VISHAY INTERTECHNOLOGY INC - FORM 10-Q - August 7, 2018

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EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-2.htm
EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 - VISHAY INTERTECHNOLOGY INCexhibit32-1.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A) OR 15D-14(A) - VISHAY INTERTECHNOLOGY INCexhibit31-2.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           June 30, 2018

☐
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, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 3, 2018, the registrant had 132,117,715 shares of its common stock and 12,097,427 shares of its Class B common stock outstanding.












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2

VISHAY INTERTECHNOLOGY, INC.
FORM 10-Q
June 30, 2018
CONTENTS

       
Page Number
   
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         
     
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
   
         
     
3

PART I  - FINANCIAL INFORMATION

Item 1. Financial Statements

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

   
June 30, 2018
    
December 31, 2017
  
         
(recast - see Note 1)
  
Assets
            
Current assets:
            
Cash and cash equivalents
  
$
1,007,056
    
$
748,032
  
Short-term investments
    
142,690
      
547,136
  
Accounts receivable, net
    
395,745
      
340,027
  
Inventories:
                
Finished goods
    
138,745
      
127,272
  
Work in process
    
191,546
      
170,319
  
Raw materials
    
149,630
      
132,068
  
Total inventories
    
479,921
      
429,659
  
                 
Prepaid expenses and other current assets
    
118,809
      
130,336
  
Total current assets
    
2,144,221
      
2,195,190
  
                 
Property and equipment, at cost:
                
Land
    
86,919
      
92,285
  
Buildings and improvements
    
607,232
      
606,168
  
Machinery and equipment
    
2,438,523
      
2,415,769
  
Construction in progress
    
94,911
      
103,058
  
Allowance for depreciation
    
(2,330,960
)
    
(2,311,522
)
Property and equipment, net
    
896,625
      
905,758
  
                 
Goodwill
    
147,645
      
142,742
  
                 
Other intangible assets, net
    
70,599
      
69,754
  
                 
Other assets
    
143,097
      
148,645
  
Total assets
  
$
3,402,187
    
$
3,462,089
  

Continues on following page.
4

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

   
June 30, 2018
    
December 31, 2017
  
         
(recast - see Note 1)
  
Liabilities and equity
            
Current liabilities:
            
Notes payable to banks
  
$
123
    
$
4
  
Trade accounts payable
    
212,111
      
222,373
  
Payroll and related expenses
    
137,487
      
135,702
  
Other accrued expenses
    
161,986
      
154,230
  
Income taxes
    
39,065
      
50,226
  
Total current liabilities
    
550,772
      
562,535
  
                 
Long-term debt less current portion
    
679,598
      
370,470
  
U.S. transition tax payable
    
151,200
      
151,200
  
Deferred income taxes
    
207,072
      
336,465
  
Other liabilities
    
79,925
      
75,249
  
Accrued pension and other postretirement costs
    
268,287
      
281,701
  
Total liabilities
    
1,936,854
      
1,777,620
  
                 
Redeemable convertible debentures
    
79,544
      
252,070
  
                 
Stockholders' equity:
                
Vishay stockholders' equity
                
Common stock
    
13,212
      
13,188
  
Class B convertible common stock
    
1,210
      
1,213
  
Capital in excess of par value
    
1,593,942
      
1,752,506
  
(Accumulated deficit) retained earnings
    
(217,008
)
    
(362,254
)
Accumulated other comprehensive income (loss)
    
(7,418
)
    
25,714
  
Total Vishay stockholders' equity
    
1,383,938
      
1,430,367
  
Noncontrolling interests
    
1,851
      
2,032
  
Total equity
    
1,385,789
      
1,432,399
  
Total liabilities, temporary equity, and equity
  
$
3,402,187
    
$
3,462,089
  

See accompanying notes.
5

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

   
Fiscal quarters ended
  
   
June 30, 2018
    
July 1, 2017
  
         
(recast - see Note 1)
  
             
Net revenues
  
$
761,030
    
$
643,164
  
Costs of products sold
    
533,792
      
469,327
  
Gross profit
    
227,238
      
173,837
  
                 
Selling, general, and administrative expenses
    
103,945
      
88,351
  
Restructuring and severance costs
    
-
      
481
  
Operating income
    
123,293
      
85,005
  
                 
Other income (expense):
                
Interest expense
    
(8,372
)
    
(7,076
)
Other components of net periodic pension cost
    
(3,450
)
    
(2,969
)
Other
    
3,397
      
749
  
Loss on early extinguishment of debt
    
(17,309
)
    
-
  
Total other income (expense)
    
(25,734
)
    
(9,296
)
                 
Income before taxes
    
97,559
      
75,709
  
                 
Income tax expense (benefit)
    
(5,703
)
    
19,300
  
                 
Net earnings
    
103,262
      
56,409
  
                 
Less: net earnings attributable to noncontrolling interests
    
165
      
219
  
                 
Net earnings attributable to Vishay stockholders
  
$
103,097
    
$
56,190
  
                 
Basic earnings per share attributable to Vishay stockholders
  
$
0.71
    
$
0.38
  
                 
Diluted earnings per share attributable to Vishay stockholders
  
$
0.65
    
$
0.36
  
                 
Weighted average shares outstanding - basic
    
144,382
      
146,381
  
                 
Weighted average shares outstanding - diluted
    
157,657
      
155,300
  
                 
Cash dividends per share
  
$
0.0850
    
$
0.0625
  

See accompanying notes.
6

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

   
Fiscal quarters ended
  
   
June 30, 2018
    
July 1, 2017
  
             
Net earnings
  
$
103,262
    
$
56,409
  
                 
Other comprehensive income (loss), net of tax
                
                 
Pension and other  post-retirement actuarial items
    
1,575
      
1,216
  
                 
Foreign currency translation adjustment
    
(61,537
)
    
53,523
  
                 
Unrealized gain on available-for-sale securities
    
-
      
511
  
                 
Other comprehensive income (loss)
    
(59,962
)
    
55,250
  
                 
Comprehensive income
    
43,300
      
111,659
  
                 
Less: comprehensive income attributable to noncontrolling interests
    
165
      
219
  
                 
Comprehensive income attributable to Vishay stockholders
  
$
43,135
    
$
111,440
  

See accompanying notes.
7

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

   
Six fiscal months ended
  
   
June 30, 2018
    
July 1, 2017
  
         
(recast - see Note 1)
  
