
   
1,650
     
1,171
     
2,022
     
1,299
 
Curtailment and settlement losses
   
-
     
195
     
-
     
-
 
Net periodic benefit cost
 
$
1,861
   
$
2,971
   
$
1,596
   
$
3,106
 

In the second fiscal quarter of 2015, the Company began the process of terminating the Vishay Retirement Plan, the Company's U.S. qualified pension plan.  Plan participants will not be adversely affected by the plan termination, but rather will have their benefits either converted into a lump sum cash payment or an annuity contract placed with an insurance carrier.

The completion of this proposed termination and settlement is contingent upon the receipt of a favorable determination letter from the Internal Revenue Service ("IRS") and meeting certain IRS and Pension Benefit Guarantee Corporation ("PBGC") requirements, which is not expected to be received prior to the fourth fiscal quarter of 2016.
 
As of the last fiscal year-end measurement date (December 31, 2015), the Vishay Retirement Plan was fully-funded on a GAAP basis.  In order to terminate the plan in accordance with IRS and PBGC requirements, the Company is required to fully fund the plan on a termination basis and will commit to contribute the additional assets necessary to do so.  The amount necessary to do so is not yet known, but is currently estimated to be between zero and $35,000.

The Company contributed $16,966 to the Company's Taiwanese pension plans to improve the funded status of those plans in 2016.

Other Postretirement Benefits

The following table shows the components of the net periodic benefit cost for the first fiscal quarters of 2016 and 2015 for the Company's other postretirement benefit plans:

   
Fiscal quarter ended
April 2, 2016
   
Fiscal quarter ended
April 4, 2015
 
   
U.S. Plans
   
Non-U.S. Plans
   
U.S. Plans
   
Non-U.S. Plans
 
                         
Service cost
 
$
31
   
$
67
   
$
30
   
$
69
 
Interest cost
   
85
     
36
     
83
     
37
 
Amortization of prior service (credit)
   
(209
)
   
-
     
(209
)
   
-
 
Amortization of losses (gains)
   
(8
)
   
17
     
22
     
19
 
Net periodic benefit cost
 
$
(101
)
 
$
120
   
$
(74
)
 
$
125
 
21

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

Note 9 – 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 2, 2016
   
April 4, 2015
 
             
Restricted stock units
 
$
1,084
   
$
914
 
Phantom stock units
   
117
     
141
 
Stock options
   
-
     
-
 
Total
 
$
1,201
   
$
1,055
 

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 2, 2016 (amortization periods in years):

   
Unrecognized Compensation Cost
   
Weighted Average Remaining Amortization Periods
 
             
Stock options
 
$
-
     
0.0
 
Restricted stock units
   
7,472
     
1.8
 
Phantom stock units
   
-
     
0.0
 
Total
 
$
7,472
         

The Company currently expects all performance-based RSUs to vest and all of the associated unrecognized compensation cost for performance-based RSUs presented in the table above to be recognized.
22

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 2, 2016 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, 2016
   
1,028
   
$
13.24
 
Granted
   
353
     
11.35
 
Vested*
   
(142
)
   
12.21
 
Cancelled or forfeited
   
(222
)
   
13.19
 
Outstanding at April 2, 2016
   
1,017
   
$
12.74
 
                 
Expected to vest at April 2, 2016
   
1,017
         

* 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, 2017
 
192
 
-
 
192
January 1, 2018
 
202
 
-
 
202
January 1, 2019
 
213
 
-
 
213

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 2, 2016 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, 2016
   
132
       
Granted
   
10
   
$
11.71
 
Dividend equivalents issued
   
1
         
Outstanding at April 2, 2016
   
143
         
23

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, 2015.  No additional options may be granted pursuant to these programs.

At December 31, 2015 and April 2, 2016, there were 105,000 options outstanding with a weighted average exercise price of $15.38.  At April 2, 2016, the weighted average remaining contractual life of all outstanding options was 1.08 years.

At April 2, 2016, 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 2016 of $12.08 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 2, 2016 was zero because all outstanding options have exercise prices in excess of market value.  This amount changes based on changes in the market value of the Company's common stock.  During the three fiscal months ended April 2, 2016, no options were exercised.
24

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

Note 10 – 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, goodwill and long-lived asset impairment charges, and other items.  Management believes that evaluating segment performance excluding such items is meaningful because it provides insight with respect to intrinsic operating results of the Company.  These items represent reconciling items between segment operating income and consolidated operating income.  Business segment assets are the owned or allocated assets used by each business.

