VISHAY INTERTECHNOLOGY INC 10-Q

Item 1. Financial Statements VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Balance Sheets (In thousands) July 3, 2021 December 31, 2020 (Unaudited) Assets Current assets: Cash and cash equivalents $ 726,759 $ 619,874 Short-term investments 129,035 158,476 Accounts receivable, net 398,651 338,632 Inventories: Finished goods 144,993 120,792 Work in process 218,414 201,259 Raw materials 144,472 126,200 Total inventories 507,879 448,251 Prepaid expenses and other current assets 149,346 132,103 Total current assets 1,911,670 1,697,336 Property and equipment, at cost: Land 75,547 76,231 Buildings and improvements 636,540 641,041 Machinery and equipment 2,745,465 2,732,771 Construction in progress 91,386 86,520 Allowance for depreciation ( 2,633,944 ) ( 2,593,398 ) Property and equipment, net 914,994 943,165 Right of use assets 107,426 102,440 Goodwill 157,991 158,183 Other intangible assets, net 61,799 66,795 Other assets 196,903 186,554 Total assets $ 3,350,783 $ 3,154,473 Continues on following page. 4 VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Balance Sheets (continued) (In thousands) July 3, 2021 December 31, 2020 (Unaudited) Liabilities, temporary equity, and equity Current liabilities: Trade accounts payable $ 224,226 $ 196,203 Payroll and related expenses 151,668 141,034 Lease liabilities 21,542 22,074 Other accrued expenses 210,061 182,642 Income taxes 31,617 20,470 Total current liabilities 639,114 562,423 Long-term debt less current portion 454,031 394,886 U.S. transition tax payable 110,681 125,438 Deferred income taxes 1,869 1,852 Long-term lease liabilities 91,880 86,220 Other liabilities 105,631 104,356 Accrued pension and other postretirement costs 288,159 300,113 Total liabilities 1,691,365 1,575,288 Redeemable convertible debentures - 170 Equity: Vishay stockholders' equity Common stock 13,271 13,256 Class B convertible common stock 1,210 1,210 Capital in excess of par value 1,346,132 1,409,200 Retained earnings 296,629 138,990 Accumulated other comprehensive income (loss) ( 221 ) 13,559 Total Vishay stockholders' equity 1,657,021 1,576,215 Noncontrolling interests 2,397 2,800 Total equity 1,659,418 1,579,015 Total liabilities, temporary equity, and equity $ 3,350,783 $ 3,154,473 See accompanying notes. 5 VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Fiscal quarters ended July 3, 2021 July 4, 2020 Net revenues $ 819,120 $ 581,717 Costs of products sold 589,848 451,047 Gross profit 229,272 130,670 Selling, general, and administrative expenses 103,900 89,127 Restructuring and severance costs - 743 Operating income 125,372 40,800 Other income (expense): Interest expense ( 4,443 ) ( 8,430 ) Loss on early extinguishment of debt - ( 1,146 ) Other ( 3,749 ) ( 1,484 ) Total other income (expense) ( 8,192 ) ( 11,060 ) Income before taxes 117,180 29,740 Income tax expense 23,799 4,845 Net earnings 93,381 24,895 Less: net earnings attributable to noncontrolling interests 189 242 Net earnings attributable to Vishay stockholders $ 93,192 $ 24,653 Basic earnings per share attributable to Vishay stockholders $ 0.64 $ 0.17 Diluted earnings per share attributable to Vishay stockholders $ 0.64 $ 0.17 Weighted average shares outstanding - basic 145,017 144,846 Weighted average shares outstanding - diluted 145,445 145,170 Cash dividends per share $ 0.095 $ 0.095 See accompanying notes. 6 VISHAY INTERTECHNOLOGY, INC. Consolidated Statements of Comprehensive Income (Unaudited - In thousands) Fiscal quarters ended July 3, 2021 July 4, 2020 Net earnings $ 93,381 $ 24,895 Other comprehensive income, net of tax Pension and other post-retirement actuarial items 2,020 1,760 Foreign currency translation adjustment 9,285 20,088 Other comprehensive income 11,305 21,848 Comprehensive income 104,686 46,743 Less: comprehensive income attributable to noncontrolling interests 189 242 Comprehensive income attributable to Vishay stockholders $ 104,497 $ 46,501 See accompanying notes. 