             
Net revenues
  
$
1,477,825
    
$
1,247,965
  
Costs of products sold
    
1,045,287
      
912,379
  
Gross profit
    
432,538
      
335,586
  
                 
Selling, general, and administrative expenses
    
205,183
      
181,053
  
Restructuring and severance costs
    
-
      
1,950
  
Operating income
    
227,355
      
152,583
  
                 
Other income (expense):
                
Interest expense
    
(16,049
)
    
(13,866
)
Other components of net periodic pension cost
    
(6,969
)
    
(5,859
)
Other
    
2,550
      
353
  
Loss on early extinguishment of debt
    
(17,309
)
    
-
  
Loss on disposal of equity affiliate
    
-
      
(7,060
)
Total other income (expense)
    
(37,777
)
    
(26,432
)
                 
Income before taxes
    
189,578
      
126,151
  
                 
Income tax expense
    
23,771
      
32,793
  
                 
Net earnings
    
165,807
      
93,358
  
                 
Less: net earnings attributable to noncontrolling interests
    
344
      
449
  
                 
Net earnings attributable to Vishay stockholders
  
$
165,463
    
$
92,909
  
                 
Basic earnings per share attributable to Vishay stockholders
  
$
1.15
    
$
0.63
  
                 
Diluted earnings per share attributable to Vishay stockholders
  
$
1.04
    
$
0.60
  
                 
Weighted average shares outstanding - basic
    
144,355
      
146,328
  
                 
Weighted average shares outstanding - diluted
    
158,580
      
155,088
  
                 
Cash dividends per share
  
$
0.1525
    
$
0.1250
  

See accompanying notes.

8

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

   
Six fiscal months ended
  
   
June 30, 2018
    
July 1, 2017
  
             
Net earnings
  
$
165,807
    
$
93,358
  
                 
Other comprehensive income (loss), net of tax
                
                 
Pension and other  post-retirement actuarial items
    
3,182
      
3,551
  
                 
Foreign currency translation adjustment
    
(34,513
)
    
70,816
  
                 
Unrealized gain on available-for-sale securities
    
-
      
782
  
                 
Other comprehensive income (loss)
    
(31,331
)
    
75,149
  
                 
Comprehensive income
    
134,476
      
168,507
  
                 
Less: comprehensive income attributable to noncontrolling interests
    
344
      
449
  
                 
Comprehensive income attributable to Vishay stockholders
  
$
134,132
    
$
168,058
  

See accompanying notes.
9

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

   
Six fiscal months ended
  
   
June 30, 2018
    
July 1, 2017
  
             
Operating activities
            
Net earnings
  
$
165,807
    
$
93,358
  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                
Depreciation and amortization
    
81,174
      
80,380
  
(Gain) loss on disposal of property and equipment
    
(2,242
)
    
(51
)
Accretion of interest on convertible debt instruments
    
2,964
      
2,444
  
Inventory write-offs for obsolescence
    
11,799
      
9,729
  
Loss on disposal of equity affiliate
    
-
      
7,060
  
Deferred income taxes
    
(25,669
)
    
6,640
  
Loss on extinguishment of debt
    
17,309
      
-
  
Other
    
4,148
      
2,579
  
U.S. transition tax
    
(14,400
)
    
-
  
Repatriation taxes
    
(92,093
)
    
-
  
Net change in operating assets and liabilities, net of effects of businesses acquired
    
(110,627
)
    
(73,873
)
Net cash provided by operating activities
    
38,170
      
128,266
  
                 
Investing activities
                
Capital expenditures
    
(76,646
)
    
(49,067
)
Proceeds from sale of property and equipment
    
8,378
      
1,288
  
Purchase of businesses, net of cash received
    
(14,880
)
    
-
  
Purchase of short-term investments
    
(50,193
)
    
(418,114
)
Maturity of short-term investments
    
447,359
      
454,918
  
Other investing activities
    
(935
)
    
(6,664
)
Net cash provided by (used in) investing activities
    
313,083
      
(17,639
)
                 
Financing activities
                
Proceeds from long-term borrowings
    
600,000
      
-
  
Issuance costs
    
(15,621
)
    
-
  
Repurchase of convertible debentures
    
(584,991
)
    
-
  
Net proceeds (payments) on revolving credit lines
    
(54,000
)
    
(10,000
)
Net changes in short-term borrowings
    
119
      
7
  
Dividends paid to common stockholders
    
(20,148
)
    
(16,761
)
Dividends paid to Class B common stockholders
    
(1,845
)
    
(1,516
)
Proceeds from stock options exercised
    
-
      
1,260
  
Distributions to noncontrolling interests
    
(525
)
    
(740
)
Cash withholding taxes paid when shares withheld for vested equity awards
    
(2,297
)
    
(1,971
)
Other financing activities
    
-
      
(1,255
)
Net cash provided by (used in) financing activities
    
(79,308
)
    
(30,976
)
Effect of exchange rate changes on cash and cash equivalents
    
(12,921
)
    
9,600
  
                 
Net increase in cash and cash equivalents
    
259,024
      
89,251
  
                 
Cash and cash equivalents at beginning of period
    
748,032
      
471,781
  
Cash and cash equivalents at end of period
  
$
1,007,056
    
$
561,032
  

See accompanying notes.
10

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 December 31, 2015
  
$
13,546
    
$
1,213
    
$
2,058,492
    
$
(319,448
)
  
$
(131,327
)
  
$
1,622,476
    
$
5,567
    
$
1,628,043
  
Cumulative effect of accounting change for adoption of ASU 2014-09 (see Notes 1 and 2)
    
-
      
-
      
-
      
2,210
      
-
      
2,210
      
-
      
2,210
  
Net earnings
    
-
      
-
      
-
      
48,792
      
-
      
48,792
      
581
      
49,373
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
36,675
      
36,675
      
-
      
36,675
  
Distributions to noncontrolling interests
    
-
      
-
      
-
      
-
      
-
      
-
      
(707
)
    
(707
)
Common stock repurchase (1,752,454 shares)
    
(175
)
    
-
      
(22,984
)
    
-
      
-
      
(23,159
)
    
-
      
(23,159
)
Temporary equity reclassification
    
-
      
-
      
(88,659
)
    
-
      
-
      
(88,659
)
    
-
      
(88,659
)
Issuance of stock and related tax withholdings for vested restricted stock units  (110,825 shares)
    
11
      
-
      
(553
)
    
-
      
-
      
(542
)
    