The following tables set forth business segment information:

   
MOSFETs
   
Diodes
   
Optoelectronic Components
   
Resistors & Inductors
   
Capacitors
   
Total
 
Fiscal quarter ended April 2, 2016:
                                   
Product Sales
 
$
100,933
   
$
135,384
   
$
62,775
   
$
183,416
   
$
88,020
   
$
570,528
 
Royalty Revenues
   
-
     
-
     
-
     
78
     
-
   
$
78
 
Total Revenue
 
$
100,933
   
$
135,384
   
$
62,775
   
$
183,494
   
$
88,020
   
$
570,606
 
                                                 
Gross Profit
 
$
12,587
   
$
32,662
   
$
19,181
   
$
55,784
   
$
17,095
   
$
137,309
 
                                                 
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 Profit
 
$
13,758
   
$
29,890
   
$
22,183
   
$
58,849
   
$
20,358
   
$
145,038
 


   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
Operating income reconciliation:
           
MOSFETs
 
$
2,618
   
$
4,527
 
Diodes
   
26,643
     
23,485
 
Optoelectronic Components
   
13,654
     
17,087
 
Resistors & Inductors
   
46,883
     
49,525
 
Capacitors
   
11,303
     
14,564
 
Restructuring and Severance Costs
   
(6,475
)
   
(1,410
)
Unallocated Selling, General, and Administrative Expenses
   
(54,078
)
   
(60,220
)
Consolidated Operating Income
   
40,548
   
$
47,558
 
25

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

Note 11 – 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 2, 2016
   
April 4, 2015
 
             
Numerator:
           
Numerator for basic earnings per share:
           
Net earnings attributable to Vishay stockholders
 
$
28,014
   
$
30,699
 
                 
Interest savings assuming conversion of dilutive convertible and exchangeable notes, net of tax
   
38
     
16
 
                 
Numerator for diluted earnings per share:
               
Net earnings attributable to Vishay stockholders - diluted
 
$
28,052
   
$
30,715
 
                 
Denominator:
               
Denominator for basic earnings per share:
               
Weighted average shares
   
147,691
     
147,569
 
Outstanding phantom stock units
   
142
     
129
 
Adjusted weighted average shares - basic
   
147,833
     
147,698
 
                 
Effect of dilutive securities:
               
Convertible and exchangeable debt instruments
   
2,626
     
4,778
 
Restricted stock units
   
169
     
184
 
Other
   
-
     
6
 
Dilutive potential common shares
   
2,795
     
4,968
 
                 
Denominator for diluted earnings per share:
               
Adjusted weighted average shares - diluted
   
150,628
     
152,666
 
                 
Basic earnings per share attributable to Vishay stockholders
 
$
0.19
   
$
0.21
 
                 
Diluted earnings per share attributable to Vishay stockholders
 
$
0.19
   
$
0.20
 
26

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

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

   
Fiscal quarters ended
 
   
April 2, 2016
   
April 4, 2015
 
Convertible and exchangeable notes:
           
Convertible Senior Debentures, due 2040
   
20,574
     
-
 
Convertible Senior Debentures, due 2041
   
8,189
     
8,024
 
Weighted average employee stock options
   
105
     
77
 
Weighted average other
   
610
     
620
 

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 assumes the conversion of these instruments in its diluted earnings per share computation during periods in which they are dilutive.

At the direction of its Board of Directors, the Company intends, upon conversion, to repay the principal amounts of 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 $13.31, 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 $18.25, 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 $11.32, no shares are included in the diluted earnings per share computation for the convertible senior debentures due 2042.
27

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

Note 12 – 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 2, 2016:
                       
Assets:
                       
Assets held in rabbi trusts
 
$
40,368
   
$
26,433
   
$
13,935
   
$
-
 
Available for sale securities
 
$
4,171
     
4,171
     
-
     
-
 
   
$
44,539
   
$
30,604
   
$
13,935
   
$
-
 
Liabilities:
                               
Embedded derivative - convertible debentures due 2040
 
$
(582
)
 