7 VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Statements of Operations (Unaudited - In thousands, except per share amounts) Six fiscal months ended July 3, 2021 July 4, 2020 Net revenues $ 1,583,752 $ 1,194,558 Costs of products sold 1,151,531 916,648 Gross profit 432,221 277,910 Selling, general, and administrative expenses 209,585 188,959 Restructuring and severance costs - 743 Operating income 222,636 88,208 Other income (expense): Interest expense ( 8,819 ) ( 16,982 ) Loss on early extinguishment of debt - ( 4,066 ) Other ( 9,480 ) ( 1,286 ) Total other income (expense) ( 18,299 ) ( 22,334 ) Income before taxes 204,337 65,874 Income tax expense 39,313 13,595 Net earnings 165,024 52,279 Less: net earnings attributable to noncontrolling interests 397 407 Net earnings attributable to Vishay stockholders $ 164,627 $ 51,872 Basic earnings per share attributable to Vishay stockholders $ 1.14 $ 0.36 Diluted earnings per share attributable to Vishay stockholders $ 1.13 $ 0.36 Weighted average shares outstanding - basic 144,992 144,818 Weighted average shares outstanding - diluted 145,453 145,232 Cash dividends per share $ 0.19 $ 0.19 See accompanying notes. 8 VISHAY INTERTECHNOLOGY, INC. Consolidated Statements of Comprehensive Income (Unaudited - In thousands) Six fiscal months ended July 3, 2021 July 4, 2020 Net earnings $ 165,024 $ 52,279 Other comprehensive income (loss), net of tax Pension and other post-retirement actuarial items 3,884 3,361 Foreign currency translation adjustment ( 17,664 ) ( 3,041 ) Other comprehensive income (loss) ( 13,780 ) 320 Comprehensive income 151,244 52,599 Less: comprehensive income attributable to noncontrolling interests 397 407 Comprehensive income attributable to Vishay stockholders $ 150,847 $ 52,192 See accompanying notes. 9 VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Statements of Cash Flows (Unaudited - In thousands) Six fiscal months ended July 3, 2021 July 4, 2020 Operating activities Net earnings $ 165,024 $ 52,279 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 83,879 82,158 Gain on disposal of property and equipment ( 207 ) ( 43 ) Accretion of interest on convertible debt instruments - 7,125 Inventory write-offs for obsolescence 9,550 11,587 Deferred income taxes 519 ( 4,370 ) Loss on early extinguishment of debt - 4,066 Other 5,758 954 Change in U.S. transition tax liability ( 14,757 ) - Change in repatriation tax liability - ( 16,258 ) Net change in operating assets and liabilities ( 74,983 ) ( 12,589 ) Net cash provided by operating activities 174,783 124,909 Investing activities Capital expenditures ( 60,710 ) ( 48,832 ) Proceeds from sale of property and equipment 234 230 Purchase of short-term investments ( 27,488 ) ( 157,086 ) Maturity of short-term investments 53,679 108,044 Other investing activities 347 ( 529 ) Net cash used in investing activities ( 33,938 ) ( 98,173 ) Financing activities Repurchase of convertible debt instruments ( 300 ) ( 90,525 ) Net proceeds on revolving credit lines - - Net changes in short-term borrowings - ( 113 ) Dividends paid to common stockholders ( 25,216 ) ( 25,185 ) Dividends paid to Class B common stockholders ( 2,298 ) ( 2,299 ) Distributions to noncontrolling interests ( 800 ) ( 600 ) Cash withholding taxes paid when shares withheld for vested equity awards ( 1,963 ) ( 2,016 ) Net cash used in financing activities ( 30,577 ) ( 120,738 ) Effect of exchange rate changes on cash and cash equivalents ( 3,383 ) ( 201 ) Net increase (decrease) in cash and cash equivalents 106,885 ( 94,203 ) Cash and cash equivalents at beginning of period 619,874 694,133 Cash and cash equivalents at end of period $ 726,759 $ 599,930 See accompanying notes. 10 VISHAY INTERTECHNOLOGY, INC. Consolidated Condensed Statements 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, 2019 $ 13,235 $ 1,210 $ 1,425,170 $ 72,180 $ ( 26,646 ) $ 1,485,149 $ 2,540 $ 1,487,689 Cumulative effect of accounting change for adoption of ASU 2016-13 - - - ( 1,070 ) - ( 1,070 ) - ( 1,070 ) Net earnings - - - 27,219 - 27,219 165 27,384 Other comprehensive income - - - - ( 21,528 ) ( 21,528 ) - ( 21,528 ) Temporary equity reclassification - - 174 - - 174 - 174 Issuance of stock and related tax withholdings for vested restricted stock units ( 199,251 shares) 20 - ( 2,011 ) - - ( 1,991 ) - ( 1,991 ) Dividends declared ($ 0.095 per share) - - 18 ( 13,759 ) - ( 13,741 ) - ( 13,741 ) Stock compensation expense - - 2,998 - - 2,998 - 2,998 Repurchase of convertible senior debentures due 2041 - - ( 10,089 ) - - ( 10,089 ) - ( 10,089 ) Balance at April 4, 2020 $ 13,255 $ 1,210 $ 1,416,260 $ 84,570 $ ( 48,174 ) $ 1,467,121 $ 2,705 $ 1,469,826 Net earnings - - - 24,653 - 24,653 242 24,895 Other comprehensive income - - - - 21,848 21,848 - 21,848 Distributions to noncontrolling interests - - - - - - ( 600 ) ( 600 ) Issuance of stock and related tax withholdings for vested restricted stock units ( 13,141 shares) 1 - ( 26 ) - - ( 25 ) - ( 25 ) Dividends declared ($ 0.095 per share) - - 18 ( 13,761 ) - ( 13,743 ) - ( 13,743 ) Stock compensation expense - - 875 - - 875 - 875 Repurchase of convertible senior notes due 2025 - - ( 4,352 ) - - ( 4,352 ) - ( 4,352 ) Balance at July 4, 2020 $ 13,256 $ 1,210 $ 1,412,775 $ 95,462 $ ( 26,326 ) $ 1,496,377 $ 2,347 $ 1,498,724 Balance at December 31, 2020 $ 13,256 $ 1,210 $ 1,409,200 $ 138,990 $ 13,559 $ 1,576,215 $ 2,800 $ 1,579,015 Cumulative effect of accounting change for adoption of ASU 2020-06 (see Note 1) - - ( 66,078 ) 20,566 - ( 45,512 ) - ( 45,512 ) Net earnings - - - 71,435 - 71,435 208 71,643 Other comprehensive income - - - - ( 25,085 ) ( 25,085 ) - ( 25,085 ) Issuance of stock and related tax withholdings for vested restricted stock units ( 149,722 shares) 15 - ( 1,978 ) - - ( 1,963 ) - ( 1,963 ) Dividends declared ($ 0.095 per share) - - 20 ( 13,777 ) - ( 13,757 ) - ( 13,757 ) Stock compensation expense - - 4,120 - - 4,120 - 4,120 Balance at April 3, 2021 $ 13,271 $ 1,210 $ 1,345,284 $ 217,214 $ ( 11,526 ) $ 1,565,453 $ 3,008 $ 1,568,461 Net earnings - - - 93,192 - 93,192 189 93,381 Other comprehensive income - - - - 11,305 11,305 - 11,305 Distributions to noncontrolling interests - - - - - - ( 800 ) ( 800 ) Dividends declared ($ 0.095 per share) - - 20 ( 13,777 ) - ( 13,757 ) - ( 13,757 ) Stock compensation expense - - 828 - - 828 - 828 Balance at July 3, 2021 $ 13,271 $ 1,210 $ 1,346,132 $ 296,629 $ ( 221 ) $ 1,657,021 $ 2,397 $ 1,659,418 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, 2020. The results of operations for the fiscal quarter and six fiscal months ended July 3, 2021 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 2021 end on April 3, 2021, July 3, 2021, October 2, 2021, and December 31, 2021, respectively. The four fiscal quarters in 2020 ended on April 4, 2020, July 4, 2020, October 3, 2020, and December 31, 2020, respectively. Recently Adopted Accounting Guidance In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU No. 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . The ASU simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible debt instruments. The ASU reduces the number of accounting models available for convertible debt instruments, requires the use of the if-converted method for the calculation of diluted earnings per share for convertible debt instruments, and increases disclosure requirements. The Company adopted the ASU effective January 1, 2021 using a modified retrospective approach. Upon adoption, Company recorded a $ 66,078 decrease in additional paid in capital from the derecognition of the bifurcated equity component of the convertible debt instruments, a $ 59,246 increase in debt from the derecognition of the discount associated with the bifurcated equity component of the convertible debt instruments and a $ 20,566 increase to the opening balance of retained earnings, representing the cumulative interest expense, net of tax effects, recognized related to the amortization of the bifurcated conversion option. The adoption of the ASU did not have a significant impact on the diluted sharecount due to Vishay exercising existing rights to legally amend the indenture governing the convertible senior notes due 2025. See Note 5. Reclassifications Certain prior period amounts have been reclassified to conform to the current financial statement presentation. 