-
      
(542
)
Dividends declared ($0.2500 per share)
    
-
      
-
      
36
      
(36,761
)
    
-
      
(36,725
)
    
-
      
(36,725
)
Stock compensation expense
    
-
      
-
      
6,380
      
-
      
-
      
6,380
      
-
      
6,380
  
Stock options exercised (27,619 shares)
    
3
      
-
      
353
      
-
      
-
      
356
      
-
      
356
  
Tax effects of stock plan
    
-
      
-
      
(77
)
    
-
      
-
      
(77
)
    
-
      
(77
)
Balance at December 31, 2016 (recast - see Note 1)
  
$
13,385
    
$
1,213
    
$
1,952,988
    
$
(305,207
)
  
$
(94,652
)
  
$
1,567,727
    
$
5,441
    
$
1,573,168
  
Cumulative effect of accounting change for adoption of ASU 2016-09
    
-
      
-
      
-
      
386
      
-
      
386
      
-
      
386
  
Net earnings (loss)
    
-
      
-
      
-
      
(20,344
)
    
-
      
(20,344
)
    
784
      
(19,560
)
Other comprehensive income
    
-
      
-
      
-
      
-
      
120,366
      
120,366
      
-
      
120,366
  
Distributions to noncontrolling interests
    
-
      
-
      
-
      
-
      
-
      
-
      
(1,140
)
    
(1,140
)
Acquisition of noncontrolling interests
    
-
      
-
      
(1,047
)
    
-
      
-
      
(1,047
)
    
(3,053
)
    
(4,100
)
Common stock repurchase (2,250,236 shares)
    
(225
)
    
-
      
(39,719
)
    
-
      
-
      
(39,944
)
    
-
      
(39,944
)
Temporary equity reclassification
    
-
      
-
      
(163,411
)
    
-
      
-
      
(163,411
)
    
-
      
(163,411
)
Issuance of stock and related tax withholdings for vested restricted stock units (200,688 shares)
    
20
      
-
      
(1,991
)
    
-
      
-
      
(1,971
)
    
-
      
(1,971
)
Dividends declared ($0.2550 per share)
    
-
      
-
      
40
      
(37,089
)
    
-
      
(37,049
)
    
-
      
(37,049
)
Stock compensation expense
    
-
      
-
      
4,394
      
-
      
-
      
4,394
      
-
      
4,394
  
Stock options exercised (77,334 shares)
    
8
      
-
      
1,252
      
-
      
-
      
1,260
      
-
      
1,260
  
Balance at December 31, 2017 (recast - see Note 1)
  
$
13,188
    
$
1,213
    
$
1,752,506
    
$
(362,254
)
  
$
25,714
    
$
1,430,367
    
$
2,032
    
$
1,432,399
  
Cumulative effect of accounting change for adoption of ASU 2016-01 (see Notes 1 and 6)
    
-
      
-
      
-
      
1,801
      
(1,801
)
    
-
      
-
      
-
  
Net earnings
    
-
      
-
      
-
      
165,463
      
-
      
165,463
      
344
      
165,807
  
Other comprehensive income
    
-
      
-
      
-
      
-
      
(31,331
)
    
(31,331
)
    
-
      
(31,331
)
Conversion of Class B shares (31,800 shares)
    
3
      
(3
)
    
-
      
-
      
-
      
-
      
-
      
-
  
Distributions to noncontrolling interests
    
-
      
-
      
-
      
-
      
-
      
-
      
(525
)
    
(525
)
Temporary equity reclassification
    
-
      
-
      
1,779
      
-
      
-
      
1,779
      
-
      
1,779
  
Issuance of stock and related tax withholdings for vested restricted stock units (211,328 shares)
    
21
      
-
      
(2,318
)
    
-
      
-
      
(2,297
)
    
-
      
(2,297
)
Dividends declared ($0.1525 per share)
    
-
      
-
      
25
      
(22,018
)
    
-
      
(21,993
)
    
-
      
(21,993
)
Stock compensation expense
    
-
      
-
      
3,261
      
-
      
-
      
3,261
      
-
      
3,261
  
Issuance of convertible notes due 2025
    
-
      
-
      
85,262
      
-
      
-
      
85,262
      
-
      
85,262
  
Repurchase of convertible debentures due 2040 and due 2042
    
-
      
-
      
(246,573
)
    
-
      
-
      
(246,573
)
    
-
      
(246,573
)
Balance at June 30, 2018
  
$
13,212
    
$
1,210
    
$
1,593,942
    
$
(217,008
)
  
$
(7,418
)
  
$
1,383,938
    
$
1,851
    
$
1,385,789
  

See accompanying notes.
11
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
Note 1 – Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Vishay Intertechnology, Inc. ("Vishay" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for presentation of financial position, results of operations, and cash flows required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. The information furnished reflects all normal recurring adjustments which are, in the opinion of management, necessary for a fair summary of the financial position, results of operations, and cash flows for the interim periods presented.  The financial statements should be read in conjunction with the consolidated financial statements filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2017.  The results of operations for the fiscal quarter and six fiscal months ended June 30, 2018 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 2018 end on March 31, 2018, June 30, 2018, September 29, 2018, and December 31, 2018, respectively.  The four fiscal quarters in 2017 ended on April 1, 2017, July 1, 2017, September 30, 2017, and December 31, 2017, respectively.

Recently Adopted Accounting Guidance

In May 2014, the Financial Accounting Standards Board ("FASB") issued 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 Company retrospectively adopted the ASU on January 1, 2018.  The adoption of the ASU did not have a material impact on the Company's results of operations.  See Note 2 and "Changes in Accounting Policies" below.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.  The ASU enhances the reporting model for financial instruments by addressing certain aspects, including requiring equity investments to be measured at fair value with changes in fair value recognized in net income; simplifying the impairment assessment of equity investments without readily determinable fair values; eliminating the requirement to disclose the method and significant assumptions used to estimate the disclosed fair value of financial instruments measured at amortized cost; and requiring the use of the exit price notion for fair value measurements of financial instruments for disclosure purposes.  The Company adopted the ASU on January 1, 2018.  The Company recognized a cumulative-effect adjustment to January 1, 2018 retained earnings (accumulated deficit) of $1,801 for the cumulative change in fair value of available-for-sale equity investments previously recognized in other comprehensive income.  The adoption of the ASU did not have a material impact on the Company's results of operations.