$
-
   
$
-
   
$
(582
)
Embedded derivative - convertible debentures due 2041
 
$
(476
)
   
-
     
-
     
(476
)
Embedded derivative - convertible debentures due 2042
 
$
(285
)
   
-
     
-
     
(285
)
   
$
(1,343
)
 
$
-
   
$
-
   
$
(1,343
)
December 31, 2015:
                               
Assets:
                               
Assets held in rabbi trusts
 
$
39,849
   
$
25,906
     
13,943
   
$
-
 
Available for sale securities
 
$
3,604
     
3,604
     
-
     
-
 
   
$
43,453
   
$
29,510
   
$
13,943
   
$
-
 
Liabilities:
                               
Embedded derivative - convertible debentures due 2040
 
$
(576
)
 
$
-
   
$
-
   
$
(576
)
Embedded derivative - convertible debentures due 2041
 
$
(438
)
   
-
     
-
     
(438
)
Embedded derivative - convertible debentures due 2042
 
$
(302
)
   
-
     
-
     
(302
)
   
$
(1,316
)
 
$
-
   
$
-
   
$
(1,316
)

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

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

The Company holds 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.

The Company enters into forward contracts with a highly-rated financial institution to mitigate the foreign currency risk associated with intercompany loans denominated in a currency other than the legal entity's functional currency.  The notional amount of the forward contracts was $64,000 and $29,000 as of April 2, 2016 and December 31, 2015, respectively.  The forward contracts settle monthly and are expected to be renewed at the Company's discretion on a monthly basis until the intercompany loans are repaid.  We have not designated the forward contracts as hedges for accounting purposes, and as such the change in the fair value of the contracts 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 contracts based on applicable and commonly used pricing models using current market information and is considered a Level 2 measurement within the fair value hierachy.  The value of the forward contracts was immaterial as of April 2, 2016.  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 and deferred financing costs, at April 2, 2016 and December 31, 2015 is approximately $733,900 and $756,900, respectively, compared to its carrying value, excluding the derivative liabilities and deferred financing costs, of $410,995, and $448,080, 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 2, 2016 and December 31, 2015, the Company's short-term investments were comprised of time deposits with financial institutions that have maturities that exceed 90 days from the date of acquisition; however they all mature within one year from the respective balance sheet dates.  The Company's short-term investments are accounted for as held-to-maturity debt instruments, at amortized cost, which approximates their fair value.  The investments are funded with excess cash not expected to be needed for operations prior to maturity; therefore, the Company believes it has the intent and ability to hold the short-term investments until maturity.  At each reporting date, the Company performs an evaluation to determine if any unrealized losses are other-than-temporary.  No other-than-temporary impairments have been recognized on these securities, and there are no unrecognized holding gains or losses for these securities during the periods presented.  There have been no transfers to or from the held-to-maturity classification.  All decreases in the account balance are due to returns of principal at the securities' maturity dates.  Interest on the securities is recognized as interest income when earned.

At April 2, 2016 and December 31, 2015, the Company's cash and cash equivalents were comprised of demand deposits, time deposits with maturities of three months or less when purchased, and money market funds.  The Company estimates the fair value of its cash, cash equivalents, and short-term investments using level 2 inputs.  Based on the current interest rates for similar investments with comparable credit risk and time to maturity, the fair value of the Company's cash, cash equivalents, and held-to-maturity short-term investments approximate the carrying amounts reported in the consolidated condensed balance sheets.

The Company's financial instruments also include accounts receivable, short-term notes payable, and accounts payable.  The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values.
29


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

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. In addition to our growth plan, we also have opportunistically repurchased our stock. In 2014, our Board of Directors instituted a quarterly dividend payment program and declared the first cash dividend in the history of Vishay.  In December 2015, we amended our credit facility to increase our ability to repurchase shares of stock or pay cash dividends.  On May 2, 2016, our Board of Directors approved a stock repurchase plan, authorizing us to repurchase, in the aggregate, up to $100 million of our outstanding common stock.  The stock repurchase plan will expire on May 2, 2017.  The stock repurchase plan does not obligate us to acquire any particular amount of common stock, and it may be terminated or suspended at any time at the Company's direction.  The Company has not repurchased any stock since the inception of the plan.  We will continue to evaluate attractive stock repurchase opportunities.
 