12 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 2 – Leases The net right of use assets and lease liabilities recognized on the consolidated condensed balance sheets for the Company's operating leases were as follows: July 3, 2021 December 31, 2020 Right of use assets Operating Leases Buildings and improvements $ 102,214 $ 97,429 Machinery and equipment 5,212 5,011 Total $ 107,426 $ 102,440 Current lease liabilities Operating Leases Buildings and improvements $ 18,805 $ 19,370 Machinery and equipment 2,737 2,704 Total $ 21,542 $ 22,074 Long-term lease liabilities Operating Leases Buildings and improvements $ 89,446 $ 83,926 Machinery and equipment 2,434 2,294 Total $ 91,880 $ 86,220 Total lease liabilities $ 113,422 $ 108,294 Lease expense is classified in the statements of operations based on asset use. Total lease cost recognized on the consolidated condensed statements of operations is as follows: Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Lease expense Operating lease expense $ 6,248 $ 5,760 $ 12,400 $ 11,412 Short-term lease expense 428 225 753 419 Variable lease expense 66 6 193 29 Total lease expense $ 6,742 $ 5,991 $ 13,346 $ 11,860 The Company paid $ 12,176 and $ 12,867 for its operating leases in the six fiscal months ended July 3, 2021 and July 4, 2020, respectively, which are included in operating cash flows on the consolidated condensed statements of cash flows. The weighted-average remaining lease term for the Company's operating leases is 9.3 years and the weighted-average discount rate is 5.7 % as of July 3, 2021. The undiscounted future lease payments for the Company's operating lease liabilities are as follows: July 3, 2021 2021 (excluding the six fiscal months ended July 3, 2021) $ 11,475 2022 20,560 2023 17,899 2024 15,929 2025 14,653 Thereafter 67,251 The undiscounted future lease payments presented in the table above include payments through the term of the lease, which may include periods beyond the noncancellable term. The difference between the total payments above and the lease liability balance is due to the discount rate used to calculate lease liabilities. 13 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 3 – Restructuring and Related Activities I n 2019, the Company announced global cost reduction and management rejuvenation programs as part of its continuous efforts to improve efficiency and operating performance. The programs were primarily designed to reduce manufacturing fixed costs and selling, general, and administrative costs company-wide, and provide management rejuvenation. These programs are fully implemented. The Company incurred total charges of $ 24,882 , primarily related to cash severance costs, to implement these programs. The following table summarizes the activity to date related to this program: Expense recorded in 2019 $ 24,139 Cash paid ( 1,330 ) Foreign currency translation 35 Balance at December 31, 2019 $ 22,844 Expense recorded in 2020 743 Cash paid ( 10,813 ) Foreign currency translation 683 Balance at December 31, 2020 $ 13,457 Cash paid ( 9,962 ) Foreign currency translation ( 19 ) Balance at July 3, 2021 $ 3,476 The payment terms vary by country, but generally are paid in a lump sum at cessation of employment. Some payments are made over an extended period. The current portion of the liability is $ 2,326 and is included in other accrued expenses on the consolidated condensed balance sheet. The non-current portion of the liability is $ 1,150 and is included in other liabilities on the consolidated condensed balance sheet. 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 July 3, 2021 and July 4, 2020 reflect the Company’s expected tax rate on reported income 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. The Company adjusted its deferred tax balances by $ 12,127 upon the adoption of ASU No. 2020-06 on January 1, 2021, which was included in the cumulative-effect adjustment recorded to retained earnings. See Note 1. The Company recognized tax benefits of $ 3,881 and $ 8,276 due to changes in tax regulations during the fiscal quarter and six fiscal months ended July 3, 2021, respectively. During the six fiscal months ended July 3, 2021, the liabilities for unrecognized tax benefits decreased by $ 1,362 on a net basis, primarily due to a payment, statute expiration, and currency translation adjustments, partially offset by accruals for current year tax positions and interest. 