In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.  The ASU amends the income statement presentation requirements of net periodic benefit cost of defined benefit pension and other postretirement plans.  The Company retrospectively adopted the ASU on January 1, 2018.  The adoption of the ASU did not have a material impact on the Company's results of operations.  See "Changes in Accounting Policies" below.

Recently Issued Accounting Guidance

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 June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.  The ASU is effective for the Company for interim and annual periods beginning on or after January 1, 2020, with the ability to early adopt for interim and annual periods beginning on or after January 1, 2019.  The Company is currently evaluating the effect of the ASU on its financial assets measured at amortized cost.
12
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
Changes in Accounting Policies

Except for the changes described in "Recently Adopted Accounting Guidance" above and in this section below, the Company has consistently applied the accounting policies described in its Note 1 to its audited consolidated financial statement included in its annual report on Form 10-K for the year ended December 31, 2017, to all periods presented in these consolidated condensed financial statements.

Revenue Recognition

The Company adopted ASU 2014-09 as of January 1, 2018 using the full retrospective method.  As a result, the Company has changed its accounting policy for revenue recognition.  The details of significant changes and quantitative impact of the changes are disclosed below.

Service-type warranty performance obligations
 
ASU 2014-09 introduces the concept of service-type warranties, which represent separate performance obligations.  Upon adoption of ASU 2014-09, the Company considers its warranty obligations as service-type warranties and allocates a portion of the estimated consideration to be received from the related contract to the service-type warranty performance obligation and recognizes the related revenue over the warranty period.  The impact of accounting for service-type warranties as separate performance obligations was not significant in the retrospective adoption period and is included in the tables below.  See further discussion of the warranty obligations in Note 2.

Custom products

The Company previously recognized revenue when the sales process was completed, which generally occurred when the product was delivered and risk of loss was transferred to the customer.  Upon adoption of ASU 2014-09, the Company analyzes its contractual arrangements to determine whether the promise in the contract to construct and transfer goods to the customer is a performance obligation that will be satisfied over time or at a point in time.  When the Company's performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date, the Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time.  The Company has a limited number of contracts for custom products that meet the criteria to recognize revenue over time.  The dollar amount of these custom products did not materially change during the retrospective adoption period.  The Company recorded a cumulative-effect adjustment of $2,210 to January 1, 2016 retained earnings (accumulated deficit) and recorded adjustments to its consolidated balance sheets due to the impact of recognizing revenue for certain custom products over time rather than at a point in time.

ASU 2014-09 provides several transition practical expedients.  The Company has not restated completed contracts that begin and end in the same annual reporting period; used the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods; has not disclosed the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the Company expects to recognize the amount as revenue for the reporting periods presented prior to January 1, 2016; and has not retrospectively restated the contract for modifications made prior to January 1, 2016 and instead reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price pursuant to the transition practical expedients available.

Pension and Other Postretirement Benefits

The Company retrospectively adopted ASU No. 2017-07 as of January 1, 2018.  As a result, the Company has changed its accounting policy for pension and other postretirement benefits costs as detailed below.

ASU 2017-07 amends the income statement presentation requirements of net periodic benefit cost of defined benefit pension and other postretirement plans.  The service cost component of net periodic pension cost is recorded in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, and other components of net periodic pension cost are included on a separate line within other income (expense).  The Company reclassified net benefit costs other than the current service component previously reported as cost of goods sold and selling, general, and administrative expenses to other expenses for each quarter in the retrospective adoption period in the table below.  The Company also reclassified the $79,321 U.S. pension settlement charges recorded for the year ended December 31, 2016 to other expenses.  See the impact of this change in the tables below.
13
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
The retrospective adoption of ASUs 2014-09 and 2017-07 did not impact net earnings (loss) attributed to Vishay stockholders.  See the combined impact of the retrospective adoption in the tables below:

Fiscal quarters ended
  
   
April 1, 2017
      July 1, 2017    
September 30, 2017
    
December 31, 2017
  
   
As Reported
    
Adjustments
    
Recast
    
As Reported
    
Adjustments
    
Recast
    
As Reported
    
Adjustments
    
Recast
    
As Reported
    
Adjustments
    
Recast
  
                                                                         
Net revenues
  
$
606,258
    
$
(1,457
)
  
$
604,801
    
$
644,892
    
$
(1,728
)
  
$
643,164
    
$
677,883
    
$
58
    
$
677,941
    
$
674,489
    
$
(1,027
)
  
$
673,462
  
Costs of products sold
    
445,383
      
(2,331
)
    
443,052
      
471,929
      
(2,602
)
    
469,327
      
488,610
      
(816
)
    
487,794
      
497,988
      
(1,902
)
    
496,086
  
Gross profit
    
160,875
      
874
      
161,749
      
172,963
      
874
      
173,837
      
189,273
      
874
      
190,147
      
176,501
      
875
      
177,376
  
Operating income
    
64,688
      
2,890
      
67,578
      
82,036
      
2,969
      
85,005
      
92,328
      
3,088
      
95,416
      
72,536
      
3,470
      
76,006
  
Total other income (expense)
    
(14,246
)
    
(2,890
)
    
(17,136
)
    
(6,327
)
    
(2,969
)
    
(9,296
)
    
(6,140
)
    
(3,088
)
    
(9,228
)
    
(5,511
)
    
(3,470
)
    
(8,981
)
Income before taxes
    
50,442
      
-
      
50,442
      
75,709
      
-
      
75,709
      
86,188
      
-
      
86,188
      
67,025
      
-
      
67,025
  
Income tax expense
    
13,493
      
-
      
13,493
      
19,300
      
-
      
19,300
      
21,605
      
-
      
21,605
      
244,526
      
-
      
244,526
  
Net earnings (loss)
    
36,949
      
-
      
36,949
      
56,409
      
-
      
56,409
      
64,583
      
-
      
64,583
      
(177,501
)
    
-
      
(177,501
)
Less: net earnings attributable to noncontrolling interests
    
230
      
-
      
230
      
219
      
-
      
219
      
179
      
-
      
179
      
156
      
-
      
156
  
Net earnings (loss) attributable to Vishay stockholders
  
$
36,719
    
$
-
    
$
36,719
    
$
56,190
    
$
-
    
$
56,190
    
$
64,404
    
$
-
    
$
64,404
    
$
(177,657
)
  
$
-
    
$
(177,657
)

 
  
Years ended
  
 
  
December 31, 2016
    
December 31, 2017
  
 
  