As part of the amendment and restatement of the revolving credit facility in December 2015, we completed an evaluation of our anticipated domestic cash needs over the next several years and our most efficient use of liquidity, with consideration of the amount of cash that can be repatriated to the U.S. efficiently with lesser withholding taxes in foreign jurisdictions.  As a result of that evaluation, during the fourth quarter of 2015, we recognized income tax expense of $164.0 million, including U.S. federal and state income taxes, incremental foreign income taxes, and withholding taxes payable to foreign jurisdictions, on $300 million of foreign earnings which we expect to repatriate to the U.S. over the next several years. 
 
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 the first fiscal quarter of 2016, we substantially completed the implementation of targeted cost reduction programs that began in the fourth fiscal quarter of 2013.  The cost reduction programs initiated in 2015 continue as planned.  Our cost reduction programs are more fully described in Note 3 to the consolidated condensed financial statements included in Item 1, and in "Cost Management" below.  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, 2015, filed with the Securities and Exchange Commission (the "SEC") on February 17, 2016.

We recorded noncash impairment charges of $63.0 million in the third fiscal quarter of 2015.  If financial conditions deteriorate, an interim assessment may be required before the next annual assessment.  The 2015 goodwill and indefinite-lived intangible assets impairment tests are more fully described in Note 3 to our consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (the "SEC") on February 17, 2016.
30


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.")  The business continues to be burdened by the weak economic environment that began in the middle of 2015, but showed signs of a recovery in the first fiscal quarter of 2016.  Net revenues in the first fiscal quarter of 2016 increased versus the prior fiscal quarter, but remain lower than the prior year quarter.  An increase in orders resulted in an increase in key financial metrics compared to the prior fiscal quarter.  The key metrics remain slightly lower than  the first fiscal quarter of 2015.

Net revenues for the fiscal quarter ended April 2, 2016 were $570.6 million, compared to $593.4 million for the fiscal quarter ended April 4, 2015.  The net earnings attributable to Vishay stockholders for the fiscal quarter ended April 2, 2016 were $28.0 million, or $0.19 per diluted share, compared to $30.7 million, or $0.20 per diluted share for the fiscal quarter ended April 4, 2015.

Net earnings attributable to Vishay stockholders for the fiscal quarters ended April 2, 2016 and April 4, 2015 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 2, 2016
   
April 4, 2015
 
             
GAAP net earnings attributable to Vishay stockholders
 
$
28,014
   
$
30,699
 
                 
Reconciling items affecting operating margin:
               
Restructuring and severance costs
 
$
6,475
   
$
1,410
 
                 
Reconciling items affecting other income (expense):
               
Gain on early extinguishment of debt
 
$
(3,611
)
 
$
-
 
                 
Reconciling items affecting tax expense:
               
Tax effects of items above and other one-time tax expense (benefit)
 
$
(1,656
)
 
$
(508
)
                 
Adjusted net earnings
 
$
29,222
   
$
31,601
 
                 
Adjusted weighted average diluted shares outstanding
   
150,628
     
152,666
 
                 
Adjusted earnings per diluted share *
 
$
0.19
   
$
0.21
 

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

Our results for the fiscal quarters ended April 2, 2016 and April 4, 2015 represent the effects of an improving business environment, increasing order activity, our cost reduction programs, and our organic growth initiatives.  Our revenue results continue to be 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.  Our pre-tax results were consistent with expectations based on our business model.
31


Financial Metrics

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

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

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

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

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

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

Pricing in our industry can be volatile.  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.
32


The quarter-to-quarter trends in these financial metrics can also be an important indicator of the likely direction of our business. The following table shows net revenues, gross profit margin, operating margin, end-of-period backlog, book-to-bill ratio, inventory turnover, and changes in ASP for our business as a whole during the five fiscal quarters beginning with the first fiscal quarter of 2015 through the first fiscal quarter of 2016 (dollars in thousands):

   
1st Quarter 2015
   
2nd Quarter 2015
   
3rd Quarter 2015
   
4th Quarter 2015
   
1st Quarter 2016
 
                               
Net revenues
 
$
593,436
   
$
590,470
   
$
560,654
   
$
555,928
   
$
570,606
 
                                         
Gross profit margin
   
24.4
%
   
24.0
%
   
23.2
%
   
22.6
%
   
24.1
%
                                         
Operating margin (1)
   