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: July 3, 2021 December 31, 2020 Credit facility $ - $ - Convertible senior notes, due 2025 465,344 406,268 Convertible senior debentures, due 2040 - 130 Deferred financing costs ( 11,313 ) ( 11,512 ) 454,031 394,886 Less current portion - - $ 454,031 $ 394,886 The following table summarizes some key facts and terms regarding the outstanding convertible senior notes due 2025 as of July 3, 2021: Convertible Senior Notes Due 2025 Issuance date June 12, 2018 Maturity date June 15, 2025 Principal amount as of July 3, 2021 $ 465,344 Cash coupon rate (per annum) 2.25 % Nonconvertible debt borrowing rate at issuance (per annum) 5.50 % Conversion rate effective June 17, 2021 (per $1 principal amount) 31.9104 Effective conversion price effective June 17, 2021 (per share) $ 31.34 130% of the conversion price (per share) $ 40.74 Call date n/a Effective January 1, 2021, Vishay adopted ASU No. 2020-06. Upon adoption, Vishay derecognized the bifurcated equity component, debt discount, and deferred taxes and remeasured the deferred financing costs associated with its convertible debt instruments. See Note 1. The carrying value of Vishay's convertible debt instruments is now equal to the outstanding principal amount and interest expense is now equal to the cash interest paid. The remeasured deferred financing costs continue to be recognized as non-cash interest expense. Prior to December 15, 2024, the holders of the convertible senior notes due 2025 may convert their notes only 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; (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 senior notes due 2025 are not currently convertible. Upon conversion of the convertible senior notes due 2025, Vishay will satisfy its conversion obligations by paying $1 cash per $1 principal amount of converted notes and settle any additional amounts due in common stock. The quarterly cash dividend program of the Company results in adjustments to the conversion rate and effective conversion price for the convertible senior notes due 2025 effective as of the ex-dividend date of each cash dividend. The conversion rate and effective conversion price for the convertible senior notes due 2025 is adjusted for quarterly cash dividends to the extent such dividends exceed $ 0.085 per share of common stock. As of December 31, 2020, there were $300 of convertible senior debentures due 2040 outstanding. On January 5, 2021, Vishay gave notice to the holders of its convertible senior debentures due 2040 that Vishay would redeem the debentures on February 4, 2021. The redemption price was paid in cash and was equal to 100% of the principal amount plus accrued but unpaid interest to, but excluding February 4, 2021. 16 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The carrying value of the convertible senior notes due 2025 was $465,344 as of July 3, 2021. The carrying value of the liability and equity components of the convertible debt instruments prior to the adoption of ASU No. 2020-06 are reflected in the Company’s consolidated condensed balance sheet as follows: Principal amount of the debt instruments Unamortized discount Carrying value of liability component Equity component (including temporary equity) -net carrying value December 31, 2020 Convertible senior notes due 2025 $ 465,344 ( 59,076 ) $ 406,268 $ 66,127 Convertible senior debentures due 2040 $ 300 ( 170 ) $ 130 $ 121 Total $ 465,644 $ ( 59,246 ) $ 406,398 $ 66,248 Interest is payable on the convertible debt instruments semi-annually at the cash coupon rate. Prior to the adoption of ASU 2020-06 on January 1, 2021, the debt discount associated with the convertible debt instruments was 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. Interest expense related to the convertible debt instruments is reflected on the consolidated condensed statements of operations for the fiscal quarters ended: Contractual coupon interest Non-cash amortization of debt discount Other non-cash interest expense Total interest expense related to the debt instruments July 3, 2021 Convertible senior notes due 2025 $ 2,618 - 433 $ 3,051 July 4, 2020 Convertible senior notes due 2025 $ 3,266 3,479 435 $ 7,180 Convertible senior debentures $ 16 9 - $ 25 Total $ 3,282 $ 3,488 $ 435 $ 7,205 Interest expense related to the convertible debt instruments is reflected on the consolidated condensed statements of operations for the six fiscal months ended: Contractual coupon interest Non-cash amortization of debt discount Other non-cash interest expense Total interest expense related to the debt instruments July 3, 2021 Convertible senior notes due 2025 $ 5,236 - 866 $ 6,102 July 4, 2020 Convertible senior notes due 2025 $ 6,641 7,096 889 $ 14,626 Convertible senior debentures $ 60 29 - $ 89 Total $ 6,701 $ 7,125 $ 889 $ 14,715 Other non-cash interest expense includes amortization of deferred financing costs. Interest expense related to the convertible senior debentures was immaterial in 2021. 