As Reported
    
Adjustments
    
Recast
    
As Reported
    
Adjustments
    
Recast
  
 
                                    
Net revenues
  
$
2,323,431
    
$
(6,103
)
  
$
2,317,328
    
$
2,603,522
    
$
(4,154
)
  
$
2,599,368
  
Costs of products sold
    
1,753,648
      
(10,142
)
    
1,743,506
      
1,903,910
      
(7,651
)
    
1,896,259
  
Gross profit
    
569,783
      
4,039
      
573,822
      
699,612
      
3,497
      
703,109
  
Operating income
    
101,717
      
95,341
      
197,058
      
311,588
      
12,417
      
324,005
  
Total other income (expense)
    
(7,501
)
    
(95,341
)
    
(102,842
)
    
(32,224
)
    
(12,417
)
    
(44,641
)
Income before taxes
    
94,216
      
-
      
94,216
      
279,364
      
-
      
279,364
  
Income tax expense
    
44,843
      
-
      
44,843
      
298,924
      
-
      
298,924
  
Net earnings (loss)
    
49,373
      
-
      
49,373
      
(19,560
)
    
-
      
(19,560
)
Less: net earnings attributable to noncontrolling interests
    
581
      
-
      
581
      
784
      
-
      
784
  
Net earnings (loss) attributable to Vishay stockholders
  
$
48,792
    
$
-
    
$
48,792
    
$
(20,344
)
  
$
-
    
$
(20,344
)
 
Reclassifications

In addition to the changes due to the retrospective adoption of certain aspects of new accounting guidance described above, certain prior period amounts have been reclassified to conform to the current financial statement presentation.
14
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 2 – Revenue Recognition

As of January 1, 2018, the Company recognizes revenue from contracts with customers in accordance with ASU 2014-09.  The Company has framework agreements with many of its customers that contain the terms and conditions of future sales, but do not create enforceable rights or obligations.  Per ASU 2014-09, the Company's contracts are the combined purchase orders and the terms and conditions contained within such framework agreements.

Payment terms for the Company's sales are generally less than sixty days.  Substantially all of the Company's receivables are collected within twelve months of the transfer of products to the customer and the Company expects this to continue going forward.  The Company applies the practical expedient within ASU 2014-09 to all of its contracts with payment terms less than or equal to twelve months and does not recognize a financing component of the transaction price.

Revenue is measured based on the consideration specified in contracts with customers, and excludes any sales incentives and amounts collected on behalf of third parties.  The Company recognizes revenue when it satisfies its performance obligations.

The Company's contracts contain two performance obligations: delivery of products and warranty protection.  The Company does not sell separate, enhanced, or extended warranty coverage, but through its customary business practices, the Company has created implied service-type warranties, which are accounted for as separate performance obligations.  Revenue is allocated between these two performance obligations and recognized as the obligations are satisfied.  The allocation of revenue to warranty protection is based on an estimate of expected cost plus margin.  The delivery of products performance obligation is satisfied and product sales revenue is recognized when the customer takes control of the products.  Warranty revenue is deferred and the warranty protection performance obligation is satisfied and revenue is recognized over the warranty period, which is typically less than twenty-four months from sale to end customer.  The warranty deferred revenue liability is recorded within Other Accrued Expenses and Other Liabilities on the accompanying consolidated condensed balance sheets.  The deferred revenue balance associated with the service-type warranty performance obligations and the components that comprise the change in the deferred revenue balance are not significant.

The Company has a broad line of products that it sells to original equipment manufacturers ("OEMs"), electronic manufacturing services ("EMS") companies, which manufacture for OEMs on an outsourcing basis, and independent distributors that maintain large inventories of electronic components for resale to OEMs and EMS companies.

The Company has and will continue to recognize revenue on sales to distributors when the distributor takes control of the products ("sold-to" model).  The Company has agreements with distributors that allow distributors a limited credit for unsaleable products, which it terms a "scrap allowance." Consistent with industry practice, the Company also has a "stock, ship and debit" program whereby it considers requests by distributors for credits on previously purchased products that remain in distributors' inventory, to enable the distributors to offer more competitive pricing. In addition, the Company has contractual arrangements whereby it provides distributors with protection against price reductions initiated by the Company after product is sold by the Company to the distributor and prior to resale by the distributor.

The Company recognizes the estimated variable consideration to be received as revenue and records a related accrued expense for the consideration not expected to be received, based upon its estimate of product returns, scrap allowances, "stock, ship and debit" credits, and price protection credits that will be attributable to sales recorded through the end of the period.  The Company makes these estimates based upon sales levels to its distributors during the period, inventory levels at the distributors, current and projected market conditions, and historical experience under the programs. While the Company utilizes a number of different methodologies to estimate the accruals, all of the methodologies take into account sales levels to distributors during the relevant period, inventory levels at the distributors, current and projected market trends and conditions, recent and historical activity under the relevant programs, changes in program policies, and open requests for credits. These procedures require the exercise of significant judgments.  The Company believes that it has a reasonable basis to estimate future credits under the programs.
15
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Distributor sales accrual activity is shown below:

   
Fiscal quarters ended
    
Six fiscal months ended
    
Years Ended December 31,
  
   
June 30, 2018
    
July 1, 2017
    
June 30, 2018
    
July 1, 2017
    
2017
    
2016
  
Beginning balance
  
$
32,706
    
$
31,952
    
$
36,680
    
$
34,479
    
$
34,479
    
$
32,487
  
Sales allowances
    
25,365
      
23,250
      
49,553
      
44,770
      
89,009
      
86,896
  
Credits issued
    
(19,348
)
    
(20,051
)
    
(47,798
)
    
(43,522
)
    
(87,403
)
    
(85,341
)
Foreign currency
    
(691
)
    
582
      
(403
)
    
6
      
595
      
437
  
Ending balance
  
$
38,032
    
$
35,733
    
$
38,032
    
$
35,733
    
$
36,680
    
$
34,479
  

The Company pays commissions to external sales representatives on a per-sale basis.    The Company applies the practical expedient available within ASU 2014-09 to all commissions paid as the future amortization period of the asset that the Company otherwise would have recognized is one year or less.  Accordingly, these commissions are expensed as incurred.  Internal staff are not paid commissions.