8.0
%
   
7.5
%
   
-4.3
%
   
5.4
%
   
7.1
%
                                         
End-of-period backlog
 
$
559,600
   
$
556,100
   
$
535,500
   
$
514,500
   
$
571,600
 
                                         
Book-to-bill ratio
   
1.05
     
0.99
     
0.96
     
0.97
     
1.08
 
                                         
Inventory turnover
   
4.20
     
4.11
     
3.82
     
3.90
     
4.00
 
                                         
Change in ASP vs. prior quarter
   
-0.9
%
   
-1.3
%
   
-1.2
%
   
-0.7
%
   
-1.2
%

(1)  Operating margin for the first, second, third, and fourth fiscal quarters of 2015 and first fiscal quarter of 2016 includes $1.4 million, $5.7 million, $2.3 million, $9.8 million, and $6.5 million, respectively, of restructuring and severance expenses (see Note 3 to our consolidated condensed financial statements).  Operating margin for the third fiscal quarter of 2015 includes $63.0 million of goodwill and depreciable and amortizable long-lived asset impairment charges.

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

Revenues were within the upper end of our expected range and increased versus the prior fiscal quarters, but remain lower than the first fiscal quarter of 2015.  Foreign currency exchange rates continue to negatively impact revenues.  The order level in the first fiscal quarter of 2016 increased compared to the prior fiscal quarters, which increased the backlog and positively impacted the book-to-bill ratio.  Our 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 profit margin increased versus the prior fiscal quarters, but remains lower than the first fiscal quarter of 2015.  The fluctuations are primarily volume-driven.  Decreasing average selling prices continue to burden the gross profit margin.  Gross profit margins have been negatively impacted by additional depreciation associated with our cost reduction programs beginning with the fourth fiscal quarter of 2013.  The negative impact on the MOSFETs segment will be reduced beginning in the second fiscal quarter of 2016.

The book-to-bill ratio in the first fiscal quarter of 2016 increased to 1.08 from 0.97 in the fourth fiscal quarter of 2015.  The book-to-bill ratios in the first fiscal quarter of 2016 for distributors and original equipment manufacturers ("OEM") were 1.06 and 1.12, respectively, versus ratios of 1.02 and 0.91, respectively, during the fourth fiscal quarter of 2015.

For the second fiscal quarter of 2016, we anticipate revenues between $565 million and $605 million and gross margins of 23% to 25%.
33

Financial Metrics by Segment

The following table shows net revenues, book-to-bill ratio, gross profit margin, and segment operating margin broken out by segment for the five fiscal quarters beginning with the first fiscal quarter of 2015 through the first fiscal quarter of 2016 (dollars in thousands):

   
1st Quarter 2015
   
2nd Quarter 2015
   
3rd Quarter 2015
   
4th Quarter 2015
   
1st Quarter 2016
 
MOSFETs
                             
Net revenues
 
$
106,770
   
$
106,348
   
$
109,446
   
$
104,119
   
$
100,933
 
                                         
Book-to-bill ratio
   
0.99
     
1.04
     
0.91
     
0.90
     
1.14
 
                                         
Gross profit margin
   
12.9
%
   
13.8
%
   
15.3
%
   
12.8
%
   
12.5
%
                                         
Segment operating margin
   
4.2
%
   
4.8
%
   
6.2
%
   
4.7
%
   
2.6
%
                                         
Diodes
                                       
Net revenues
 
$
136,511
   
$
138,722
   
$
123,922
   
$
134,776
   
$
135,384
 
                                         
Book-to-bill ratio
   
1.01
     
0.97
     
1.05
     
0.97
     
1.05
 
                                         
Gross profit margin
   
21.9
%
   
22.8
%
   
22.2
%
   
22.8
%
   
24.1
%
                                         
Segment operating margin
   
17.2
%
   
18.4
%
   
17.5
%
   
18.7
%
   
19.7
%
                                         
Optoelectronic Components
                                       
Net revenues
 
$
68,625
   
$
72,977
   
$
70,008
   
$
67,943
   
$
62,775
 
                                         
Book-to-bill ratio
   
1.09
     
1.02
     
0.95
     
0.91
     
1.09
 
                                         
Gross profit margin
   
32.3
%
   
33.3
%
   
32.8
%