17 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 6 – Revenue Recognition Sales returns and allowances accrual activity is shown below: Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Beginning balance $ 34,449 $ 34,812 $ 39,629 $ 40,508 Sales allowances 22,043 19,224 45,839 41,856 Credits issued ( 15,350 ) ( 14,991 ) ( 43,796 ) ( 42,973 ) Foreign currency 120 387 ( 410 ) 41 Ending balance $ 41,262 $ 39,432 $ 41,262 $ 39,432 18 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 Total Balance at January 1, 2021 $ ( 77,075 ) $ 90,634 $ 13,559 Other comprehensive income before reclassifications - ( 17,664 ) $ ( 17,664 ) Tax effect - - $ - Other comprehensive income before reclassifications, net of tax - ( 17,664 ) $ ( 17,664 ) Amounts reclassified out of AOCI 5,323 - $ 5,323 Tax effect ( 1,439 ) - $ ( 1,439 ) Amounts reclassified out of AOCI, net of tax 3,884 - $ 3,884 Net other comprehensive income $ 3,884 $ ( 17,664 ) $ ( 13,780 ) Balance at July 3, 2021 $ ( 73,191 ) $ 72,970 $ ( 221 ) 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. 19 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. The service cost component of net periodic pension cost is classified in costs of products sold or selling, general, and administrative expenses on the consolidated condensed statements of operations based on the respective employee's function. The other components of net periodic pension cost are classified as other expense on the consolidated condensed statements of operations. Defined Benefit Pension Plans The following table shows the components of the net periodic pension cost for the second fiscal quarters of 2021 and 2020 for the Company’s defined benefit pension plans: Fiscal quarter ended July 3, 2021 Fiscal quarter ended July 4, 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Net service cost $ - $ 1,191 $ - $ 1,071 Interest cost 254 754 341 919 Expected return on plan assets - ( 419 ) - ( 491 ) Amortization of prior service cost 36 50 36 30 Amortization of losses 446 1,887 297 1,588 Curtailment and settlement losses - 202 - 231 Net periodic benefit cost $ 736 $ 3,665 $ 674 $ 3,348 The following table shows the components of the net periodic pension cost for the six fiscal months ended July 3, 2021 and July 4, 2020 for the Company’s defined benefit pension plans: Six fiscal months ended July 3, 2021 Six fiscal months ended July 4, 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Net service cost $ - $ 2,381 $ - $ 2,145 Interest cost 508 1,508 683 1,843 Expected return on plan assets - ( 836 ) - ( 986 ) Amortization of prior service cost 72 101 72 60 Amortization of losses 893 3,771 595 3,180 Curtailment and settlement losses - 401 - 460 Net periodic benefit cost $ 1,473 $ 7,326 $ 1,350 $ 6,702 20 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Other Postretirement Benefits The following table shows the components of the net periodic benefit cost for the second fiscal quarters of 2021 and 2020 for the Company’s other postretirement benefit plans: Fiscal quarter ended July 3, 2021 Fiscal quarter ended July 4, 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Service cost $ 26 $ 70 $ 28 $ 68 Interest cost 41 11 59 16 Amortization of losses (gains) 13 30 6 31 Net periodic benefit cost $ 80 $ 111 $ 93 $ 115 The following table shows the components of the net periodic pension cost for the six fiscal months ended July 3, 2021 and July 4, 2020 for the Company’s other postretirement benefit plans: Six fiscal months ended July 3, 2021 Six fiscal months ended July 4, 2020 U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans Service cost $ 51 $ 141 $ 56 $ 137 Interest cost 82 22 118 31 Amortization of losses (gains) 26 59 13 62 Net periodic benefit cost $ 159 $ 222 $ 187 $ 230 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 Company determines compensation cost for restricted stock units (“RSUs”) and phantom stock units 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 Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Restricted stock units $ 828 $ 875 $ 4,739 3,658 Phantom stock