The Company has elected to account for shipping and handling as activities to fulfill the promise to transfer the product even if the shipping and handling activities are performed after the customer obtains control.  The Company does not evaluate whether shipping and handling activities are promised services to its customers.  If control transfers and revenue is recognized for the related products before the shipping and handling activities occur, the related costs of those shipping and handling activities is accrued.  The Company applies this accounting policy election consistently to similar types of transactions.

See disaggregated revenue information in Note 10.
16
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
 
Note 3 – Acquisition Activities

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

On February 8, 2018, the Company acquired substantially all of the assets and liabilities of UltraSource, Inc., a U.S.-based, privately-held thin film circuit and thin film interconnect manufacturer, for $13,596.  Based on an estimate of their fair values, the Company allocated $6,500 of the purchase price to definite-lived intangible assets.  After allocating the purchase price to the assets acquired and liabilities assumed based on an estimation of their fair values at the date of acquisition, the Company recorded goodwill of $4,227 related to this acquisition.  The results and operations of this acquisition have been included in the Resistors & Inductors segment since February 8, 2018.  The inclusion of this acquisition did not have a material impact on the Company's consolidated results for the fiscal quarter or six fiscal months ended June 30, 2018.  The goodwill related to this acquisition is included in the Resistors & Inductors reporting unit for goodwill impairment testing.

On June 11, 2018, the Company acquired EuroPower Holdings Ltd. ("EuroPower") for $2,949, net of cash acquired and subject to customary post-closing adjustments.  EuroPower is a distributor of electronic components in the United Kingdom.  The inclusion of this business did not have a material impact on the Company's consolidated results for the fiscal quarter or six fiscal months ended June 30, 2018.  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 $1,078 related to this acquisition. The goodwill related to this acquisition is included in the Resistors & Inductors reporting unit for goodwill impairment testing.  The preliminary allocation is pending finalization of a working capital adjustment.  There can be no assurance that the estimated amounts recorded represent the final purchase allocation.

Had these acquisitions 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.
17
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 4 – 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.  As of December 31, 2017, the Company's restructuring programs were substantially completed.

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 quarter ended
    
Six fiscal months ended
  
   
July 1, 2017
    
July 1, 2017
  
MOSFETs Enhanced Competitiveness Program
  
$
28
    
$
448
  
Global Cost Reduction Programs
    
453
      
1,502
  
Total
  
$
481
    
$
1,950
  

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 previously occurring in-house was transferred to third-party foundries.  This transfer of production was substantially completed by the end of the first fiscal quarter of 2016.

As a result of a review of the financial results and outlook for the Company's MOSFETs segment following the completion of production transfers, the Company determined to implement further cost reductions for the MOSFETs segment.  In November 2016, the Company announced an extension of the MOSFETs Enhanced Competitiveness Program.  The revised program included various cost reduction initiatives, primarily the transfer of all remaining manufacturing operations at its Santa Clara, California facility to other Vishay facilities or third-party subcontractors.

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
    
9,744
  
Cash paid
    
(15,686
)
Foreign currency translation
    
2
  
Balance at December 31, 2016
  
$
6,232
  
Expense recorded in 2017
    
3,204
  
Cash paid
    
(7,173
)
Balance at December 31, 2017
  
$
2,263
  
Cash paid
    
(603
)
Balance at June 30, 2018
  
$
1,660
  

Severance benefits are generally paid in a lump sum at cessation of employment.  The entire liability is considered current and is included in other accrued expenses in the accompanying consolidated condensed balance sheets.
18
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 included 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.  These programs were substantially implemented as of December 31, 2017.

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
    
9,918
  
Cash paid
    
(16,237
)
Foreign currency translation
    
(34
)
Balance at December 31, 2016
  
$
6,264
  
Expense recorded in 2017
    
8,069
  
Cash paid
    
(7,168
)
Foreign currency translation
    
500
  
Balance at December 31, 2017
  
$
7,665
  
Cash paid
    
(2,573
)
Foreign currency translation
    
(127
)
Balance at June 30, 2018
  
$
4,965
  

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

   
Fiscal quarter ended
    
Six fiscal months ended
  
   
July 1, 2017
    
July 1, 2017
  
Diodes
  
$
13
    
$
13
  
Optoelectronic Components
    
242
      
242
  
Resistors & Inductors
    
84
      
935
  
Capacitors
    
85
      
246
  
Unallocated Selling, General, and Administrative Expenses
    
29
      
66
  
Total
  
$
453
    
$
1,502
  

Severance benefits are generally paid in a lump sum at cessation of employment, though some are being paid in installments.  The current portion of the liability is $2,922 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 condensed balance sheets.
19
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 5 – 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 June 30, 2018 and July 1, 2017 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.

On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted in the United States.  The TCJA represents sweeping changes in U.S. tax law.  Among the numerous changes in tax law, the TCJA permanently reduced the U.S. corporate income tax rate to 21% beginning in 2018; imposed a one-time transition tax on deferred foreign earnings; established a partial territorial tax system by allowing a 100% dividends received deduction on qualifying dividends paid by foreign subsidiaries; limited deductions for net interest expense; and expanded the U.S. taxation of foreign earned income to include "global intangible low-taxed income" ("GILTI") of foreign subsidiaries.

The TCJA represents the first significant change in U.S. tax law in over 30 years.  As permitted by SAB No. 118, the tax expense recorded in the fourth fiscal quarter of 2017 due to the enactment of the TCJA was considered "provisional," based on reasonable estimates.  As further described below, after additional analysis was completed in the second fiscal quarter of 2018, the Company identified additional amounts available to be repatriated to the U.S. and recorded additional provisional tax expense to accrue the incremental foreign income taxes and withholding taxes payable to foreign jurisdiction.  The Company is continuing to collect and analyze detailed information about the earnings and profits of its non-U.S. subsidiaries, the related taxes paid, the amounts which could be repatriated, the foreign taxes which may be incurred on repatriation, and the associated impact of these items under the TCJA.  The Company may record further adjustments to refine those estimates during the measurement period, as additional analysis is completed.

The TCJA transitions the U.S. from a worldwide tax system to a partial territorial tax system.  Under previous law, companies could indefinitely defer U.S. income taxation on unremitted foreign earnings. The TCJA imposes a one-time transition tax on deferred foreign earnings of 15.5% for liquid assets and 8% for illiquid assets, payable in defined increments over eight years.  As a result of this requirement, the Company recognized provisional tax expense of $215,558 in 2017, and provisionally expects to pay $180,000, net of estimated applicable foreign tax credits, and after utilization of net operating loss, R&D credits, and foreign tax credit carryforwards. The first installment of $14,400 was paid in the second fiscal quarter of 2018.  These previously deferred foreign earnings may now be repatriated to the United States without additional U.S. federal taxation.  However, any such repatriation could incur withholding and other foreign taxes in the source and intervening foreign jurisdictions, and certain U.S. state taxes.