units - - 209 215 Total $ 828 $ 875 $ 4,948 3,873 The following table summarizes unrecognized compensation cost and the weighted average remaining amortization periods at July 3, 2021 (amortization periods in years) : Unrecognized Compensation Cost Weighted Average Remaining Amortization Periods Restricted stock units $ 5,057 1.0 Phantom stock units - n/a Total $ 5,057 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) Restricted Stock Units RSU activity under the 2007 Program as of July 3, 2021 and changes during the six 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, 2021 793 $ 18.90 Granted 319 22.07 Vested* ( 235 ) 18.79 Cancelled or forfeited - - Outstanding at July 3, 2021 877 $ 20.08 Expected to vest at July 3, 2021 877 * 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, 2022 174 - 174 January 1, 2023 152 - 152 January 1, 2024 165 - 165 Phantom Stock Units Phantom stock unit activity under the phantom stock plan as of July 3, 2021 and changes during the six 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, 2021 198 Granted 10 $ 20.89 Dividend equivalents issued 2 Outstanding at July 3, 2021 210 23 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 10 – Segment Information The following tables set forth business segment information: MOSFETs Diodes Optoelectronic Components Resistors Inductors Capacitors Corporate / Other* Total Fiscal quarter ended July 3, 2021 : Net revenues $ 167,937 $ 174,815 $ 75,795 $ 194,722 $ 85,539 $ 120,312 $ - $ 819,120 Gross profit $ 47,434 $ 41,757 $ 24,522 $ 57,929 $ 28,680 $ 28,950 $ - $ 229,272 Segment operating income $ 37,510 $ 36,120 $ 20,152 $ 51,365 $ 26,244 $ 23,686 $ - $ 195,077 Fiscal quarter ended July 4, 2020 : Net revenues $ 118,944 $ 124,187 $ 49,130 $ 140,412 $ 65,185 $ 83,859 $ - $ 581,717 Gross profit $ 26,978 $ 24,904 $ 11,728 $ 32,513 $ 20,252 $ 15,218 $ ( 923 ) $ 130,670 Segment operating income $ 17,602 $ 19,814 $ 7,948 $ 27,879 $ 17,713 $ 10,524 $ ( 923 ) $ 100,557 Six fiscal months ended July 3, 2021 : Net revenues $ 321,160 $ 331,993 $ 153,566 $ 381,324 $ 168,997 $ 226,712 $ - $ 1,583,752 Gross Profit $ 84,542 $ 76,173 $ 50,148 $ 111,902 $ 56,431 $ 53,025 $ - $ 432,221 Segment Operating Income $ 64,717 $ 64,941 $ 41,362 $ 98,741 $ 51,534 $ 42,549 $ - $ 363,844 Six fiscal months ended July 4, 2020 : Net revenues $ 235,837 $ 239,530 $ 103,309 $ 299,620 $ 138,970 $ 177,292 $ - $ 1,194,558 Gross Profit $ 55,130 $ 44,422 $ 26,313 $ 77,286 $ 43,239 $ 35,573 $ ( 4,053 ) $ 277,910 Segment Operating Income $ 36,260 $ 34,236 $ 18,634 $ 66,764 $ 38,023 $ 25,594 $ ( 4,053 ) $ 215,458 * Amounts reported in Corporate/Other above represent unallocated costs directly related to the COVID-19 pandemic, which are reported as costs of products sold on the consolidated condensed statements of operations. Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Reconciliation: Segment Operating Income $ 195,077 $ 100,557 $ 363,844 $ 215,458 Restructuring and Severance Costs - ( 743 ) - ( 743 ) Impact of the COVID-19 Pandemic on Selling, General, and Administrative Expenses - 747 - 430 Unallocated Selling, General, and Administrative Expenses ( 69,705 ) ( 59,761 ) ( 141,208 ) ( 126,937 ) Consolidated Operating Income $ 125,372 $ 40,800 $ 222,636 $ 88,208 Unallocated Other Income (Expense) ( 8,192 ) ( 11,060 ) ( 18,299 ) ( 22,334 ) Consolidated Income Before Taxes $ 117,180 $ 29,740 $ 204,337 $ 65,874 24 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The Company has a broad line of products that it sells to OEMs, EMS companies, and independent distributors. The distribution of sales by customer type is shown below: Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Distributors $ 492,809 $ 349,562 $ 916,934 $ 655,008 OEMs 277,418 190,799 572,055 451,928 EMS companies 48,893 41,356 94,763 87,622 Total Revenue $ 819,120 $ 581,717 $ 1,583,752 $ 1,194,558 Net revenues were attributable to customers in the following regions: Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Asia $ 347,343 $ 260,625 $ 669,803 $ 477,709 Europe 268,828 179,928 537,151 412,980 Americas 202,949 141,164 376,798 303,869 Total Revenue $ 819,120 $ 581,717 $ 1,583,752 $ 1,194,558 The Company generates substantially all of its revenue from product sales to end customers in the industrial, automotive, telecommunications, computing, consumer products, power supplies, military and aerospace, and medical end markets. Sales by end market are presented below: Fiscal quarters ended Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Industrial $ 322,133 $ 226,877 $ 592,934 $ 441,988 Automotive 247,029 133,834 503,002 335,777 Telecommunications 22,956 33,496 47,858 63,188 Computing 64,632 55,719 124,531 100,942 Consumer Products 43,609 22,571 84,404 43,124 Power Supplies 42,045 32,176 77,291 57,370 Military and Aerospace 43,173 41,451 84,711 85,386 Medical 33,543 35,593 69,021 66,783 Total revenue $ 819,120 $ 581,717 $ 1,583,752 $ 1,194,558 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 Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Numerator: Net earnings attributable to Vishay stockholders $ 93,192 $ 24,653 $ 164,627 $ 51,872 Denominator: Denominator for basic earnings per share: Weighted average shares 144,808 144,651 144,784 144,624 Outstanding phantom stock units 209 195 208 194 Adjusted weighted average shares 145,017 144,846 144,992 144,818 Effect of dilutive securities: Convertible debt instruments - 5 5 50 Restricted stock units 428 319 456 364 Dilutive potential common shares 428 324 461 414 Denominator for diluted earnings per share: Adjusted weighted average shares - diluted 145,445 145,170 145,453 145,232 Basic earnings per share attributable to Vishay stockholders $ 0.64 $ 0.17 $ 1.14 $ 0.36 Diluted earnings per share attributable to Vishay stockholders $ 0.64 $ 0.17 $ 1.13 $ 0.36 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 Six fiscal months ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Convertible debt instruments: Convertible Senior Notes, due 2025 - 18,321 - 18,704 Convertible Senior Debentures, due 2041 - 155 - 122 Weighted average other 317 387 317 356 If the average market price of Vishay common stock is less than the effective conversion price of the convertible senior notes due 2025, no shares are included in the diluted earnings per share computation for the convertible senior notes due 2025. Upon Vishay exercising its existing right to legally amend the indenture governing the convertible senior notes due 2025, Vishay will satisfy its conversion obligations by paying $1 cash per $1 principal amount of converted notes and settle any additional amounts due in common stock. Accordingly, the notes are not anti-dilutive when t he average market price of Vishay common stock is less than the effective conversion price of the convertible senior notes due 2025. 26 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 July 3, 2021 Assets: Assets held in rabbi trusts $ 58,326 $ 32,479 $ 25,847 $ - Available for sale securities $ 4,710 4,710 - - $ 63,036 $ 37,189 $ 25,847 $ - December 31, 2020 Assets: Assets held in rabbi trusts $ 57,892 $ 34,145 23,747 $ - Available for sale securities $ 4,917 4,917 - - $ 62,809 $ 39,062 $ 23,747 $ - 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. 27 NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) The Company holds 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 period. The fair value measurement of the investments is considered a Level 1 measurement within the fair value hierarchy. The Company enters into forward contracts with highly-rated financial institutions 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 $ 100,000 as of July 3, 2021 and December 31, 2020. The forward contracts are short-term in nature and are expected to be renewed at the Company's discretion 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 hierarchy. The value of the forward contracts was immaterial as of July 3, 2021 and December 31, 2020. 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 July 3, 2021 and December 31, 2020 is approximately $ 494,800 and $ 491,400 , respectively, compared to its carrying value, excluding the deferred financing costs, of $ 465,344 and $ 406,398 , 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 July 3, 2021 and December 31, 2020, 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 July 3, 2021 and December 31, 2020, 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 and accounts payable. The carrying amounts for these financial instruments reported in the consolidated condensed balance sheets approximate their fair values. 28