Due to the changes in taxation of dividends received from foreign subsidiaries, and also because of the need to finance the payment of the transition tax, the Company made the determination during the fourth fiscal quarter of 2017 that certain unremitted foreign earnings in Israel, Germany, Austria, and France are no longer permanently reinvested, and recorded provisional tax expense of $213,000 to accrue the incremental foreign income taxes and withholding taxes payable to foreign jurisdictions assuming the hypothetical repatriation to the United States of these approximately $1,100,000 of available foreign earnings.  As a result of additional analysis completed in the second fiscal quarter of 2018, the Company adjusted the amount of foreign unremitted earnings available from Israel, Germany, Austria, and France to approximately $1,200,000, and accrued additional provisional tax expense of $12,000.

During the second fiscal quarter, the Company repatriated approximately $274,000 to the United States, and paid withholding and foreign taxes of approximately $92,100.  Substantially all of these amounts were used to reduce the outstanding balance of the credit facility (see Note 6) and to repay certain intercompany indebtedness.
20
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

The Company expects to repatriate an additional approximately $450,000 to the United States in the third fiscal quarter of 2018, net of withholding and foreign taxes of about $72,000.

After completing these phases of cash repatriation, there will be approximately $300,000 of unremitted foreign earnings that the Company has deemed not permanently reinvested and thus has accrued foreign withholding and other taxes.   The Company expects to repatriate these remaining amounts at a measured pace over several years, and may decide to ultimately not repatriate some of these amounts. 
 
The Company's effective tax rate for the period ended June 30, 2018 was negatively impacted by certain provisions of the TCJA.  The provisions of the TCJA are interrelated and the impact of any specific provision cannot be isolated. The Company operates at a pre-tax loss in the U.S. and the reduction in the federal tax rate reduces the tax benefit recorded.  In addition, the inclusion of GILTI income and the limitation on the deductibility of interest expense increased the effective tax rate. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore did not provide any deferred taxes in the consolidated financial statements at December 31, 2017.

The Company's repurchase of a portion of the outstanding convertible debentures (see Note 6) reduced the Company's expected full year 2018 tax rate, which in turn reduced the income tax expense recorded in the second fiscal quarter of 2018.
 
The Company recognized a tax benefit on the pre-tax loss on early extinguishment of debt.  The Company also recognized a tax benefit of $33,963 resulting from the extinguishment, reflecting the reduction in deferred tax liabilities related to the special tax attributes of the debentures.
 
Income tax expense for the fiscal quarter and six fiscal months ended June 30, 2018, includes tax benefits of $9,006 and $7,690 for the periodic remeasurement of the deferred tax liability recorded for the foreign taxes associated with the cash repatriation program described above.

Income tax expense for the fiscal quarter and six fiscal months ended July 1, 2017 included a tax benefit of $1,240 and $2,208 for the periodic remeasurement of the deferred tax liability recorded for the cash repatriation program that was terminated as a result of the enactment of the TCJA.

During the six fiscal months ended June 30, 2018, the liabilities for unrecognized tax benefits decreased by $288 on a net basis, due to increases for tax positions taken in the current period and interest, offset by payments and foreign currency effects.
21
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Note 6 – Long-Term Debt

Long-term debt consists of the following:

   
June 30, 2018
    
December 31, 2017
  
             
Credit facility
  
$
96,000
    
$
150,000
  
Convertible senior debentures, due 2040
    
22,331
      
110,412
  
Convertible senior debentures, due 2041
    
57,275
      
56,641
  
Convertible senior debentures, due 2042
    
34,065
      
62,518
  
Convertible notes, due 2025
    
488,518
      
-
  
Deferred financing costs
    
(18,591
)
    
(9,101
)
     
679,598
      
370,470
  
Less current portion
    
-
      
-
  
   
$
679,598
    
$
370,470
  

Convertible Senior Notes due 2025

In June 2018, the Company issued $600,000 aggregate principal amount of 2.25% convertible senior notes due 2025 to qualified institutional investors. The Company used the net proceeds from this offering to repurchase $220,000 and $69,060 principal amounts of convertible senior debentures due 2040 and 2042, respectively, as further described below.
 
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 notes are reflected in the Company's consolidated balance sheets as follows:

   
Principal amount of the notes
    
Unamortized discount
    
Carrying value of liability component
    
Equity component - net carrying value
  
June 30, 2018
                        
Due 2025
  
$
600,000
      
(111,482
)
  
$
488,518
    
$
85,262
  

Interest is payable on the convertible notes due 2025 semi-annually in arrears on June 15 and December 15 of each year, beginning December 15, 2018, at a rate of 2.25% per annum; however, the remaining debt discount is being amortized as additional non-cash interest expense using an effective annual interest rate of 5.5% based on the Company's estimated nonconvertible debt borrowing rate.

Interest expense for the fiscal quarter and six fiscal months ended June 30, 2018 related to the convertible notes is reflected on the consolidated statement of operations as follows:

 
Contractual
coupon interest
  
Non-cash amortization of debt discount
  
Non-cash amortization of deferred financing costs
  
Total interest expense related to the debentures
  
Due 2025
  
$
713
      
556
      
151
    
$
1,420
  

The convertible notes due 2025 will mature on June 15, 2025, unless earlier repurchased or converted.  Prior to December 15, 2024, such conversion is subject to the satisfaction of certain conditions set forth below.  The convertible notes due 2025 are not redeemable by the Company before the maturity date.

22
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Prior to December 15, 2024, the holders may only convert their notes under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ending September 29, 2018, if the sale price of Vishay common stock reaches 130% of the conversion price for a specified period (initially $40.94); (2) the trading price of the notes falls below 98% of the product of the sale price of Vishay's common stock and the conversion rate for a specified period; or (3) upon the occurrence of specified corporate transactions.

The convertible notes due 2025 are initially convertible into cash, shares of Vishay common stock, or a combination thereof, at the Company's option, at a conversion rate of 31.7536 shares of common stock per $1,000 principal amount of notes.  This initial conversion price represents a premium of 27.5% to the closing price of Vishay's common stock on June 8, 2018, which was $24.70 per share.  The conversion rate of the convertible notes is not adjusted for quarterly cash dividends equal to or less than $0.085 per share of common stock.  This represents an initial effective conversion price of approximately $31.49 per share.  At the direction of its Board of Directors, Vishay intends, upon conversion, to repay the principal amount of the notes in cash and settle any additional amounts in shares. Vishay must provide additional shares upon conversion if there is a "fundamental change" in the business as defined in the indenture governing the notes.

Convertible Senior Debentures

Vishay currently has three issuances of convertible senior debentures outstanding with generally congruent terms.

The Company used substantially all of the net proceeds of the June 2018 issuance of convertible senior notes due 2025 to repurchase $220,000 and $69,060 principal amounts of convertible senior debentures due 2040 and due 2042, respectively.  The net carrying value of the debentures repurchased were $89,276 and $29,037, respectively.  In accordance with the authoritative accounting guidance for convertible debentures, the aggregate repurchase payment of $584,991 was allocated between the liability ($133,647) and equity (including temporary equity, $451,344) components of the convertible debentures, using the Company's nonconvertible debt borrowing rate at the time of the repurchase.  As a result, the Company recognized a loss on extinguishment of convertible debentures of $17,309, including the write-off of a portion of unamortized debt issuance costs.

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 June 28, 2018 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 as of June 30, 2018
  
$
55,000
    
$
150,000
    
$
80,940
  
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 June 12, 2018 (per $1 principal amount)
    
77.7399
      
56.7305
      
91.4035
  
Effective conversion price effective June 12, 2018 (per share)
  
$
12.86
    
$
17.63
    
$
10.94
  
130% of the conversion price (per share)
  
$
16.72
    
$
22.92
    
$
14.22
  
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.

The convertible debentures due 2042 became convertible subsequent to the December 31, 2016 evaluation of the conversion criteria, and have remained convertible for each subsequent quarterly evaluation through the June 30, 2018 evaluation, due to the sale price of Vishay's common stock exceeding 130% of the conversion price for the applicable periods.  The convertible debentures due 2040 became convertible subsequent to the September 30, 2017 evaluation of the conversion criteria, and have remained convertible for each subsequent quarterly evaluation through the June 30, 2018 evaluation, due to the sale price of Vishay's common stock exceeding 130% of the conversion price for the applicable periods.  The debentures due 2040 and due 2042 will remain convertible until September 29, 2018, at which time the conversion criteria will be reevaluated.  At the direction of its Board of Directors, the Company intends, upon future conversion of any of the convertible senior debentures, to repay the principal amounts of the convertible senior debentures in cash and settle any additional amounts in shares of Vishay common stock. The excess of the amount that the Company would pay to the holders of the debentures due 2040 and due 2042 upon conversion over the carrying value of the liability component of the debentures currently convertible has been reclassified as temporary equity on the consolidated condensed financial statements. The Company intends to finance the principal amount of any converted debentures using borrowings under its credit facility. Accordingly, the debt component of the convertible debentures due 2040 and due 2042 continues to be classified as a non-current liability on the consolidated condensed balance sheets.
23
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 (including temporary equity) - net carrying value
  
June 30, 2018
                              
Due 2040
  
$
55,000
      
(32,696
)
    
27
    
$
22,331
    
$
22,019
  
Due 2041
  
$
150,000
      
(92,898
)
    
173
    
$
57,275
    
$
62,246
  
Due 2042
  
$
80,940
      
(46,919
)
    
44
    
$
34,065
    
$
31,229
  
Total
  
$
285,940
    
$
(172,513
)
  
$
244
    
$
113,671
    
$
115,494
  
                                         
December 31, 2017
                                        
Due 2040
  
$
275,000
      
(164,794
)
    
206
    
$
110,412
    
$
110,094
  
Due 2041
  
$
150,000
      
(93,573
)
    
214
    
$
56,641
    
$
62,246
  
Due 2042
  
$
150,000
      
(87,600
)
    
118
    
$
62,518
    
$
57,874
  
Total
  
$
575,000
    
$
(345,967
)
  
$
538
    
$
229,571
    
$
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
  
June 30, 2018
                              
Due 2040
  
$
1,134
      
483
      
16
      
(33
)
  
$
1,600
  
Due 2041
  
$
844
      
341
      
12
      
(97
)
  
$
1,100
  
Due 2042
  
$
714
      
275
      
11
      
(26
)
  
$
974
  
Total
  
$
2,692
    
$
1,099
    
$
39
    
$
(156
)
  
$
3,674
  
                                         
July 1, 2017
                                        
Due 2040
  
$
1,547
      
613
      
22
      
(19
)
  
$
2,163
  
Due 2041
  
$
844
      
314
      
12
      
6
    
$
1,176
  
Due 2042
  
$
844
      
306
      
14
      
12
    
$
1,176
  
Total
  
$
3,235
    
$
1,233
    
$
48
    
$
(1
)
  
$
4,515
  
24
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)

Interest expense related to the debentures is reflected on the consolidated condensed statements of operations for the six fiscal months 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
  
June 30, 2018
                              
Due 2040
  
$
2,681
      
1,134
      
38
      
61
    
$
3,914
  
Due 2041
  
$
1,688
      
675
      
24
      
(41
)
  
$
2,346
  
Due 2042
  
$
1,558
      
599
      
24
      
(15
)
  
$
2,166
  
Total
  
$
5,927
    
$
2,408
    
$
86
    
$
5
    
$
8,426
  
                                         
July 1, 2017
                                        
Due 2040
  
$
3,094
      
1,215
      
44
      
(44
)
  
$
4,309
  
Due 2041
  
$
1,688
      
622
      
24
      
8
    
$
2,342
  
Due 2042
  
$
1,688
      
607
      
27
      
8
    
$
2,330
  
Total
  
$
6,470
    
$
2,444
    
$
95
    
$
(28
)
  
$
8,981
  

25
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, 2018
  
$
(69,041
)
  
$
92,954
    
$
1,801
    
$
25,714
  
Cumulative effect of accounting for adoption of ASU 2016-01
    
-
      
-
      
(1,801
)
  
$
(1,801
)
Other comprehensive income before reclassifications
    
-
      
(34,513
)
    
-
    
$
(34,513
)
Tax effect
    
-
      
-
      
-
    
$
-
  
Other comprehensive income before reclassifications, net of tax
    
-
      
(34,513
)
    
-
    
$
(34,513
)